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October 26, 2022

Bulgarian Government proposes VAT bad debt relief

  • A draft bill for amendments to the Bulgarian Value Added Tax (VAT) Act has been circulated for public consultation. One of the key proposed changes introduces VAT recovery on unpaid receivables.

  • In particular, according to the proposal, the VAT position of the supplier should be adjusted through the issuance of a credit note. The published texts, if enacted, would govern the requirements and conditions for the application of the bad debt relief.


The proposed introduction of bad debt relief in the Bulgarian legislation is a natural continuation of the administrative and court practice evolving on the topic over the past two years.

It started with the case UniCredit Leasing (C-242/18) submitted to the Court of Justice of the European Union (CJEU) by EY Bulgaria’s tax controversy team. The questions raised requested clarity on the possibility to enforce rights conferred to taxpayers by European Union (EU) law in the absence of local rules to recover VAT on bad debts. As anticipated, the CJEU confirmed the possibility for an adjustment of output VAT in the case of non-payment of receivables even where the local legislation did not provide specific rules to allow such adjustment. The CJEU was clear that the EU Member States could not revoke the right to recover VAT on bad debts, they are allowed only to provide the requirements and conditions for such recovery.

Although the UniCredit Leasing’s case was not the first request for a preliminary ruling before the CJEU on the topic, it was the first one from a country without legislation allowing the relief.

Bulgarian tax authorities' response following the UniCredit Leasing’s decision

As expected, once the CJEU’s decision on the UniCredit Leasing’s case was issued, requests for VAT refunds related to unpaid receivables began to be filed with the Bulgarian tax authorities.

The tax authorities rejected these claims based on different arguments, such as on procedural grounds, due to the lack of explicit legislative regulation of the topic, or claiming that a credit note should be issued, etc. As a result, in many cases such requests for bad debt reliefs were denied.

The proposed legislation

Given the above, the introduction of the bad debt relief in the local Bulgarian legislation is a positive development. Adoption of the proposed amendments is expected to limit the refusal of the tax authorities to grant refunds. However, it is likely that the controversies would shift to the proof that the receivable is non-collectable and in general to the compatibility of the requirements for allowing the VAT adjustment in accordance with the EU VAT law and principles.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Bulgaria EOOD, Sofia


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