In Brief

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December 7, 2018

 

Latest  amendments to the Individuals’ Income Taxes Act

 

The latest amendments to the Individuals’ Income Taxes Act (IITA) were promulgated in issue 98 of the State Gazette dated 27 November 2018 by means of the Law on Amendment and Supplementation (LAS) of the Corporate  Income Tax Act (IITA).

The amendments of IITA are related to rights and obligations of the taxable persons as well as to deadlines for their use/fulfillment, namely:

  1. By means of amendment and supplementation to Art. 22a, 22c and 22d, IITA introduces a change in the regime for using tax relief for young families, for children, and for disabled children, according to which there is no longer an obligation to attach to the annual tax return under Art. 50 of IITA a declaration by the other spouse/parent that they would not be obtaining the same relief.

A sanction is envisaged for failure to comply with the law’s provision and use of the tax relief by both parents, corresponding to the amount of the relief unduly applied.

In cases when the tax relief amount exceeds the amount of annual tax bases under Art. 17 of IITA and the relief may not be used in full by one of the parents, a possibility is introduced for the difference to be used by the other parent, respectively the other foster parent, close person or relative.

These amendments shall also be applied for tax relief entitlement for 2018.

  1. For the purpose of equal treatment of the tax return forms submitted under Art. 50 of IITA by 30 April and the corrective tax returns which are submitted by 30 September, a supplement was made to Art.23, Para 2 of IITA. According to the amended text of the law, taxable persons shall be entitled to tax relief only if they have no liabilities subject to forced execution as at the date of filing of the corrective tax return under Art. 53, Para 2 of PITA.

This requirement shall be applied for the submission of corrective tax returns by 30 September 2019 and for future periods. 

  1. There is a new procedure for the taxation of taxable awards provided in cash and in kind from games, competitions and contests, which have not been granted by an employer or assignor, and the income received is excluded from the taxable income from other sources under Art. 35 of IITA and added to the income taxable with a final tax (new Para 14 to Art. 38 of IITA).

The final tax on the gross amount of the taxable awards provided in cash and in kind from games shall be withheld and deposited by the entity or by the self-insuring individual who is payer of the income, by the end of the month following the quarter in which the income was received by the individual.

An amendment is introduced to the definition of “awards provided in kind of insignificant value” to define as non-taxable in-kind awards those, whose market value is up to BGN 100 (§ 1, item 62 of the Additional Provisions to IITA). Prior to the amendment, the threshold for in-kind awards of insignificant value was up to BGN 30.

Final tax shall also be charged for taxable income received by individuals not registered as farmers, which has been received in the form of state aids, subsidies and other support from the European Agricultural Guarantee Fund, the European Rural Development Fund, or from the state budget (Art. 38, Para 15 of IITA).

The final tax shall be withheld and paid by the administrator of the respective grant by the end of the month following the quarter in which the income was received.

As from 1 January 2019, the benefits quoted in this item shall be taxed with a final tax of 10%.

  1. By means of amendments to Art. 45 of IITA, a concept has been introduced for abolishing the obligation for income payers (entities and self-insuring individuals) to issue income certificates. Income certificates shall only be issued upon request by the employee/worker/income recipient (for instance, income received from other business activities, rental income or income from other sources). Pursuant to this, Art. 50, Para 4 of IITA is repealed, abolishing the requirement for attaching income certificates to individuals’ annual tax returns.

If an entity’s business activities are terminated and it has no legal successor, any income certificates requested shall be issued by the last person representing the employer or by the respective territorial division of the National Social Security Institute.

Income certificates shall be prepared and submitted within 14 days following the income recipient’s request. An income payer which upon request fails to issue or present to the income recipient the income certificate under Art. 45 IITA shall be subject to a fine or pecuniary sanction of up to BGN 250, unless subject to more serious penalty.

The obligation remains for entities and self-insuring individuals who are payers of income from other business activities under Art. 29 IITA or rental income, or income from other provision for use of rights and property against consideration under Art. 31 IITA, to issue a standard form certificate for paid amounts of income and advance tax withheld under Art. 43 and Art. 44 IITA. Like before, if an individual who receives income is a self-insuring one pursuant to the Social Security Code (SSC) and has declared this fact to the income payer, then the latter shall not be obliged to issue a certificate for paid amounts.

The amendments shall be applied for income paid after 31 December 2018. The obligation of individuals to attach income certificates to their 2018 annual tax returns shall be preserved. Pursuant to that, with respect to income paid in 2018, the previous edit of Art. 45 of IITA shall be applied.

  1. New Para 5 has been added to Art. 48 of IITA, according to which the tax relief for non-cash payments under Art. 22e, Para 2 of IITA shall be deducted from the amount of tax due on the total annual tax base.

A supplement has also been made to Art. 48, Para 8 of IITA, regulating the rounding of tax in the annual tax return to a whole lev after deductions of tax relieves and withholdings, and applying discounts.

The amendments shall also be applied when declaring 2018 income in the annual tax return under Art. 50 of IITA.

  1. In the annual tax return under Art. 50 of IITA, local individuals shall be obliged to declare also the final tax due on income obtained from sources abroad from awards provided in cash and in kind from games, competitions and contests, which were not provided by their employer or assignor (Art. 50, Para 1, item 3, letter “c” of IITA).

The amendments shall be applied when declaring income realised after 1 January 2019 in the annual tax return under Art. 50 of IITA.

  1. The amendment to Art. 51, Para 2 of IITA states that the individuals who perform business activities as traders pursuant to the Commercial Act, including sole traders, as well as persons registered as farmers who have elected to be taxed as sole traders, shall not submit an annual business activity report when during the tax year they did not perform business activity within the meaning of the Accountancy Act (§ 1, item 30 of the Additional Provisions of AA). This means that the following conditions need to be simultaneously met for the individuals:

 

а) during the reporting period, they did not execute transactions under Art. 1, Para 1 of the Commercial Act;

  1. b) during the reporting period, no conditions arose for income recognition under the Accountancy Act and the applicable accounting standards;
  2. c) they did not perform business activities related to investment, production and/or sale;
  3. d) they did not make purchases of goods and services with the purpose to receive income and profit.

The amendment shall be also applied for 2018.

  1. A start date has been introduced for the submission of the annual tax return under Art. 50 of IITA. As a result, the submission period has been changed to 10 January – 30 April of the year following the year of acquiring the income.

The amendment shall also be applied to the submission of annual tax returns for 2018.

In 2020, individuals shall be entitled to a 5% discount on the tax payable under Art. 53, Para 6 of IITA, if the annual tax return for 2019 was submitted electronically by 31 March 2020. 

To be entitled to discount on the tax payable under Art. 50 of IITA for 2018, the deadline for electronic tax return submission in the previous edition of the law shall be preserved, namely by 31 January 2019. 

A new Para 7 of Art. 53 of IITA has been added, according to which the annual tax return of self-insuring individuals pursuant to SSC shall only be submitted electronically. 

The provision shall be applicable for tax returns of self-insuring individuals whose obligation for submission arises after 31 December 2019.

  1. An amendment to Art. 73 of IITA extends the scope of information and reports that income payers are obliged to provide pursuant to this article. The reports under Art. 7 shall include not only the income paid during the year, but also the mandatory social security contributions withheld.

According to the amendment of Art. 73, Para 6 of IITA, employers shall also prepare a standard form report, on the taxable employment income paid during the year and the tax and mandatory social security contributions withheld. The report shall also include information related to determining the annual tax base and the annual tax of individuals to whom as at 31 December of the tax year the employer was employer under primary employment relation. So far, it was not required to present information about income from employment relations in the reports prepared under Art. 73 of IITA. The changes are related to the abolishing of the requirement for attaching income certificates for income paid and taxes withheld to individuals’ annual tax returns.

There has also been a change in the deadline for submission of the reports under Art. 73 of IITA – from 15 March to 28 February of the next year, as well as in the method of submission – electronically only. An option has been introduced to correct errors in reports submitted by 30 September of the year in which the information was provided.

Pursuant to the amendment to Art. 73a, Para 5 of IITA, reports under Art. 73a of IITA shall also only be submitted electronically.

The amendments to Art. 73 and Art. 73a of IITA shall be applicable for reports due for submission after 31 December 2019.

  1. An amendment has been made to the text of Art. 56, Para 2 of IITA, according to which besides entities which are income payers, self-insuring individuals pursuant to the SSC shall also submit declarations on taxes due under Art. 55, Para 1 of IITA only electronically.

The amendment shall not be applied for declaring the taxes due for 2018, i.e. self-insuring individuals could submit declarations under Art. 55, Para 1 of IITA for the fourth quarter of 2018 on a hard copy, as well.

  1. An amendment has been made to the text of Art. 65, Para 3 of IITA in relation to the final tax on dividend income in the form of hidden profit distribution. The tax shall be withheld and paid by the entity which is the income payer, by the end of the month following the quarter in which the hidden profit distribution was made (rather than upon accrual of the respective amounts, which was the previous wording of the provision).

The new wording of Art. 65, Para 3 of IITA shall be applied for hidden profit distribution made after 31 December 2018.

  1. An amendment has been made to the definition of “practising of skilled craft”, defining this activity as the manufacture of articles or the provision of services by an individual practising skilled craft under the Skilled Crafts Act who is not registered as a sole trader.

 

The material herein is not exhaustive, is only of general nature and does not represent a specific advice or consultation. Should any additional questions arise please do not hesitate to contact us at tel.: 02/943 37 00, fax: 02/943 37 07, е-mail: office@afa.bg or at: 38, Oborishte Str., Sofia 1504.

 

 

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