More favourable tax laws for CSOs in Bulgaria

As of January 1st, 2006 new amendments to several tax laws concerning non-profit legal entities entered into force in Bulgaria.

1. The legal framework regarding tax incentives for corporate donations, set forth in the Law on Corporate Income Taxation, has been altered. The most important novelty is the change of the tax rate from 17% in 2005 to 10% for 2006. Donations given to entities and objectives exclusively listed in the law are recognized as expenses and are directly deducted from the positive financial result of the legal entity. The deduction on donations to non-profit, public benefit legal entities is up to 10% from the financial result and up to 15% from the financial result for donations made for arts according to the Law on Donation on Arts. The law also sets forth a restriction. Namely, the total amount of the expenses for donations for the listed entities and objectives may not exceed 65% from the positive financial result before tax transformation.
2. Under the Law on Taxation of the Income of Physical Persons, the taxable basis for physical persons is decreased with the incentives for donations amounting up to 10% in the case the donation is given to legal entities and objectives on the list, among which are the non-profit legal entities for public benefit. The novelties in the legal framework are related to the opportunity for physical persons-donors to deduct up to 15% from their taxable basis when donations are made for cultural support, regardless of the source of their income (labor agreement or self employed). The donations should be made in the form of gratuitous aid under the Law on Donation on Arts. The law also sets forth the restriction that the total amount of the incentives for donation for the benefit of the listed entities and objects may not surpass 65% from the taxable income of the donor. In addition, the persons making the donation should have neither mandatory social security obligations, nor tax obligations by December 31.
3. The novelty under the Law on Value Added Tax (VAT) is that non-taxable deliveries under the Law now also include donations of goods (except for excise goods) made for the benefit of gratuitous aid recipients and organizations supporting the culture according to Law on Donation on Arts in the cases when the donation is made under the requirements of the law.
4. Finally, the Law on Local Taxes and Fees stipulates a new rule under which gratuitous aid made in accordance with the Law on Donation on Arts is exempt from tax on donations.