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Key aspects of Article 97a of the VAT Act
Registration under Article 97a of the Value Added Tax Act (VAT Act) is specific and particularly important for Bulgarian companies that interact with international service providers such as Google, Meta, platforms like Upwork and Fiverr, or use hosting and other online services from abroad, as well as for companies that offer services to companies in the EU. This type of registration aims to facilitate the taxation process for cross-border services and is intended to be applied before starting work with these companies or platforms.
What's different about this type of registration?
When a company is registered under Article 97a of the VAT Act, it does not charge VAT on sales and does not deduct VAT on purchases of goods or services. Generally, for transactions executed within the territory of the Republic of Bulgaria, the company operates as if it is not registered for VAT.
Specifics of VAT taxation under partial registration under Article 97a of the VAT Act
When a company registers under this article, it does not charge VAT on its sales of services and cannot deduct VAT on its purchases. This means the company treats transactions carried out within Bulgaria as if it is not VAT registered for them.
However, the company is required to report and charge VAT for services received from abroad, which includes preparing a sales ledger and submitting a VIES declaration to the NRA by the 14th of each month for transactions carried out in other EU member states.
In the case of providing services to companies in the EU, the Bulgarian company does not add VAT to the invoices issued for these services. The responsibility for charging VAT shifts to the client company in the respective EU member state. The Bulgarian company must still submit a VIES declaration and maintain an accurate sales ledger.
Mandatory registration under Article 97a of the VAT Act
The registration process is mandatory and must be completed before starting interactions with foreign companies or platforms. This helps Bulgarian companies identify themselves as compliant tax subjects to their international partners and manage their VAT obligations concerning services provided or received across borders.
Conclusion
Registration under Article 97a of the VAT Act is essential for Bulgarian companies engaged in international trade in product/services. It allows companies to comply with VAT requirements for cross-border operations, while also providing the opportunity for proper tax reporting to both Bulgarian and foreign tax authorities. Correct application of Article 97a ensures that companies fulfill their obligations to the state while simultaneously optimizing their operations in a way that maintains regulatory compliance and improves business efficiency.
It is crucial for companies to understand these processes and seek an accountant if necessary, to ensure they comply with all regulations and use best practices for managing their international trade relations.