A new condition for compulsory VAT registration

In response to the hundreds of cases of commercial establishments that register a new company when they approach the statutory threshold of BGN 50,000, new amendments to the Value Added Tax Act (“VAT Act”) have been adopted. The changes aim to prevent attempts to avoid taxation, as Art. 96, para. 10 of the VAT Act, with effect from 01.01.2020, introduces a new condition for compulsory VAT registration.

The rule of para. 10 states that in the case of successive pursuit of a uniform activity in the same commercial establishment by two or more related persons or persons acting in coordination, in the taxable turnover of each subsequent person shall be included the turnover realized in the establishment by all persons who subsequently carried out the activity in the respective establishment before it, for a period no longer than the last 12 consecutive months, including the current month, and it is considered as turnover realized by the respective person on the first day of commencement of the uniform activity in the establishment by that person.

An activity is considered to be uniform when there is a significant identity with respect to two or more of the following characteristics: the goods or services offered, the assets used, the staff, the trademark/name of the establishment, suppliers/customers.

As regards to the so-called related persons, the VAT Act refers to § 1, item 3 of the additional provisions of the TIPC (Tax-Insurance Procedure Code), where it is provided a long list of related persons, some of which: the spouses, the relatives of direct and indirect line of descent and the relatives by marriage; an employer and an employee; the partners; the persons, one of whom participates in the management of the other or of his subsidiary company; etc.

Point 93 of the additional provisions of the VAT Act provides a definition for “persons acting in coordination”. These are persons in the management, control and/or capital of which, there are involved persons, as referred to in § 1, item 3, letters “a”, “b”, “c” and “l” of the additional provisions of the TIPC, or persons, from the relationships between which or between each of them and a third party in accordance to the economic, organisational, family or other relationship/connection existing between them, can be concluded that are acting in coordination and conditions other than usual can be negotiated between them.

A transitional regime for existing situations is provided, according to which a person, who by the date of entry into force of the law meets the requirements for compulsory registration under Art. 96, para. 1 in regard to para. 10 of the VAT Act, is obliged to submit an application for registration within 14 days from the entry into force of the law, i.е. by January 15, 2020.

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