While the United States does not have a value-added tax (VAT), most countries throughout the world do, including EU (European Union) member countries.
This broad-based consumption tax is levied on goods as they move through the supply chain, from production to final sale. The consumer ultimately pays the full tax, but each business that adds value to the product may be responsible for collecting and remitting VAT as well.
The EU has VAT guidelines and rules that apply across the union, but individual countries within the EU do have some flexibility in setting their own rules, including the ability to establish their own tax rates.
This guide explains the details of VAT in Bulgaria for companies located in or doing business there.
How VAT works in Bulgaria
In Bulgaria, VAT is called danŭk vŭrkhu dobavenata stoĭnost (DDS). Bulgarian businesses and foreign companies doing business in Bulgaria may be required to register and pay VAT.
VAT rates
There are three different tax rates applied to goods and services in Bulgaria:
- The 20% standard rate applies to all goods and services that are not exempt or subject to the reduced or 0% rate.
- The 9% reduced VAT rate applies to certain goods and services, including newspapers, journals, and hotel accommodations.
- The 0% rate applies to intra-community supplies and to international passenger transit.
Certain goods and services are exempt from VAT, including most types of educational programs, as well as insurance and financial services.
Registering for VAT
Bulgarian companies and foreign companies selling within Bulgaria may be required to register for VAT with the Bulgarian National Revenue Agency, but requirements can vary.
Who needs to register
Resident businesses in Bulgaria, as well as businesses storing products in Bulgaria or participating in a Fulfilled By Amazon program in order to sell products in Bulgaria, must register if they exceed the turnover threshold of BGN 100,000 in any 12-month period.
Bulgarian law has no minimum threshold for businesses outside of Bulgaria that sell to Bulgarian customers. However, the EU requires registration once cross-border sales to Bulgaria exceed €10,000. Sellers can choose to participate in the One-Stop Shop (a portal that allows businesses to manage their VAT obligations in all EU member states — more on this later) or register with the Bulgarian authorities.
How to register
You can download an application from the Bulgarian National Revenue Agency to apply for a Bulgarian VAT number. Companies that are engaged in distance selling can submit the form to the main tax office in Sofia, while resident companies can submit it to their local tax office.
Working with a tax representative in EU countries
Any non-EU business that is subject to registration requirements must have a fiscal representative — a local representative that is jointly liable for compliance with VAT obligations in Bulgaria, along with the non-EU business.
When to charge tax
You may need to charge tax when selling into Bulgaria if:
- You are subject to Bulgaria’s registration requirements, or are participating in the One-Stop Shop or the Import One-Stop Shop.
- The reverse charge mechanism does not apply.
- You are not selling with a marketplace facilitator or deemed seller.
- Your goods or services are taxable, and the transaction is a taxable one.
EU countries have varying rules on which products are taxable, as well as which products are exempt or subject to a reduced or 0% rate. So don’t assume that because an item is, or is not taxable in another country impacts whether it is taxable when selling within Bulgaria or to Bulgarian customers.
Reverse charges
The general rule throughout the EU is that a supplier or seller charges VAT on goods or services it sells, and subtracts VAT on purchases it makes. But the reverse charge mechanism in the EU simplifies cross-border sales by reversing this process.
Under the reverse charge mechanism, a registered business pays the VAT due instead of the distant seller. The seller provides the invoice without VAT listed and doesn’t collect VAT during the sales transaction. The buyer calculates the VAT due, reports it on their own VAT return, and then claims any deductions they are eligible for at the time.
This can mean sellers do not always have to register for VAT if the reverse charge mechanism applies and the registered business receiving the items reports and collects the VAT due.
B2B vs. B2C
Because businesses file their own VAT returns and pay VAT directly, B2B transactions are treated differently from B2C transactions.
For example, the reverse charge mechanism can sometimes make buyers, not suppliers, responsible for VAT compliance for the sales of goods and services, but only for B2B transactions, while the One-Stop Shop scheme is intended to simplify the VAT process for B2C sales as much as possible.
Marketplace facilitators
In Bulgaria and throughout the EU, there are situations where third-party marketplaces that facilitate sales become responsible for fulfilling VAT obligations. If you are selling your goods or services through one of these marketplaces, then you may not have to charge VAT on those transactions.
The marketplace becomes responsible for VAT on these sales if it is a deemed seller, which means that it is treated as the seller since it plays an instrumental role in the transaction. For example, it might feature its own brand more prominently than the seller’s, or it may take responsibility for arranging the delivery of goods, handling customer support, and charging customers.
Sites like Amazon and eBay are examples of deemed sellers, while other sites, including simple payment processors like Stripe, are not considered deemed sellers but are just intermediaries. You should find out from the marketplace where you are selling items if they are acting as a deemed seller because, if so, you won’t have to manage VAT on those transactions.
VAT deductions
Input VAT is deductible by Bulgarian registered businesses when they file VAT returns, provided that the company has a VAT-compliant invoice and the transactions the company is deducting the VAT for are directly related to the company’s taxable activity.
Bulgaria’s “cash accounting regime”
Bulgaria offers an optional cash accounting scheme that smaller companies, called small and medium-sized enterprises (SMEs) can take advantage of as long as they are selling to VAT-taxable persons or entities.
Under this regime, some smaller companies can choose to account for VAT when they receive a payment from customers, instead of when they issue an invoice. This offers more flexibility to manage cash flow. However, there are restrictions on which companies are classified as SMEs and eligible for this process.
Statute of limitations
The statute of limitations in Bulgaria is five years from January 1 of the year after the year when the tax was due. Once this has expired, Bulgaria can’t take legal action to collect on old VAT obligations.
Staying compliant with Bulgarian VAT regulations
Staying compliant with Bulgarian VAT regulations involves understanding the rules and deadlines for creating invoices, filing VAT forms, and keeping records. Here are the key rules you need to know to ensure you’re doing business in accordance with the rules.
Invoicing requirements
Bulgaria imposes strict requirements on invoicing for VAT transactions. Invoices must contain key information, including:
- The date the invoice was issued.
- A unique invoice number.
- The supplier’s VAT number and the customer's VAT ID or BULSTAT number.
- The customer's and supplier’s full name and address.
- A complete description of the provided goods and quantities.
- Unit prices, if applicable.
- The date when the item was supplied.
- The supply’s net taxable value.
- VAT rates broken out by rate, along with details on exemptions, reverse charge, or zero rate.
- The gross total invoice amount.
Filing VAT returns
Businesses are required to file monthly VAT returns in Bulgaria, and they must be submitted via the NRA portal.
Filing deadlines
Registered companies must submit VAT returns and payment by the 14th day of the month following the month of the taxable transaction.
Record-keeping requirements
Businesses should keep VAT records for 10 years in Bulgaria. This includes:
- Invoices
- Financial records
- Statements
Risks of noncompliance
Failure to comply with VAT laws in Bulgaria can lead to penalties and consequences, including reputational damage, audits, and fines and fees (including interest charges).
If you become interested in selling your company or seeking investors, having unresolved tax liabilities could also be an obstacle.
You do not want to risk an unexpected and costly audit that leads to large fees, fines, and interest charges on unpaid VAT. You should make sure to stay in compliance with Bulgaria’s VAT requirements to avoid these undesirable outcomes.
Tips on how to stay compliant
Registering for EU programs aimed at simplifying cross-border sales is an obvious first step, and if you sell directly to consumers, this may mean participating in the One-Stop Shop or Import One-Stop Shop scheme.
Exploring software solutions can also be helpful, as there are options out there aimed at helping companies selling in multiple countries to follow the rules for all of the different types of consumption tax (such as sales tax or VAT) that they might encounter.
One-Stop Shop and Import One-Stop Shop
As an EU member state, Bulgaria participates in the One-Stop Shop (OSS) and Import One-Stop Shop (IOSS) programs, which were introduced in July 2021 and aimed at simplifying VAT collection for B2C transactions.
OSS applies to intra-EU sales, while IOSS applies to imports valued at €150 or less. Under both programs, sellers can register with one EU member country, charge sales tax to customers at the time of purchase, and file and pay VAT with one simple form through their registered country's platform for distribution to the appropriate EU member.
OSS and IOSS both allow companies to avoid having to register for VAT in every EU country where they meet the transaction requirements. Participating can make compliance much simpler.
Software solutions
If you’re overwhelmed with trying to understand the rules in Bulgaria and other locations where you do business, Numeral can help.
Numeral allows you to fulfill VAT and sales tax obligations effortlessly, spending as little as five minutes per month on these tasks. That’s because Numeral takes care of tracking when you must register, registering, completing required forms, collecting the right tax, and remitting required amounts on time.
Numeral even deals with tax correspondence on your behalf, so you can focus on your business instead of sales tax technicalities.
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Final thoughts
While EU rules and programs like reverse charge and the One-Stop Shop are meant to simplify VAT compliance for companies selling to customers and businesses in multiple countries, complying with sales tax rules in Bulgaria and other locations can still be complicated.
You don’t want to be penalized for failure to follow all of the rules applicable to your business, so get help from Numeral today. Contact us to learn more about the sales tax support we can offer in Bulgaria, throughout the EU, and beyond.
