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Legal minimum wage and maximum social security threshold

The value of human resources for conducting business operations, the funds that a worker or an employee receives from the employer for the tasks completed, the services provided, or the results achieved, is called a wage.  At a macro level, wages are defined as part of the gross domestic product obtained by employees as a result of their work. The amount and payment method of the wage are agreed between the employer and the employee in their respective working contract. Wages and salaries can be defined in a variety of ways, yet all of them include a minimum and a maximum threshold.

Minimum wage

The minimum wage is the cheapest one possible, determined by a normative act. It is administratively defined by the state, not the market. It is the smallest price for the labor market, and it applies to the entire country. In Bulgaria, the minimum wage is determined and rearranged by a decree of the Council of Ministers. In recent years, there has been a progressive wage growth in Bulgaria, related to the sustainable increase of the gross domestic product and the stable economic development of the country. The local wage growth for the last year is 8.9%, and for the previous five years, wages had almost doubled – from BGN 360 in 2015 to BGN 610 or BGN 3.66 per hour in January 2020, on the legal basis of MPS №350 from December 19, 2019.

The sick pay, the 2-year paid maternity leave, the health insurance contribution, the amounts, and the distribution of social security contributions for the “Pensions,” OZM, and Unemployment Funds remain unchanged in 2020. The size of the minimum wage matters not merely to the employees and workers who earn it (in 2017, according to CITUB, these were over 400,000 Bulgarians), but also for a considerable part of the employees in the country since the minimum wage is essential for defining a number of different social payments, contributions, and benefits. In recent years, many social benefits, recently dependent on the minimum wage, have become independent from it and thus explicitly stated in the budget laws. Anyway, this does not diminish its importance as a whole.

Maximum social security threshold

When we speak of the maximum salary, we actually refer to the maximum social security threshold. In 2020 it is BGN 3,000 and thus remains unchanged compared to the previous year – 2019. The maximum social security threshold was increased a year earlier – in 2019 when it progressed from BGN 2600 (2018) to BGN 3000 (2019), which also increased the ceiling for pensions (40% of the maximum social security threshold), or raised the maximum pension from BGN 910 to BGN 1,200.

An increase in the social security threshold is not just about higher taxes. It also suggests an improvement in unemployment benefits and guarantees better pensions – that’s why reviewing it is undoubtedly beneficial to the finances of the general public.

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Filing the annual financial statements of dormant companies

An annual financial statement is being filed at the end of the accounting year. It presents a combination of interconnected financial and accounting informational materials that report a company’s returns, as well as its active and passive assets. It provides virtually every piece of information available on the financial status of the company. An annual financial statement needs to be precise and thoroughly prepared; to contain only accurate information and to implement a comparison of the current financial situation of the company with previous years while also evaluating the changes.

What does an annual financial statement include?

Subject to Article 29, paragraph 1 and 2 of the Accounting Act in conjunction with point 2 of the National Accounting Standard, the annual financial statement consists of:

  1. Balance sheet
  2. Statement of revenue and expenditure
  3. Cash flow statement
  4. Statement of equity
  5. Annex, statement of fixed assets

Micro-enterprises (up to 10 employees, net income up to BGN 1 400 000 and net book value of assets up to BGN 700 000, not applicable to investment and financial holding companies) may have to include the first two points only, and small enterprises (up to 50 employees, net revenue up to BGN 16,000,000 and net book value of assets up to BGN 8,000,000) – the first two points plus an annex.

Annual financial statement – who, when, where?

The annual financial statement is filed in the Commercial Register every year by the end of June and reports the activity of the company throughout the previous calendar year. Companies that haven’t submitted their report or submitted it after the deadline are subject to a fine. Composing an annual financial statement requires the signature of an accountant by law – it can not be completed by a company manager alone. Submitting the statement is possible both offline and online via an electronic signature.

Who is not required to file an annual financial statement?

The latest changes in the rules for filing an AFS and a declaration for lack of activity under Art. 38, paragraph 9, item 2 has been announced in issue 96 of the SG in 2019. They declare the lack of obligation of the ET, which did not perform any activity during the reporting year, to submit a declaration for lack of activity in the Commercial Register and the Legal Persons Engaged in a Non-profit Making Activity Register. Those companies are also not obliged to file an annual financial statement. The amendments to the law also state that declaring a lack of activity by those required to declare it will be done only once – it will be enough to file a declaration of no activity in 2019 by the end of March 2020, eliminating the need for subsequent filing of this declaration again a year later. Declarations for lack of activity under Art. 38, paragraph 9, item 2 should already be designed as approved by the Minister of Finance. Annual financial statements are only filed by companies with recorded activities.

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Company registration in Bulgaria – approaches, procedures, and terms

The registration of a legal entity is a mandatory procedure for every entrepreneur that aims to develop legitimate business and meet the regulatory requirements on the territory of the Republic of Bulgaria.

What are the different types of legal entities according to the Bulgarian legislation, what are the procedures for their registration, how long do they take and what difficulties you might encounter during the process – find out in the following paragraphs.

The types of companies according to the Bulgarian legislation and the legal procedures for their registration

Your business niche, your capital, and the long-term goals of your enterprise are the main factors for choosing the appropriate type of legal entity for your needs. The options available to you are:

  • Bulgarian sole proprietorship – This is a type of company that can be registered by an individual – a trader – in order to legitimize their trading enterprise. What is particularly noteworthy about this form is that the owner of the company is legally responsible for their personal property, which is why lawyers do not particularly recommend it. The documents needed for the establishment of а Sole proprietorship company are an Application for Entry of Circumstances, as well as several declarations under different Articles of the Commercial Law. They are filled in on-site at the Registry Agency, and the time for the company registration after filling them is between one and three days.
  • Bulgarian OOD (Limited Liability Company) and EOOD (Single Limited Liability Company) – these are some of the most convenient and preferred options for registering a company in Bulgaria, especially for small and medium-sized businesses. The financial responsibility of the contributors in an OOD is no more than the amount of their share in the capital of the company, the minimum of which is legally 2 BGN.

The most important documents for registering such a company are the Articles of Association (for EOOD) or the Company Agreement (for OOD), a banking bill for initial capital payment, a decision for manager employment, as well as several declarations and applications under various articles of the commercial law. The documents can be submitted online or directly at the Registry Agency – the registration time after filling them in is about two to three days.

  • Bulgarian AD (Joint Stock Company) is a model suitable for businesses with higher capital and a more significant number of investors, with a minimum of two. Its management is carried out by a board of directors. At the same time, the documentation is voluminous and highly formalized, while the minimum share capital is BGN 50,000 for a closed joint-stock company or BGN 100,000 for an open joint-stock company. The difference between the two options lies in the ability to trade stocks on the stock market.

The establishment and registration of a joint-stock company require a more considerable set of papers, including the Articles of Association, a constituent assembly protocol, a list of shareholders, as well as several different applications and declarations. Once the package of documents has been gathered, the company can be registered online via an electronic signature or directly in the Commercial Register. The processing time after the submission of the documents is from three to five days.

It is strongly recommended that you use the services of an experienced lawyer and accountant to advise and guide you through the process of registering a legal entity, especially when it comes to more complex and more extensive documentation.

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Bulgaria – the supreme destination for digital nomads

Who are the digital nomads?

Digital nomadism is a recent-decade phenomenon that faces increasing popularity and a growing abundance of followers all over the developed world. Put shortly, digital nomads are people who can smoothly manage their professional responsibilities from any given point around the globe, as long as they have a stable and reliable Internet connection.

Some of the most common types of specialists accepting this kind of “nomadic” lifestyle are web designers, programmers, digital marketers, and online assistants, copywriters, artists, editors, etc. According to some recent studies, the number of digital nomads worldwide has already exceeded five million people.

Digital nomads are citizens of the world – they combine business with leisure, typically by performing their duties from a temporary residence, from various cafes, libraries, shared offices, and exotic locations around the world. What makes Bulgaria is the ideal destination for this professional group – find out in the following paragraphs.

What are the advantages of Bulgaria as a destination for digital nomads?

In fact, Bulgaria is already a very trendy temporary residence for a considerable number of digital nomads, and there are some quite solid reasons why. Here are the aspects of our country that appear attractive to the new generation of “citizens of the world”:

  • Very affordable cost of living, especially when contrasted with the earnings of these types of specialists. According to various studies, the average annual income of digital nomads is between $ 50,000 and $ 100,000, with one in five of them earning a lot more.
  • Relatively inexpensive property rentals and low-priced real estates. Although the locals will hardly agree, the truth is that buying a single-family home in Bulgaria could only cost a few months’ salaries to specialists in the sector, especially if their employers are mostly foreign.
  • Bulgaria is one of the world’s leaders regarding the speed and stability of the Internet connection. Along with the affordable service rates, the excellent coverage, and flexible ISPs, this is a good foundation for both outsourcing IT services and hosting professionals for whom this advantage is essential.
  • Last but not least, Bulgaria provides unique opportunities for quick “change in landscape” on the territory of the country itself. The rich natural diversity, seized in such a small geographical area, allows one to find himself on the seashore, in the heart of the mountains, in the bustling city center, or an intimate little resort within a few days. All of this could happen in a comfortable, fast, and economical manner.

One of the most recent developments of the digital nomadism niche in Bulgaria is the construction of the so-called IT villages in the mountainous regions of the country. These are places where both Bulgarians and foreigners can enjoy our countryside while smoothly operating on their professional commitments.

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On-Demand Warehousing Regime

The trade of Goods in EU is simplified from administrative and VAT regimes.

When a BG supplier of a particular group of goods, sells to certain EU customers who is know who they will be. They have the ability to use the on-demand warehousing regime. And there will be no need to register for VAT in another Member State or to self-charge VAT and pay in Bulgaria. This has not been the case so far. Because they were previously equated to taxable delivery, if a consignor not registered in the other country a taxable event occurred. To solve this problem, the on-demand warehousing mode is introduced. When one person sends goods to another Member State in a warehouse waiting for the customer to pick them up from the warehouse, no specific VAT event will occur as long as the customers pick up the goods within 12 months. And no tax will arise unless certain conditions are met:

 

Conditions of application:

  1. Transport of goods from the territory of the country to the territory of another Member State, subject to the agreed subsequent delivery. They are sent for the purpose of pre-arranged provision of specific customers. The sale of the goods is agreed upon at a specific time. The Directive allows a maximum period of 12 months.
  2. The consignor of the goods is not established in the Member State. Have no permanent facility there.
  3. The goods for which the person is destined have a valid VAT number in the Member State.
  4. The goods must be entered in the register by the taxable person who sends them.
  5. The goods must be indicated in the VIES declaration with the recipient’s tax number Within 12 months, the goods must be transferred to the buyer

Complications:

– The client may be changed within 12 months; this must be entered in the register and in the VIES declaration. But its period remains 12 months from transport. There must be a known customer at all times.

– A return is also not considered taxable. When the deal did not take place, for some reason. But it must be reflected in the register.

– If, within the 12-month period, some of the conditions are not fulfilled, the conditions under the regime will be considered not to be met. Or if he sends them to another camp, or to another client. Also, if the goods are destroyed or missing. Or else the 12 month deadline has expired. Taxable delivery is believed to be available, followed immediately by the GP. The Bulgarian company will need to register for VAT in the other Member State.

– The warehouse keeper must store information about the goods is electronic type and be able to provide timely information about it

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VAT margin schemes

VAT margin schemes tax the difference between what you paid for an item and what you sold it for, rather than the full selling price.
You can choose to use a margin scheme when you sell:
• second-hand goods
• works of art
• antiques
• collectors’ items
You can’t use a margin scheme for:
• any item you bought for which you were charged VAT
• precious metals
• investment gold
• precious stones

For second-hand goods dealers, the margin scheme has been given as an option for paying tax on supply of second-hand goods. The benefit of opting for the margin scheme is that the dealer needs to pay tax only on the margin earned on sale. This is very useful for dealers who mostly purchase used goods from end customers. As there is no applicability of input tax credit on these purchases, these dealers need to pay tax only on the margin earned on sale. However, dealers opting for the scheme should ensure that ITC on the goods is not availed and the goods are supplied as is or after minor processing which does not change the nature of the goods.

The VAT Act states the following:
Art. 143. (1) The provisions of this Chapter shall apply to the supply by a dealer of second-hand goods, works of art, collectors’ items, antiques provided to him in the territory of the country or from the territory of another Member State by:
1. a non-taxable person;
2. another taxable person registered under this Act, when the subject of the supply is a good, exempted under Art. 50 para. 1 or from persons registered for VAT purposes in another Member State exempt from tax under the legislation of the country concerned on analogous grounds
3. another taxable person who is not registered under this law or by a taxable person of a Member State who is not registered for VAT purposes when the object of the supply is goods which are fixed assets within the meaning of the relevant accounting legislation ;
4. another dealer applying the special procedure of charging the price margin.

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Advance corporate tax

The corporate tax in Bulgaria is 10%. It is declared with an annual corporate tax declaration till 31.03 every year for the previous one. If the turn over of the company for the previous year is more then 300000 BGN, then the company has to declare and pay advance corporate tax. In April for January, February and March. In July for April, May and June. In December for July, August and September.

Advance Corporate tax prepayments

Advance payments do not:

  1. Taxable persons whose net income from sales for the previous year does not exceed BGN 300,000;
  2. The newly established taxable persons for the year of their establishment, with the exception of the newly established ones as a result of transformation under the Commercial Law.

The corporate tax advance is monthly and quarterly. They are determined on the basis of the estimated tax profit of the taxable person for the current year.

Monthly advance payments – are made by taxable persons whose net sales revenue for the previous year exceeded BGN 3,000,000.

Quarterly advance payments – made by taxpayers who are not obliged to make monthly advance payments. In particular, these are persons whose net sales revenues for the previous year are in the range of BGN 300,000.01 to BGN 3,000,000.

Deadlines for payment:

Monthly advance payments – for the months of January, February and March – until April 15, and for the months from April to December – until the 15th of the current month;

Quarterly advance payments – for the first and second quarters – until the 15th of the month following the quarter, and for the third quarter – by 15 December. No advance payment is made for the fourth quarter.

Declaring:

The advance contributions shall be declared with the annual tax return for the previous year.

A declaration shall also be submitted in the case of changes (increase and decrease) of the amount of the advance contributions declared with the annual tax return for the previous year. This is the declaration under Art. 88 of the CITA for changes in the advance installments and under Art. 87a, para. 2 and 3 of the CITA for the initial declaration of quarterly advance payments.

The Advance corporate payments can be changed till 15th December.

Deadlines for declaring: There is no explicit deadline for submitting the declaration for changes in advance payments, but changes in installments can only be used after their submission.

Upon the initial declaration of quarterly advance contributions, the declaration shall be submitted within the time limit for the first advance payment.

The declaration shall be submitted electronically (via the internet with an electronic signature).

Interest due on incorrectly projected advance payments

Interest will be due:

  • For the monthly advance contributions, when the annual corporate tax due exceeds by more than 20% the amount of the defined advance payments;
  • For quarterly advance payments, when 75% of the annual corporate tax due exceeds by more than 20% the amount of the advance payments

Example:

If the company expects to have a profit of BGN 10,000 and determine to make the advance contributions on the basis of that profit. Then the total tax for the year will be 1000 BGN, devided into 4 payments:

– Until 15th ofApril – 250 BGN

– Until 15th of July – 250 BGN

– Until 15th of December – 250 BGN

– The fourth payment is not made, it is paid with the Annual Corporate tax declaration for the next year

– Until December 15 – any adjustment can be made if the expected profit has changed.

– Interest is due if the real profit has a deference in more than 20% of the predicted profit. The is calculated with the Annual Corporate tax declaration of next year.

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VAT refund

Bulgarian companies can hold back the VAT of their purchases for 12 months. They can use the VAT refund when ever they need it for that period. If some of the VAT of the purchases is not used completely. Then the Bulgarian Government can pay it back to the company. After a check of the company documents for the period. Out accounting team are experts in VAT refund. With numerous successful refunds.

 

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Types of management contracts

A company manager can choose the social security type:

  • he can be a self-insured person with a fix social security for 510 leva salary and minimum social security.
  • he can also have Contract for management and control. This type of contract has a minimum salary which depends from the company business type. This is for people who wish to receive a higher salary as managers of the company. And pay higher social security. The social security maximum in Bulgaria is 2600 BGN.
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