Online trading according to the Bulgarian VAT Act
Special features of tax treatment for trading a Bulgarian company via Amazon and Ebay or similar online marketplaces.
In most cases it is the so-called drop shipment, or commonly known as drop shipping model. This is a business model in which the seller of the item does not own the corresponding product, but advertises the product on a certain online platform and receives the money from the customer after a sale has been made, thus buying the item from his supplier, who in turn delivers it directly to the customer. The Dropshipping provider contacts the wholesaler and gives him information about the delivery of a certain quantity of goods. The supplier delivers the goods directly to the customer by courier. For this purpose, the Dropshipping provider concludes a brokerage contract with the supplier. Its task is to acquire customers and take orders against advance payment. After the customer has paid the full amount, he will be forwarded to the supplier with deduction of the commission. The order will be sent to the supplier who will send the items to the customer. If contractually agreed, the item can also be dispatched in the name of the agent.
From a tax point of view, these transactions differ depending on whether the supplies are within or outside the Member States of the European Union.
I. Supply of goods to third countries (outside the EU)
As a rule, consumers of online commerce are natural persons who purchase the items directly from Amazon. It only becomes difficult to determine whether the customer of the Bulgarian company (recipient of the object within the meaning of Art. 11 para. 2 VAT Act) is the American company Amazon (acting in its name and for the account of the Bulgarian company) or the final consumers (usually natural persons). As mentioned above, this depends on the actual supplier of the item to the final consumer – Amazon as intermediary or the supplier’s company.
Pursuant to the provisions of Art. 12 VAT Act, a taxable supply of goods is any supply within the meaning of Art. 6 VAT Act carried out by a taxable person under this Act with a place of performance within the country and a supply by a taxable person taxable at zero rate, unless the law provides otherwise.
The place of performance for supplies of goods is governed by Article 17 of the Act. Article 17(2) of the Law states that the place of performance for supplies of goods dispatched or transported by the supplier, the consignee or a third party is the place where the goods are located at the time of dispatch or at the beginning of transport to the consignee. If, at the time of the transfer of ownership or dispatch of the goods to the consignee, the goods are outside the country, the place of performance shall also be the place where the goods are located – outside the country. There are the following variants of delivery:
A) Supply of goods transported from Bulgaria to a third country
In this case, the supply is taxable at zero rate, as is the case under Art. 28 VAT Act for supplies of goods dispatched or transported from a place in the country to a third country or territory by or on behalf of the supplier; or for supplies of goods dispatched or transported from a place in the country to a third country, provided that the consignee is a person not established in the country.
According to Art. 21 VAT-Act, the documents required by law for the proof of supplies pursuant to Art. 28 nos. 1 and 2 are a customs document in which the supplier is registered as the exporter of the goods, or another document proving the export, if customs law allows the possibility of not having to submit a customs document; invoice for the supply; transport document for these goods.
B) Supply of goods acquired in an EU country and subsequently transported from an EU Member State to a third country
The acquisition of ownership of an object in an EU member state constitutes for the enterprise an intra-Community acquisition (i.g.E.) within the meaning of the law. However, it must be taken into account that the place of performance of this delivery, where the company acts as the recipient, is determined in accordance with the provisions of Art. 17 (1) UStG and that is the place where the object is located at the time of the transfer of ownership – the Member State outside the country. This supply does not constitute an i. g. E. within the meaning of Art. 13 para. 1 of the Act, set the case where the acquisition of ownership of the object takes place in another Member State and it is not dispatched or transported by the Member State to the country or to another Member State, as is the case here.
For the purpose of determining the place of performance of the subsequent delivery of the goods dispatched from a Member State to customers in a country outside the EU, the provision of Article 17(2) of the law shall apply again where the place of performance is outside the country.
C) Supply of goods acquired in a third country and subsequently transported to a customer outside the EU
In this case, for the purpose of determining the place of performance of the first delivery, whereby the Company acquires the title to the goods, the provisions of Article 17(1) of the Act shall apply and, in view of the foregoing, the place of performance for such delivery shall be outside the country. The subsequent delivery of the goods dispatched from the place of acquisition of ownership to the customer in a third country is the place of performance outside the country in accordance with Art. 17 para. 2 VAT Act.
Pursuant to Art. 79 para. 2 no. 4 UStGDV in conjunction with Art. 28 UStG, if the taxable person does not justify a tax assessment for the supply, the supplier must issue a proper invoice with a place of performance in a third country or territory; the invoice/credit/debit note must state the relevant legal provision as the basis for not charging VAT.
Provision of intermediary services by intermediaries
At the end of the month, Amazon issues an invoice/letter summarising sales and fees payable for online trading, as well as invoices for the fees invoiced. Pursuant to Art. 82 para. 2 UStG, if the supplier is not a taxable person resident in the country and the place of performance of the supply is in the country, and if the supply is taxable, the tax is to be paid by the recipient of the supply if he is a taxable person. If the Company does not have a VAT identification number, it is assumed that the place of performance is the supplier of the service. Pursuant to Art. 97 para. 1 UStG, every taxable person within the meaning of Art. 3 para. 1, 5 and 6 who receives taxable services with a place of performance in the country and the tax is to be paid by the recipient of the service pursuant to Art. 82 para. 2 is subject to the obligatory declaration pursuant to the UStG. The Bulgarian company shall draw up a report for the corresponding fees on the basis of the settlement received in accordance with Art. 117, para. 2 of the VAT Act, whereby the service recipient applies the reverse charge procedure to the net invoice amount and must state “Art. 82, para. 2, no. 3 of the VAT Act” as the basis.
II. supply of goods within the EU
Depending on whether the recipient of the items is Amazon or the final consumer – natural person – there are two possibilities:
1. intermediary as the recipient of the items
In this case, the agent (Amazon) is the recipient of the items through the corresponding branch in an EU member state. Under Article 7(1) of the VAT Act, an intra-Community supply is the supply of goods transported by or on behalf of the supplier – a person registered under this Act – or of the consignee from the country in another Member State, when they are supplied to a taxable person or to a non-taxable legal person registered for VAT purposes in another Member State. Under Article 53(1), intra-Community supplies are subject to zero rate taxation in accordance with Article 7. The supplier of the goods must issue Amazon with a zero rate invoice stating the basis on which the VAT was not levied (Article 53(1)) and the indication “Reverse Charge”. With regard to the transport of the goods, the declaration rules already set out in this article shall apply. These rules also apply to Amazon’s brokerage services, since the law between EU Member States and third countries does not apply to recipients of services who are resident outside the country.
Mutual Agreement Procedure
The mutual agreement procedure (‘MAP’) is an administrative procedure for resolving difficulties/issues related to the interpretation, application and elimination of taxation not in accordance with the Double Taxation Conventions (DTC) concluded by Bulgaria or the Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises (90/463/EEC) (‘Arbitration Convention’). The procedure is conducted between the competent authorities of the Contracting States and the taxpayers are not directly involved in it but are notified in a timely manner about its progress and outcome.
The legal basis for conducting the procedure are the provisions on the mutual agreement procedure provided for in the relevant DTC or in the Arbitration Convention.
All DTCs concluded by Bulgaria provide for MAP provisions. These provisions are based on the Model Tax Convention of the Organization for Economic Cooperation and Development (OECD), with some deviations from this Model existing in a limited number of conventions.
The Arbitration Convention applies to avoid double taxation where, based on a transfer pricing adjustment, profits which are included in the profits of an enterprise of a Contracting State are also included or are also likely to be included in the profits of an enterprise of another Contracting State. The Convention also applies to the attribution of profits to a permanent establishment.
More Information: https://nap.bg/en/page?id=711
The mini One Stop Shop came into force on 1 January 2015 and allows taxable persons supplying telecommunication services, television and radio broadcasting services and electronically supplied services to non-taxable persons in Member States in which they do not have an establishment to account for the VAT due on those supplies via a web-portal in the Member State in which they are identified.
This scheme is optional, and is a simplification measure following the change to the VAT place of supply rules, in that the supply takes place in the Member State of the customer, and not the Member State of the supplier (a derogation to this place of supply rule applies as from 1 January 2019 for supplies by certain taxable persons, whose relevant annual turnover does not exceed EUR 10,000 –). The mini One Stop Shop is available to taxable persons which are established in the EU (the Union scheme), as well as taxable persons which are not established within the EU (the non-Union scheme). Without the mini One Stop Shop, the supplier would be required to register in each Member State in which he supplies services to his customers.
In practice, under the scheme, a taxable person which is registered for the mini One Stop Shop in a Member State (the Member State of Identification) electronically submits quarterly mini One Stop Shop VAT returns detailing supplies of telecommunications, broadcasting and electronically supplied services to non-taxable persons in other Member States (the Member State(s) of consumption), along with the VAT due. These returns, along with the VAT paid, are then transmitted by the Member State of Identification to the corresponding Member States of consumption via a secure communications network. The mini One Stop Shop VAT returns are additional to the VAT returns a taxable person renders to its Member State under its domestic VAT obligations.
Find more information here: https://ec.europa.eu/taxation_customs/business/vat/telecommunications-broadcasting-electronic-services/content/guides_en