Principally, real estate transactions are exempt from VAT, except for transactions related to: (i) new buildings and the land associated with them; and (ii) land for construction purposes. The Bulgarian VAT law defines the term “new buildings” as buildings that, at the time when VAT becomes due, are (i) in a stage of “rough construction” or (ii) for which a permit to be used was issued in the last 60 months. It should be noted that the opinions provided by the Bulgarian Revenue Agency and the Bulgarian Supreme Administrative Court state that major changes in an old building may lead to its reclassification as a new building for VAT purposes.
According to Article 26(2) of the Bulgarian VAT law, the taxable base for VAT purposes is defined as: “the basis of everything which constitutes the consideration which has been obtained by or is due to the supplier from the recipient or another person in connection with the supply, expressed in leva and stotinki exclusive of the tax under this Act.”
Rental payments received from renting a building or a part of a building to a natural personal that is not a trader are exempt from VAT. Normally, rental payments made by businesses are not VAT exempt.
Pursuant to the EU VAT Directive which applies in Bulgaria as well, transactions with land are not subject to VAT, except (i) if the taxpayers elect to apply VAT to their transactions or (ii) the land is for construction purposes. In Bulgaria, VAT always applies to transactions with land for construction purposes.
Tax due dates
VAT on real estate purchase transactions becomes due on the date when the property concerned is transferred to the buyer through a notarial act.
Consequences of selling a property at a price lower than its market price
It should be noted that the Bulgarian Revenue Agency is entitled to declare a real estate purchase transaction as invalid if the purchase price of a property is significantly lower than its market price.