Companies operating in Bulgaria face compliance challenges and possible penalties after an amendment to the application of the country’s VAT laws.

1. Why Bulgarian VAT changes pose compliance challenge to multinationals
02 March 2012
Joe Dalton
Companies operating in Bulgaria face compliance challenges and possible penalties after an
amendment to the application of the country’s VAT laws.
Foreign entities which failed to re-register themselves with the commercial register for VAT
purposes by December 31 2011 could have their activity suspended, after new VAT rules came
into force last week.
In 2008, a central commercial register replaced Bulgaria’s previous system, under which
companies would register for VAT at a local level rather than state level.
The main issue associated with the rule change for most multinationals is the compliance burden
involved, which appears to have been greater than expected.
Georgi Sarakostov, of Deloitte in Sofia, said that in 2011 the speed of registrations and re-
registrations with the company register improved significantly but there are still some problems
impacting upon companies.
“Firstly, there is a deficit in the software which does not allow European companies to register,
though the authorities have publicly committed to fix this problem rapidly – maybe even in
March 2012,” said Sarakostov.
“Secondly, the material profit the agency realises for the state is an issue as it implies hidden
taxation when, according to the law, the fees should generally correspond to the cost of the
service,” he added.
It is not clear when the latter issue will be resolved, though it means companies may feel they are
being over-charged for the re-registration process.
Shan Nair of Nair & Co – a private firm which advises companies on international expansion –
said although most multinationals had complied with the re-registration, a sizeable minority of
mid-sized multinationals lacking their own in-house legal counsel and accounting functions in
Bulgaria had missed the deadline.
“The guidance issued by the government regarding how to re-register was not very clear and so
this caused delay for some companies,” said Nair.

2. Companies which needed to re-register but missed the December 31 deadline lost their VAT
registration by default.
They will therefore be found to be in breach of VAT rules and in breach of the law if they have
been collecting VAT without being legally VAT-registered.
Nair said companies in this situation should take immediate steps to comply with and sign up to
the central register and will then need to re-apply for VAT, though this application could be
delayed if the regulators raise queries as to their status during this interim period.
“The best option for these companies is not to invoice their customers during this interim period
and request that the VAT registration is backdated to January 1 2012,” said Nair.
“Once they are registered, they can legally issue their invoices, but this approach will of course
lead to cash flow issues for the affected companies,” he added.