Chapter Three

SOURCES OF INCOME

Art. 9. (1) Income from business activity performed by an individual on the territory of the country shall be income from a source in Bulgaria.

(2) It shall be considered that individuals perform activity on the territory of Bulgaria in cases when they:

1. perform business activity at a locality or have a certain establishment on the territory of Bulgaria;

2. assign or execute orders on the territory of Bulgaria by personal performance or through an appointed manager , commercial representative or otherwise.

(3) Employment income and income from provision of services shall have a source in the country when the personal performance or service is provided on the territory of Bulgaria, regardless of where the source of payment for this personal performance or service is located.

(4) Regardless of the provisions of the preceding paragraph, when paid by a local person or by a business performed at a locality, to a foreign person on the territory of Bulgaria, the following income shall have a source in Bulgaria:

1. Remuneration to self-employed individuals, on the condition that the amount of the remuneration shall be deducted in calculating the profits or income of the payer, or should have been deducted if the payer was not exempt from tax on profits or tax on income;

2. Remuneration, different from wage, paid to: an employee or member of a Managing or Control Board of a Bulgarian legal entity; branch of a foreign person; manager, delegate or employee in a commercial representative office of a foreign person or other person performing identical or similar functions;

3. Pensions;

4. Dividends and distributed profits (income) from both commercial and unincorporated partnerships, including such under agreements for co-operation.

5. Interest payments;

6. Rents, payments under leasing, franchising, factoring and the like contracts;

7. Copyrights and license fees;

8. Annuities, different from the payments in subpara 3;

9. Proceeds and penalties;

10. All kinds of other taxable income not listed in paragraphs 1, 2 and 3 with the exception of the cases when the income is paid by a business performed at a locality or by certain establishment located outside the territory of Bulgaria on the condition that this income is deducted while calculating the income of that locality or establishment.

(5) 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 Bulgaria.

(6) For the purposes of the preceding paragraph "immovable property" shall include ownership over common parts and limited real rights on immovable property.

(7) Income from transactions with shares of local partnerships, as well as transactions with securities under para 8, shall be income from a source in the country.

(8) Income from Bulgarian government and municipal securities, emitted by the state, municipalities or local enterprises, shall be income from a source in Bulgaria.

(9) Income from transfer of [ownership of] a sole proprietorship shall be income from a source in the country, regardless of whether the Bulgarian citizen who is the recipient, is a resident or non-resident individual.

Chapter Four

TAXABLE AND NON-TAXABLE INCOME

TITLE ONE

NON-TAXABLE INCOME

Art. 10. Taxable income shall be all income originating from:

1. Employment contracts and contracts treated on a par [with them];

2. Sole proprietorship regardless of whether it is registered under the Commercial Code;

3. Craftsman’s activity;

4. Performing occupational activities;

5. Providing services with personal performance apart from cases in subpara 3 and 4;

6. Activities in the field of agriculture, forestry and water economy;

7. Sales and exchange of: immovable property; road, air and water transportation vehicles;

8. sales of shares, equity interest and other types of participations in commercial partnerships, non-incorporated partnerships and other forms of joint activity;

9. Transfer of ownership over a sole proprietorship;

10. Rent, rent from farm land and rent from immovable property;

11. Temporary assignment of a rights under a leasing, franchising, factoring and the like contracts;

12. Copyrights and license fees;

13. Compensations for benefits lost and penalties of the same character;

14. Interest payments apart from those under Art. 12, subparas 3 and 5;

15. Remuneration for personal performance in partnerships and co-operatives, as well as production dividends [distributed] by co-operatives;

16. Dividends, income from equity and tantiemmes;

17. Bonuses and rewards from sports competitions;

18. Other income which have not been defined as non-taxable, as well as income which is not exempt from tax by a Law.

Art. 11. (1) Income under Art. 10 may be [received] in cash or in kind.

(2) Income received in kind shall be valued according to the market price of the date of acquisition, where the market price is determined under the provisions of Art. 16 of the Corporate Income Tax Law.

(3) Income in foreign exchange shall be revalued in BGL through the Central Bank’s rate of the date of acquisition. In cases when the foreign exchange remuneration is paid in cash outside the country, there shall be taken the rate on the day of importing [the foreign exchange] in the country.

(4) Income shall be considered acquired:

for cash payments - in the day of payment;

for payments through a bank - in the date of crediting the recipient’s account, if the recipient has advised a bank through which they require the payment;

for payments in kind - in the day when the benefit is received.

TITLE TWO

NON-TAXABLE INCOME

Art. 12. (1) Tax shall not be levied on:

1. income from sale or exchange of:

a. any apartment or house, including the land belonging to it, on the condition that those have served as main residence of the buyer for no less than three years prior to the sale or exchange;

b. immovable property, which is not the main residence of the buyer, if the time elapsed between the purchase and sale or exchange is more than 5 years;

c. road, air and water transportation vehicles acquired by the taxpayer no less than one year before the sale;

d. movable property with the exception of income under Art. 10 subparas 8 and 9 and subpara "c", regardless of the time of acquisition.

pensions;

interest payments on deposits in the State Savings Bank, in local commercial banks and branches of foreign banks, interest payments and rebates on state securities and penalties on self-employment agreements;

proceeds and other amounts paid in cases of medium and severe bodily damage or death; proceeds for property insurance policies and compensations for damages up to the amount of the damage;

interest payments on receivables found in result of court procedures, which are not subject to taxation;

in cash and in kind payments for social support paid on the basis of secondary legislation provisions and unemployment [social] proceeds;

contributions paid out by social funds and organizations;

allowances, compensations and children’s support, paid on the grounds of secondary legislation provisions, received by authorized individuals in accordance with the Family Code;

scholarships granted for the education of in the country and abroad;

monetary amounts and objects granted as rewards, provided on the basis of secondary legislation by donors for povision of bio-products and human bodily organs;

benefits from the State lottery, the Bulgarian Sports Totalizer, bonuses and profits from gambling and other lucky games;

salaries and remuneration of: members of staff of the foreign diplomatic representatives, in accordance with the Vienna Convention of Diplomatic Relations; members of consular representatives in accordance with the Vienna Convention of Consular Relations; employees of inter-country and inter-governmental organizations in accordance with the international agreement concluded with the respective organization and the members of the families of the above-listed individuals, to the extent foreseen in the international agreement.

profits distributed in the form of new shaares and equity interest in commercial partnerships, as well as the profits distributed in the form of increased nominal value of existing shares and equity;

profits distributed in the form of increased capital by means of issuing new stocks and shares and through increased nominal value of the existing stocks and shares.

(2) Receipts following sales or exchange of property which has been acquired by will, inheritance, [property] restored or gifted, as well as hereditaments and gifts shall not be considered income.

Chapter Five

Total Annual Income, Taxable Income and Tax Base

Art. 13. Total annual income shall be the sum total of all cash and non-cash income received by the individual in the course of the tax year.

Art. 14. The total annual income under this law shall be taxable after deduction of:

1. income which is not subject to tax under this Law;

2. income exempt from tax as provided in other Laws;

3. income from activities taxed with a final annual (patent) tax;

4. income taxed with a one-time tax following the provisions of Art. 40;

5. income taxed with a one-time tax following the provisions of the Corporate Income Tax Law.

Art. 15. (1) The tax base shall be the taxable income for the respective tax year reduced with the expense for the activity and the contributions and deductions allowed in this Law.

(2) If the taxpayer receives income simultaneously from two or more sources listed in Art. 10, the tax base for the total annual income shall be the sum total of the tax bases determined separately for each source of income in accordance with the provisions of Chapters Seven - Eleven.

Chapter Six

PRIORITY APPLICATION of INTERNATIONAL TREATIES,

AVOIDANCE of DOUBLE TAXATION and

PREVENTION of TAX EVASION

Art. 16. (1)whenever in a tax treaty or other international agreement for avoidance of double taxation and prevention from evasion of tax on income and property or in any other international treaty, ratified by the Republic of Bulgaria, promulgated in the State Gazette and duly enacted, are included provisions, differing from the provisions in this law, then the provisions of the respective international tax treaty or agreement shall apply.

(2) The Minister of Finance shall issue a Decree for the Implementation of International Agreements, containing provisions different from those in this Law, as well as specific Instructions for implementation of the particular treaties and the provisions therein.

Art. 17. (1) Whenever no treaty or other international agreement for avoidance of international double taxation for which Art. 16 applies, in determining the tax on income the individuals shall be allowed to use tax credit for identical or similar foreign taxes levied by the respective competent authorities abroad.

(2) Individuals under para 1 shall be allowed tax credit for all taxes on dividends, interest payments, authorship and license fees, remuneration for technical services and rents paid by sources abroad to local persons.

(3) The tax credit under para 2 shall be determined for each country separately and shall be limited to the amount of the Bulgarian income tax which would have been due for the income from a source abroad, if it were from a source in the country.

(4) The Minister of Finance shall determine the conditions and procedures for the application of paras 2 and 3, while [the Minister] can:

1. Determine which taxes shall be identical or similar with the individual income tax;

2. Specify the origin and particular amount of the local or foreign income received from a respective source;

3. Not to allow the use of tax credit for those foreign taxes that wrongfully increase the credit.

Art. 18. (1) With respect to prevention of tax evasion the provisions of Chapter One TITLE Four in the Corporate Income Tax Law shall apply.

(2) In finding out that the property of the taxpayer exceeds the amount of the reported income for previous tax years the tax authority shall be entitled to readjust the tax base and determine the tax by applying the respective provisions of Art. 17 of the Tax Procedures Law.

TITLE TWO

DETERMINING THE TAX BASE

Chapter Seven

INCOME FROM EMPLOYMENT

Art. 19. (1) Taxable income from employment contracts and other on-a-par contracts shall include all payments, including rewards in cash and/or in kind, paid by the employer or at the expense of the employer, and received by the taxpayers for the particular calendar month.

(2) Subject to tax shall not be:

1. The value of the free detoxifying food and anti-poison drugs in accordance with the requirements within the Labor Code;

2. The value of the special protective clothes, personal protection means, free working outfits and uniforms provided to workers and employees under the Labor Code;

3. Business travel allowances; compensation in case of moving [to another dwelling]; compensation in case of use of a dwelling at the conditions of free negotiation; compensation in case of sick leave of the militaries discharging service according to the Defence and Military Power Law and the officers and lieutenants under the Ministry of the Interior Law, as well as compensations under Art. 239 the Defence and Military Power Law;

4. Compensations under Articles 215, 216, 217, 218 para2 and 222 of the Labor Code.

5. Commuter travel cards for travelling to the place of work and back, provided for free by the employer.

6. social expenses made by the employer, taxed under the provisions of the Corporate Income Taxation Law.

Art. 20. (1) The tax base for income from employment and the on-a-par treated contracts shall be determined by subtracting the social, health care, pensions and other mandatory contributions which the worker has to pay at their expense as provided in a Law, from the taxable income for the calendar month [calculated] following the provisions of Art. 19 para 1.

(2) The taxable income under para 1 shall be reduced with the contributions for voluntary social security, health and/or pension policies, amounting up to 30 per cent of the minimum monthly wage for the country.

(3) The tax base for the calendar month shall be determined following the provisions of paras 2 and 3 also in cases when the wages are paid on a daily or weekly basis, or on the basis of other periods of time during the month.

(4) The tax base for income from employment and the treated on-a-par contracts for the tax year shall be the sum total of the monthly tax bases determined following the provisions of paras 1 and 2.

Chapter Eight

INCOME FROM BUSINESS ACTIVITY, INCLUDING AGRICULTURE,

FORESTRY and WATER ECONOMY, as well as OTHER ACTIVITES UNDER SELF-EMPLOYMENT CONTRACTS

Art. 21. (1) Individuals performing activities as sole proprietors or other activity subject to registration under the Commercial Code shall determine the tax base for their income in accordance with the provisions of Chapter Two of the Corporate Income Taxation Law, with the exception of the provisions of Art.23, para 2 subparas 11, 19 and 20 and Art. 23 para 3 subpara 8 of the same Law.

(2) Notaries and individuals exercising private practice as determined by the Ministry of Health care shall determine the tax base for their income under the provisions of the Corporate Income Tax Law or following the provisions of Article 22, as they choose.

(3) Individuals exercising an occupational and other activities under self-employment contracts, including contracts for assigning management and control, shall determine the tax base for their income under Art. 22.

Art. 22. (1) The tax base for individuals under Art. 21 para 2 who have chosen to be taxed under this Law, as well as the individuals under Art. 21 para 3 shall be determined by reducing the taxable income with:

1. Expenses for the activity to the amount of:

a) 70 per cent for raising animals, birds, for apiculture and sericulture, for unprocessed production thereof and cultivated mushrooms;

b) 60 per cent for forestry, water economy (including fish production) and plant growing;

c) 50 per cent for production of landscaping bushes and flowers; inventions and products of science and art;

d) 35 per cent for craftsmanship apart from the activities listed in Chapter Eleven, occupational activities or provision of services with personal performance;

e) 25 per cent for management and control, for participation in Management and Control Bodies of enterprises and legal entities which are non-profit organizations.

2. Social, health, pensions and other mandatory contributions which the individuals have to pay at their expense, as well as contributions for voluntary social and health security amounting to 30 per cent of the minimum monthly wage for the country;

3. Deductions for gifts up to 5 per cent after the subtractions under subparas 1 and 2.

(2) The tax base for individuals exercising occupational activities the income of whom is received in result of activities performed during a number of years: scientific research, literary pieces, inventions and the like, shall be determined by dividing the income to the number of years during which the respective activity has been performed, but no more than four [years].

Art. 23. (1) Resident individuals, local legal persons which are non-profit organizations and foreign persons shall be subject to tax on dividends and liquidation quotas under the Corporate Income Tax Law.

(2) Remuneration for personal performance of partners, shareholders and co-op members provided in partnerships and co-operations shall be subject to taxation in accordance with the rules for the respective category of income, depending on the grounds for payment.

Chapter Nine

INCOME FROM SALES AND EXCHANGE OF MOVABLE AND IMMOVABLE PROPERTY

Art. 24. (1) The tax base in sales or exchange of immovable property shall be the difference between the selling price and the updated acquisition price for this property whenever the updated price is higher from the updated acquisition price.

(2) The tax base in sales and exchange of road, air and water transportation vehicles, as well as ships, shall be the difference between the selling price of that property and the updated acquisition price whenever the updated price is higher from the real acquisition price. For all other movable property the tax base shall be the difference between the sales price and the revalued acquisition price. The procedures for determining the revaluation price shall be established by the Council of Ministers.

(3) In determining the updated price of acquisition of property under paras 1 and 2 the provisions of Art. 33 para 1 of the Local Taxes and Fees Law shall apply.

(4) The tax base in transfer of ownership over a sole proprietor’s enterprise shall be the difference between the negotiated selling price and the book value of its assets.

(5) The tax base in termination of a sole proprietorship shall be the book value of its assets.

Chapter Ten

INCOME FROM RENTS

Art. 25. (1) The tax base for income from leasing of movable and immovable property, rent of farm land and rent from immovable property shall be determined by subtracting 20 per cent of the taxable income as regulated expenses except in cases when major repairs of the property or improvement of the quality of the land has been carried out at the expense of the user and the user has not deducted, partially or fully, the expenses for full repairs or improvement of the quality of the land from the amount of the rent.

(2)The taxable income under paragraph 1 shall be reduced with the 5 per cent deduction for gifts after deducting the regulated expenses under para 1.

Chapter Eleven

OTHER INCOME

Art. 26. The tax base shall be the gross amount of the income received from:

1. Temporary assignment the use of rights such as rights under contracts of leasing, franchising, factoring, etc.;

2. Prizes in the form of cash or objects from competitions and contests in cash and in kind, which are not provided by the employer or customer;

3. compensation and penalties having the same characteristics;

4. Interest payments apart from those under Art. 12 para 1 subpara 3 and 5;

5. Production dividends of co-operatives;

6. Income received in result of inherited intellectual property rights;

7. Occasional transactions and from all other sources which are not explicitly listed in Art. 12.

Chapter Twelve

TAX TREATMENT AT TERMINATION OF AN ACTIVITY

Art. 27. In case of termination of business activity under Chapter Seven the tax liability shall be determined:

1. in case of termination of a sole proprietorship - from the date when the decision for deletion from the trade register is issued;

2. upon transfer of a sole proprietorship through a transaction - from the date when the decision for the transfer is recorded in the trade register;

3. upon termination of the participation of a partner or co-op member in a partnership or co-operative - from the date when the decision for deletion from the trade register is issued;

4. upon termination of craftsman’s activity - from the date of deletion of the registration is issued;

5. upon termination of an independent activity which entails entry [in the trade register] - from the date of the termination of the entry;

Chapter Thirteen

TAX RELIEFS

Art. 28. (1) The deduction under Art. 22 para 1 subpara 3 and Art. 25 para 2 shall be allowed on the condition that:

the gift was made in favour of: educational and healthcare institutions and budget organisations; organizations with charity, social, environmental, healthcare, scientific, cultural and sports purposes; religious beliefs registered in the country; municipalities; funds for support of disabled people and victims of natural calamities; the Bulgarian Red Cross; support of the socially deprived, disabled, children with impaired health or without parents; restoration and protection of historical and cultural monuments;

those providing the gift shall have no outstanding state receivables reported [on a return] or such established by means of Notices of Assessment at the moment of providing the gift.

(2) In cases when the gift is not in cash, its value shall be the price reflected in the document for its acquisition, where the acquisition has taken place up to three months before the date of the gift.

(3) Except in the cases under para 2 the value shall be determined in accordance with the provisions of the Local Taxes and Fees Law.

(4) A gift shall be considered accomplished as follows:

1. when made in cash - from the date when the means was received by the gifted person;

2. for movable possessions or real property as well as for granted limited rights for usage - from the date of receipt [of the gift] or conclusion of the transaction, as the case may be;

Art. 29. (1) The deduction under Art. 20 para 2 and Art. 22 para 1 subpara 2 shall be allowed in cases when following negotiations with the persons the social security policy is changed and the transfer of the accumulated funds is made through a bank.

(2)In cases of receiving back the accumulated funds from a voluntary social security, pension or healthcare contracts before they have expired, the received amounts shall be included in the taxable income for the year in which they are received.

(3) The tax base for income of impaired individuals belonging to a category determined by the competent bodies is calculated by subtracting the non-taxable monthly or annual minimum, as the case may be, from the amount of the taxable income.

(4) For the activities under Chapter Thirteen the categorized impaired individuals shall be allowed a deduction of 50 per cent from the annual (patent) tax.

(5) Sole proprietors determining their tax base following the provisions of Art. 21 para 1 shall apply Articles 35 - 40 or Art. 48 of the Corporate Income Taxation Law, as the case may be.

Chapter Fourteen

TAXATION WITH AN ANNUAL TAX FIXED IN THE AMOUNT (PATENT TAX)

Art. 30. (1) A final tax shall be levied on individuals and small businesses, performing activities listed in Art. 31 and 32 and having a turnover of up to 75 mln BGL for the preceding year.

(2) Whenever within 12 successive months one or more persons have terminated their activity under para 1 and/or [terminated the existence of an] enterprise and have established a new enterprise or started the same or similar economic activity, and the total turnover of both is more than 75 mln BGL for 12 successive months, then for this activity or enterprise para 1 shall not apply. For such new enterprises the general tax rule shall apply for the year in which those were established.

Art. 31. (1) The annual rate of the tax shall be:

5. Wholesale warehouses - for total warehouse area from 40 000 to 80 000 BGL by sq. m.

(2) The categories under para 1 subparas 1 and 2 shall be as follows:

1st category: Sofia (Dragalevtsi, Boyana, Bistritsa, Simeonovo, Pancharevo, Gorublyane and Vladaya), Plovdiv, Varna, Bourgas, Rousse.

2nd category: settlements with population of more than 50 000 citizens; settlements located along the Black Sea including the resorts Albena, Zlatni Pyasatsi, Slanchev Bryag, Nessebar, Sozopol, Dyuni, Elenite; Pamporovo, Borovets; St. Konstantin and Elena, Riviera, Slanchev Den; medical treatment centres Sandanski, Hissarya, Velingrad; mountainous centres Vitosha, Bansko, Beklemeto.

3rd category: settlements with population of up to 50 000 citizens.

4th category: settlements with population of up to 5 000 citizens.

(3) Whenever the taxpayer performs activity in more than one establishment [eg. shop] the tax shall be determined depending on the location of those establishments. In cases of taxi services and traveler’s shops the tax shall be determined according to where the taxpayer performing the services is registered.

Art. 33. (1) Individuals under Art. 31 and 32 shall pay tax for each of the activities performed separately with the exception of those [activities] under para 2 of this article.

(2) The annual tax for the activities under Art. 31 para 1 subparas 5 and 6 for individuals providing through personal performance more than one type of service which interlink or complement one another, shall be due in:

1. the total amount [of the tax] for the main activity;

2. 25 per cent of the amount [of the tax] for the respective other activity.

(3) The particular amount of the tax for the activities under Art. 31 para 1 subparas 3, 4, 5, 6 and 7 shall be determined within the limits set in the Law by the Municipal Councils no later than October 31 of the preceding year. If the municipality does not determine the particular amounts of the tax, the minimum amounts shall be applied.

(4) The Municipal Councils shall inform the Minister of Finance or other persons authorized by the Minister about their decisions under para 3 within seven days after taking the decision.

Art. 34. (1) Income from activities not listed in articles 30 - 33 shall be taxed in accordance with the general rule.

(2) Persons subject to a final annual /patent/ tax shall have single or double entry accounting in accordance with the requirements of the Accountancy Law, with the exception of Art. 2 para 2 of the same Law.

(3) In the cases when the activity is connected with the use of one permanent place such as a studio, shop, warehouse, etc. the persons shall use cash registers with fiscal memory.

(4) Individuals performing the activities under Chapter Thirteen while not registered under the Commercial Code shall issue documents for the sales of goods and services in accordance with the requirements of the Accountancy Law only those shall be stamped.

TITLE THREE

CALCULATION AND WITHHOLDING OF THE TAX

Chapter Fifteen

Tax Brackets

(2) The tax base and the tax shall be rounded off to each full 100 BGL.

(3) From the tax determined under para 1 the tax accrued under Chapter Seven shall be subtracted, as well as the tax prepaid and/or withheld in advance during the tax year.

Chapter Sixteen

ADVANCE PAYMENTS and WITHHOLDING OF THE TAX

Art. 36. (1) Individuals under Art. 21 para 3, Art. 25, as well as those under Art. 21 para 2 who have chosen the taxation rules under this Law shall be liable for 15 per cent advance payment of the tax.

(2) The advance payments under paragraph 1 shall be paid on the gross amount of the received income, reduced with the regulated expenses under Art. 22, after the taxable income from all sources has exceeded the annual non-taxable minimum for the year.

(3) The tax shall be determined and paid by:

1. Enterprises which are payers of remuneration to individuals under Articles 22 and 25;

2. Recipients of the income in all other cases.

(4) Individuals under Art. 21 para 1, as well as those under Art. 21 para 2 choosing to determine their tax base under the Corporate Income Tax Law, shall make advance payments during the year following the provisions of the Corporate Income Tax Law.

Art. 37. Individuals performing activities subject to a final annual (Patent) tax under Chapter Eleven shall not be liable for advance payments under Art. 36.

(2) The tax under paragraph 1 shall be withheld and paid to the account of the Tax Office of the [perons’] tax registration on a monthly basis by the employer or customer.

(3) The individual shall certify before their principal employer the monthly income received under Chapter Seven by other employers, and [certify] the payment of the tax by means of a Formal Statement.

(4) The principal employer shall calculate the final amount of the amount of tax for the year no later than January 31 of the following tax year, regardless of whether the individual is a performer under other employment contracts as well.

Art. 39. (1) For the tax withheld under Art. 36 the payer shall issue Statement for Amounts Paid, which shall remain with the enterprise and a Formal Statement which is given to the individual.

(2) The formats of the Statement for Amounts Paid and the Formal Statement under papa 1 shall be approved by the Minister of Finance and promulgated [in the State Gazette].

Art. 40. (1) Income under Art. 26 subparas 2-7 shall be subject to a final tax of 20 per cent of the amount exceeding 60,000 BGL.

(2) The tax under para 1 shall be withheld and paid by the payer based on the gross amount of the income in cases when the payer is a legal person. When the payer is an individual the provisions of Art. 36 para 3 subpara 2 shall apply.

TITLE FOUR

TAX PROCEDURES

Chapter Eighteen

REPORTING INCOME and PAYMENT OF THE TAX

Title One

TAX RETURNS

Art. 41. (1) Taxpayers under this Law shall file an annual tax return for their taxable income under Art. 14, including for their income subject to an annual final (patent) tax no later than April 15 of the following year.

(2) Taxpayer under this Law shall report any shares and stocks in foreign partnerships abroad that they own, as well as business activity performed at a locality or immovable property abroad.

(3) Taxpayers who file their annual tax return by January 31 of the following year and pay the tax in the same time period shall be entitled to 2 per cent rebate from the amount of the tax.

(4) The tax return shall be filed in the tax office of the place of residence [of the individual] while for foreign persons [the tax office of their] last address.

(5) Foreign persons receiving income through an authorized individual, shall file a return in the Tax Office of the place of residence of the authorized person and in case the authorized person is also a foreign person, [in the Tax Office] of the last address of the authorized person.

Art. 42. (1) Individuals receiving income only from employment contracts and/or income under Art. 14 subparas 1, 2, 4 and 5 shall not file a tax return under Art. 41.

(2) Individuals under para 1 may file a return if they have overpaid tax under Art. 38. In those cases the overpaid amount if refunded or offset against other collectible tax liabilities. Overpaid tax shall be refunded or offset, as the case may be, with an interest equal to the base interest rate of the BNB.

Art. 43. (1) Individuals subject to a final annual (patent) tax under Chapter Eleven shall file a return in a format approved by the Minister of Finance in which they shall report the circumstances related to the determining the [amount of the] tax.

(2) Changes in the circumstances under para 1 shall be reported within seven days of their occurrence.

Art. 44. (1) The return under Art. 43 para 1 shall be filed within the following deadlines:

1. No later than December 31 of the previous year by the individuals who are not registered under the Commercial Code;

2. No later than January 14 of the current year by the individuals who are registered under the Commercial Code;

3. Before starting an activity; in cases when activity is started, within the deadlines under paras 1 and 2.

Art. 45. In case of termination of an activity under Art. 27 the individuals shall file a return within a month from the termination.

Art. 46. (1) Income shall be reported in the year when received regardless of to which period those refer.

(2) In the cases under Art. 22 para 2, 25 per cent of the reported income shall be included in the taxable income of the year when received while the remaining 75 per cent shall be spread for inclusion in the taxable income for the next three tax years and shall be taxed accordingly.

Art. 47. The formats of the returns under this Law shall be approved by a Decree by the Minister of Finance which shall be published.

Art. 48. In specific cases the Minister of Finance may alter the deadlines for filing tax returns.

Art. 49. (1) The main place of residence shall be reported in the return for the previous year.

(2) In cases of change of the main place of residence during the course of the tax year, the taxpayer shall be obliged to report the change in the tax return under para 1 referring to the year when the chang has occured.

Title Two

PAYMENT OF THE TAX

Art. 50. The tax on income under Chapters Eight and Seventeen shall be paid by the employers and customers on the day of drawing the amounts of the wages and/or other remuneration from the bank account of the assignor, while in the case of cash payments, no later than the 10^th day of the following month the account of the local tax office shall be debited.

Art. 51. (1) Advance payments under Art. 36 para 3 subpara 2 shall be made quarterly no later than the 15th day of the month following the quarter.

(2) In cases under para 1 the tax shall be paid to the account of the Tax Office where their place of residence is.

Art. 52. The final tax under Art. 40 shall be paid by the payers of the income within 15 days of the withholding, debiting the account of the tax office of the payer’s headquarters.

Art. 53. (1) The final annual (patent) tax under Chapter Eleven shall be paid in three equal instalments as follows:

1. For the first quarter - no later than January 31;

2. For the second quarter - no later than July 31;

3. For the third quarter - no later than October 31

(2) Taxpayers succeeding to pay the tax due for the year by January 31 shall enjoy a 5 per cent discount on the full amount of the tax.

(3) In cases when the activity is started during the year the tax shall be determined proportionally to the number of months for the respective type of activity, regardless of the date on which it has been begun. The month during which the activity has been started shall not be taken into consideration.

(4) The tax under paras 1, 2 and 3 shall be paid to the account of the Tax Office of where the establishment is located or where activity is performed, while in the case of taxi drivers’ services - according to the place of resident of the performer.

Art. 54. (1) In cases under Articles 41 and 45 the individual shall pay the tax due in the account of the tax office of residence within 30 days of filing the return.

(2) Advance payments made during the year shall be deducted from the total annual tax liability.

Art. 55. (1) In cases of non-compliance of the deadlines for payment of the tax it shall be collected with interest for the period of the delay, where this interest is calculated in accordance with the Law for Interest on [unpaid] Taxes, Fees and Similar State Receivables.

(2) In cases when no tax return has been filed and by means of a Notice of Assessment a larger amount of tax has been determined from the amount of the tax reported as current or advance payment, the interest payment [on that amount] shall be due until the day following the latest deadline for filing [that] return.

(3) Unless otherwise provided in this Law, the provisions of the Tax Procedures Law shall apply for purposes of determining and payment of the tax.

Art. 56. The tax authorities shall not refuse to accept payment of the tax in cash.

Chapter Eighteen

OBLIGATION OF THE PAYER TO

NOTIFY THE TAX OFFICE ABOUT PAYMENTS

Art. 57. (1) Any enterprise paying income to individuals during the tax year, which income is different from that received under a labour contract of employment or a pension, shall have the obligation to notify the tax office where its headquarters are registered by means of a Statement for Income Paid in a specified format.

(2) The Statement for Income Paid under para 1 shall contain data about the total amount of tax withheld during the elapsed year and shall be submitted no later than March 31 of the following year.

(3) The format of the Statement for Income Paid shall be approved by the Minister of Finance.

Chapter Nineteen

EXCHANGE OF INFORMATION AND TAX SECRET

Art. 58. Within seven days court officials responsible for entries shall notify each Tax Office of location of the taxpayer about the any real rights on immovable property transferred, granted, altered or terminated [by the taxpayer], while the Ministry of Internal Affairs and the other competent agencies shall inform about any registered, written off or out of operation vehicles for road, air and water transportation.

Art. 59. (1) Upon request by the tax authorities, the Ministry of Internal Affairs shall present information with respect to determining whether an individual is a foreign or local person in accordance with Chapter One of this Law.

(2) Each Tax Office shall be obliged to check and aggregate, including through cross-checking, the information from the tax returns, inventory lists and accounts, as well as provide this information to other tax offices, RTOs and GTAD.

Art. 60. (1) The tax authorities shall have the obligation to keep confidential any circumstances which have become known to them in discharge of their duties. In accordance with this Law data about taxes and taxpayers may only be provided from:

Heads of Tax Offices - only about taxpayers and taxes owed by them, when registered on the territory of the respective tax office;

Heads of RTOs - about taxpayers and taxes owed by them, when registered on the territory of the respective RTO;

Head of GTAD - about all taxpayers and taxes owed by them.

(2) The authorities under paragraph 1 may delegate their rights to their deputies.

(3) Tax data may be only provided to state bodies and authorities in the cases explicitly provided in the Law.

Chapter Twenty

ADMINISTRATIVE AND PENAL PROVISIONS

Art. 61. (1) An individual who does not file a return within the deadlines under Art. 41 and 45 shall be penalized up to 500,000 BGL, if not subject to a heavier punishment.

(2) An individual reporting insufficient or inaccurate data in their tax return shall be penalized up to 1,000,000 BGL, if not subject to a heavier punishment.

(3) Any person committing a repeated violation under the preceding paragraphs shall be penalized an increased amount of the penalty 600,000 BGL and 3,000,000 BGL for para 1 and para 2 respectively, if not subject to a heavier punishment.

Art. 62. Individuals who do not report an activity subject to final annual (patent) tax shall be penalized the amount of the tax for the respective activity and if the violation is repeated, the penalty shall be three times the amount of the respective tax.

Art. 63. (1) Managers, chief accountants and other officials, who compute wrongly, do not withhold nor pay the taxes withheld and payable by the payer of income within the deadline, shall be held personally responsible and penalized up to 500,000 BGL.

(2) For not submitting or failure to submit on time the Worksheet of Income Paid under Art. 57 the delinquents shall be penalized up to 250,000 BGL.

Art. 64. For delinquencies under Art. 60 the delinquents shall be penalized from 500,000 to 1,500,000, if not subject to a heavier punishment.

Art. 65. (1) Violations shall be ascertained by means of a document issued by the tax authority.

(2) Penal Acts shall be issued by the Head of the General Tax Administration Directorate or by a person authorized by the GTAD Head.

(3) The Violation Acts and the Penal Acts shall be composed, issued and appealed under the provisions of the Administrative Violations and Penalties Law.

Art. 66. Unless otherwise provided for administrative penalties in this Law, the provisions of the Tax Procedures Law and the Law for Administrative Violations and Penalties shall apply.

ADDITIONAL PROVISION

§ 1. (1) For the purposes of this Law:

1. "Bulgaria" or "the country" shall be the Republic of Bulgaria and in cases when used in the geographical sense, it shall include the territory on which the Republic of Bulgaria excercises its souvereignity, as well as the continental shelf and excusive economic zone within which the Republic of Bulgaria excercises souvereign rights in accordance with the International Law.

2. "contracts treated on a par with empoyment contracts" shall be relationships appearing between the Minister of Defense and Minister of the Interior on the one side and employees in the respective ministries, on the other.

3. "Permanent place of residence" shall be permanent settlement of an individual on the territory of the Republic of Bulgaria, regardless of the time spent abroad for a particular tax period whenever the individual s stay abroad is not for the purpose of permanently settling there.

4. "Foreign expert" shall be an individual whose permanent place of residence is located abroad and who is invited by the Republic of Bulgaria or sent by another country or an international organization to the Republic of Bulgaria as an expert with a particular expertise with the primary purpose of providing expert assistance;

5. "Craftsman’s activity" shall be the habitual production process or services rendered through personal performance by persons and members of their families, such as woodworks, carpet making, shoe repairs, glass workers, automobile repairs and the like.

6. "Persons performing occupational activities" shall be Certified Public Accountants, tax consultants; auditors; lawyers, notaries and other legal advisors; industrial property representatives; valuers of movable and immovable property and of enterprises as a whole; interpreters, translators; engineers and technical assistant managers; architects; masters of culture, education, arts and science, including inventors; licensed valuers and other persons performing professional activity at their own expense;

7. "Individuals providing services with personal performance" shall be the individuals providing services under a contract for provision of a service in accordance with the Obligations and Contracts Law, the activity of which cannot be described as such of a small enterprise or craftsman’s activity or as an occupational activity;

8. "Primary employer" shall be the one with whom the individual has concluded a primary employment contract under the Labour Code;

9. "Intellectual property" shall be the ownership of products of science, literature and arts, including movies and TV films and recordings used in TV or radio broadcasts, [ownership of] patents, trademarks, industrial design and utility models, diagrams, plans, secret formulae and processes, as well as information about an industrial, commercial or scientific experiment (know-how);

10. "copyrights and license fees" shall be payments of all kinds, received in exchange of using or right to use copyrights for literary, artistic or scientific products, including movies or recordings of radio or television broadcasts; of patents, trademarks, industrial design or utility models, diagrams, secret formulae or processes, or for use of or for the right to use over industrial, commercial or scientific equipment, or information relating to an industrial, commercial or scientific experiment (know-how).

11. "Interest" shall be: income from any debt claim, regardless of whether it has been secured through a mortgage or by a clause envisaging a stake in the debtor s profit, as well as income from bonds, cheques and other financial instruments related to these securities;

12. "Rent from farm land" shall be the income received by an owner of farm land for providing their land to be used by a co-operative registered under the Co-operatives Law;

13. "Rent from land and immovable property" shall be the income received by the lessor under a lease contract;

14. "Gambling" shall be: lotteries; electronic machine games allowing prizes, cash or objects, the games on gambling tables with monetary benefits and betting on sports competitions;

15. "Market price" shall be the VAT- and excise-free amount payable in identical conditions for one and the same commodity or service in a transaction between unrelated persons in the sense of the Corporate Income Tax Law;

16. "Other accommodations" shall be motels, vacation settlements, villas, huts, camping sites, family-owned hotels and privately leased accommodations;

17. "Establishment" shall be each commercial area for retail sales of foods and non-food commodities, including:

a. Open stalls and tables at market places, sidewalks and street lanes;

b. Shops, kiosks, pavilions, vans and the like;

c. Transportation etc. vehicles for door-to-door trade.

18. "Net trading area" shall be the area in an establishment which is accessible by the buyers;

19. "Production dividends" shall be the dividends paid to the co-op members for the production produced by them and sold to the co-operation.

20. "Main residence" shall be the place of residence which serves to satisfy the main accommodation needs of the taxpayer and the members of his/her family permanently or predominantly for at least three years of the last five years.

21. "Tantiemmes" shall be the remuneration paid to managers and senior executives in enterprises after the profits are taxed, expressed in percentage of the profits, income, turnover or other economic indicators of the enterprise.

22. "Tax Treaty" shall be: (1) a treaty for avoidance of international double taxation of income; (2) a treaty for avoidance of double taxation of income and property; (3) a treaty for avoidance of international double taxation and prevention of evasion of taxes on income; (4) a treaty for avoidance of international double taxation and prevention of evasion of taxes on income and property; (5) a treaty or agreement for avoidance of international double taxation in the field of international air transportation;

regardless of whether the above-listed treaties are inter-country or inter-governmental.

23. "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 representatives 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.

24. "an established base" shall be specific premises or other establishment through where a non-resident individual performs, fully or partially, independent personal services or performs an occupational activity, such as: architect’s studio, dentist’s, solicitor’s or other consultant’s office, an independent auditor’s or accountant’s office, etc.

25. "factoring" shall be a financial transaction for credit 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 (interest and/or commission).

26. "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 pecuniary remuneration, the right to use the franchising for certain types or services.

27. "franchise" shall be combined industrial and intellectual property rights, related 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.

28. "annuities" shall be guaranteed periodic payments of monetary amounts to the benefit of an individual, determined for each calendar year and payable within a fixed period of time or for life, which are made based on a preliminary payment on the part of the individual entitled to the right to receive the negotiated annual amounts.

29. "tax credit" shall be the right under the conditions outlined in this Law to enjoy recognition of the tax already paid abroad on the income from sources outside of the country.

Transitional and Conclusive Provisions

§ 2. The Personal Income Tax Law (Promulgated in State Gazette, issue 132/ 1950, Amend. Extr. Ed. 104/1952; 60/1953; 15/1954; 64/1955; 91/1957; 90/1958; 91/1960; 105/1962; SG 99/1963;; 52/1965; 16 and 52/1966; 15 and 100/1967; 69/1968; 60/1970; 101/1972; 53/1973; 54/1973; 36/ and 93/1979; 7/1982; 44/1984; 79/1985; 33/1988; 4/1989; 10 and 30/1990; 27 and 82/1991; 19 and 62/1992; 23/1989; 10 and 30/1990; 27 and 82/1991; 19 and 62/1992; 23/1993; 38 and 83/1994; 59/1995; 28 and 33/1996; 44/1997) shall be repealed.

§ 3. For income received in 1997 the tax shall be calculated and paid in accordance with the provisions of the repealed Personal Income Tax Law.

§ 4. Sole proprietors using the deduction under Art. 13 para 12 of the Personal Income Tax Law shall apply the provisions of the Corporate Income Tax Law until the losses are fully compensated or the five-year period from their appearance has elapsed.

§ 5. For determining the particular amount of tax under Art. 31 para 1 subparas 3, 4, 5 and 6 for 1998, the deadline under rt. 33 para 3 shall be until February 28, 1998.

§ 6. For 1998 the deadline for the payment under Art. 53 para 1 subpara 1 shall be May 31.

§ 7. Indemnification, paid to individuals under the Political and Civil Rehabilitation of Victims of Repression Law shall not be subject to tax.

§ 8. Individuals may qualify for relief under Art. 29 of the Monuments of Culture and Museums Law to the amount of and as provided in Art. 24 of this Law.

§ 9. In § 2 of the Additional Provisions of the Notaries’ Law (Promulg. SG 104/1996) the second sentence shall be amended as follows: "The value shall be determined under the provisions of Art. 33 of the Local Taxes and Charges Law.".

§ 10. The Minister of Finance shall issue Decrees for the implementation of Chapter Five of this Law.