The “Weekend Tax” in Bulgaria: Taxing Company Assets for Personal Use (Complete Guide)
1. Introduction: What is the “Weekend Tax” in Bulgaria?
In modern business practice in Bulgaria, it is common for companies to acquire assets such as passenger cars, real estate, mobile phones, and laptops in the company’s name. When these assets are used for both the company’s business activities and the personal/private needs of the managers, shareholders, or employees (e.g., personal trips during weekends), the so-called “weekend tax” applies. This is not a standalone law, but a set of specific tax rules and adjustments governed by the Value Added Tax Act (VATA) and the Corporate Income Tax Act (CITA).
The introduction of these rules aimed to curb the practice of purchasing luxury goods and real estate for personal use using company funds to claim VAT refunds and avoid corporate taxes. In this comprehensive guide, we will analyze the application of the “weekend tax” in Bulgaria for 2026, the statutory requirements, the methods for determining personal use, and how to protect your business during audits by the National Revenue Agency (NRA/НАП).
2. Taxation under the CITA: Expenses in Kind
When a company-owned asset is provided to an employee or manager for personal use, the expenses related to this personal use are classified as expenses in kind under the CITA. These expenses are subject to a flat tax on expenses.
- Tax Rate: The tax rate for the tax on expenses is 10% (Article 204, Paragraph 1, Item 4 of the CITA).
- Tax Base: The tax base is the amount of expenses corresponding to the personal use of the asset (including depreciation, repairs, maintenance, insurance, and fuel).
- Alternative Treatment: The company can choose either to tax the personal use with a 10% flat tax on expenses under the CITA, or to treat it as taxable employment income for the employee/manager under the Personal Income Tax Act (PITA). Taxing it under the CITA is usually much more favorable for businesses because social security contributions are not owed on the amount of personal use.
3. VAT Treatment: Tax Credits and Adjustments
The primary disputes with the NRA usually involve VAT. When you purchase an asset for mixed use, you are entitled to a partial tax credit. If you claimed a full tax credit upon purchase, you are required to charge VAT monthly on the portion of the expenses corresponding to private use.
The private use of a company asset is treated as a supply of service for consideration under Article 9, Paragraph 3 of the VATA, and is subject to 20% VAT. The company must issue a monthly self-billing protocol under Article 117 of the VATA to account for this.
Methods for Apportioning Personal Use:
- Vehicles (Cars):
- Actual Mileage Method: Based on the miles driven for personal purposes compared to the total mileage. This method requires daily, detailed logbooks (пътни листа) to prove every business trip.
- Flat-Rate Method (50/50): This is highly popular among businesses as it reduces administrative burden. Under this method, it is assumed that the vehicle is used 50% for business and 50% for personal use. In this case, logbooks are not required. VAT is charged on 50% of the operational expenses, and the CITA tax on expenses is 10% on half of the vehicle expenses.
- Real Estate:
- The apportionment is determined based on area (square meters used for residential/private purposes relative to the total area) or time (hours/days used for private purposes relative to the total time).
- Other Assets (Computers, Phones, Office Equipment):
- The law permits a flat-rate apportionment of 20% for personal use and 80% for business use, unless the company documents and proves a different ratio.
4. Administrative Requirements and NRA Audits
During a tax audit or inspection, NRA inspectors look for solid evidence regarding how assets are utilized and allocated. To protect your business, you should maintain the following documentation:
- Internal Company Policies: An official document signed by the manager regulating which assets may be used for personal purposes, how they are tracked, and which apportionment method applies (e.g., the 50/50 flat rate for cars).
- Declarations from Employees: Written declarations from employees using company cars or phones, confirming they are aware of the internal rules and agree to the tax treatment of expenses in kind.
- Logbooks and GPS Reports: If you do not use the 50/50 flat-rate method for vehicles, you must maintain meticulously filled logbooks indicating the start/end points, purpose of the trip, route, and driver’s signature. The NRA frequently cross-references logbooks with fueling invoices (dates and times) and vehicle GPS data.
5. Filing and Payment Deadlines
Meeting deadlines is critical to avoid interest charges and administrative fines:
- CITA Declaration and Payment: The annual tax on expenses is declared in the Annual Corporate Income Tax Declaration (under Article 92 of the CITA). The deadline for submission and payment is from March 1st to June 30th of the year following the year the expenses were incurred.
- VAT Reporting: The monthly VAT adjustments (via Article 117 protocols) must be included in the sales ledger and the VAT return for the respective month, submitted by the 14th day of the following month.
6. Quick Reference Tax Table
| Asset Type | Apportionment Method | VAT Treatment (20%) | CITA Treatment (10%) |
|---|---|---|---|
| Passenger Cars | Flat-rate (50/50) | VAT on 50% of expenses | 10% tax on 50% of expenses |
| Passenger Cars | Actual use (logbooks) | VAT on personal mileage | 10% tax on personal expenses |
| Real Estate | Area or time apportionment | VAT on personal share | 10% tax on personal expenses |
| Computers and Phones | Flat-rate (20/80) | VAT on 20% of expenses | 10% tax on 20% of expenses |
7. Frequently Asked Questions (FAQ)
Q1: Is it mandatory to keep a logbook if the company chooses the 50/50 flat-rate method for vehicles?
No. Choosing the 50/50 flat-rate method explicitly exempts you from the obligation to maintain logbooks to prove business and personal mileage, saving a substantial administrative workload.
Q2: How is the personal use of company mobile phones and laptops taxed?
If you cannot document the exact split, the NRA accepts a flat-rate split of 20% personal use. The company owes a 10% tax on expenses under the CITA on 20% of the total expenses for these assets and must charge 20% VAT on the same portion.
Q3: Can a company claim a full VAT credit when purchasing a property that is also used for personal purposes?
Yes, the company can claim a full VAT refund upon purchase, but must subsequently charge VAT monthly (via Article 117 protocols) on the share of operational expenses and depreciation corresponding to private use.
Q4: How should personal use by the company manager be documented?
The manager must sign a declaration for utilizing the asset for personal purposes, and the company should adopt a board resolution or a management order outlining the chosen allocation method.
Q5: What is the tax treatment of fuel for personal trips in a company car?
Fuel expenses for personal trips are also included in the tax base for the 10% tax on expenses under the CITA and are subject to VAT. Under the 50/50 method, the tax is applied to half of all fuel expenses.
Q6: Are repairs and maintenance costs for mixed-use assets deductible?
Yes, they are fully deductible for corporate tax purposes under the CITA because the private-use portion is subject to the 10% tax on expenses in kind. The VAT on repairs can be reclaimed partially or adjusted monthly.
Q7: What are the penalties for failing to declare the personal use of company assets?
During an audit, the NRA will assess the unpaid VAT (plus interest) and reclassify the expenses as a hidden distribution of profit, which results in a penalty of 20% of the amount plus a 5% dividend tax for the owner.
Q8: What happens with low-value assets?
Assets that are not classified as long-term assets (e.g., small office supplies, inexpensive tools) are typically expensed directly, and the “weekend tax” rules do not apply to them, unless there is a clear, systematic use for personal purposes.
8. Conclusion
Applying the “weekend tax” rules is an important tool for tax optimization, but it requires highly precise accounting documentation. The choice between flat-rate and actual allocation methods should be made after careful analysis of costs and the company’s administrative capacity. Failure to prepare Article 117 VATA protocols or a lack of internal company policies are among the most common reasons for tax assessments during NRA audits.
Our professional accounting team assists businesses in drafting internal asset usage policies, managing payroll documentation for expenses in kind, and correctly calculating VAT and corporate tax adjustments. Contact us for a consultation to ensure the tax safety of your business.