Tax administration's checks on excessive cash in hand

Excess of cash in a Bulgarian company's cash desk


One of the main goals of every company is to make a profit. The goal of the business owner is to get the profit from the company. cash
The company's profit is subject to corporate income tax of 10%.
Profits are distributed in the form of dividends. Dividends are distributed among the partners in proportion to their share in the capital. For this purpose, the financial year (which coincides with the calendar year) must be completed first. Then a General Meeting of the partners or the sole owner of the capital is held, at which a decision is made to distribute dividends. The distribution of dividends is declared in two tax returns.
The first one of them is a quarterly declaration. The declaration shall be submitted by the end of the month following the calendar quarter during which the decision for distribution was made. For example, if the decision to distribute dividends was made in December, the return is filed and the tax is due by January 31.
The second one of them is an annual declaration of income paid to individuals during the year. This declaration shall be submitted by 28 February of the following year.
The distribution of dividends is subject to a 5% tax.
Dividends are a legal source of income for the person who receives them (the sole owner of the capital or the partner). In order to prove a reliable date of the receipt of the income for the individual, the best practice is that the company pays the dividend by bank transfer.

Hidden distribution of profits

Hidden distribution of profits means that the company has made payments in favor of its owners, which payments are not declared as dividends. Many business owners expect that these payments can be accounted for and declared as non-tax deductible expenses, but this avoids paying the 5% dividend tax. The difference between hidden distribution of profit and non-tax deductible expense is that in the case of hidden distribution of profit the expense is made in favor of the owners of the company.
A hidden distribution of profits can occur, for example, if payments for personal expenses are made from the company's bank account.
Hidden distribution of profits can also occur if the owner of the company decides to receive dividends from profits in advance, for example before the end of the financial year. In this case, the persons who made the distribution are responsible to the creditors for the obligations of the company jointly and severally with it. The reason is that although taxes have been paid on the hidden distribution of profits, this distribution is contrary to the Commercial Code and harms the interests of the company's creditors.
The hidden distribution of profits is taxed at 5% as well as dividends.
The hidden distribution of the profit is declared in the same two tax returns, in which the dividends are also declared.
In addition, the hidden distribution of profits is also declared in the annual profit tax return. If it is not declared in it, the tax rate is increased from 5% to 20%. Therefore, it is preferable for companies to declare this distribution voluntarily and not wait to be sanctioned by the tax administration.


Cash is received, for example, when withdrawing cash from the company's bank account or when receiving payments from customers, recorded by a cash receipt from a cash register.
Cash in itself is not a bad thing and the company has the right to keep cash. Of course, when inspected by the tax administration, the company must be able to show its cash.
A check by the tax administration of the cash can occur, for example, if the company has unpaid liabilities to the tax administration. Then the tax administration asks the question: "Why does the company have liabilities to the tax administration and at the same time - cash and why does not pay its liabilities with cash?".
The tax administration may also notice the cash when performing ongoing inspections or audits.
Every year the companies submit reports to the National Statistical Institute, where the balance sheet is declared, in which the available cash is indicated. From there, the tax administration obtains information about companies with large amounts of cash and checks whether the money is really available in cash.
If the money is not available in cash, it means that the accounting data do not correspond to reality.
This can happen if the owner of the company has taken the cash as a profit without declaring the distribution of dividends. This means that a hidden distribution of profits has been made, which is taxed at 5% rate. In order to tax the hidden distribution of profits by 20%, the tax administration must prove that this distribution was made during one of the past financial years and not during the current one.
During the inspection, the owner may claim that he has just distributed dividends in cash. The money was available at the cash desk, but a distribution was made, for which the deadline for declaration - the end of the month following the calendar quarter has not yet occurred.
Currently, the payment of dividends in cash is allowed if the amount of dividends distributed according to the distribution protocol is up to BGN 9999 or EUR 5000. The distribution of dividends is decided by a Minutes of the General Meeting of Shareholders. Cash payments are prohibited if the amount of the document on which the payment is made is BGN 10000 or more.
A legislative change has been planned in the government's legislative program, which will ban the payment of dividends in cash.
Then, probably in case of discrepancies, the tax administration will be able to conclude that the hidden distribution of profits was made at the moment of the initial withdrawing money from the bank account and can be punished with a tax of 20%.
For correct taxpayers, this change will not be a problem, because so far they have received their dividends from the bank in order to be able to prove payment with a document with a reliable date.

Companies with overdue liabilities

A company that has overdue liabilities to creditors, including the tax administration, is obliged to declare insolvency, whereupon the court opens insolvency proceedings and appoints a trustee in bankruptcy.
If the manager of the company does not declare insolvency in court, he is criminally liable.
Very often in such companies the manager has withdrawn cash from the bank account. In this way, the trustee in bankruptcy can seek funds from the manager as an individual.
If the manager of the company does not declare insolvency in court, he may be held liable both for failing to declare insolvency and for damaging the interests of creditors by withdrawing cash for himself.


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