Tax relief for individuals in relation to property

Individuals in Bulgaria declare and pay tax in accordance with the Personal Income Tax Act (PITA). Under the Act, taxpayers may claim tax relief (a reduction in the tax due). Tax relief is set out in Part Two, Chapter Four of the PIT Act. These are:

1. Reduced working capacity,
2. Voluntary social security and insurance,
3. Contributory service for the purposes of retirement,
4. Donations,
5. Young families,
6. Children,
7. Children with disabilities,
8. Cashless payments,
9. For improvements and/or repairs to residential property.

Here, we will focus solely on tax reliefs relating to property:

• for young families;
• for improvements and/or repairs to residential property.

Tax relief is claimed by completing ‘Appendix No. 10: Use of Tax Relief’ to the Annual Tax Return under Article 50 of the Income Tax Act, which, subject to certain conditions, reduces the tax base and, consequently, the tax due. The taxpayer must have had taxable income during the year. This means that if they have no taxable income (for example, if they have only received a cash allowance for bringing up a child under the age of two), they cannot claim tax relief.

Regarding tax relief for young families

Under Article 22A of the Income Tax Act, resident individuals may claim a tax relief for young families, by deducting from the sum of their annual tax bases the interest payments made during the year on a mortgage loan for the purchase of a home, provided that all of the following conditions are met:

1. the mortgage loan agreement has been entered into by the taxpayer and/or by a spouse with whom they are in a civil partnership;
2. the taxpayer and/or their spouse are under 35 years of age on the date the mortgage loan agreement is concluded;
3. The mortgaged property is the family’s sole residence during the tax year.

Where the amount of the mortgage loan exceeds 100,000 BGN, the tax relief under paragraph 1 may be claimed in respect of interest payments made during the year on the first BGN 100,000 of the principal.

The tax relief is available up to the sum of the annual tax bases under Article 17 of the Income Tax Act, provided that the spouse does not claim the tax relief for the relevant tax year. These circumstances and conditions must be declared by the individual in their annual tax return under Article 50.

The tax relief for young families is also available to foreign individuals who are resident for tax purposes in a Member State of the European Union or in another country that is a party to the Agreement on the European Economic Area.

Where, in breach of the condition set out in paragraph 3, both spouses have claimed the tax relief, each of them shall be liable for the portion of the tax corresponding to the amount of relief claimed.

To claim the relief, the taxpayer must complete Part V of Schedule 10 of the Annual Tax Return under Article 50 of the Income Tax Act.

Part V – Tax relief for young families

I enclose the following with this declaration:

I hereby declare the following circumstances and conditions for claiming the tax relief: (Pursuant to Article 22a, (4) of the Income Tax Act, the circumstances and conditions under which the tax relief for young families may be claimed must be declared by the individual in their annual tax return under Article 50 of the Income Tax Act.)

1

For the tax year, I am: 1.1. a resident of the Republic of Bulgaria >> 1.2. a resident of another EU Member State or a state party to the EEA Agreement >>

2

I am aware that the tax relief for young families is available provided that my spouse does not claim the tax relief for the relevant tax year >>

3

The mortgage loan agreement was entered into by: (state the first name and surname of the declarant and/or of the spouse with whom they are in a civil partnership)

4

Date on which the mortgage loan agreement was concluded >>

Day

month

year

As at this date, I have not reached and/or my spouse has not reached the age of 35 >>

5

The mortgaged property is the family’s sole residence during the tax year >>

6

Spouse’s details

6.1. First name

6.2. Middle name

6.3. Surname

6.4. Personal Identification Number (EGN)/Foreign National Identification Number (LN)/Foreign National Identity Card Number (LNCH)/Official number from the National Revenue Agency (NRA) register

6.5. Code as per point 6.4

If a Personal Identification Number (EGN) is entered in section 6.4, enter the number 1 in section 6.5; if a Foreign Nationality Number (LN) is entered in section 6.4, enter the number 2 in section 6.5; if a Foreign National ID Number is entered in section 6.4, enter the number 3 in section 6.5; if an Official Number from the National Revenue Agency (NRA) register is entered in section 6.4, enter the number 4 in section 6.5

7

Principal amount of the mortgage loan in leva >>

8

Amount of the tax relief (enter the sum of the interest payments made during the year on the first 100,000 BGN of the mortgage loan principal)

This amount is entered in row 6, column 4 of Part IX >>

The following are attached to the declaration:

• A document certifying the amount of interest payments made during the year on the first 100,000 BGN of the principal of the mortgage loan taken out to purchase a property. It is issued by the lending bank.
  • Where the lending bank is established for tax purposes in a Member State of the European Union or in a country of the European Economic Area, a certified translation into Bulgarian, carried out by a sworn translator, of the document certifying the amount of interest payments made during the year.
• Where the declarant is a foreign natural person resident for tax purposes in a Member State of the European Union or in a country of the European Economic Area, officially certified documents attesting to the fulfilment of the conditions set out in Article 22a(1) of the Income Tax Act and their translation into Bulgarian by a sworn translator. These are issued by the competent authorities of the relevant foreign country

Example:

The young family meets the eligibility criteria and has a mortgage agreement with a principal amount of 150,000 BGN and an annual interest rate of 3 per cent. The tax relief may only be claimed up to the amount of the interest payments made during the year on the first 100,000 BGN of the principal. The interest paid is:

100,000 × 3% = 3,000 BGN

The taxable income will be reduced by 3,000 BGN; consequently, the tax will be reduced by 300 BGN (10 per cent of 3,000 BGN).

Regarding tax relief for improvements and/or repairs to residential property

Pursuant to Article 22e of the Income Tax Act, local individuals and foreign individuals resident for tax purposes in a Member State of the European Union, or in another country – a party to the Agreement on the European Economic Area, are entitled to a tax relief, by deducting from their total annual tax base the payments made during the year for labour in connection with improvements and/or repairs to a residential property, up to a total amount of two thousand leva, provided that all of the following conditions are met:

1. the residential property is situated within the territory of the Republic of Bulgaria;
2. the taxpayer is the owner or co-owner of the residential property;
3. the improvements and/or repairs have been carried out by persons resident in a Member State of the European Union or in another State party to the Agreement on the European Economic Area;
4. the residential property is not part of the business of a person carrying on commercial activities as a trader within the meaning of the Commercial Act;
5. the taxpayer holds a document evidencing payment for work carried out in connection with the improvement and/or repair of the residential property, containing the details specified in Article 6, (1) of the Accounting Act, accompanied by a document evidencing payment (a fiscal receipt, a receipt, a bank statement or other document);
6. the taxpayer and the person who carried out the repairs are not related parties.

The tax relief is available up to the sum of the annual tax bases under Article 17 of the Income Tax Act. Where the residential property is owned by more than one natural person, the relief may be claimed by each co-owner, provided that the total amount of relief claimed by all co-owners in respect of the property does not exceed two thousand leva. Where, in breach of the conditions, a greater total amount of tax relief has been claimed, each of the persons who claimed the relief shall be liable for the portion of the tax corresponding to the amount of relief claimed.

To claim the relief, the taxpayer must complete Part VIII of Annex 10 to the Annual Tax Return under Article 50 of the Income Tax Act.

Part VIII – Tax relief for improvements and/or repairs to residential property

I hereby declare the following circumstances and conditions for claiming the tax relief: (Pursuant to Article 22e(5) of the Income Tax Act, the circumstances and conditions, under which the tax relief for improvements and/or repairs to residential property may be claimed, shall be declared by the person in their annual tax return under Article 50 of the Income Tax Act.)

1

For the tax year, I am: 1.1. a resident of the Republic of Bulgaria >> 1.2. a resident of another EU Member State or a country party to the EEA Agreement >>

2

During the year, I made payments for labour in connection with improvements and/or repairs to a residential property in my capacity as: 2.1 sole owner >> 2.2 co-owner >>

3

The residential property is situated within the territory of the Republic of Bulgaria >>

property address

3.1. District

3.2. Municipality

3.3. Town/village

3.4. Postcode

3.5. Street, No., housing estate, block, entrance, flat

4

The improvements and/or repairs to the residential property were carried out by:    4.1. a resident of the Republic of Bulgaria >> 4.2. a resident of another EU Member State or a country party to the EEA Agreement >>

5

The residential property is not part of the business of a person carrying out economic activities as a trader within the meaning of the Commercial Act >>

6

I hold a document or documents evidencing payment for work carried out in connection with improvements and/or repairs to the property, containing the details specified in Article 6(1) of the Accounting Act, accompanied by a document or documents evidencing payment (fiscal receipt, receipt, bank or other document) >> 6.1. Document number and date of issue: ………………………………………………………………………………… 6.2. Name of the entity issuing the document: …………………………………………………………………

6.3. EIK/EGN/LNCH/LN/Registration No. in the National Revenue Agency’s register of the person referred to in point 6.2:

6.4. Code under point 6.3

If a UIC is entered in point 6.3, enter the number 1 in point 6.4; if a Personal Identification Number (EGN) is entered in point 6.3, enter the number 2 in point 6.4; if a Foreign National Identification Number (LNCH) is entered in point 6.3, enter the number 3 in point 6.4; if a LN is entered in section 6.3, enter the number 4 in section 6.4; if an official number from the National Revenue Agency (NRA) register is entered in section 6.3, enter the number 5 in section 6.4

7

I am not a related party to the person who carried out the repairs and/or improvements to the property referred to in point 2 >>

8

I am aware that the maximum amount of the tax relief available to all co-owners of the residential property may not exceed 2,000 BGN >> (To be completed where the residential property is owned by more than one natural person; in this case, the relief may be claimed by each co-owner, provided that the total amount of relief claimed by all co-owners for the property does not exceed 2,000 BGN.)

9

Amount of tax relief (Enter the amount paid by the declarant for labour costs incurred during the year in connection with improvements and/or repairs to the residential property, but not exceeding 2,000 BGN. The total amount of the tax relief claimed by all co-owners of this property may not exceed 2,000 BGN)

This amount is entered on line 9 in column 4 of Part IX >>

Example:

A taxpayer meets the conditions and has documentation for payments made during the year for labour relating to improvements and/or repairs to a residential property, totalling 4,500 BGN. The tax relief may only be claimed up to a maximum of 2,000 BGN. The taxable income will be reduced by 2,000 BGN; accordingly, the tax will be reduced by 200 BGN (10 per cent of 2,000 BGN).

Only individuals who have no public liabilities subject to enforcement as at the date of filing their annual tax return are eligible for tax relief.