Compulsory registration pursuant to Article 96 of the Value Added Tax Act (VAT Act)

In this article, we will focus solely on registration under Article 96 of the Value Added Tax Act (VAT Act) and the issues that arise if the mandatory deadlines are missed.

The threshold for compulsory registration under the Value Added Tax Act was 50,000 BGN for a long time (from 1 January 2002 to 31 December 2022). From 1 January 2023, it was increased to BGN 100,000 (from 1 January 2023 to 31 December 2024). With the amendments to the Value Added Tax Act, published in the State Gazette, issue No. 106 of 2023, effective from 1 January 2025, the threshold for compulsory registration has been increased to 166,000 BGN.

Registration under the Value Added Tax Act is mandatory upon reaching the taxable turnover specified in Article 96 of the Value Added Tax Act or more, over a period not exceeding the last 12 consecutive months preceding the current month. In this case, an application for registration must be submitted within 7 days of the end of the tax period during which this turnover was reached (Article 96(1), first sentence, of the VAT Act).

Where this turnover is achieved over a period of no more than two consecutive months, including the current month, an application for registration must be submitted within 7 days of the date on which the turnover is achieved (Article 96(1), second sentence, of the Value Added Tax Act).

Taxable turnover is the sum of the tax bases of the following transactions:

• taxable supplies, including those subject to a zero rate;
• supplies of financial services under Article 46 of the Value Added Tax Act;
• supplies of insurance services under Article 47 of the Value Added Tax Act.

The taxable turnover includes:

• advance payments received in respect of supplies under Article 96(2) of the VAT Act, with the exception of advance payments received prior to the occurrence of the taxable event in respect of an intra-Community supply;
• the turnover realised by the entity undergoing transformation or by the transferor, where the latter is a registered person on grounds other than Article 96 of the VAT Act (referred to above) or Article 100(1) of the VAT Act, or is an unregistered person – for a period not exceeding the last 12 consecutive months prior to the reorganisation or transfer (in the cases referred to in Article 10(1)(1) and (2) of the VAT Act)
• in the case of a non-monetary contribution of an undertaking or a separate part thereof. In this case, account shall be taken of the turnover generated from the performance of the transferred activities by the undertaking undergoing transformation or the transferor; where it is not possible to determine this on the basis of the activities, – in proportion to the transferred assets;
• upon separation or division;

All taxable persons are required to determine their taxable turnover within the meaning of Article 96, (2) of the VAT Act after the end of each calendar month for the 12 months preceding the current one, as well as on a daily basis for a period not exceeding two consecutive months, including the current one. The taxable turnover of taxable persons established within the country who are registered solely on the basis of Article 156 of the VAT Act (for the application of the Union scheme), shall include supplies with a place of supply within the country to which the scheme does not apply (Article 73(1), third sentence, of the VAT Implementation Regulations, as amended – State Gazette No. 59 of 2022, in force from 26 July 2022).

The taxable turnover does not include supplies of financial and insurance services where these are not related to the person’s principal business activity, supplies of fixed tangible or intangible assets used in the person’s business, as well as supplies for which the tax is payable by the recipient, as set out in detail in Article 82(2) and (3) of the VAT Act.

The taxable turnover does not include supplies made pursuant to Article 21(6) of the VAT Act, where the place of supply is within the territory of the country, by a person:

• registered pursuant to Article 154 or registered in another Member State for the purposes of a regime outside the Union;
• registered in another Member State for the purposes of applying a regime within the Union, which has no permanent establishment within the country’s territory;

Pursuant to Article 96(6) of the VAT Act, when determining the taxable turnover, account is taken of the tax treatment of supplies as at the date on which the chargeable event occurs or as at the date of payment, before the chargeable event in respect of the supply has occurred.

The VAT registration procedure begins with the taxable person submitting an Application for Registration under the Value Added Tax Act. The application is submitted to the relevant regional directorate of the National Revenue Agency in person, by a person with power of representation, or electronically. The application must state the grounds for registration and be accompanied by the documents specified in the regulations implementing the Act.

Within 7 days of receiving the application, the revenue authority shall carry out a check on registration under the Value Added Tax Act. A registration check may also be carried out if the revenue authority establishes that a person has failed to fulfil their obligation to submit an application for registration within the prescribed time limit, or if the revenue authority discovers, in the course of other control procedures /an inspection or audit/ that there are grounds for compulsory registration under the VAT Act. In this case, the procedure is referred to as ‘Registration at the initiative of the revenue authority’.

A registration audit is a series of actions carried out by the tax authorities with the aim of establishing whether or not there are grounds for registration under the Value Added Tax Act (VAT Act).

During the VAT registration check, the following facts and circumstances are clarified:

• Has the deadline for submitting an application for compulsory registration under the Value Added Tax Act been met?;
• the circumstances and grounds for registration declared by the person – the information entered in the application and the documents attached to it are verified. If the information contained in the application and the accompanying documents is insufficient, further evidence is gathered in accordance with the Tax and Social Security Procedure Code (TPC) – both ex officio through cross-checks, delegated inspections, inspections at commercial premises, requests for information from third parties, and the commissioning of expert reports; and from the person being audited by requesting additional documents and written explanations regarding specific facts and circumstances forming the subject of the audit;
• what is the nature of the activity carried out by the person under audit – its sectoral specificity, as evidenced by the invoices issued by that person and the obligations undertaken by them under valid contracts;
• how the taxable turnover is calculated, by examining whether the supplies have actually been made and whether taxable supplies have been correctly treated in accordance with their type, their place of supply, the date on which the chargeable event occurs, special taxation regimes and the amount of the tax base;
• the customers of the person being audited are identified, including those classified as ‘related parties’;
• what is the nature of the supplies made by the person under investigation;
• it is established that the material and human resources required to carry out the activity are available;
• the circumstances relating to the correspondence address, the registered office and the business address, as applicable at the time of the inspection, are clarified;
• who are the persons authorised to represent the trader and who are the contact persons designated by the trader;
• who are the persons responsible for maintaining the accounts;
• the availability of data on previous registrations under the Value Added Tax Act.

The deadline for carrying out a registration check is 7 days from the date of submission of the application for registration under the Value Added Tax Act.

Once the inspection has been completed, one of the following documents is issued:

• VAT Registration Certificate – where it has been established that the taxable person meets the conditions for registration;
• Refusal of registration under the Value Added Tax Act – where it is established that the conditions for registration have not been met;
• Certificate of registration – issued at the same time as the registration certificate;
• Notification letter – a letter served on a person registered under the Value Added Tax Act, containing information regarding their obligations under that Act.

The date of registration under the Value Added Tax Act is deemed to be the date on which the registration certificate is served (Article 103(1) of the Value Added Tax Act).

A refusal to register under the Value Added Tax Act is issued when the person under investigation:

• cannot be located at the correspondence address provided by him in accordance with the Tax and Social Security Procedure Code;
• changed their correspondence address and failed to notify the tax authorities in accordance with the prescribed procedure;
• systematically fails to fulfil its obligations under this Act;
• has public liabilities collected by the National Revenue Agency, the total value of which exceeds the value of its assets, less its liabilities;
• failed to provide an email address for correspondence for a period exceeding three months from the date on which the obligation to notify arose;
• fails to produce or provide access to original accounting documents issued or drawn up by them, as requested by the revenue authority, unless the documents have been lost or destroyed, in which case the person has notified the revenue authorities.

 In the course of the audit, it may be established that a taxable person has failed to fulfil their obligation to submit an application for registration under the VAT Act within the time limit laid down in Article 96 of the VAT Act /within 7 days of the end of the tax period in which the turnover was achieved, or within 7 days of the date on which the turnover was achieved, as the case may be/.

In such cases, the revenue authority draws up a Statement of Administrative Offence (SAO) in accordance with the Tax and Social Security Procedure Code (TSSPC) and the Law on Administrative Offences and Penalties (LAOP). The fines for natural persons and the financial penalties for legal entities and sole traders are set out in Articles 178, 180 and 180A of the Value Added Tax Act (VATA) and are as follows:

A person liable for VAT under the VAT Act who is required to do so but fails to submit an application for registration or an application for deregistration within the prescribed time limits shall be liable to a fine – for natural persons who are not traders, or a financial penalty for legal persons and sole traders, amounting to between 500 and 5,000 BGN.

A registered person who, having a legal obligation to do so, fails to charge tax within the time limits laid down in the Value Added Tax Act shall be liable to a fine – for natural persons who are not traders, or a financial penalty – for legal persons and sole traders – amounting to the uncharged tax, but not less than 500 BGN. In the event of a repeat offence, the amount of the fine or financial penalty shall be double the amount of the tax not charged, but not less than 1,000 BGN. 

These fines/penalties also apply where a person has not charged tax because they have not submitted an application for registration and have not registered under this Act within the prescribed time limit. Where a registered person has charged the tax within six months of the end of the month in which the tax should have been charged, the fine, or financial penalty, shall amount to 5 per cent of the tax, but not less than 200 BGN; in the event of a repeat offence, it shall be not less than 400 BGN.

Where a registered person has accounted for the tax after 6 months, but no later than 18 months from the end of the month in which the tax should have been accounted for, the fine, or financial penalty, shall amount to 10 per cent of the tax, but not less than 400 BGN, and in the event of a repeat offence – not less than 800 BGN.

A registered person who, being obliged to do so, fails to charge tax within the time limits laid down in the Value Added Tax Act in cases where the tax is payable by that person as a taxpayer under Chapter Eight of the Value Added Tax Act and where the person is entitled to a full tax credit in respect of the tax charged, shall be liable to a fine — for natural persons who are not traders, or a financial penalty — for legal persons and sole traders, amounting to 5 per cent of the uncharged tax, but not less than 50 BGN. The same penalty shall apply where a person has failed to charge tax because they have not submitted an application for registration and have not registered under this Act within the prescribed time limit.

Where a registered person has charged the tax in the period following the period in which the tax should have been charged, the fine, or financial penalty, shall amount to up to 2 per cent of the tax, but not less than 25 BGN. In cases where the person has notified the revenue authorities in accordance with Article 126(3)(2) within two months of the end of the month in which the tax should have been charged, the fine or financial penalty shall be between 100 and 300 leva.

Where registration under the VAT Act is carried out on the initiative of a revenue authority, there are certain specific provisions, effective from 1 January 2024, as set out in Article 102 of the VAT Act:

Where a revenue authority establishes that a person has failed to fulfil their obligation to submit an application for registration within the prescribed time limit, it shall register that person by issuing a registration certificate, provided that the conditions for registration are met. The certificate shall specify the grounds and the date on which the obligation to register arose. Z

and for determining a person’s tax liabilities in cases where they were required to, but failed to, submit an application for registration within the prescribed time limit, it shall be deemed that the person owes tax on the taxable supplies and taxable intra-Community acquisitions made by them and on the taxable supplies of services received, for which the tax is chargeable to the recipient:

            1. for the period from the expiry of the deadline by which the registration certificate should have been issued – provided the person submitted the application for registration within the deadline – until the date on which the person was registered by the revenue authority;

            2. for the period from the expiry of the deadline by which the registration certificate should have been issued – provided the person submitted the application for registration within the deadline – until the date on which the grounds for registration ceased to exist.

A registered person may, in respect of any taxable supply made by them, documented by an invoice and/or an invoice note without VAT charged, in respect of which they owe VAT, may, in the first or subsequent tax period, cancel the documents issued without VAT charged in accordance with Article 116 of the VAT Act and issue a new invoice in accordance with Article 113 of the VAT Act, in which the tax is shown on a separate line.

When determining the amount of tax due for each taxable supply made, it is assumed that the tax is included in the agreed price, unless it is expressly agreed, when the new invoice is issued, that the tax is to be payable separately. The new invoice is recorded in the sales ledger for the tax period in which it was issued.

Where a new invoice has not been issued in accordance with the procedure described above, the registered person shall account for the tax due on the taxable supply made by them by means of a protocol in the first or the following tax period. The statement must contain the details specified in Article 117(2)(1) to (8) of the VAT Act, and must also specify the documents issued which document the supply without VAT charged. The statement issued shall be recorded in the sales ledger for the tax period during which it was issued.

A registered person in respect of taxable supplies made which are not documented by an invoice and/or a note to an invoice without VAT charged, and for which tax is due, shall, in the first or subsequent tax period, draw up a return under Article 119 of the VAT Act, in which they shall determine the amount of tax due in accordance with Article 67(2) or (3) of the VAT Act, and shall record it in the sales ledger for the tax period in which it was issued.

The registered person shall account for the tax due on each taxable supply of goods or services received, in respect of which the tax is chargeable to the recipient, by means of a statement under Article 117 in the first or subsequent tax period. The statement shall be recorded in the sales ledger for the tax period in which it is issued. In respect of supplies under Article 163a(2) for which tax has been charged by the supplier, the registered person shall not be liable for tax under the provisions of this Article.

The person shall be liable to pay interest on the tax due, with effect from the expiry of the period within which the tax should have been paid, provided that the person was registered under this Act within the prescribed time limit.

In the cases referred to in Article 102(6) of the VAT Act, the recipient of the supply – a person registered under this Act – may exercise the right to a tax credit in accordance with the general rules of the Act during the tax period during which the new invoice was issued, or during the following tax period, provided that they were a registered person on the date of supply and had recorded the originally issued invoice and/or the related notification in the purchase ledger under Article 124, (1)(1) within the time limit specified in Article 72(1) of the VAT Act.