Bulgaria: Amendments to corporate income tax law, including “windfall profits tax” on fossil sector

Amendments to the corporate income tax law promulgated in the Bulgarian State Gazette issue 99 (13 December 2022) include the changes described below. 

Regional state aid in the form of tax relief may be granted for the period 2022-2027, subject to compliance with the guidelines of the European Commission (EC) on regional state aid (2021/C 153/01 effective 1 January 2022), and subject to the following changes:

• Regional state aid in the form of retained corporate income tax may be granted only to initial investment projects qualified as micro, small and medium-sized enterprises under the conditions laid down in Commission Recommendation of 6 May 2003 (OJ L 124, 20.5.2003). 
• Regional state aid may not be granted to taxpayers performing activities in the transport, lignite and coal, steel, energy, broadband, fisheries and aquaculture sectors, as well as primary production, processing and marketing of agricultural products as listed in Annex 1 to the Treaty on the Functioning of the EU. 
• The implementation of the activity related to the initial investment must continue in the respective municipality with high unemployment for a three-year period compared to the five-year period required with respect to the regional state aid for 2014-2021. Intangible assets included in the initial investment must be used solely for the activity of the taxpayer again for a shorter three-year period (instead of five years). 
• Further, the term for implementation of the initial investment is shortened from four years to three years. 
• Some of the requirements for granting the expired regional state aid under Article 189 of the corporate income tax law are no longer valid. 
• There are also some changes in the additional conditions for an initial investment, part of a large investment project or of a single investment project. 

The tax relief may be applied only after the EC issues a positive decision on the compliance of the tax relief with the Guidelines of the EC on regional state aid. No retention of corporate income tax prepayments is allowed until the date of issuance of the decision of the EC.

The corporate income tax for 2022 can be retained only if the application form is filed in the period 1 January 2023–31 May 2023, there is an approval of the Bulgarian Investment Agency issued by 30 June 2023, and all the requirements listed in the corporate income tax law for provision of tax relief in the form of regional state aid are met.

The right of retention of corporate income tax would apply until 31 December 2027, including with regard to the corporate income tax for 2027.

Corporate income tax relief in the form of state aid for farmers may also be provided starting 1 January 2023 following the requirements for notification before the EC under the currently effective EU law. 

Clarification is provided of the requirements relating to the lack of enforceable public liabilities, liabilities for administrative penalties levied on the basis of penal decisions for breaches of local regulations governing liabilities towards the state or other state bodies acting as such, as well as the corresponding penalty interest for late payment.

Council Regulation (EU) 2022/1854 (6 October 2022) on the introduction of an obligation for temporary solidarity contribution on the excess profits of companies with activities in the crude petroleum, natural gas, coal and refinery sectors was transposed into local law, effective 8 October 2022.

• The temporary solidarity contribution of 33% will be calculated on the surplus taxable profits for 2022 and 2023.
• The surplus taxable profits will be calculated as the taxable profits which are above a 20% increase of the average of the taxable profits for the tax periods 2018 to 2021.
• The temporary solidarity contribution is to be declared with the annual corporate income tax return and will be recognized as a current expense for tax purposes.
• The deadline for the payment of the temporary solidarity contribution will be 30 June of the following year (similar to the annual corporate tax payment). 
• When the temporary solidarity contribution is not paid within the statutory deadline, penalty interest for its late payment will be due.  

Read a December 2022 report prepared by the KPMG member firm in Bulgaria