VAT tax credit for vehicles in Bulgaria

Many people register companies in Bulgaria with the single purpose of registering one or more cars. Indeed, the taxes and the insurance in Bulgaria are low.
There is no problem for a Bulgarian company to buy vehicles if the seller is an individual or a company which is not VAT registered.
If the seller of the car, however is a company, which is VAT registered and you want the Bulgarian company to buy with without VAT, there is a problem, regardless that generally the intra-community acquisitions of goods are VAT-free as we described at Intra-community acquisitions.
The problem arises for "passenger cars" which means automobiles, in which the number of the seats for sitting, without the seat of the driver, is not more than 5. The definition of "passenger car" does not include a lorry or a truck, which is designated for freight transportation, or a passenger car, which has permanently integrated additional technical equipment for the purposes of the activity carried out by the registered person.
The general rule is that when a company buys a passenger car, there is not tax credit for the VAT paid or in other words, the VAT is not deductible. When a company makes an intra-community acquisition of goods, it issues a so-called protocol. The protocol is registered once in the VAT sales journal as a VAT payable and once again in the journal of purchases as a VAT receivable (as a tax credit). Normally they compensate and the result is zero. This procedure is known as reverse charge. But in the case of passenger cars, the company does not have the right to use the tax credit and as a result, the company must pay VAT for the acquisition of the car amounting to 20% of the purchase value of the car.

Fortunately, there are a few exceptions of this rule, if one of the following conditions is met:

• The vehicles are designated for resale solely (commercial stocks), including after processing;
• The vehicles are used only for letting out (rent-a-car);
• The vehicles are used only for transport and security services, taxi transportation, courier services or training of drivers of motor vehicles.

This article does not describe the VAT margin scheme on second-hand cars. This is described at: VAT margin scheme on second hand cars.