In Focus

Amendments to the Value Added Tax Act for year 2022

March 10, 2022

Amendments to the Value Added Tax Act for year 2022

In State Gazette, issue 14 of 18 February 2022, the Law on Amendment and Supplementation to the Value Added Tax Act (LAS VATA) was published. The amendments aim to transpose into Bulgarian legislation the provisions of several European directives, to eliminate discrepancies with EU legislation and take into account the practice of the European Court of Justice (ECJ). The law is effective as from the promulgation date, except for few provisions, as specified herein below.

The significant amendments can be summarised, as follows:

1. Amendment to the provisions regarding food vouchers

Until now, pursuant to Art. 131c, para 2, item 3 of VATA, food vouchers were excluded from the scope of vouchers for which the provisions of Art. 131a and Art. 131b of VATA were applied. In other words, these vouchers were not treated as single-purpose or multi-purpose vouchers.

In their nature, food vouchers constitute vouchers pursuant to item 88 of the Supplementary Provisions of VATA – a tool used as payment for the price of goods or services. Therefore, the European Commission has found a discrepancy between the provision of Bulgarian VATA and Directive 2006/112/ЕC. In order to eliminate this discrepancy, the above quoted provision of Art. 131c, para 2, item 3 of VATA has been repealed. As a result, food vouchers are to be categorized as either single-purpose vouchers or multi-purpose vouchers. According to item 89 of the Supplementary Provisions of VATA, single-purpose vouchers are vouchers for which at the time of issue thereof the place of supply of goods and services for which the voucher is provided and the tax amount to be charged is known. Since currently in Bulgaria there are two tax rates for the supplies that can be paid for with food vouchers (child food and food delivered by restaurants are subject to 9% reduced tax rate), and in 2022 it will also be possible to use food vouchers for supplies exempt from VAT (cultural events), food vouchers until 31 December 2022 fall into the category of multi-purpose vouchers pursuant to Art. 131b of VATA. Therefore, the provision of such vouchers should not be treated as a taxable supply. A taxable supply would occur at the point of providing the goods or rendering the services which are paid for with vouchers, i.e. there should not be a change in the treatment of food vouchers until the reduced VAT rate is applied for goods and services paid for with these vouchers or the possibility to use them for payment for tax-exempt supplies.

When the temporary measures are lifted (applying the reduced tax rate and use for tax exempt supplies), food vouchers will be treated as single-purpose vouchers.

• 50 of the Transitional and Final Provisions to LAS VATA envisage for the new way for treatment of food vouchers to be applied as from the first tax period following the date of the law’s promulgation, i.e. for vouchers issued after 1 March 2022.

2. Correction of incorrectly issued documents

In order to align the Bulgarian legislation with the established practice of the European Court of Justice regarding the possibility for corrections of errors in invoices, Art. 116 of VATA has been supplemented with two new provisions, allowing:

• Correction to an invoice already issued when wrong tax rate was applied;
• Correction to invoices after issuance and entry into force of an act of the revenue bodies. The prior NRA practice was to dispute corrections made following tax audits.

In addition, new Art. 117a of VATA has been created, settling the possibility and method for making corrections when ascertaining errors in protocols issued pursuant to Art. 117 of VATA. The procedure for corrections is similar to the one envisaged for corrections of errors in invoices – annulling the erroneous document and issuing a new one, including in the cases when the error is eliminated following tax audits.

3. Amendments related to VAT exemption for import, intra-Community acquisitions and supplies to the armed forces of other countries parties to the North Atlantic Treaty or to the European Commission or an agency or body incorporated pursuant to EU law

3.1. Pursuant to Council Directive 2021/1159 and the measures envisaged therein for coping with the Covid-19 crisis, Art. 173 of VATA has been amended to specify that:

• Supplies to the European Commission or to an agency or body established under Union law shall be subject to 0% tax rate when the goods and services are purchased for performance of their tasks assigned in order to respond to the COVID-19 pandemic.
• The zero tax rate shall not be applied if the goods or services stated herein above are subsequently used for supplies for consideration, and the European Commission, or the agency or body shall inform the supplier that the conditions for zero tax rate application are no longer valid.

In addition, the import of goods, as well as intra-Community acquisitions by the European Commission or by an agency or body established under Union law in the execution of their tasks, in order to respond to the COVID-19 pandemic, shall be exempt from VAT.

These amendments are effective as from 1 January 2022. In relation thereto, a special transitional provision provides for the recovery of unduly paid VAT where applications may be submitted until 31 March 2022.

3.2. Pursuant to Council Directive 2019/2235, amendments have been made regarding the tax treatment of supplies to the armed forces for member states and of states parties to the North Atlantic Treaty, including:

• supplies whose recipients are the armed forces of a member state, when involved in defence efforts on the territory of the country and/or the territory of another member state undertaken within the Union framework and within the Common Security and Defence Policy (CSDP);
• supply of goods or services to another member state intended for the armed forces of a country – party to the North Atlantic Treaty, other than the member state where the supplies are made, when the forces participate in joint defence efforts;
• supply of goods or services to another member state intended for the armed forces of a member state other than the member state where the supplies are made, when the forces participate in joint defence efforts.

Some of the amendments are effective as from the date of promulgation of LAS VATA, whole another part (first and third bullet above) are effective as from 1 July 2022.

4. Amendments related to the application of special schemes (Union Scheme, Non-Union Scheme and Import Scheme)

These amendments and supplements to VATA make multiple specifications regarding the application of provisions related to the special schemes for taxation of distant sales of goods and certain services supplied to non-taxable persons within EU, including:

• related to registration, changes in registration status and termination of registration
• related to entitlement to deduction of input VAT
• the person liable to pay tax when applying a special scheme, as well as the member state to which the tax is payable
• the procedure for documents submission

The amendments aim to further clarify the existing provisions and rules and do not introduce significant changes to the mechanism of the schemes or new obligations. Some of the amendments transfer to VATA provisions from the Regulation for Application of VATA.

5. Extension of the term for VAT reverse charge for grain and industrial crops

In addition to the amendments made by means of LAS VATA, by means of § 13, item 2 of the Transitional and Final Provisions of the 2022 State Budget Act of the Republic of Bulgaria (promulgated in the State Gazette, issue 18 of 4 March 2022), an extension has been made to the period for VAT reverse charge for certain grain and industrial crops until 31 December 2025. This extension is conditional on the term extension under Art. 199a of Directive 2006/112/ЕC. 

This material is not exhaustive, but rather has general information nature and does not constitute specific advice or consultation. Should you have questions, do not hesitate to contact us at Tel. + 359 2 9433700, Fax + 359 2 9433707, e-mail: office@afa.bg or at the following address: 1504 Sofia, 38, Oborishte Street.

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