Rental - taxes

Rental - taxes

 

Question:
Hello!

Together with my sister, who is a Canadian citizen (permanently living in Canada and will authorize me to manage her property), we want to invest in apartments and deal with short-term rentals through shared service platforms such as Booking or Airbnb. What actions should we take regarding necessary registrations before starting a business? What taxes will have to be paid for me as a Bulgarian citizen and for my sister - a foreigner? Is VAT registration required?

Thanks in advance!

 

Answer:

Hello,

In your case, you have two main options for action:

- To register a company - With your sister you register a limited liability company. Then the two of you, as individuals, rent the apartment to the company so that it can operate with it. At the end of the year, 10% tax is paid on the realized profit (the realized income minus the expenses related to the activity of the company). Once the profit is taxed, you can distribute the balance to each other as a dividend, after paying an additional dividend tax - 5%. For the time for which the company operates, the manager of the company (I assume you) is insured on a minimum minimum insurance income. You should keep in mind that the rent that the company will pay you is income that you will have to declare separately as individuals and pay 10% tax (including your sister, as the income of individuals related to real estate is taxed in Bulgaria). On the other hand, this rent will be an expense for the company and thus will reduce its profits and accordingly pay less tax. Of course, you can first register the company and buy the apartment in the name of the company.

 - Do not register a company and accordingly be taxed under the Local Taxes and Fees Act with an annual patent tax. The tax is determined by the municipality in which the apartment is located. You will have to insure yourself for the time during which you perform activity. As your sister is a Canadian citizen, she will not be insured in Bulgaria. The minimum amount on which you will have to insure is the minimum insurance income. At the end of the year, an annual tax return is submitted, in which the income received during the year is declared and the insurances are equalized. If the income is higher than the amount on which social security contributions are accrued during the year, then social security contributions will have to be added to the difference. Keep in mind that if you exceed an annual income of BGN 50,000, the option with patent tax is eliminated and you will have to register a company.

 In both cases you will have to categorize the apartment. If you choose the option with a company, you will do the categorization after you register the company, while if you decide to act with patent tax, you will have to do the categorization before submitting the documents to the municipality for patent taxation.

 Also in both cases you will owe tourist tax, which is a municipal tax and is determined individually by each municipality based on the number of nights. For this purpose you will have to register (after you have a categorization) in the single tourist portal, where you can enter the realized nights online. Based on the nights entered by you, a monthly tourist tax will be calculated.

 Again, in both cases you will be subject to VAT registration according to Art. Art. 97a of the VAT Act. The reason is that you will use the services of Booking and / or Airbnb. According to the above-cited article of the VAT Act, if you receive a service from companies registered in another EU country, then the registration on this basis must be done 7 days before receiving the first service. With this registration mode you will not owe VAT on your income. However, you will owe 20% VAT on the value of the services you have received from companies registered in another EU country - for example, if you receive an Booking invoice for a commission of BGN 100.00, you will owe 20.00% - BGN 20.00. VAT.

We hope we have been helpful to you.

Greetings!