Recording VAT in international transactions

INTERNATIONAL TRANSACTIIONS,
recording VAT, possible options and required documents

 

In VAT laws and directives the EU member states are a community, and the transactions within the European Union - intra-communal. In the text below the countries that are not EU members are united under the term "third countries".

It is very important that all primary accounting documents be translated into Bulgarian. This is necessary not only to company accountants in accountancy and reporting, but also when there are audits by monitoring organizations, without imposing additional fines and without any remarks.

We shall review situations when VAT is applied in practice.

During the preparation of the transaction it is first necessary to determine partners' jurisdiction and status as well as whether they are VAT payers? For companies registered in the European Union this can be done with VIES – VAT Information Exchange System, at the following address:

https://europa.eu/youreurope/business/vat-customs/check-number-vies/index_en.htm

When payments for which VAT liabilities arise it is necessary to pay attention to deadline in order to have ample time when using tax credit or for paying VAT in time.

 

EXAMPLES OF DIFFERENT TRANSACTIONS

 

EXAMPLE № 1. SALE OF GOODS FROM BULGARIA IN EU STATES

 

The sale of goods by a Bulgarian company to a EU company which is a VAT payer is shown in the following diagram:

 

If a Bulgarian company - VAT payer makes deliveries of goods to a contracting party - EU member which is also a VAT payer, in this case VAT shall equal zero, pursuant to art.84, and art.17 of the VAT Act.

The documents that are necessary for the Bulgarian company during the accounting, in this instance, are, as follows:

1. Invoice for the sale Purchase order (order by the purchaser).
2. Payment order confirming payment between seller and purchaser.
3. Agreement/Contract, statement of delivery and acceptance.
4. CMR, invoice for transport.
5. VIES - declaration.

When the invoice is being filled in, it is necessary to specify the reason for not charging VAT.

The grounds for not charging VAT on the invoice, in this instance, are art. 84 and art. 17 from the VAT Act – the goods are delivered outside the territory of the Republic of Bulgaria.

Sample texts that can be used when invoices are filled in are, as follows:

The delivery is not subject to VAT charge in Bulgaria, pursuant to art.84 and in connection with art.17 from the VAT Act. VAT is due by the recipient of the goods (service).

 

EXAMPLE № 2. SALE OF GOODS FROM BULGARIA TO EU COUNTRIES AND TO A COTRACTING PARTY THAT IS NOT A VAT PAYER OR IS A NATURAL PERSON

 

The sale of goods by a Bulgarian company to a EU country, namely to a natural person or a company that is not a VAT payer is indicated in the following diagram:

 

In case of delivering goods from Bulgaria to a EU country, namely to a natural person or a company that is not a VAT payer, the Bulgarian company - VAT payer has to pay VAT in Bulgaria.

The documents required for the accounting and reporting of the Bulgarian company in this instance are, as follows:

1. Sale invoice and Purchase order (order by the purchaser).
2. Payment order confirming the payment between the purchaser and the seller.
3. Agreement/Contract, statement of delivery and acceptance.
4. CMR, invoice for transport.

 

EXAMPLE № 3. EXPORT OF GOODS FROM BULGARIIA TO THIRD COUNTRIES

 

The sale of goods by a Bulgarian company to a natural person or a company that are located outside the European Union is shown in the following diagram:

In case a Bulgarian company is performing a delivery of goods for a contracting party outside the European Union VAT is not charged. In this instance it is irrelevant whether the contracting party is a VAT payer.

The documents necessary for the Bulgarian company for the accounting in this instance are, as follows:

1. Sale invoice and Purchase order.
2. Payment order confirming the payment between the seller and purchaser.
3. Agreement/Contract (it is preferable to have statement of delivery and acceptance).
4. Customs declaration for the sale.
5. CMR, invoice for transport.

Main grounds for not charging VAT on the invoice:

Art. 6, par.2 and art.21, par.2 from the VAT Act – the place of performance of the service is outside the borders of Bulgaria: service for third country

Art. 28 from the VAT Act and art.86 – Taxable delivery with zero rate – the delivery of the goods is outside the territory of Bulgaria in a third country

Art. 30 (1) The taxable delivery with zero rate is the transportation of goods (transport service) for a third country.

Exemplary texts that can be used for filling in the invoices are, as follows:

The delivery is not subject to charging VAT in Bulgaria, VAT is payable by the recipient of the goods (services).

 

EXAMPLE № 4. DISTANCE SALE OF GOODS FROM BULGARIA TO OTHER EU COUNTRIES

 

This case applies to Internet shops that usually sell to persons who are not VAT payers:

No matter in which EU country the company has been registered as a VAT payer, if it delivers goods sold through an Internet shop or through the Internet from a warehouse in Bulgaria, it becomes liable to pay VAT amounting to 20% in Bulgaria, as well as tax credit entitlement. The availability of a warehouse in Bulgaria is mandatory. The warehouse must not be in another country.

The threshold for VAT registration in the other EU countries corresponds to the VAT limit for this country, for example: in Belgium - 35 000 EUR, in Czechoslovakia – 1 140 000 CZK, in Austria – 100 000 EUR, in Bulgaria - 70000 BGN.

The documents needed by the Bulgarian company for the accounting in this instance are, as follows:

1. Sale invoice and Purchase order (order by the purchaser).
2. Payment order confirming payment between the purchaser and the seller.
3. Transportation document or a bill of lading from e delivery courier service.

In the sale of auction goods – the registration in the other EU country has to be made immediately. This applies to all electronic services.

 

EXAMPLE № 5. PURCHASE OF GOODS BY A BULGARIAN COMPANY FROM EU COUNTRIES

 

The purchase of goods by a Bulgarian company from a EU country which is a VAT payer is shown in the diagram below:

In case a Bulgarian company purchases and imports goods (receives services) from another EU country, it is necessary for the company to make sure during the transaction that the supplier is a registered VAT payer. This can be done by using the link provided at the beginning.

The supplier provides a VIES-declaration, and the Bulgarian company is obliged to pay VAT and charges 20% VAT in Bulgaria with a record specified in art. 117 from the VAT Act. In case the goods or services shall be provided by the company for commercial purposes, the right for recovering VAT within the same period occurs. (i.e. in reality VAT shall not be paid)

The documents needed by the Bulgarian company for the accounting in this case are, as follows:

1. Invoice by the seller for the purchase and Purchase order (order by the purchaser).
2. Payment order confirming the payment between purchaser and seller.
3. Customs declaration when purchasing for import in Bulgaria issued by a customs authority in the EU, if the seller has purchased the goods in a third country (copy)
4. VIES-declaration.
5. Invoice for transport – original /when the purchaser pays for the transport/ or a copy /when the transport is paid by the seller/ and CMR.

 

EXAMPLE № 6. IMPORT OF GOODS INTO BULGARIA FROM A THIRD COUNTRY

 

Purchase of goods by a Bulgarian company from a country that is not in the EU е ins shown in the following diagram:

In case the Bulgarian company purchases and imports the goods from other countries it is very important to know that the taxable transaction sum includes the cost of the goods and the costs of its transportation, as well as customs fees and duties.

The Bulgarian company is obliged to pay VAT amounting to 20% immediately after the goods arrive on the EU territory. With this it becomes entitled to a tax credit through the current reporting period. The first time the period for recovering VAT is 3 + 1 month (applying for recovery after 3 months, 1 month for examining the documents), after the company applies for recovery of VAT on a monthly basis, the document examination also being 1 month.

The documents needed by the Bulgarian company for the accounting report in this case are, as follows:

1. Invoice for purchase by the seller and Purchase order (order from the purchaser)
2. Agreement/Contract (preferably a statement of delivery and acceptance)
3. Payment order confirming payment between seller and purchaser
4. Customs declaration for purchase for import in Bulgaria
5. Invoice for transport - original /when the purchaser pays for the transport/ or a copy /when the seller pays the transport/. СМR

 

EXAMPLE № 7. TRILATERAL OPERATION OUTSIDE THE EU:

A Bulgarian company is n agent in a transaction for sale and purchase outside the European Union

 

A situation when two companies, a seller and a purchaser, are located outside the EU

The first company, for example from Russia, is a supplier of the goods.

The second company, this is the Bulgarian company, is the agent (NOT A COMMISSIONER).

The third company, for example a Turkish company, is a purchaser of the goods (end client).

The diagram of the transaction is, as follows:

 

Grounds for not charging VAT on the invoice

Art. 69, par.2 and art.21, par.2 from the VAT Act – the place of performance of the service is outside the territory of Bulgaria: service to a third country

Art. 28 from the VAT Act and art.86 – Taxable delivery with zero rate – the delivery of the goods is performed outside the territory of Bulgaria, in a third country.

The documents needed by the Bulgarian company for the accounting in this instance are, as follows:

1. Agreements/Contracts
2. Invoice for purchase by the seller and Purchase order (order by the purchaser)
3. Payment order confirming payment between the seller and the purchaser
4. Customs declaration for purchase
5. Customs declaration for sale
6. Invoice for transport – original /when the Bulgarian company pays the transport/ or a copy /when the seller or the purchaser pays the transport/.
7. СМR

IF THE BULGARIAN COMPANY IS AN AGENT OR A COMMISSIONER IN THE SALE OF SERVICES, THE FOLLOWING DOCUMENTS ARE NEEDED:

1.   Invoice by the seller for purchase or for sale

2.   Bank statements for transfers made on the basis of invoices

3.   Agreement/Contract, statement for acceptance of services, e-mail or another type of correspondence proving the performance of the services:

• Order

• Statement of delivery and acceptance

 

EXAMPLE № 8. TRILATERAL OPERATION IN THE EU:

A Bulgarian company is an agent in a transaction for sale and purchase in the EU

 

We shall review a situation when the three companies are located in the EU and all of them are VAT payers ДДС (these companies are not VAT registered in the countries where they deliver the goods to or where they purchase the goods from).

The first company, for example in France, manufactures goods and is a transferee, i. e. a person that transfers their entitlement to receive money representing another person's liability, in our case - the Bulgarian company.

The second company, this is the Bulgarian company which is the agent, VAT payer in Bulgaria and is not registered as VAT payer in France.

The third company, for example a German company, which is a purchaser of the goods (end client).

The diagram of the transaction is, as follows:

For this transaction it is necessary for us to rely on art.141 from the EU Directive 2006/112/ЕО. It is very important , that the decision for the sale of the goods be made in Bulgaria and this has to be recorded on the documents.

Then the VAT with the manufacturer (the French company) shall be equal to zero.

For the agent (the Bulgarian company) there is the obligation to submit a VIES-declaration and VAT shall be equal to zero pursuant to art.21 from the VAT Act – the place of performance of the service is located outside the territory of Bulgaria; the tax shall be paid by the recipient, service in EU and art.28с (Е)(3)77/388/ЕЕС – the person is an agent in a trilateral operation, the tax is paid by the recipient.

For the recipient (the German company) there is the obligation for paying VAT in Germany and in accordance with a rate of 19% (accepted in Germany).

The documents for the transaction that need to be prepared in accordance with art.9 from the Regulations on Applying the VAT Act in this case are, as follows:

1. Agreement/Contract
2. Invoice with the VAT number of the manufacturer, which is provided to the agent
3. Invoice with the VAT number of the agent, which is provided to the user
4. VIES-declaration, which is provided by the agent
5. Written confirmation of the transaction (mandatory).
6. Copy from the transport bill of lading.
7. Bank documents confirming payment.

 

Art. 15 of the VAT Act (Value Added Tax Act). A tripartite operation is the supply of goods between three companies registered for VAT purposes in three different Member States A, B and C, for which the following conditions are simultaneously met:

1. a company registered in Member State A (transferor) delivers goods to a company registered in Member State B (intermediary), who then delivers those goods to a company registered in Member State C (acquirer);

2. the goods are transported directly from A to B;

3. the intermediary is not registered for VAT purposes in Member States A and C;

4. the acquirer charges VAT as a recipient of the supply.

 

I. The Bulgarian company as a transferor.

In this hypothetical transaction, the Bulgarian company (transferor) issues an invoice to an intermediary in Greece, and sends the goods directly to the final customer of the transaction (the acquirer), which is located in Romania. From the point of view of the Bulgarian company and the VAT Act, the delivery to the Greek intermediary is taxed at a zero rate and is documented with an invoice in which the valid VAT number of the intermediary is entered. The invoice is reflected in class 20 in the sales journal and in class 15 in the reference-declaration, as well as in the VIES declaration.

II. The Bulgarian company as an intermediary.

This is the most interesting and specific situation in which the most questions arise. Let's say that a Greek company sells goods to the Bulgarian company, which in turn resells them to a Romanian company, as the goods are transported directly from Greece to Romania. In this situation, the Greek company will draw up an invoice for intra-Community delivery to the valid Bulgarian VAT number. The Bulgarian company must reflect the received invoice in box 15 of the purchase journal and in box 30 of the VAT return.

It is important to emphasize that the Bulgarian company does not draw up any protocols on the received invoice and does not charge VAT! In this case, the place of performance is on the territory of Romania and the acquisition that we do as an intermediary in a tripartite operation is exempt for us - VAT must be charged by the acquirer in Romania.

For the subsequent sale to the Romanian client, the Bulgarian company should draw up an invoice, which contains a valid VAT number of the client. Article 114 para. 3 of the VAT Act explains to us that as a ground for non-accrual of VAT we must enter "Art. 141 2006/112 / EC".

The invoice drawn up in this way shall be indicated in Chapter 25 of the sales journal and in Chapter 18 of the reference-declaration, as well as in the VIES declaration (fourth column) in the same tax period in which it was issued.

It is important to obtain a written confirmation of receipt of the goods from the acquirer in the tripartite operation, which proves that the place of performance is the territory of Romania and exempts us from the obligation to charge VAT (Article 9, paragraph 2, item 4). from the VAT Act). The term for the supply of all documents is until the end of the tax period following the tax period of occurrence of the tax due. Otherwise, the VAT is charged with a protocol by us, as the VAT Act allows the protocol to be canceled upon subsequent acquisition of the documentation.

A frequently asked question is whether the intermediary in a tripartite transaction is obliged to register for VAT in the final country where the goods arrive?

The answer is a resounding no. It is precisely the avoidance of registration obligations for VAT purposes in many Member States that is one of the reasons for introducing this simplified regime.

III. The Bulgarian company as an acquirer.

In the latter case, a Greek supplier sells goods to a Romanian company, which transfers them to a Bulgarian company, and the goods are transported directly on the Greece-Bulgaria route. In this situation, the intra-community acquisition has a place of performance on Bulgarian territory and the tax must be charged by the Bulgarian company - acquirer in the tripartite operation. The protocol is included in the Board of Directors under the VAT Act in box 31 and in the sales journal in boxes 13 (basis) and 15 (accrued tax).

Provided that the purchased goods will be used for subsequent taxable transactions, then for the self-charged VAT the right to a tax credit arises. For the use of the DC the drawn up protocol is included in the reference declaration in class 31 and in the journal for the purchases in boxes 10 (the basis) and 11 (the charged tax).

 

EXAMPLE № 9. TRILATERAL EXPORT OPERATION FROM EU COUNTRY TO A THIRD COUNTRY (NOT A EU COUNTRY):

A Bulgarian company is an agent in a transaction for export of goods to a country that is not an EU member

 

We shall examine a situation when a European company, through an agent - a Bulgarian company, is selling goods to a third country.

The first company, for example from Greece - a VAT payer, is selling goods.

The second company - this is the Bulgarian company which the agent (NOT a commissioner, i.e. it is purchasing the goods) and is a VAT payer €.

The third company, for example a Turkish company, is the purchaser of the goods (the end client).

The diagram of the transaction is, as follows:

Attention! We do not recommend conducting operations in accordance with this example.

The seller (the Greek company) sends an agreement/a contract and submits an invoice to the agent, and it shall also submit the VIES-declaration for the transaction.

The Bulgarian company - the agent submits an invoice to the Turkish seller company and a statement has to be executed in accordance with art.117 from the VAT Act for the invoice issued by the Greek company, BUT WITHOUT ENTITLEMENT TO TAX CREDIT.

The goods go transit to Turkey, without entering the territory of Bulgaria.

According to the VAT Act, in the specified instance Bulgaria, as supplier of the goods to the third country, has pay VAT and is not entitled to tax credit!

Grounds for charging VAT on the invoice

Art. 69, par.2 and art.21, par.2 from the VAT Act – the place of performance of the service is outside the territory of Bulgaria: service to third country.

Art.28 from the VAT Act and art.86 – Taxable delivery with zero rate – the delivery of the goods shall be performed outside the territory of Bulgaria in a third country.

The documents for the transaction need to be prepared in accordance with art.9 from the regulations for Application of the VAT Act:

1. Invoice for sale and Purchase order.
2. Payment order confirming payment and invoice for purchase.
3. Customs declaration for the purchase.
4. Customs declaration for the sale.
5. CMR, copy of the invoice for transportation, statement of delivery and acceptance.

In this case the transfer of title from the Greek company to the Bulgarian one and from the Bulgarian company to the Turkish one shall be on the territory of the EU, in Greece, and in this case the Bulgarian company has to make a VAT registration in Greece!

 

Solution: The title over the goods shall be transferred in a "Free Zone" or in open sea after passing through customs (in order for the company to avoid VAT registration of the company in Greece), imposing duty on the goods, in this case, shall be done by the Greek company.

Transport costs before the release of goods from the EU should be at the seller's expense (Greek company).

If you really have to transact in this way, we ask you, before the start of the transaction, to consult specialists, make the economic estimations connected with the transaction, and take into account the deadlines and sums for making mandatory payments and taxes, check your contracting parties and use mechanisms for increasing your security, for example, advance payment of 100% of the sum before the goods are sent.

When purchasing goods and later selling them on the territory of Turkey you have to consult for probable registration requirements in accordance with the Turkish legislation.

 

EXAMPLE № 10. TRILATERAL IMPORT OPERATION FROM A THIRD COUNTRY TO ANOTHER EU COUNTRY

A Bulgarian company is the agent for the transaction of an import of goods from a country that is not a EU country, to a EU country

 

We shall examine a situation when a European company, through an agent - Bulgarian company, imports goods from a third country. PRACTICALLY IMPOSSIBLE SITUATION, if the Bulgarian company transfers title over the goods in the other EU country and receives customs clearance in this EU country! A VAT registration of the Bulgarian company is needed in the other EU country!

In what way, anyway, can the transaction be performed?

The first company, for example from Kazakhstan, manufactures the goods and is a supplier. In this case it is irrelevant whether the supplier is VAT registered.

The second company, which is the Bulgarian company - the agent /NOT A COMMISSIONER/, and is VAT registered. It will be the supplier of the goods to the EU.

The third company, for example an Italian company, is the purchaser of the goods (end recipient).

The goods shall be sent transit from Kazakhstan to Italy.

The diagram of the transaction is, as follows:

In Russia, the transfer of goods. The company in Italy is the final recipient of the goods. At the EU border, an ITALIAN COMPANY IS OBLIGATORY TO DEMEAN A COMMODITY.

The seller, a company from Kazakhstan, exposes the invoice for the mediator. Kazakhstan may be the place for on-lending product, but after AFTER PASSING THROUGH THE CUSTOMS PROCEDURE BY THE KAZAKHSTAN COMPANY.

The agent - the Bulgarian company - submits an invoice to the recipient, in compliance with art. 28 and art.86 from the VAT and delivers the goods to the Italian company before the goods enters the EU, which is why the place of performance of the transaction is on the territory of Russia or Kazakhstan (OR UP TO) the border of Italy (The transfer of the goods is outside the EU). The transport of the goods to the EU territory shall be for the expense of the end purchaser.

In this case it is very important:

1) To take into account the following detail: it is inadmissible to use delivery from group “D” from the Inco terms, when the seller bears all the costs for the delivery and bears all risks until the moment of delivery of the goods in the country of receiving (DAT, DAP, DDP). The title over the goods has to be transferred from the Bulgarian company to the Italian company before the border with EU or in a "Free Zone". (If the goods pass, for example through Russia, the title overthe goods can be transferred on the territory of Russia, i. e. in any third country).

2) The Bulgarian company does not have to pay transport.

3) In this example there is no INTRAST and VIES, because the transaction is not intra-communal.

The documents needed by the Bulgarian company for the accounting in this case are, as follows:

1. Agreement/Contract
2. Invoice for purchase
3. Invoice for sale
4. Kazakhstan customs declaration, in which the Bulgarian company is specified as the recipient
5. Customs declaration in the EU
6. CMR
7. Insurance of the goods to the name of the Italian company
8. Transportation bill of lading (copy)

 

Main grounds for not charging vat on the invoice

 

Art.69, par.2 and art.21, par.2 from the VAT Act – the place of performance of the service is outside the territory of Bulgaria: service to a third country.

Art.28 from the VAT Act and art.86 – Chargeable delivery with a zero rate – the delivery of the goods is performed outside the territory of Bulgaria in a third country.

ANNEXES

 

DOCUMENTS WHEN PURCHASING GOODS

1. Invoice for purchase by the seller and a Purchase order.
2. Payment order confirming payment between seller and purchaser.
3. Customs declaration in case of purchase from a third country for import in Bulgaria issued by EU customs authorities /in case of transit sale, when the goods do not enter the territory of Bulgaria and immediately arrives in the third country - EU member, a copy of the customs declaration is required/.
4. Customs declaration in case of purchase from third country issued by a customs authority of the third country.
5. CMR /in case of trilateral transactions on the EU territory between companies with VAT registrations, CMR is required, as well as a letter of confirmation (LADING LIST, PACKING LIST, BILL TO SHIP).
6. Invoice for transportation – original /when the purchaser pays the transport/ or a copy /when the seller pays the transport/.

All documents have to be with a Bulgarian translation.

 

DOCUMENTS FOR THE SALE OF GOODS

1. Invoice for sale and Purchase order.
2. Payment order conforming payment between seller and purchaser.
3. Customs declaration in case of sale to a third country.
4. CMR /in case of trilateral transactions on the EU territory between companies with VAT registration, CMR and a letter of conformation are required (LADING LIST, PACKING LIST, BILL TO SHIP).

All documents have to be with a Bulgarian translation.

 

DOCUMENTS REQUIRED IN THE SALE AND PURCHASE OF SERVICES

1. Invoice for purchase or sale of services by the seller.

2. Payment order conforming payment between seller and purchaser.

3. Agreement/Contract, statement for delivery and acceptance of the services, e-mail or another type of correspondence proving the order or the performance and acceptance of the services.

All documents have to be with a Bulgarian translation.

 

 

Grounds for not charging VAT on the invoice

Art.9, art.113 from the VAT Act – the person has no VAT registration

Art.84 and art.17 from the VAT Act – the delivery of the goods shall be performed outside the territory of Bulgaria in the EU

Art.21 from the VAT Act – the place of performance of the services is outside the territory of Bulgaria; the tax is paid by the recipient: service to EU

Art.69, par.2 and art. 21, par.2 from the VAT Act – the place of performance of the service is outside the territory of Bulgaria: service to a third country

Art.28 from the VAT Act and art. 86 – Taxable delivery with a zero rate – the delivery of the goods is performed outside the territory of Bulgaria in a third country

Art.22 from the VAT Act – the place of performance of the transportation service is outside the territory of Bulgaria in the EU

Art.30 (1) Taxable delivery with a zero rate is the transportation of goods (transportation service) to a third country

Art.163а from the VAT Act – delivery of waste; tax is paid by the recipient

Art. 28с(Е)(3)77/388/ЕЕС – the person is an agent in a trilateral operation; tax is paid by the recipient

Art.1, art.86 from the regulations of Applying the VAT Act – delivery of common transportation service

Samples of texts that can be used when filling in invoices.

 

The delivery is not a subject of taxation with VAT in Bulgaria in compliance with art ...., par .... and in connection with art...., par...... VAT shall be charged to the recipient of the goods (services).

 

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