Law on Corporate Income Taxation

LAW ON CORPORATE INCOME TAXATION

Chapter One

GENERAL PROVISIONS

TITLE ONE

Object of Taxation, Types of Taxes, Subject to Tax and Taxpayers

Art. 1. (1) This Law shall regulate the taxation of:

income and profits, earned by local and foreign legal entities, including budget organizations, as well as local and foreign partnerships which are not legal entities (unincorporated partnerships);

income of resident and non-resident individuals listed in this Law.

(2) For the purposes of this Law budget organzations shall be considered legal entities.

Art. 2. (1) Profits shall be subject to tax on profits for the Republican budget and tax on profits for the municipalities, further referred to as "profits tax" and "municipal tax", as the case may be.

(2) Income shall be subject to the taxes established by this Law.

(3) Insurance partnerships, mutual insurance co-operations and foreign persons shall be subject to tax on the insurance and reinsurance premiums for their insurance and re-insurance activity at a locality instead of profits tax or municipal tax. Activities unrelated to insurance and reinsurance shall be subject to taxation with profits tax and municipal tax in accordance with the general rule.

(4) Local legal entities shall be subject to a final annual tax fixed in the amount (patent tax) whenever they perform only activities listed in the Personal Income Tax Law and falling within the conditions of this same Law.

Art. 3. (1) Local legal entities and local unincorporated partnerships shall be subject to taxation with profits tax and municipal tax for their profits derived from all sources in the country and abroad.

(2) Foreign legal entities and foreign unincorporated partnerships shall be subject to taxation with profits tax and municipal tax for their business activity in the country, including for business activity at a locality.

Art. 4. (1) Legal entities which are not traders, including budget organizations and religious faith communities, shall be subject to taxation for their profits and income derived from transactions under Art. 1 of the Commercial Code, from [transactions listed as an] occupational activity, including from leasing of movable or immovable property.

(2) Legal entities which are budget organizations may license operations of events, production processes and activities, accounted for separately on a balance sheet or accounted for on extra budgetary accounts, to pay the taxes and contributions due on their behalf and at their expense.

Art. 5. (1) Subject to tax under this Law shall be local and foreign persons, as well as local and foreign unincorporated partnerships.

(2) Those subject to tax shall bear the tax liability.

Art. 6. (1) Taxpayers according to the provisions of this Law shall be:

1. local legal entities;

2. local legal entities which are non-profit organizations in cases when those perform business activity;

3. budget organizations in cases when those perform business activity;

4. local unincorporated partnerships;

5. foreign legal entities whenever those perform independent business activity and business activity at a locality in the Republic of Bulgaria;

6. foreign unincorporated partnerships whenever those perform business activity, including business activity at a locality in the country;

(2) Payers of the tax shall be the taxpayers under the preceding paragraph, unless otherwise provided in the Law.

TITLE TWO

Profits and Income from Sources in the Country

Art. 7. (1) The profits and income of local legal entities and local unincorporated partnerships shall be deemed to be from sources in the country, unless otherwise provided in the Law.

(2) The profits and income shall be from sources in the country whenever those originate from business activity through:

a locality of business activity or through an establishment on the territory of the country;

a manager, a commercial representative or other dependent representative.

(3) The profits and income derived from capital invested on the territory of Bulgaria shall be from a source in the country, regardless of the origin of that capital.

(4) The profits and income from sales, export or other type of realization of goods, services and rights on and from the territory of Bulgaria shall be from sources in the country. Whenever foreign persons purchase [goods or services] in the country and import and export goods or services without having a locality of business activity, the profits and income shall not be considered to be from a source in the country.

(5) Regardless of the provisions of para 3, the following income payable by a local person or by a foreign person, through business activity at a locality, shall be from a source in the country:

remuneration for self-employed individuals on the condition that the amount of the remuneration shall be deducted while calculating the income of the payer or would have been deducted were the payer not exempt from income or profits tax;

remuneration different from wages, payable to an employee or member of a management or monitoring body of a Bulgarian legal entity, a subsidiary of a foreign person, an employee in a foreign person’s commercial representative establishment or other person executing identical or similar functions;

dividends and liquidation stakes in commercial and unincorporated partnerships;

interest payments;

rents, remuneration under leasing, franchising or factoring contracts;

copyrights and license fees;

remuneration for technical services.

(6) Income from agriculture and forestry, income from use of immovable property and positive differences from sales of immovable property located on the territory of the country, shall be from sources in the country.

(7) For the purposes of para 6 "immovable property" shall include ownership of common parts or limited real rights on immovable property.

Income from transactions with partnership shares in local partnerships, as well as transactions with securities under para 8, shall be from sources in the country.

Income from securities emitted by the state, municipalities or by local legal entities shall be from a source in the country.

Art. 8. Whenever the activity is performed partially on the territory of Bulgaria or within its exclusive economic zone and continental shelf, and it is impossible, based on the taxpayer's documents required in accordance with the provisions of the Accountancy Law and other secondary legislation, to determine directly what part of the profit has originated from sources within the country, as such shall be deemed to be that part of the total profit which corresponds to the relative share of the activity performed in the country.

TITLE THREE

Tax Base

Art. 9. The base for determining the municipal tax shall be the taxable profit, defined in accordance with the provisions in Chapter Two.

Art. 10. The base for determining the profits tax shall be the taxable profit, defined in accordance with the provisions of Chapter Two, reduced with the municipal tax.

Art. 11. The tax base for insurance and reinsurance companies for their main activity shall be the gross amount of the insurance premiums accrued in the course of the calendar month.

Art. 12. (1) The base for taxation of income from dividends and liquidation stakes, distributed to resident and non-resident individuals, shall be the gross amount of that income.

(2) The base for taxation of income, distributed to foreign individuals and legal entities, as well as to foreign unincorporated partnerships, apart from the income under para 1, shall be the gross amount of the income from:

1. interest payments, including interest which is part of the contributions under a financial lease contract;

2. copyrights and license fees;

3. remuneration for technical services;

4. rents and remuneration under operational lease, franchising and factoring contracts from sources in the Republic of Bulgaria.

(3) The base for taxation of the income of foreign persons from sales of immovable property, partnership shares, securities and financial assets shall be the positive difference between their book value and sales value.

TITLE FOUR

Prevention from Tax Evasion

Art. 13. In cases when related persons have commercial and financial relationships carried out at conditions influencing the amount of the profits and income and [which conditions] differ from those between unrelated persons, their profits and income shall be determined and taxed at conditions which would have been observed between unrelated persons.

Art. 14. (1) Whenever one or more transactions have been performed with the purpose of evasion of tax, the tax due by such persons shall be determined without taking into consideration, partially or fully, the result from those transactions.

(2) The tax due under para 1 shall be determined within the amounts which would have appeared for usual transactions performed at stock exchange prices, or fixed or monitored prices.

(3) Whenever a transaction is disguised by means of performing another transaction, the tax liability shall be determined at conditions which would have appeared, if the disguised transaction had been performed.

Art. 15. (1) In the cases of articles 13 and 14, when the gross amount of income distributed to the taxpayers is reduced, for the purposes of determining the tax base, the amounts originating from the commercial and financial relationships shall be taken into consideration.

(2) In the cases of articles 13 and 14, where the financial result of the taxpayer for the [respective] tax period is reduced or loss is registered, for the purposes of determining the tax due, the financial result shall be increased with the amounts originating from such commercial and financial relationships or transactions, before adjustment for tax purposes.

(3) The provision para 2 shall apply also for transfer prices and commercial and economic relationships in the cases when:

1. increase or decrease of prices for supply of goods or provision of services in performing mutual transactions, where prices differ from the market prices by more than 25 per cent;

2. payments of remuneration or penalties for services which have not been in reality provided;

3. receiving or granting loans against a percentage of interest, which differs with more or less 1/4 of the legal interest rate, at the moment when the transaction is concluded, as well as forgiveness of debts or redemption of loans at personal expense, when those are not related to the activity;

4. reimbursement of expenses for research, investigation and development performed by a related person, where the amount of the expenses is not adequate, or when [those expenses are] inadequately distributed to cover the achieved results or the volume of activity, as well as expenses not corresponding to the [usual value of such] expenses when made by unrelated persons;

5. incurring expenses connected with delegating the task of management and personal performance, booked to the benefit of the partners and staff, where an adequate personal performance is not provided;

6. determining the expenses for control, co-ordination, advertisement and other administrative activities between related persons as different from those made at conditions between unrelated persons;

7. determining the expenses for processing, transportation, packaging, distribution, etc. between related persons as different from those [made] at conditions between unrelated persons.

Art. 16. (1) Market prices shall be determined through:

1. the method of competitive prices where market prices have been used between independent partners;

2. the method of market prices where the usual market price, shall be the price negotiated in the process of selling unchanged goods and services to an independent partner, reduced with the expenses of the trader and with the usual profit;

3. the method of expenses and income where the usual market price is determined by adding the usual profit to the cost of the product;

(2) Whenever a new product is introduced on the market or the market share is increased, for the purposes of Art. 13 and 14, negotiation of a higher or lower price than the usual market price shall be allowed.

(3) The order and procedures for the implementation of the methods described in para 1 and 2 shall be determined by means of a Decree by the Minister of Finance.

TITLE FIVE

Priority Application of International Tax Treaties

Art. 17. (1) Whenever in a tax treaty for avoidance of international double taxation or in another effective international agreement, ratified by the Republic of Bulgaria and promulgated in the State Gazette, there are provisions differing from the provisions in this Law, the provisions within the respective treaty or international agreement shall apply.

(2) ) The order, manner and procedures for implementation of the treaties for avoidance of double taxation shall be determined by the Minister of Finance for the occasions envisaged in the respective treaty.

TITLE SIX

Avoidance of International Double Taxation

Art. 18. The provisions of this Law shall apply in cases when no tax treaty or other international agreement for avoidance of international double taxation is concluded.

Art. 19. (1) In determining the profits tax and the municipal tax, local legal entities and local unincorporated partnerships shall be entitled to tax credit for all identical and similar foreign taxes charged by the respective competent authorities abroad.

(2) Local legal entities and local unincorporated partnerships shall be entitled to claim the tax credit on the gross amount of the income from dividends, interest payments, copyrights and license fees, remuneration for technical services and rental payments originating from sources abroad.

(3) The tax credit under paras 1 and 2 shall be determined for each country separately and shall be limited to the amount of the Bulgarian profits tax, municipal tax and personal income tax which would have been due, if treated as profit or income from sources in the country.

Art. 20. In applying the provisions of Art. 19 the Minister shall have the right to:

1. establish the origin and specific amount of the local and foreign profits or income, originating from a respective source or accrued financial result;

2. not to recognize the tax credit for those foreign taxes which illegally increase the [total amount of the] credit;

3. to determine whether the profit from a source abroad in one country in fact originates from another country;

4. to do other calculations connected with the source of income and the amount of income and profits.

Chapter Two

TAXABLE PROFIT

TITLE ONE

General Rules for Determining the Taxable Profit

Art. 21. The taxable profit shall be the positive value, determined on the basis of the accrued financial result, which is established as a difference between the income less the expenses, not including the profits and municipal taxes, and adjusted in accordance with the provisions of this Law.

Art. 22. (1) When establishing the taxable profit for tax purposes, depreciation allowances shall be determined which are compatible with the accounting depreciation quota. The depreciation amount shall be established by systematically applying the straight-line depreciation method.

(2) For tax purposes the assets, subject to depreciation, shall be grouped into the following categories:

1. I category - steady buildings, facilities, communication devices, electricity carriers, communication lines;

2. II category - machinery, manufacturing equipment, apparatus and computers;

3. III category - transportation vehicles, excluding automobiles; coverage of roads and airplane runways;

4. IV category - all other depreciable assets.

(3) For tax purposes for taxation of profits, the depreciation rates may not exceed the following:

Category of Assets Annual Depreciation Rates - %

1

I Category 4

2

II Category 20

3

III Category 5

4

IV Category 15

(4) Taxpayers may either apply accelerated depreciation for tax purposes for the assets, falling within Category II, as well as for electricity carriers, communication lines, steam- and water-pipelines, by applying the declining balance depreciation method with a coefficient of 1.5 for increasing the tax depreciation rate, or increase the tax depreciation rate by 50 per cent.

Art. 23. (1) The amount of the taxable profit shall be established by adjusting the accrued financial result, regardless of whether it is a positive or negative value, where amounts are subtracted or added back for tax purposes.

(2) The financial result before adjustment for tax purposes shall be increased with:

1. per diem allowances for business travel, exceeding the amounts determined by means of secondary legislation for government officials;

2. penalties charged, goods confiscated and other sanctions for violations of provisions within secondary legislation, as well as the interest payments, [charged] in accordance with the Law for Interest on [unpaid] Taxes, Fees and Similar State Receivables;

3. the positive temporary timing difference between the sum total of the accounting depreciation rates under Art. 20 of the Accountancy Law and the total depreciation amount recognized for tax purposes, for all assets of a given enterprise as a whole;

4. expenses unrelated to the [business] activity such as: expenses for clothing (with the exception of uniforms and working outfits); expenses for maintenance and use of buildings and other movable and immovable property, including such rented, which are partially or fully used for personal needs; expenses for entertainment and holidays of the co-partners, shareholders, staff, managers, Board of Managers members, Board of Directors members, Monitoring Board members and third parties;

5. premiums for life insurance and other personal insurance policies, which are not laid down as mandatory, with the exception of those connected with risk factors for certain types of job positions and professions, laid down as such by means of primary legislation and specific secondary legislation;

6. expenses, booked as current expenses for repairs, but made for improvement, modernization and reconstruction of long-term assets, resulting in an increase of their value;

7. expenses for improvement, modernization and reconstruction of leased long-term assets in cases when those are not deducted from the lease payments;

8. inventories written off and wastage of stock (without those at the expense of the staff) with the exception of such originating from:

a) deficient products;

b) changes in the properties of elements, which usually correspond to the established standard limits for natural wastage and losses of inventories during safekeeping or transportation;

c) expiration of the fit-for-consumption-or-use deadlines according to secondary legislation and company standards;

d) ruin or partial ruin caused by natural calamities.

9. the value of insured assets which are written off or wasted shall be reduced with the [amount of the] proceeds, up to the value of those assets as accounted for in the balance sheet. Whenever differences appear during the period between writing-off the insured assets and payment of the proceeds, the increase [in the financial result] shall be done at the time of receiving the insurance proceeds, whereas until then the write-off or wastage, resulting from the insurance event, shall be booked as receivable;

10. the expenses which are in essence hidden distribution of profits to the benefit of the shareholders, co-partners or third parties;

11. the expenses for interest payments on loans granted by co-partners or shareholders who have not paid the respective instalments on their registered shares or equity interest;

12. the profits which have not been taxed because of unrecovered provisions upon collection of provisioned claims;

13. the expenses which taxpayers are unable to prove by means of documents as required in the respective secondary legislation, including by means of cash register cheques issued by electronic systems with fiscal memory;

14. income not reported in accordance with the established requirements in the legislation;

15. expenses, booked in result of events having taken place in previous tax periods, which result in a decrease of the financial result during the current reporting period, in accordance with Title Three;

16. expenses originating from transactions between related persons, or third party transactions, in accordance with Chapter One, Title Four;

17. temporary timing differences appearing following the application of Art. 22 of the Accountancy Law with the exception of banks and the State Savings Bank (SSB);

18. that portion of the interest payments on loans which exceeds the limit established in Art. 26;

19. that portion of the expenses for wages in commercial partnerships with 50 or more per cent state or municipal participation, which exceeds the amounts regulated in secondary legislation;

20. production and consumer dividends paid, which have been booked as unusual expense from operations taken place in previous years;

21. that portion of the expenses used for repairing personal long-term assets which exceed the tax depreciation charged until that time for that particular asset from the beginning of its use, with the exception of emergency repairs not covered by the insurance proceeds;

22. 30 per cent of the expenses accrued as provisions in financial and non-financial enterprises with the exception of bank provisions of securities issued by the state;

(3) The financial result before adjustment for tax purposes shall be reduced with:

1. gifts to the benefit of: educational and healthcare institutions and organizations which are budget organizations; charity foundations and foundations established for social, environmental healthcare, scientific, research, cultural and sports purposes; religious faith ……… societies and beliefs registered in the country; funds for sustaining handicapped individuals and victims of natural disasters; the Bulgarian Red Cross; support for socially disadvantaged or impaired individuals, children with impaired health or without parents; reconstruction and protection of natural, historical and cultural monuments - up to 5 per cent of the positive financial result before adjustment for tax purposes, on the condition that the gifts shall be made from the capital reserves [or] from the owner’s account, as the case may be ;

2. dividends received in result of the distribution of profits by local persons and unincorporated partnerships;

3. temporary timing differences for the enterprise as a whole, resulting from excessive depreciation in cases of reverse expression of the positive differences from depreciation. The financial result shall not be adjusted in the cases when depreciation quotas are lower than those recognized for tax purposes and where there have been no addbacks before that relating to the financial result;

4. temporary timing differences emerging at the time of realization of the assets, [which are the] bearers of those differences under Art. 22 of the Accountancy Law;

5. the portion of loss carryovers under Chapter Four;

6. income booked in result of operations taken place in previous accounting periods which lead to an increase of the financial result before adjustment for tax purposes for the current accounting period under Chapter Two, Title Three;

7. temporary timing differences resulting from recognition of interest charged under Art. 26;

8. production and consumer dividends paid by co-operatives to co-op members under Chapter Two, Title Five;

9. income from interest paid by the tax administration for overpaid taxes;

10. the taxed portion of the provisions under para 2 subpara 22 in financial and non-financial enterprises where the provision is reintegrated in the profit.

(4) The subtractions under para 3 subpara 1 shall apply on the condition that the persons providing the gifts or those who manage them shall not benefit [from the gifts].

(5) In cases of non-monetary gifts, their value shall be determined according to the book value of the gift or sponsorship.

(6) Tax deductions for gifts shall be allowed only on the basis of an agreement or other document certifying that the [subject of the] gift has been received.

(7) Gifts under para 3 subpara 1 shall be considered made, as follows:

1. for financial means - from the date when the gifted means were received by the recipient of the gift;

2. for movable possessions, immovable property, as well as granted limited real rights on real property - from the date of performance of the transaction;

3. for equity interest - from the date when the Court Decision for entry into the Trade Register has become effective;

4. for securities - from the date of the transfer of ownership.

(8) Expenses of local legal entities made for reasons of providing for the stay of foreign individuals without permanent place of residence in the country when those are managers, co-partners, members of the Board of Directors or Surveillance Councils, performing managerial functions on the territory of the country, shall not be regulated for tax purposes.

(9) The financial result shall be increased with the amount of the accrued foreign exchange losses from bank ?? assets imported in the partnership’s capital of a bank in foreign exchange, in cases when the Bulgarian legislation should allow this capital to remain expressed in foreign exchange, where those assets shall not exceed the amount of the contributed capital.

(10) Expenses for repairs regulated in para 2 subpara 21 shall not exceed the amount of the depreciation allowed for the particular asset until that time, reduced with the expenses for repairs made before January 1, 1998.

Art. 24. (1) The financial result shall not be reduced with the established reserves before its adjustment for tax purposes, unless so provided in a Law.

(2) The sum total of the tax deductions, shall not exceed the positive financial result as accounted for in the respective income-and-expenses statement, before its adjustment for tax purposes.

Art. 25. (1)This Title shall regulate the determining of the taxable profit for [business activity performed at a] locality.

(2) Whenever a foreign person performs their activity on the territory of the country through a manager, commercial delegate or other dependent representative, and this representative is authorized and normally concludes commercial agreements on behalf of the foreign person, it shall be considered that the activity is performed at a locality in Bulgaria for all undertakings, except when those are preparatory or auxiliary activities.

(3) Simple purchases for or on behalf of a foreign person shall not be considered a business activity performed at a locality.

TITLE TWO

Thin Capitalization Rules

Art. 26. (1) The maximum amount of interest payments, originating from contributions made under Art. 134 and 190 of the Commercial Code, as well as additional and other instalments paid in accordance with the establishment contract or in accordance with a decision of the General Assembly, as well as loans from third parties, shall be recognized as expenses for tax purposes in determining the taxable profit for each tax period, and shall not exceed the total income from interest of the taxpayer plus 50 per cent of their positive financial result, excluding income and expenses from interest.

(2) Para 1 shall also apply for interest on bank loans.

(3) The expenses from interest added back to the financial result before adjustment for tax purposes while determining the taxable profit for the current year shall be deducted from the taxable profit in the following year, up to the amount indicated in para 1.

(4) Paragraphs 1, 2 and 3 shall not apply with respect to banks, the State Savings Bank and the holding companies, following the provisions of Art. 280 of the Commercial Code.

TITLE THREE

Tax Treatment of Income and Expenses Accounted for In Result of

Events From Previous Tax Periods

Art. 27. The following expenses, accounted for in result of events having taken place in previous tax periods, shall be added back to the financial result before adjustment for tax purposes in accordance with the provisions of Art. 23 para 2 subpara 15, which [expenses] have resulted in its reduction:

1. smaller, or zero, amounts of tax charged in previous tax periods: municipal tax, profits tax, contributions to the Melioration Fund and excess wage tax;

2. expenses from previous tax periods only in cases when the financial result before adjustment for tax purposes is negative or, if positive, it is less than [the total of these] expenses.

Art. 28. (1) In accordance with the provisions of Art. 23 para 2 subpara 15 the amounts of VAT (turnover tax) and excise due but not accrued in previous periods shall not be added back to the financial result before adjustment for tax purposes.

(2) Unusual expenses which are not listed in Art. 27 shall not be added back to the financial result before its adjustment for tax purposes.

Art. 29. (1) The financial result before adjustment for tax purposes shall be reduced with the tax overpaid in previous tax periods, as well as any overpaid contributions from the profits, following the provisions of Art. 23 para 3 subpara 6.

(2) Following the provisions of Art. 23 para 3 subpara 6, the financial result before adjustment for tax purposes for the respective period, shall be reduced with the income, accounted for as extraordinary income in accordance with the Accountancy Law, for which tax liability is calculated, as well as any contributions from the profits for the respective period.

TITLE FOUR

Tax Treatment of Lease Contracts

Art. 30. In case of an operational lease contract, the subject of which is a long-term asset, the lessor shall book the lease payments as income, while accounting as expense the depreciation charged, as well as any other expenses directly relating to the lease contract.

Art. 31. (1) A financial lease contract shall be such contract which is concluded for a period of more than one year, including the cases of an extension of the original contract, whenever the following circumstances are present:

1. the period for which the contract has been concluded, including extended contracts, should surpass the economically useful life of the leased asset;

2. the contract should contain a clause for buying off and transfer of ownership over the leased asset at the moment, or after expiration, of the lease contract;

(2) Any financial lease contract shall be treated as a sale of the long-term asset [subject to the contract] where the lessor under the contract shall be the seller and the lessee, the buyer.

(3) Whenever under the form of an operational lease contract ownership over property is transferred to the lessee, the contract shall be considered to be a financial lease contract.

(4) Whenever in the process of performance an operational lease is transformed into a financial lease contract, the provisions of para 2 shall apply.

TITLE FIVE

Specific Rules for Determining the Taxable Profit of Co-operatives

Art. 32. (1) The taxable profit of the co-operatives shall be reduced with the production and consumer dividends distributed to the co-operative members before March 25 of the following year.

(2) Production dividends shall be distributed for the produce made by the co-operative members and sold to the co-operative. Those shall be determined on the basis of the profits, corresponding to the realized production, including such realized after processing.

(3) Consumer dividends shall be distributed for consumer goods which the co-operative members buy from the co-operative. Those shall be determined on the basis of the profits, originating from the difference between the co-operative's sales price of the products, reduced with the expenses for their realization, and the price paid by the co-operative for purchasing those products.

(4) Production and consumer dividends, paid to the co-operative members during the accounting period, shall not be taken into consideration while adjusting the financial result for tax purposes, but shall be accounted for as receivable in accordance with the Accountancy legislation.

(5) The financial result shall be reduced with the amount of the distributed production and consumer dividends under Art. 23 para 3 subpara 8, before adjustment for tax purposes. The adjustment shall take place simultaneously with preparing the annual tax return for taxation of legal entities.

(6) In case of co-operatives registering losses or insufficient profits to cover the distributed production and consumer dividends during the year, the amount of the distributed dividends shall be accounted for as unusual expenses and the financial result shall be increased under Art. 23 para 2 subpara 21, before adjustment for the purposes of taxation.

Art. 33. (1) Production dividends, received by the co-operative members shall be subject to individual income tax, according to the provisions of the Personal Income Tax Law.

(2) Consumer dividends, received by the co-operative members, shall not be subject to income taxes.

Chapter Three

WITHHOLDING OF TAX AT THE SOURCE

Art. 34. (1) Dividends and liquidation stakes distributed by local legal entities and unincorporated partnerships to local legal entities and unincorporated partnerships which are non-profit organizations, with the exception of those under Art. 23 para 3 subpara 1, and to foreign persons shall be subject to tax withheld at the source, which shall be final.

(2) Whenever taxpayers distribute any category of income as those listed in Art. 12 paras 2 and 3, to non-resident individuals and foreign unincorporated partnerships, where this income is not derived from a business activity performed at a locality, the tax withheld at the source shall be final.

Art. 35. Expenses for celebrations, promotion and entertainment, as well as for gifts not bearing the trade name or trademark of the taxpayer, shall be subject to a final tax.

Art. 36. (1) Social expenses which are in essence fringe benefits for the staff in cash or in kind, including such under personal performance agreements for management, shall be subject to tax withheld at the source which shall be final.

(2) Expenses for maintenance, repairs and operation of automobiles in cases when the activity performed with them is not occupational, shall be subject to taxation under para 1.

Art. 37. The tax under Art. 35 and 36 shall be booked as expense for the activity of the enterprise and shall not be considered while adjusting the financial result in accordance with the provisions of Chapter Two.

Chapter Four

Loss Carryovers for Future Tax Periods

Art. 38. (1) Any negative annual financial result of a taxpayer, before adjustment for tax purposes (losses), shall be deducted over the next five tax years, and in case of banks over the next ten years, after [it is] appropriately adjusted with the amounts under Art. 23 para 2, with the exception of the amounts under Art. 23 para 2 subpara 3, 12, 15, 18, and 19.

(2) Losses shall be deducted at the time of determining the taxable profit up to the amount of the positive financial result for the following tax year, while observing the requirements in Art. 25 and, if the amount of the positive financial result shall prove insufficient, the difference shall be deducted over the next years in the course of the time periods determined in para 1 from the moment when [the losses] first appeared.

(3) For new losses incurred the provisions of paras 1 and 2 shall apply, while following the order of appearance of the losses. For each newly registered loss the five-year or ten-year period, as the case may be, shall commence at the time of its appearance.

Art. 39. (1) The right to carryover losses under Art. 38 para 1 shall not be transferred upon termination of activity for reasons of liquidation or insolvency of the enterprise.

(2) The right to carryover losses in case of transformation through mergers, takeovers, demergers and unbundling shall be terminated only if there is more than 50 per cent change of ownership.

Art. 40. Losses which are determined under the provisions of Art. 40 with a source outside of Bulgaria shall be subsequently deducted from the profits from this same source only over the next five tax years.

Chapter Five

Taxation in Cases of Termination of Activity

and Transformation [of Companies]

TITLE ONE

Tax Treatment in Cases of Termination of Activity

for Reasons of Liquidation or Insolvency

Art. 41. (1) In cases of termination for reasons of liquidation of local legal persons, the taxes payable under this Law shall be computed for the period from the beginning of the year up to the date of entering the termination in the Court Register.

(2)Taxes shall be computed following the provisions of para 1, regardless of the obligation [of the taxpayer] to prepare a profit-and-loss account and file an annual tax return. During the period of liquidation till their deletion, the terminated legal entities shall fulfil their obligations under this Law as if they were operating enterprises.

(3) The taxes due by terminated legal persons under this Law shall be computed and paid regardless, of whether their relationships are settled with third parties, or shareholders, or partners, considering the rules for preferable and rightful satisfaction of all state receivables of tax liabilities and penalty interest charged [on such liabilities].

(4) The tax registration shall be terminated from the date of deletion of the legal entity in the court register.

(5) After the date of taking a decision for termination for reasons of liquidation, the use of any tax preferences shall be terminated.

(6) The taxes due up to the moment of registry of the termination shall be reported in the form of an annual tax return and shall be paid as extraordinary advance payments, after deducting the current advance payments.

(7) Extraordinary advance payments shall be made within a thirty-day period from the moment of registry of the termination.

(8) The rules under the preceding paragraphs shall apply also in case of termination for reasons of insolvency.

Whenever the legal entity is terminated for reasons of liquidation and during the liquidation process, based on a decision made by the General Assembly, there shall be no sale of assets, a one-time capital gains tax shall be levied, determined as a difference between the market prices of the partnership s assets and their market value, at the moment of termination.

TITLE TWO

Tax treatment in Cases of Transformation

Art. 42. (1) Where there is a transformation of a legal entity through demerger, unbundling, merger or takeover, profits tax and municipal tax shall be levied for the period from the beginning of the year until the moment of entry [of the reorganized company] in the Court Trade Register.

(2) Taxation under para 1 shall be final. The new partnership or partnerships shall pay the difference between the taxes calculated on an accrual basis and the advance payments made, within 30 days of the entering of the Decision for transformation into the Court Trade Register.

(3) For the remainder of time till the end of the year the profits and municipal taxes shall be calculated and paid by the new partnership or partnerships, following the general rules.

Art. 43 In cases of mergers, takeovers, demergers or unbundling of commercial partnerships or co-operatives, the newly established entities shall be liable for the tax liabilities of the reorganized partnerships or co-operatives up to the amount of the acquired property.

Chapter Six

Tax Rates

Art. 44. (1) The rate for taxation of profits shall be 30 per cent.

(2) The profits tax per taxpayer, exclusive of banks and other financial institutions, shall be 20 per cent, if their income from sales for the previous year does not exceed 50 mln BGL.

Art. 45. The rate of the tax for the municipalities shall be 10 per cent.

Art. 46. The rate of the tax on insurance and re-insurance premiums shall be 7 per cent and it shall be a final tax.

Art. 47 (1) The rate of the tax under Art. 34 shall be 15 per cent.

Art. 48. (1) The rate of the tax on guest entertainment expenses, gifts and sponsorship, booked as expenses, shall be 25 per cent.

(2) The rate of the tax on social expenses and expenses for maintenance, repairs and operation of automobiles shall be 20 per cent.

Art. 49. The rate of the tax on capital gains, in accordance with Art. 41 para 9, shall be 15 per cent.

Chapter Seven

Payment of the Tax

TITLE ONE

Payers of Tax

Art. 50. (1) The tax on dividends, income from sales of equity interest, securities and financial assets, [income from] interest, rent, including lease, franchise and factoring agreements, royalties and license fees, remuneration for technical services, as well as [the tax on] income from capital gains with a source in Bulgaria, shall be withheld and paid by the taxpayers under this Law, who distribute and pay such income.

(2) Whenever the tax under para 1 has not been withheld and paid in accordance with the respective procedures, it shall be equally due by [all] the taxpayers under this Law.

TITLE TWO

Tax Returns

Art. 51. (1) The annual profits tax, municipal tax and other corporate taxes due shall be determined in accordance with the provisions in this Law, and shall be reported in a tax return form, approved by the Minister of Finance.

(2) The tax return shall be filed by the taxpayers in the respective Tax Office, no later than March 31 of the following tax year. Simultaneously with the return he annual profit-and-loss account shall be presented, without the appendices.

(3)In case of withholding tax on local persons abroad, when filing their tax return the local person shall present a Verification form issued by the competent body in the foreign country, stating the amount of tax paid abroad, together with a certified translation of that form.

(4) In case of termination of activity or transformation [of a company], the taxpayers shall file a tax return for the tax due, within 30 days from the moment of the termination or transformation.

(5) The Application for a Verification Form, which shall be in a format approved by the Minister of Finance, [and] issued to foreign persons, certifying the type of tax and [the fact of the] withholding of the tax due at the source, shall serve as a tax return.

(6) In cases of termination of a taxpayer’s activity without any transformation taking place, the liquidators [of the company] shall file a tax return within 30 days of the registry of the termination.

TITLE THREE

Deadlines for Payment of the Tax

Art. 52. (1) Taxpayers shall pay the taxes under this Law to the Republican budget (exclusive of the municipal tax), with the exception of taxpayers with more than 50 per cent municipal ownership, who shall pay their taxes to the respective local budgets.

(2) Taxpayers shall pay the municipal tax to the respective municipal budgets.

Art. 53. (1) The profits and municipal taxes for the relevant year shall be paid no later than March 31 of the following calendar year, after deducting the amounts of the advance payments made.

(2) Overpaid profits tax and municipal tax as reported in the annual return may be deducted by the taxpayers against future advance payments and annual liabilities for these same taxes.

(3) Taxpayers paying the municipal tax, which have subsidiaries, production processes or activities not accounted for on a separate balance sheet, and which are situated on the territories of other municipalities, shall pay the municipal tax due to the respective local budgets, proportionally to the number of staff employed in their subsidiaries, production processes or activities.

Art. 54. The tax on the insurance and re-insurance premiums shall be paid by the taxpayers no later than the 15th day of the month following the month in which the [tax on the] premiums was charged. The tax shall be final.

Art. 55. Payers of one-time taxes withheld at the source, according to the provisions of Art. 35 and 36, shall be obliged to withhold and pay the taxes to the budget no later than the 15th day of the month following the withholding.

Chapter Eight

Advance Payments

Art. 56. (1) Taxpayers shall make monthly advance payments of the profits and municipal taxes on the basis of 1/12 part of the annual taxable profit for the previous year, adjusted with a coefficient reflecting changes in the economic conditions in the course of the current. The coefficient shall be set within the State Budget Law of the Republic of Bulgaria for the relevant year.

(2) Monthly advance payments under para 1 shall be determined for the period 1 April - 31 December on the basis of the taxable profit for the previous year and for the period January 1 - March 31, on the basis of the taxable profit for the year, preceding the previous year.

(3) Taxpayers registered during the course of the year for reasons of transformation, shall make advance payments under para 1 as follows:

1. in case of transformation of commercial partnerships and co-operatives of one type into another, as well as of mergers and takeovers - on the basis of the taxable profit for the previous year of the transforming commercial partnerships and co-operatives;

2. in case of demergers and unbundling - on the basis of the respective portion of the taxable profit for the previous year, determined proportionally to the equity interest.

(4) The monthly advanced payments of the profits tax under para 1 shall be made at a tax rate of 20 per cent in cases when taxable profit for the preceding year does not exceed 50 mln BGL.

(5) Taxpayers registering a negative value for the [amount of the] taxable profit for the previous year, shall make quarterly advance payments on the basis of their taxable profit for the respective period of the current year on an accrual basis.

(6) Legal entities and unincorporated partnerships shall notify the Tax Office, where their headquarters are located, of any decrease [in the amount] of the advance payments under para 1, by filing a tax return form, approved by the Minister of Finance, if it is assumed that these advance payments shall exceed the amount of the annual tax due.

(7) The monthly advance payments shall be paid no later than the 15th day of the current month, while quarterly advance payments shall be made by the 15th day of the month following the quarter. Advance payments for the last quarter shall not be made.

(8) New taxpayers, established during the course of the year, shall make quarterly advance payments under para 4 from the date of their registration.

Art. 57. Local legal entities engaged in processing of agricultural produce and tobacco shall not make advance payments for profits and municipal taxes for the period from April to September included.

Chapter Nine

Interest for Late Payments

Art. 58. (1) For taxes not withheld or not paid within the deadlines, as well as for any advance payments, interest shall be due in accordance with the Law for Interest on [unpaid] Taxes, Fees and Similar State Receivables. Advance payments of an amount smaller than the amount due, [if this amount] results from an inaccurate application of Articles 54, 55 and 56, shall also be considered unpaid taxes due.

(2) Whenever the annual [amount of] tax due should exceed by more than 10 per cent the [amount of the] advance payments, reduced under Art. 56, interest shall be charged on the difference equal to the basic interest rate plus ten points [as established] on December 31 of the relevant calendar year.

Chapter Ten

Remittance of Profits tax

Art. 59. (1) The profits tax and municipal tax shall be remitted to legal entities which are specialized enterprises, co-operatives, or independent manufacturers, enjoying membership in national organizations of handicapped persons or organizations for handicapped people where the handicapped employed shall be no less [in number] than:

1. for blind people or people with badly impaired eyesight - 30 per cent of the total number of staff employed in [performance of] the main activity;

2. for all other diseases - 50 per cent of the total number of staff employed in [performance of] the main activity.

(2) In cases under para 1, the taxpayers shall calculate, but not pay, the profits tax and the municipal tax.

(3) Corporate tax due by legal persons shall be remitted also in cases when the number of the handicapped people [working therein] is below the limits established in para 1. The remittance shall be done proportionally to the [share of] handicapped people of the total number of staff.

(4) The funds remitted under the preceding paragraphs shall be used for rehabilitation and social integration of the handicapped. The planning, spending and accounting of these funds shall be carried out, following instructions issued by the national organizations of and for handicapped people, in coordination with the Minister of Finance.

Art. 60. (1) Profits tax shall be remitted during the current year to legal entities, increasing in comparison with the preceding year the number of staff employed in areas where unemployment is above average for the country.

(2) The amount of the tax remitted shall be proportional to the increased average number of staff employed.

Art. 61. 80 per cent of the profits tax shall be remitted to the pension and healthcare funds established by law, as well as to university establishments and state and municipal enterprises for their business activity which is directly connected or auxiliary to their main activity.

Chapter Eleven

TAX TREATMENT OF LICENSED MUTUAL FUNDS

Art. 62. (1) Licensed mutual funds shall not be subject to profits tax for that portion of their profit which originates from trading with long-term securities.

(2) The dividends of the shareholders shall be subject to tax in accordance with the general rule.

Chapter Twelve

SPECIFIC PROVISIONS

Art. 63. (1) In cases of privatization of state-owned or municipal enterprises of a 100 per cent state or municipal participation, the authority as defined in Art. 3 of the Law for Transformation and Privatization of State-Owned and Municipal Enterprises shall transfer the amount of the dividend payable to the state or municipality, for the period from the beginning of the year until the first privatization transaction, to the republican or local budget, as the case may be.

(2) The dividend shall be paid from the privatization price, while the remainder of the amount shall be distributed in accordance with the provisions of the Law for Transformation and Privatization of State-Owned and Municipal Enterprises. The dividend shall be paid within three days following the payment of the privatization price.

Chapter Thirteen

ADMINISTRATIVE AND PENAL PROVISIONS

Art. 64. For failure to pay the tax due under Art. 41 para 6, Art. 42 para 2, Art. 50 para 1, Art. 52, Art. 54, 55 and 56, taxpayers shall be imposed a sanction up to the amount of the unpaid tax.

Art. 65. (1) For failure to file a tax return under Art. 41 para 6, Art. 51 paras 2, 3 and 6, and § 2 para 2 of the Transitional and Concluding Provisions, within the established deadlines, taxpayers shall be penalized up to 1 000,000 BGL, if not subject to a heavier punishment.

(2) For a repeated delinquency under para 1 the penalty shall be 1 500,000 BGL.

Art. 66. For non-issuing an invoice to account for income, if not subject to a heavier punishment, the sanction under Art. 56 para 3 of the Accountancy Law shall be imposed.

Art. 67. In cases of a delinquency under Art. 41, para 6, Art. 42 para 2, Art. 51 paras 2, 3 and 6, Art. 52, Art. 54, Art. 55, Art. 56 and § 2 para 2, those representing the taxpayer shall be penalized with 500,000 BGL, if not subject to a heavier punishment.

Art. 68. (1) The Violation Acts shall be issued by the tax authorities at the Tax Offices, while Penalty Acts shall be issued by the Head of the General Tax Administration Directorate or by his designee.

(2) Establishment of violations, as well as issuing, appealing and execution of Penal Acts shall be done in accordance with the provisions of the Law for Administrative Violations and Penalties.

Art. 69. (1) The tax authorities shall have the obligation to keep confidential any circumstances which have become known to them during discharge of their official duties. Such information shall only be provided to the respective bodies in cases as provided in the Law.

(2) The delinquents under para 1 shall be penalized from 500,000 to 1,500,000 BGL, if not subject to a heavier punishment.

ADDITIONAL PROVISIONS

§ 1. For the purposes of this Law:

"profits taxation" shall be the taxation of the profits and income of legal entities and unincorporated partnerships.

"Bulgaria" or "the country" shall mean the Republic of Bulgaria and in cases when used to designate a geographical territory it shall include the territory on which the Republic of Bulgaria exercises its sovereignty, as well as the continental shelf and the exclusive economic zone, within the boundaries of which the Republic of Bulgaria enjoys sovereign rights in accordance with the international law.

"related persons" shall be:

a) spouses, relatives of the direct descent without restrictions and relatives of the collateral descent up to the fourth generation included;

b) employer and employee;

c) individuals one of whom participates in the management of the partnership of the other;

d) partners;

e)a partnership and a person, who owns more than 5 per cent of the voting shares of the partnership;

f) persons the activity of which is directly or indirectly controlled by a third party;

g) persons jointly in control, directly or indirectly, of a third party;

h) persons one of whom performs as a commercial representative of the other, as well as persons who participate directly or indirectly in the management, control or capital of another person or persons, for which reason conditions different from the usual may be negotiated between them;

"usual profits" shall be the profit normally earned by an unrelated person for performing the same activity;

"income" shall include income from dividends, equity, interest payments, positive differences from sales of immovable property, movables and financial long-term assets, copyrights and license fees, remuneration for technical services and rental payments;

6. "dividend" shall be:

a. income from shares;

b. income from equity interest, including in unincorporated partnerships and other corporate claims, treated as income from shares, excluding income from receivables originating from debts;

c. distribution [of profits] performed by a legal entity to the benefit of a shareholder or partner, where [the distributed income] originates from his/her equity therein, regardless of whether that legal entity has current or accumulated income and profits;

"interest payment" shall be income from all types of receivables from debts, regardless of whether the collateral provided is a mortgage or a clause for participation in the profit of the indebted partnership, and especially income from bonds, cheques and other financial instruments related to such securities. Penalty interest for late payments shall not be treated as interest payments for the purposes of Chapter Four.

"copyrights and license fees" shall be payments of all kinds, received by means of using copyrights for literary, artistic or scientific products, including movies or recording of radio or television broadcasts; of patents, trademarks, industrial design or utility models, diagrams, secret formulae or processes, [or by means of using] or exercising the right to use of industrial, commercial or scientific equipment, or information relating to an industrial, commercial or scientific experiment.

"remuneration for technical services" shall be payments for services of consulting, including of maintenance and installation, provided by foreign persons, except in cases when the services provided are business activity performed at a locality.

"market price" shall be the amount, exclusive of VAT and excise tax, which would have been paid under the same conditions for an identical product or service under a transaction performed between unrelated persons. The market prices of the services are determined according to the conditions of the market whereof those are generated, while the market price of the goods [are determined] in accordance with the conditions of the market where those are realized.

"non-resident individual" shall be defined in accordance with the Personal Income Tax Law.

"tax credit" shall be the right to deduct amounts from the [amount of the] tax due on the profits and income of already paid, taxes or from the tax base, upon certain conditions.

"location of business activity" shall be:

a) any premises (owned, rented or provided for use) or a place through which a foreign persons performs business activity, fully or partially, in the country, including: place of management; subsidiary; commercial representation, registered in the country; office; studio; plant; manufacturer’s; shop; commercial warehouse; garage; mounting establishment; construction site; mine; quarry; drill; petrol or natural gas well; spring or other sites for extraction of natural resources;

b) performance of activity in the country by persons legally authorized to conclude contracts on behalf of foreign persons, with the exception of independent representatives as defined in Chapter Six of the Commercial Code;

c) permanently performing commercial transactions with a place of performance in the country even in cases when the foreign person does not have a permanent representative or a location.

"social expenses" shall be social benefits in accordance with Art. 293 and 294 of the Labor Code, provided to the staff, including under management performance contracts, and accounted for as expenses for the activity.

"hidden distribution of profits" shall be the various payments in cash or in kind, made by taxpayers and booked as expense [for the enterprise], [and distributed] to the benefit of the shareholders, partners, managers, supervisors, Board of Directors members, Management Board members, Monitoring and Surveillance Boards’ members and third persons, while unrelated to the main business activity.

"expenses for improvement, reconstruction and modernization, resulting in increase of the value of the long-term assets" shall be the expenses, resulting in an altered functional operation of the asset or leading to a full or partial change in the technological equipment and furbishing of manufacturer’s and auxiliary buildings and facilities.

"repeated" shall be a delinquency, committed within one year of the enactment of the Penal Act, whereby the delinquent has been sanctioned for the same violation.

"remittance of tax" shall be the right of the taxpayer not to pay to the budget the amount of tax computed and accrued following the provisions of this Law, which shall remain in the patrimonium of the taxpayer or shall be spent for the purposes outlined in a Law.

"deductions" in the sense of Art. 24 shall be those under Art. 23 para 3 subparas 1 and 5, and Art. 32.

"sponsorship" shall be a transaction where the sponsored person shall perform, or not perform, an activity which is not equivalent in value to that provided by the sponsor. In cases where the sponsored person is obliged to ensure some performance in return: advertisement, equivalent [in value] to that provided by the sponsor, the rules for commercial transactions shall apply in accordance with Art. 286 of the Commercial Code.

"advertisement expenses" shall be the expenses for popularizing of goods and services through materials, publications (magazines, newspapers, catalogues, almanacs, brochures, guidelines, directories), radio broadcasting, announcements, TV commercials, advertisement broadcasts, etc.

"franchise" shall be combined industrial and intellectual property rights, in connection with trademarks, trade names, trade signs, industrial design, models, copyrights, know-how or patents, in order to use them for re-sale of goods and/or provision of services to end-consumers.

"franchising contract" shall be an agreement where an enterprise which is a franchising provider, gives to another [enterprise] which is the recipient of the franchising, in return to a direct or indirect financial remuneration, the right to use the franchising for certain types or services.

"factoring" shall be a transaction where a person (a factor) buys under a cession agreement, one-time or periodic monetary receivables, incurred by a supply of goods or provision of services, while taking the risk of collecting those receivables against a particular remuneration.

"expenses for repairs" shall be the expenses through which long-term tangible assets are reconstructed for normal operation.

"long-term securities" shall be shares, as well as securities, denominating a receivable which becomes due after more than one year.

TRANSITIONAL AND CONCLUDING PROVISIONS

§ 2. (1) Taxpayers shall be obliged to report circumstances under § 1 subpara 1 of the Additional Provision of this Law upon request by the tax authority.

(2) Taxpayers shall be obliged to report any shares or equity interest they own in partnerships abroad, subsidiaries, and business activity performed at a location abroad, as well as real estate [abroad], in the Tax Offices on the territory of which they are headquartered, no later than March 31, 1998. In cases of any of those circumstances appearing or altering [in any way] the taxpayers shall have the obligation to file a return within one month as of the appearance of such circumstances.

§ 3. Tax deductions under Art. 58, 59 and 60 and § 3, 8 and 15 of the Transitional and Concluding Provisions of the Tax on Profits Law (promulgated in SG 59/1996, amend. 110/1996, 16, 49, 86 and 89/1997) shall be allowed until the expiration of the period for which those have been granted, while observing the conditions determined in those provisions. The condition for investing in long-term tangible assets shall be considered kept if the investment is made before filing the tax return.

§ 4. In determining the amount of the advance payments for the first quarter of 1998, the amount of the taxable profit for the first quarter of 1997 shall be taken as a base.

§ 5. The provisions of Art. 22 para 4 shall apply for asset acquired after December 31, 1997.

§ 6. Art. 23 para 9 shall apply only for bank capital increased within the period January 1, 1998 - December 31, 1999.

§ 7. Positive temporary timing differences which have appeared in 1997 in application of Art. 21 of the Tax on Profits Law shall be deducted in accordance with para 3 of the same article in 1998.

§ 8. Dividends distributed in 1998 at the expense of the profit reflected in the annual income-and-expenses statement for 1997 of licensed investment partnerships and privatization funds shall be taken into consideration in using the tax relief under Art. 28 of the Tax on Profits Law in 1997.

§ 9. Any state bank where more than half of the equity interest is sold to non-governmental institutions shall be exempt from tax on the profits resulting from foreign exchange gains in 1997.

§ 10. This Law shall repeal the Tax on Profits Law (promulgated in SG. 59/1996, amend. 110/1996, 16, 49, 86 and 89/1997).

§ 11. A new Article 5a shall be included in the Tax Procedures Law (promulgated SG 61/1993, amend. 20/1996, 51/1997) with the following contents:

"Art. 5a. Unincorporated partnerships shall be equalled to legal entities with respect to tax registration and taxation."

§ 12. In para 2 of § 5 of the Transitional and Concluding Provisions of the Law for Protection of Agricultural Producers (promulgated in SG 57/1995, amend. 67/1995, 110/1996) the words "until December 31, 2000" shall be replaced with "for the non processed agricultural produce".

§ 13. The Minister of Finance shall issue Decrees for the implementation of certain provisions of the Law.

§ 14. The implementation of the Law shall be assigned to the Minister of Finance.

§ 15. This Law shall become effective from January 1, 1998, with the exception of para 2 of Art. 26, which shall become effective from January 1, 1999.

CHAIRMAN OF THE NATIONAL ASSEMBLY: YORDAN SOKOLOV

	Category of Assets Annual Depreciation Rates - %
1	I Category 4
2	II Category 20
3	III Category 5
4	IV Category 15