When registering a branch of a foreign trader in Bulgaria, a question arises whether the expenses for travel and business trips of the managers of the foreign trader, which are reported in Bulgaria, are subject to tax credit deduction.
Tax credit is the amount of the tax that a VAT-registered person is entitled to deduct from his tax obligations for:
– goods or services received from him on taxable delivery;
– a payment made by him before the tax event for a taxable supply has occurred;
– import carried out by him;
– tax due from him as a payer.
The right to deduct a tax credit is available for goods and services whose provision is for the needs of the person’s independent economic activity.
The right to deduct a tax credit is not available when:
– the goods or services are intended for free supplies or more generally for activities other than the economic activity of the person;
– the goods or services are intended for representational or entertainment purposes.
Given the above, the received services related to the overnight stays of the managers of a foreign company and the travel expenses incurred by the managers for the purposes of the branch in Bulgaria are considered to be related to the independent economic activity of the company, when:
– by means of the same, the presence of the managers is ensured in order to carry out ongoing control of the activity of the branch of the company, making decisions in connection with arising cases and ensuring the presence of the managers where necessary;
– the personal participation of the managers is directly related to the economic activity of the company and is used for the purposes of taxable supplies made by the branch.
In this aspect, it should be assumed that there is no limitation of the right to deduction of tax credit, as far as expenses for travel and business trips are related to the independent economic activity of the company. This rule is not applicable when the residence of the persons is not related to the implementation of the specified activities. When these persons reside in Bulgaria for a longer period and on behalf of the branch of the company, expenses are incurred to meet their housing needs, it is assumed that the provided services are related to the personal needs of the relevant persons, and not to the independent economic activity of the branch of the foreign company in Bulgaria. In these cases, no tax credit can be deducted for the mentioned expenses.
For consultation regarding the tax treatment of expenses for travel and business trips, you can contact our experts.