Advance payments in accordance with VATA

Advance payments are a key component of the Value Added Tax Act (VATA) in Bulgaria, due to the fact that they have a direct relation to the VAT charging obligation and with the tax credit deduction rights. Here is a short overview of the types of advance payments and their relationship with invoice issuance as well as the rights for tax deduction for advance payments and the deposits made as such payments:

The rules for VAT charging on advance payments are contained in Art. 25 (7) of VATA.  In general, the rule is that when an advance payment for a product or service is made (in full or in part) prior to the supply, the VAT is chargeable upon the receipt of the payment.

The person paying for the supply is accountable for charging VAT on the date of the actual chargeable event. On this date charging the exempt supplies becomes exempted as well.

There are special cases when advance payment is not VAT chargeable – when the payment is for intra-EU acquisitions and intra-EU supplies. In these cases, Art. 51 (3) of VATA states that the tax is chargeable on the 15th day of the following month after the transaction actually occurs, except in the cases when the invoice for the payment has been issued before the actual date of the chargeable event. The provisions from Art.63 of VATA in regard to intra-EU purchases are equivalent.

Also, when advance payments are received prior to VATA registration, according to Art.25 (4) of VATA, when supplies which are made periodically or continuously, each supply is considered as a separate one and the chargeable event occurs on the date when the payment is executed. According to Art.12 (4) of RAVATA (Regulations for the Application of VATA) in cases like this the tax is chargeable upon payment receipt. These same provisions also apply to the deliveries of goods based on lease contracts in which the requirements from Art.6 (2) Item 3 are not fulfilled.

Advance payment forms

The usual form of advance payments is monetary, but such payments can be made via vouchers, receipts for purchases, tokens, coupons and other money substitutes. Assumption of debt as well as offsetting assignments are also eligible as advance payment forms.

According to Art.26 (7) of VATA, the basis for the taxation of every supply at the day of the chargeable event in the cases when the payment is done in whole or partially for the supply of goods or services is the open market value of the goods or services, calculated at the date of the transaction. In case the tax cannot be calculated in this manner, the market price is taken into consideration instead.

The relationship between invoice issuing and advance payments

If an invoice is issued this does not necessarily mean that a taxable chargeable event has actually occurred. Actually, a tax document has to be issued within 5 days of the chargeable event. This is why it is not advisable to issue a tax document prior to receiving the payment for the product or service.

In accordance to VATA, advance payments are not considered a chargeable event at the same time, according to Art.25 (7) of VATA, the tax for such a payment becomes chargeable at the date of reception. This means that an invoice has to be issued up to 5 day after an advance payment is received. When the actual supply is done, an invoice for the entire cost including the advance payment made has to be issued. The declaration also needs to state the total cost for the supply.

When tax credit can be deducted for advance payments

According to Art.68 of VATA a registered person has the right to deduct their tax credit from their tax liabilities. The tax document which is issued based on an advance payment can be used for such a deduction. The right for deduction cannot be exercised when the advance payment is for intra-EU trade deals.

Deposits made as advance payments

Art.93 of the OCA (Obligations and Contracts Act) stipulates that when a deposit is made it serves as proof for a contractual agreement between two parties and ensures the execution of the contract. The deposit is considered as a partial advance payment when it comes to taxation laws. In case that the deposit cannot be identified as part of the payment for a supply – it is not considered an advance payment and thus is not subject to VAT taxation for that payment.

If a non-registered person has paid a deposit as a form of an advance payment for the taxable supply in the country and if the total supplies made by this person amount to or exceed BGN 50,000 for the last 12 consecutive months, that person is subject to obligatory registration under VATA.

Advance payments which are received before VATA registration

Advance payments are of importance when they are part of the realization of a taxable turnover of the amount which triggers the compulsory registration of the person under VATA. According to art.25 (8) of VATA if an unregistered person receives an advance payment prior to registering, this advance payment will include chargeable tax on the date of the supply. This requirement is implemented in order to prevent tax avoidance of people who are in the process of VATA registration. An invoice must be issued for the total amount including the advance payment and the VAT.

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