Requirements for the documents with which a Bulgarian company is exempted from double taxation

documents double taxation

When providing services to foreign clients, Bulgarian companies find themselves in a situation where they must document the payment of taxes abroad to the Bulgarian tax authorities.

This obligation arises from the commercial relations of Bulgarian companies with foreign clients, where services are provided in Bulgaria and abroad. Clients deduct a withholding tax for the services provided and often issue documents that are not certified by the relevant foreign tax administration.

In these cases, the question arises whether the application of such documents before the National Revenue Agency of the Bulgarian company can be used to recover the tax and in what way this can be done.

Pursuant to the Law on Corporate Income Taxation, taxable persons attach to the annual tax return evidence of the amount of taxes paid abroad. This requirement does not apply to profits/income from a foreign source in respect of which a treaty for the avoidance of double taxation provides for a method of avoiding double taxation „exemption with progression“.

In the general case, however, for the taxes paid abroad, the taxable persons must submit evidence, as the law does not indicate or specify the type of such evidence. Therefore a wide range of evidence can serve to fulfill this requirement, such as data, reports, documents, papers, information carriers and other evidence.

It often happens that the document submitted by the taxable person has the characteristics of a declaration by the payer of the income regarding the amounts of tax withheld and imported abroad.

As indisputable proof of the type and amount of tax paid, a certificate issued by the foreign tax administration or, respectively, a certification of a document presented in this way, having the characteristics of a declaration, would serve.

It should be borne in mind that upon request by a revenue authority, the entity is obliged to present a document drawn up in a foreign language, accompanied by an accurate translation into Bulgarian, carried out by a sworn translator. In cases where the document is not presented with an accurate translation within the specified period, the revenue authority may perform a translation at the expense of the subject.

In view of the above, provided that a Bulgarian company has realized income from fees for services provided by it, for which it was taxed in the foreign country in accordance with the relevant agreement for the avoidance of double taxation, for the tax thus withheld and paid, with the aim of eliminating the double taxation, the company can apply the ordinary tax credit method.

In this case, in the annual tax return, it is necessary to be filled in the amount of the recognized tax credit for the tax withheld abroad. The declaration must also describe and attach the documents that are evidence of the withholding tax withheld and remitted in the foreign country.

For consultation regarding the submission of declarations, you can contact our experts.

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