Tax treatment of the funds received for the performance of a contract for management and maintenance of property

tax treatment contract property

When executing a contract for property management and maintenance in Bulgaria, a question arises for the tax treatment of the funds received by the company which manages and maintains the property in connection with the contract.

Most often, such a situation arises when a contract is concluded between a company and an individual (client) for services related to the management and maintenance of a property (the client’s property). In this type of contract, the company, against a payment from the client, arranges payment of his expenses related to the property, including: local taxes; electricity and water bills; contributions under the Law on the Management of Condominium Property.

For the purpose of managing and maintaining the property, the client usually transfers to the company’s bank account a sum that includes the property taxes, the electricity and water bills, the condominium maintenance contributions, as well as the expenses for the service. The purpose of the transferred funds is more easily proven if the payment order for the bank transfer explicitly states what part of the sum is for costs under the contract and what part is for the company’s remuneration.

One of the basic accounting principles on the basis of which financial statements are prepared and presented is comparability between income and expenses. The income related to the contract for the provision of services is recognized depending on the stage of completion of the contract as of the balance sheet date. Current and advance payments from customers are not income if the criteria for recognizing income from the service rendered are not met.

The sums collected, which are spent to cover various expenses related to the management and maintenance of the property, are foreign funds and do not represent income for the company when they are paid, nor an expense for the company when it pays the suppliers of electricity and water, for elevator maintenance, repairs, renovation and more.

In connection with the taxation, it is important that the accounting financial result and then the tax financial result of the company are determined correctly.

For consultation regarding taxation, you can contact our experts.

Leave a Reply

Your email address will not be published. Required fields are marked *