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New ruling for the VAT treatment of personal use of BUSINESS assets (which became popular as “weekend tax”)

January 29, 2016

Ruling No 24-00-15 of 22.01.2016 of the Executive Director of NRA (hereinafter referred to as “the Ruling”) was published on 25 January 2016. The purpose of the Ruling is to provide guidance on the VAT treatment of business assets which are used for the personal needs of the personnel or the owner.

The key points of the Ruling can be summarized as follows:

The aim of the legal provisions concerning the personal use of business assets is to treat the natural persons using such assets as end users of goods and services (who purchase goods and services with VAT included).

1. Input VAT deduction upon the acquisition

Three possible options are provided in connection to input VAT upon acquisition:

  • The goods purchased can be excluded from the business activity (input VAT is not deducted) – to be applied when it is clear that the goods will be used only for personal needs.
  • The goods purchased can be fully included in the business activity (therefore input VAT can be deducted in full);
  • The goods purchased can be included partially in the business activity (therefore input VAT is deducted only for the part, attributable to the business activity) – it is recommended for the cases where there is a stable percentage of personal use (usually for real estate).

In case the goods are used partially for the business activity and partially for personal needs, it is recommendable that the ratio of the use is tracked for at least 6 months, so that a reliable and consistent result is achieved. The said ratio should be currently monitored and potentially adjusted upon significant changes assessed for periods of at no less than 6 months. 

2. Charge of output VAT 

The Ruling provides that there is a taxable supply of services in the cases of free of charge personal use of goods for which input VAT was deducted upon acquisition. The following situations are commented:

  • In the case where the taxable person has not deducted input VAT upon acquisition of the goods that were used for personal needs - there are no additional consequences. However if personnel costs have been incurred in connection with the personal use, only these costs shall be subject to taxation with output VAT.
  • In the case where input VAT was fully deducted upon acquisition – the free of charge provision of the goods for personal use shall be viewed as a taxable supply and output VAT shall be levied.
  • When input VAT on acquisition has been deducted partially, based on a ratio defined by the taxable person, the same ratio shall apply to the input VAT deduction of the costs related to the personal use. There is no taxable supply in respect of the personal use of the goods, unless the personal use exceeds the ratio defined upon input VAT deduction at the moment of acquisition.

3. Taxable amount for VAT

The amount on which VAT is charged is the sum of the direct costs related to the personal use for which input VAT was deducted. These costs include:

  • Regarding capital goods (fixed assets) –the depreciation cost spread over a period of 20 years for immovable property and 5 years for the all other capital goods. If the 5 years / 20 years period from acquisition has elapsed, the depreciation costs are not taken into account.
  • For rental contracts or operating lease – the rental/lease payments;
  • For repair costs, spare parts, annual technical test for vehicles – it is recommended that the cost is spread over 12 months;
  • Materials and consumables;
  • Salary costs for the personnel engaged with the provision of the services.

4. Taxable event

The obligation for charging of output tax arises on the last day of the month during which the personal use occurred. The tax is charged with a protocol no later than 15 days from the end of the month.

5. Specific issues

  • Distinction between application of the goods for personal use (supply of goods) and temporary personal use of the goods (supply of services)

Criteria for this distinction are given in the Ruling. If the goods are consumed during their use, there is an application for personal use, while if the goods are not consumed during their use there is a service.

  • Personal use of a business real estate

In the case a real estate, for which input VAT was deducted, is used for the personal needs of the personnel or the owner, the taxable person is not entitled to choose this service to be VAT exempt (unlike the rental of a dwelling).

  • Accommodation services

In order to apply the rules for accommodation services (subject to a lower VAT rate of 9%) upon the provision of a hotel room to the personnel or the owner for personal use, the accommodation shall be short-term (hotel like). Otherwise, 20% VAT rate shall apply.

6. Documentation

The taxable persons shall keep sufficient documentation for evidencing the business use of its assets. If there is personal use of the assets, the taxable person shall keep up documents concerning:

  • The methods for calculation of the costs related to personal use;
  • The defined ratio between the personal and business use;
  • The consistent application of the chosen method for allocating the costs and determining the tax base for the personal use.

In the existence of reliable documentation and consistent application of the chosen method for allocation of the use (personal vs business) by the taxable person, the Ruling recommends that the revenue authorities do not require an adjustment of the method or additional corrections.

7. Open issues

The Ruling discusses only the VAT effects and does not comment the consequences in terms of the corporate and individual taxation. These effects should be assessed with respect to the specific case. As whole, in our opinion, there is no reason that the personal use of business assets is not seen as a benefit in kind for the persons who use the assets. Also, it is possible that the costs for personal use are seen as unrelated with the business from corporate income tax prospective (depending on the documents available and the relations with the person using the asset).

The Ruling does not contain a detailed argumentation regarding the reason for taxation of the personnel costs related to the personal use (for example, the salary costs of a company driver of a vehicle for which input VAT is deducted).

Should any questions regarding the information in the present newsletter arise, please do not hesitate to contact us at tel +359 2 9433700, fax +359 2 9433707, e-mail: or at the postal address: 38, Oborishte Str., 1504 Sofia.

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