Q: Private individual sells one property for BGN 200 000 in the year 2010. The property had been bought back in 1999. Is the individual required to get register for VAT in Bulgaria? What are the tax liabilities in the event of such a deal?
According to Art. 3, para. 1 from the VAT Act in Bulgaria, liable for tax under the VAT Act shall be any person who carries out independent economic activity, regardless of the objectives and the results from it. Independent economic activity shall be the activity of manufacturers, traders and persons, providing services, including in the sphere of mining activity and agriculture, as well as performing profession as freelance, including as private bailiff and notary. Independent economic activity shall also be any activity, carried out regularly or by profession, including the exploitation of material or non-material property with objective to receive regular income from it. (eg rental income).
In our opinion, occasional sales of property owned by an individual should not be treated as a regular business or professional activity. Therefore the amount of such occasional sale should not be a taxable turnover for the purposes of compulsory registration under art. 96 of the VAT Act – since that person does not fall within the scope of VAT.
At the same time from the perspective of the individual tax obligation under the Personal Income Tax Act /PITA/, it should be determined whether the property sale is not falling within the exceptions of Art. 13, para. 1, item 1 letter a) or point b) of PITA – as exempted from Personal Income Tax.
In compliance with art.13, para 1 the following income shall be non-taxable:
– the income received during the year of taxation from the sale or exchange of:
а) one immovable housing property, provided that more than three years have passed between the date of its acquisition and the date of the sale or exchange;
b) up to two pieces of immovable property, or agricultural property and forest land plots regardless of the number thereof, providing that the time elapsed between the date of acquisition and the date of sale or purchase is more than 5 years;
In the event that the sale of the property falls in the above mentioned 2 cases for the individual seller, in compliance with art. 52, para. 1, item 2 of the PITA, no obligation arises for filing an Annual Tax Return under Art. 50 of PITA.