Bulgarian tax legislation provides thin capitalization rules, which may restrict the tax deductibility of interest expenses if debt to equity ratio of a company for a particular tax period exceeds three to one. The restricted interest costs may be carried forward and utilized against the taxable profit of the company in the following five years.
Any impairment losses incurred by the Bulgarian company as a result of writing-off of trade receivables would not be recognized for tax purposes in the year of their accounting recognition. Such losses would form temporary tax difference, which may reverse and decrease the taxable result of the entity in the following years when one of the following occurs:
– the statute of limitations period of the trade receivables expires (but not longer than 5 years starting the year when the receivable became due)
– sale of receivables
– the insolvency procedure of the debtor is terminated with an enforcement of a special recovery procedure, which envisaged partial settlement of the respective receivables (the reverse effect applies only to the portion of the receivables that will not be settled)
– part of the entire amount of receivables was regarded as undue in a court decision
– if before the expiration of the statute of limitations period the respective receivables were settled with a legislative act
– if the debtor is terminated and the receivable or part of it remained unsettled.