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AMENDMENTS IN THE CORPORATE INCOME TAX ACT – 2022

Amendments and supplements were adopted in the Corporate Income Tax Act (CIТA) by the Act on amendment and supplement of the CITA, promulgated in State Gazette, No.14 dated 18.02.2022

1. By §1 of the Act on amendment and supplement of the CITA, certain hybrid formations shall be treated as equivalent to taxable persons (TP) whose profits and income are taxed under the CITA, insofar as they are not taxed in another way in the country or under the legislation of another jurisdiction.

Treated as equivalent to a legal entity for the purposes of the CITA shall be the incorporated or established in Bulgaria hybrid formations in which one or more foreign formations that are affiliated enterprises and jointly hold directly or indirectly 50 percent or more of the voting rights, the share capital or the right on the profit shares of the hybrid formation, which is not a TP in Bulgaria, are in a jurisdiction or jurisdictions that consider the hybrid formation as a TP in Bulgaria.

These rules do not apply to a collective investment scheme, which is an investment fund or a scheme that simultaneously meets the following conditions: to have multiple owners, to have a diversified portfolio of securities and to be subject to investor protection regulations.

Respective amendments to the legal definition of “affiliated enterprise”, “formation” and “hybrid formation” according to item 84, item 85 and item 95 of the Additional Provisions of the CITA are introduced.

The aforesaid amendments to the CITA enter into force on 01.01.2022.

2. By §2 of the Act on amendment and supplement of the CITA an explicit regulation of the tax treatment of the result of sales and lease back contracts classified as operational leasing in accordance with the International Accounting Standards (IAS) is introduced. In case of lessees, the accounted expenses, income, profits and losses with respect to sales and leaseback contracts classified as operating leasing in accordance with the IAS are not recognized for tax purposes. Assets eligible for use in connection with such contracts recognized in case of sellers lessees are not tax depreciable assets.

Expenses, income, profits and losses that are determined in accordance with the rules of Accounting Standard 17 “Leasing” regarding sales and lease back contracts classified as exploitation leasing, applied to the relevant sales and lease back contracts classified as operating leasing are recognized for tax purposes.

The aforesaid amendments shall enter into force on 18.02.2022.

3. TP whose controlled foreign companies in their jurisdiction of incorporation or establishment are subject to alternative forms of corporate taxation are no longer exempt from the regime of controlled foreign companies. Thus, the specific rules for determining the tax financial result in the case of a controlled foreign company shall apply to all TP in Bulgaria that are subject to corporate taxation and have controlled foreign companies, regardless of the form of taxation of these controlled foreign companies.

These amendments shall enter into force on 18.02.2022.

4. With the Transitional and Final Provisions of the Act on amendment and supplement of the CITA amendments in the Personal Income Tax Act (PITA) are introduced as follows:

The heirs by law or by will, as well as by the testators or their legal representatives, may submit inquiries on the income paid during the year and on the tax and compulsory social security contributions of deceased sole traders or self-insured persons withheld during the year.

The aforesaid amendments in the PITA enter into force on 18.02.2022.

Thе present statement does not constitute legal advice or consultation, but rather our own interpretation and analysis of the issues outlined above. If you have any questions or need clarification, please contact Dyulgerova & Penkova Law Firm team.