16.06.2020
What do we need to know when starting an online business in Bulgaria?
In 2019, online sales worldwide were worth nearly $ 3.46 trillion. And this in turn is an 18% increase over the previous year.
In Bulgaria, e-commerce is growing even more - 30%, as more than 1.5 million Bulgarians have decided to make a purchase online.
And while more and more businesses are turning to online sales, lured by the ability to easily reach many potential customers, the question is: what does it take to do this business legally?
This article is aimed primarily at small and start-up businesses. We will look at a few key points related to online business, about which we often receive questions.
The announcement of online stores in the NRA system
It is good to know how to enter the market in the right way, so as not to create headaches with the institutions later.
Which stores should be announced? The answer is that if you are selling through a site that has a consumer basket functionality, the NRA requires you to register as an online store. On the other hand, if your site is just a kind of product catalog, without the option to order online, there is no need to register.
Registration is a purely technical matter. The required information includes data such as the name and domain of the store, standard information about the company, what type (by nomenclature) goods are sold. It is required to describe how the goods are sold - whether platforms such as "Amazon" or "eBay" are used, or the applicant has its own website.
Accordingly, it is important for the NRA to know how this site is maintained, where the databases are stored, what software is used for the platform, etc.
All this is declared before you start an activity. You can also personally register your store, for which you will need an active electronic signature as a merchant.
If at any time you change the platform, type of activity or products, or add something new, the changes must be declared within 7 days.
If you already have an online store, but have not yet registered, you better hurry to declare it to avoid negative consequences for institutions.
As with other types of business in Bulgaria, all income and expenses must be supported by tax documents. Invoices for expenses, fiscal notes from the cash register or issued invoices for income received by bank transfer - all this, together with the bank statements, is reported at the end of the year (or monthly, if you are registered under VAT) to obtain correctly calculated taxes to the budget.
When trading remotely
Another interesting point of the online business, which is often questioned, is related to distance trading. Global Internet connectivity means that businesses can much more easily (and cheaply) reach potential customers not only locally but also internationally. This has its advantages, but also additional factors that we must take into account.
First of all, it is leading where the goods are transported and where they go. It is important to monitor your turnover against local VAT thresholds to avoid violations of the relevant tax laws.
The marginal turnover for registration under the VAT Act is different for all countries. If your online business has an outlet in Germany, for example, you should know that if the turnover exceeds 100 thousand euros, you are subject to mandatory VAT registration.
In Bulgaria, the threshold for VAT registration is BGN 50,000. However, you may not know that this applies to a period of 12 consecutive months before the current one. A common confusion is that this turnover must be made for the calendar year - this is not true.
Ads on platforms like Facebook or Google
You register your online store, start selling and decide that you want to give an extra boost with a little paid advertising. While Facebook and Google are just free entertainment tools for billions of users, they are essentially two huge advertising platforms that earn billions by selling businesses highly targeted customer attention.
This is great for your online business, but when focusing on Facebook and Google advertising, you should know that your business will most likely need to be registered under the VAT Act.
We explain why - by advertising on their platforms, you actually receive a service from these companies. A special requirement under Article 97a of the VAT Act states that all recipients of this type of service who are not registered on a general basis under the VAT Act are obliged to register as such.
VAT registration for a start-up business sounds discouraging, but keep in mind that this is a special registration where there will be no value added tax on your sales. You will continue to monitor taxable turnover in accordance with the law (whether you do not pass the local thresholds), and you will not have VAT on sales. But you will charge VAT on the invoices you receive from these contractors (Facebook, Google).
Registration under the VAT Act would not be necessary if these technology giants issued their invoices to you from the United States. But since for Europe they operate from their specialized branches registered under the VAT Act in Ireland, the said Art. 97a is in force.
Please note that upon registration under Art. 97a you cannot use the accrued VAT for a tax credit. On the other hand, if your company is registered in the general order, you are in fact already charging VAT on these services (advertising invoices) and you are also entitled to a tax credit.
We emphasize this point, mainly because of start-up online retailers, who are often unaware of this requirement. It is good to inform this in due time to the accounting, as the registration under art. 97a must occur within 7 days before the first invoice.
Online business, like any other type of business, brings with it specifics that can be difficult to navigate in the beginning. Ask about anything you don't understand and don't hesitate to discuss your future business plans.
