Foreign legal entities that carry out economic activity in Bulgaria through a place of economic activity, dispose of property in such a place of economic activity or receive income from a source in Bulgaria are taxable persons under the Corporate Income Tax Act and should form a tax financial result.
From 01.01.2020 in Bulgaria the rules for tax regulation are applied in case of transfers between a part of one enterprise located in the country and another part of the same enterprise located outside the country, which rules have been introduced in connection with the application of Directive (EU) 2016/1164 of the Council of 12 July 2016 laying down rules against tax avoidance practices which directly affect the functioning of the internal market (Directive 2016/1164).
In the case of a transfer of assets from another part of the enterprise located outside the country to one located in the country, other rules apply. According to the same, in case of transfer of a tax depreciable asset from a part of the enterprise located outside the country to a part of the enterprise located in the country, the tax depreciable value with which the asset is entered in the tax depreciation plan is its market price at the time of transfer. Where there is a difference between the market price determined in the other State and the market price determined by the revenue authority, the market price determined by the revenue authority shall apply. The tax depreciation for this transferred asset in the future will be recognized up to the amount of the formed tax value based on the market price at the time of the transfer.
The tax depreciation plan is prepared and maintained by the taxable persons, which form a tax financial result. In practice, these are the persons who are subject to corporate tax, including the places of business of foreign persons.
Unless a special order is provided, the asset should be allocated according to its type in one of the following categories:
– massive buildings, including investment properties, facilities, transmission devices, electricity carriers, communication lines;
– machines, production equipment, apparatus;
– vehicles, without cars; road and runway coverage;
– computers, their peripherals, software and software rights, mobile phones;
– tax tangible and intangible assets for which there is a limited period of use according to contractual relations or a legal obligation;
– all other depreciable assets.
The annual tax depreciation norms are determined once for the year and up to the amount of the maximum admissible values, determined in the law.
For the purposes of the Accounting Act, foreign legal entities that carry out economic activity in Bulgaria through a place of economic activity are included in the category “enterprises” within the meaning of the law. Exceptions are cases where the economic activity is carried out by a foreign person from a Member State of the European Union or from another state party to the Agreement on the European Economic Area, only under the conditions of free provision of services.
In view of the above, the rules set out in the Accounting Act also apply to the places of business of foreign companies in Bulgaria. The enterprises in Bulgaria carry out the current accounting on the basis of the Accounting Act and the applicable accounting standards. This means that depending on their accounting policy, foreign companies with a place of business in Bulgaria should determine accounting depreciation rates that correspond to the useful life of the asset, and accordingly accrue accounting depreciation costs.
When determining the tax financial result, the annual tax depreciation is recognized. On the other hand, the depreciation expenses are not recognized for tax purposes. Also, accounting income, expenses, gains or losses reported in connection with the transfer of assets / activities between parts of the same enterprise in the country and abroad are not recognized for tax purposes.
For advice in connection with the transfer of fixed assets to a place of business in Bulgaria you can contact our experts.