Taxation of expenses for employee
benefits in-kind
Issue 5
October 2016
In this issue:
Taxation of expenses for
employee benefits inkind
Draft amendments to the
VAT Act
For information
KPMG's Tax News outline and highlight legislative changes and
trends in the area of tax.
The current issue of KPMG Tax News discusses the taxation of
expenses for benefits in-kind introduced with the amendments to the
Corporate Income Tax Act (CITA) and the Personal Income Tax Act
(PITA) which were promulgated in the State Gazette on 27
September 2016 and the expected developments from а VAT
perspective.
Taxation of expenses for benefits in-kind related to
company assets with mixed business and personal use
The amendments to the CITA introduce rules on taxation of
expenses for benefits in-kind related to company assets provided to
the employees for personal use and related expenses. Employers
will have the option to either assess a 10% one-off tax on the
expenses for benefits in-kind under the CITA or include the
expenses as personal income in accordance with the PITA. The
option chosen has to be declared with the annual Corporate Income
Tax Return for the respective year. This is required also for 2016
through submission of the annual tax return by 31 March 2017.
Corresponding amendments were made to the PITA.
“Expenses for benefits in-kind” include the portion of the accounting
expenses corresponding to the personal use of company assets and
other expenses related to them. The assets provided for personal
use could be owned or rented by the company and have to be used
for business purposes as well, not solely for personal use. For tax
depreciable assets, the expenses for benefits in-kind include the tax
depreciation and not the accounting depreciation charge.
Representative and social expenses subject to one-off tax under the
CITA are excluded from the scope of expenses for benefits in-kind.
In comparison to the proposed amendments to the CITA of 12 July
2016, the promulgated changes provide for a one-off tax to be
assessed on expenses for benefits in-kind also in the case when
these do not affect the financial result in the year of their accrual.
For the purpose of one-off taxation of the expenses for benefits inkind, the company’s assets are divided into three categories for
which the tax base could be determined under the following options:
•
•
•
Vehicles: alternatively (i) distance or hourly based
proportion between the personal and the total use of the
vehicles or (ii) a fixed 50:50 proportion
Real estate property: area or hourly based proportion
between the personal and the total use of the assets
Other assets: alternatively (i) a fixed proportion of 20% on
the total expenses related to the assets or (ii) another
proportion justified by the company.
The amendments to the CITA and PITA take effect retroactively and
apply as of 1 January 2016. Companies which treated the expenses
for benefits in-kind as income of the individuals subject to taxation
under the PITA can apply a one-off tax on the expenses under the
CITA from the month following the month of the promulgation of the
amendments.
Effective from 1 January 2016, no one-off tax is levied on expenses
related to the operation of vehicles used for management purposes.
The amendments provide for a transitional regime for determining
the base for taxation of expenses for benefits in-kind related to
vehicles, where the vehicle was used both for management and
personal purposes before the promulgation of the new CITA
provisions.
Top
Draft amendments to the VAT Act
Earlier in September 2016, the Bulgarian Ministry of Finance
published a bill to amend the VAT Act which has not been submitted
to the National Assembly yet. The proposed amendments are partly
related to the personal use of company assets.
In contrast to the CITA amendments which introduce different
criteria to determine the one-off tax base for the three asset
categories, the proposed VAT mechanism for distribution of the
expenses for personal use of company assets is still unclear. For
example, the proposed amendments do not allow for a fixed
proportion of 50:50 to be chosen as an alternative VAT approach
regarding company vehicles with mixed business and personal use.
The authorities may be expecting the position of the European
Commission on the Bulgarian application for derogation of Council
Directive 2006/112/EC allowing limitation of the input VAT deduction
for owned or rented vehicles to 50%.
The currently proposed changes in the VAT Act concerning the
personal use of company assets introduce a proportional input VAT
deduction for acquisitions of immovable property with mixed use.
Taxpayers would have to determine the proportion of business to
private use of the properties upon their acquisition and deduct input
VAT credit based on the expected business use. Another
proposition concerns the introduction of annual adjustments to the
initial input VAT deductions for real estate and other assets with
mixed use when there are changes in their use throughout the year.
For information
Ivan Vargoulev
Director, Tax
Tel: + 359 (2) 9697 700
Fax: + 359 (2) 9697 878
[email protected]
Antonia Shishkova - Ganeva
Manager, Tax
Tel: + 359 (2) 9697 700
Fax: + 359 (2) 9697 878
[email protected]
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