Introduction:
Under review are practical and legal aspects of the corporate income Tax. Subject to review focuses on the analysis of these legal aspects. These frames this subject objectively coursework argue that the main aspects of corporate tax in Bulgaria are defined in our Corporate income tax (CIT) Law on Value Added Tax (VAT) and Tax-Insurance Procedure Code (TIPC) . Purpose of the course work is tracking the impact of corporate income tax and analyzing the situation of tax legislation by legal aspekti.Za to achieve this goal, a few basic tasks: • consideration of the corporate income tax from a theoretical standpoint to clarify the essence; • Analysis of existing legislation in the country to tax corporate profits / income /; • displaying the main conclusions and making recommendations
Exposure:
Nature of Income Tax
The tax is nonrefundable and free (no direct counterpart tax) payment imposed unilaterally by a general form of state budget revenue element, which together with other revenue is allocated to meet public needs. A certain group of objects or persons (real estate, vehicles, income etc..) And in the absence of voluntary payment is collected from the property of forced taxpayers. In modern tax system objects of taxation are mainly three – property, income and revs / goods and services /. As in the past, income taxes on a mass scale are implemented, direct taxes are represented by such property. Nowadays fiscal importance of property taxes is negligible so that it can be said that direct taxes today are mostly from income taxes. Typical for income taxes is that they are subject and on oblaganerealizirani or acquired income. With the development of commodity-money relations income, becomes a sign of economic strength and solvency. Therefore taxation redirected its main attention to the income from the property, because that income is the most appropriate -based taxation.
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Taxable persons
Taxable persons are:
1. Local entities;
2.Chuzhdestrannite entities doing business in Bulgaria through a permanent establishment, disposition of property made in a place of business or receive income from a source in Bulgaria; 3.Ednolichnite traders and individuals registered as tobacco producers and farmers to determine taxable income in accordance with Art. 26 of the Law on Income Tax of Individuals – Tax withholding in cases specified in the Law on Income Tax of Individuals; 4. individuals – entrepreneurs within the meaning of Art. 1, para. 3 of the Commercial Law – in the cases specified in the Law on Income Tax of Individuals; 5. employers and clients under management and control – the tax on social costs provided for in Part Four. For the purposes of this Act unincorporated associations and insurance funds, established pursuant to art. 8 of the Social Security Code shall be treated as legal persons. For the purposes of taxation of income from a source in Bulgaria taxable person is any foreign organizationally and economically distinct entity (trust fund, etc.), which independently carries on business or performs and manages investments where it can not determine the owner income. Legal residents
Local entities are:
1. Legal entities established under Bulgarian law;
2. Companies incorporated under Council Regulation (EC) № 2157/2001 of the Council and cooperatives established under Regulation (EC) № 1435/2003 of the Council when they are established in the country and have entered into a Bulgarian register. Local entities are taxed under this law for profits and income from all sources in Bulgaria and abroad.
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Foreign legal entities
Foreign entities are those that are not local.
Foreign legal entities are subject to tax under this Act for profits earned through a permanent establishment in the Republic of Bulgaria, or disposition of property in a place of business, and the income referred to in this Act, a source in Bulgaria .
Taxation of individuals
• There are many theories about the income tax, among them there are two main
– Theory sources (income)
– Theory of pure growth of wealth
Principles of Income Tax of Individuals
• First, subject to income tax only on individuals
• Secondly, the taxation of personal income can be achieved in the implementation of the two approaches – Taxation of the aggregate income of the family or household. – Taxation of personal or individual income of an individual, which it self is realized. • Third, annuality of taxation does not preclude preliminary or advance payments in the course of the year. • Fourth, the magnitude of the income is established by declaration by its recipient. • Fifth, the gross yield deductible and taxable items and the incremental costs of taxation not in fact be gross and net (net) income of the individual. • Sixth, with the income tax personal income is taxed two main types of income – Income from formal employment
– Income from self-employment (ET, professions, etc.).
• Seventh, in establishing taxable income apply two criteria or approaches: – Establishment of appropriate sources of income, regardless of the territory on which they are made to be applied for the benefit of residents – Establishment of income realized within a territory, which applies to non-residents. • Eighth, if there is a difference between national laws and internationally accepted norms, and primarily applicable agreements to avoid double taxation. Organization of taxation on the income of individuals in Bulgaria • Object of taxation:
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• A tax on the total annual tax levied on personal income obtained from: – Employment;
– From a business as a sole trader;
– Rent or other consideration for assignment of rights or property; – Transfer of rights or property;
– Income from other sources (royalties, income from farming and tobacco, etc.)..
Determination of tax liability
• Tax on total annual tax base is defined as the total annual tax base multiplied by the tax rate of 10 percent. • Income from a business as a sole trader is taxed separately, tax on annual taxable income, a tax rate of 15 percent. Deadlines
• The deadline for filing the annual tax return under Tax Law Personal Income up to April 30 of the year following the acquisition of income • The deadline for submitting declared in the annual tax return tax amount is also to April 30 of the year in which the tax return is filed Discounts
• Persons who submit an annual tax return by 10 February next year earning, a discount of 5 per cent on the same period in the paid part of the tax amount on the tax return. • Persons who submit an annual tax return no later than April 30 of the year following the acquisition income electronically, a discount of 5 per cent on the same period in the paid part of the tax amount of the annual tax return, provided they do not use discount of 5 per cent, scheduled for 10 February. Tax relief
• Tax relief for disabled workers – This relief can benefit those with 50 and 50 per cent disability. It enables them to reduce their annual tax base with 7920 lev • Tax relief on personal contributions to voluntary insurance, and insurance. This relief is limited to 10% of the total annual tax bases and can be used by individuals who in 2010 made personal contributions for supplementary voluntary insurance, voluntary health insurance or annuities for “Life” • Tax relief for donations: discount applies to the total of the taxable year and the amount depends on the status of the persons to whom the donation is made: – Up to 5 percent
– Up to 15 percent of the tax base can reduce if you make a donation to the Culture – Up to 50 percent if your donation is for the benefit of Center “Fund for treatment of children.” • Tax relief for young families: the amount of the annual tax base is reduced by the interest payments in 2010 on a 100,000 first mortgage on the lev. Mortgage credit contract must be signed by a person who meets all the following conditions: – A marriage;
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– The person or the spouse / s did not have attained 35 years of age at the date of contract for the mortgage loan; – Mortgaged home is the only home for his family in 2010
Taxation of legal persons
• Essential features of the corporate tax (profits) are as follows: – It is levied on individual entities, certain organizations – associations, ie group of people and vehicles sharing the same goal – The tax is assessed on the financial results of the business, ie subject is the income tax, profits respectively. Views of Income Tax (profits) of companies
• Classic view – in his profit companies should be subject to a tax, and dividends to shareholders with another tax. • Integrative view – he said the tax should only be distributed to the shareholders of the profit. Subject to taxation
• Tax base = revenue – production costs – depreciation of capital assets Net profit is calculated as the economic profit is deducted and paid interest on bank loans. Tax deductible depreciation rates
• In determining the annual tax depreciation tax depreciable assets are divided into the following categories: 1. Category I – massive buildings, including investment properties, facilities, transmission facilities, electricity, communication lines; 2. Category II – machinery, industrial equipment, apparatus; 3. Category III – vehicles other than cars, surfacing of roads and runways; 4. Category IV – computers, peripherals, software and right to use software, mobile phones; 5. Category V – cars;
Annual tax asset category depreciation rate (%)
Category I 4
Category II 30
Category III 10
Category IV 50
Category V 25
Tax deductible depreciation rates
Who pays income tax?
• persons liable for income tax are:
• Local entities – companies;
• Local entities are not traders – profit from transactions under Article 1 of the Commercial Code, as well as rental of movable and immovable property; • local unincorporated companies and insurance funds,
• foreign entities when doing business in the country;
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• foreign unincorporated companies when doing business in the country Size and time
• Size of tax
The rate of corporation tax is 10 per cent (Article 20 of CITA).
• Time limit for declaration and payment
By March 31 of the following calendar year – filing an annual tax return; By March 31 of the following calendar year – payment of corporate tax after deduction of the advance payments. Other taxes, regulated by CITA
• Tax expenditures
• Withholding
• Final tax organizers of gambling
• Income tax (payable by budget entities)
Tax expenditures
• A final tax levied on expenditure justified documentary following costs: 1. Entertainment expenses associated with the activity.
2. Social benefits provided in kind to employees and persons employed under contract for management and control. Social benefits provided in kind include: Costs …….. contributions (premiums) for additional voluntary insurance, voluntary health insurance and “Life”; Costs …….. food vouchers.
3. Costs related to the operation of vehicles when they are management operations. • Exemption from
1. Exempt from taxation social cost contributions (premiums) for additional voluntary insurance, voluntary health insurance and “Life” – up to 60 lev per month for each employee when taxpayers do not enforceable public obligations at the time of expenditure. 2. Exemption from the social costs of transport workers and persons employed under the management and control of the residence to place of work and back. • Tax rate
– The rate of tax expenditures is 10 percent.
• Deadlines for payment of tax
– Tax on expenses shall be paid by the 15th of the month following the month in which the expense was charged. Withholding
• Withholding tax is levied:
– Dividends and liquidation quotas distributed by resident legal entities to: ………. Foreign legal entities, except where the dividends accrue to a foreign entity through a permanent establishment in the country; Local ………. entities who are not traders.
• Tax rates:
-The rate of income tax of art. 194 of CITA / dividends and liquidation / is 5 percent. • Deadlines for paying the tax
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– Individuals who withhold the withholding tax on income from dividends and liquidation proceeds must pay taxes as follows: 1. within three months from the beginning of the month following the month in which the decision to distribute dividends or liquidation proceeds – where the income recipient is a resident of a country with which the Republic of Bulgaria has an effective convention for the avoidance of double taxation; 2. By the end of the month following the month in which the decision to distribute dividends or liquidation proceeds – in all other cases Final tax organizers of gambling
• Who pays the tax: the organizers of gambling and lottery lotto organizers of bets on sporting events and random events. • Tax base: the value of bets for each game.
• Tax rate: 15 percent.
Income tax (payable by budget entities)
• Under Article 248 of the CIT revenue budget entities from transactions under Art. 1 of the Commercial Code (purchase – sale of goods, securities, etc..) And rental of movable and immovable property are taxed on income • The tax rate is 2 percent for municipalities and 3 percent – for other government organizations. Conclusion:
Corporate tax is a means to achieve a number of regulatory targets. Legal aspects and practice of corporate income tax includes profits and income of legal persons and unincorporated business entities. Specifically, taxation can be made on annual amount of profit once the source of an outbreak of income, which determines the scope and nature of the tests. On the one hand, the tax on the profit for the state and municipal budgets, and on the other – different tax income and expenses that are subject to the Law on Corporate Income Tax. Compared to the previously existing legal framework expands this law targeting of control activities, encompassing not only direct income tax, but other income and sources of income. Entertainment expenses associated with the activity.
2. Social benefits provided in kind to employees and persons employed under contract for management and control. Social benefits provided in kind include: Costs …….. contributions (premiums) for additional voluntary insurance, voluntary health insurance and “Life”; Costs …….. food vouchers.
3. Costs related to the operation of vehicles when they are management operations. • Exemption from
1. Exempt from taxation social cost contributions (premiums) for additional voluntary insurance, voluntary health insurance and “Life” – up to 60 lev per month for each employee when taxpayers do not enforceable public obligations at the time of expenditure. 2. Exemption from the social costs of transport workers and persons employed under the management and control of the residence to place of work and back. • Tax rate
– The rate of tax expenditures is 10 percent.
• Deadlines for payment of tax
– Tax on expenses shall be paid by the 15th of the month following the month in which the expense was charged. Withholding
• Withholding tax is levied:
– Dividends and liquidation quotas distributed by resident legal entities to: ………. Foreign legal entities, except where the dividends accrue to a foreign entity through a permanent establishment in the country; Local ………. entities who are not traders.
• Tax rates:
-The rate of income tax of art. 194 of CITA / dividends and liquidation / is 5 percent. • Deadlines for paying the tax
– Individuals who withhold the withholding tax on income from dividends and liquidation proceeds must pay taxes as follows: 1. within three months from the beginning of the month following the month in which the decision to distribute dividends or liquidation proceeds – where the income recipient is a resident of a country with which the Republic of Bulgaria has an effective convention for the avoidance of double taxation; 2. By the end of the month following the month in which the decision to distribute dividends or liquidation proceeds – in all other cases Final tax organizers of gambling
• Who pays the tax: the organizers of gambling and lottery lotto organizers of bets on sporting events and random events. • Tax base: the value of bets for each game.
• Tax rate: 15 percent.
Income tax (payable by budget entities)
• Under Article 248 of the CIT revenue budget entities from transactions under Art. 1 of the Commercial Code (purchase – sale of goods, securities, etc..) And rental of movable and immovable property are taxed on income • The tax rate is 2 percent for municipalities and 3 percent – for other government organizations. Conclusion:
Corporate tax is a means to achieve a number of regulatory targets. Legal aspects and practice of corporate income tax includes profits and income of legal persons and unincorporated business entities. Specifically, taxation can be made on annual amount of profit once the source of an outbreak of income, which determines the scope and nature of the tests. On the one hand, the tax on the profit for the state and municipal budgets, and on the other – different tax income and expenses that are subject to the Law on Corporate Income Tax. Compared to the previously existing legal framework expands this law targeting of control activities, encompassing not only direct income tax, but other income and sources of income. This requires controllers to learn the state of revenue and expenditure of the entities / controlled /; accuracy of generation, distribution and determining taxable profit. These control actions are covering different reporting periods – months or years. They are primarily a documentary nature as they relate to past events and processes.
The effectiveness of control activities will increase if the documentary checks combined with survey type and nature of the overall activity of the taxpayers with the type and nature of the individual business transactions. This expands the creativity in controlling profits and income items subject of the checks. These are consequential values that are a result of many diverse activities carried out over a lengthy period included in different reporting limits set by applicable laws. At present rates on corporate income tax and the tax on personal income is one of the lowest among the other countries in the region. Preservation and use of this advantage, combined with the simplification of administrative procedures for taxpayers, aims to make the Bulgarian economy more attractive to domestic and foreign investment. Analyzing the impact of corporate income taxation contributes to efficient financial policy and the optimization of the economic benefit of the company.
Literature sources used:
1. Law on Corporate Income Tax 2007.
2.Korporativni Finance – Short Course, Second Edition, M-Thrace, Sofia, 2006. 3. Alexandrova, M., et al, Finance – theory and practice UNWE 2000. 4. “Capital” newspaper
5. www.banker.bg
6. magazine “Manual economist”
7. BROWN, C & Jackson P – edited by G.Manliev – Economics of the public sector-adapted version, PSSA, C 1998 8. Brusiyska, L., harmonization of taxation in Bulgaria with the EU, Centre for Economic Development, Sofia, 2005 9. Vachkov S. Spasova E., J. Jordanov, Corporate Finance, Varna 2006 10. Slavkov, B., Tax system and tax control in Bulgaria, IC “Thrace-M”, Sofia, 2001. 11. www.ced.bg
12. Minkova, G., comment proemnite podohodnto corporate tax Askal, 2007 13. Gichev., Ste., Taxation, 2005, omy, S., 2005
14. Brown and Jackson, Public Sector Economics, Sofia, 1998. 15. Stoyanov, V., Foundations of Finance, Volume I, Sofia, 2000
