Citizens and companies that have difficulty paying their liabilities to the State may request their deferral or rescheduling in instalments, which affords an opportunity to discharge the liabilities under certain conditions.

The Difference Between Deferral and Instalment Payment
  • Deferral: The amounts due are paid in full by a specified final deadline.
  • Instalment payment: The amounts due are paid in instalments in accordance with an approved repayment schedule.

Once permission for deferral or instalment payment has been obtained, the limitation period for the public liability is suspended for the duration of the deferral or instalment payment. In addition, the amounts due are repaid in the following order: first the principal, then the interest, and finally the costs. For the period of the deferral or instalment payment, interest is due at the base interest rate, while for mandatory social-insurance contributions the statutory interest is due, calculated as the base interest rate of the Bulgarian National Bank increased by 10 percentage points.

It is important to note that even where deferral or instalment payment has been granted, the НАП has the right to impose security over the debtor’s property, for example distraint over real estate or attachment of bank accounts. If a payment, or two instalments under the repayment schedule, are missed, the liability becomes immediately due and payable, including the interest, as from the date on which the permission was granted.

Conditions for Deferral or Instalment Payment

In order for deferral or instalment payment to be allowed, the following conditions must be met:

  1. Insufficient funds to discharge the liabilities: The liability cannot be discharged in full from the cash available as at the date of the request together with the current cash receipts for the following three months, reduced by the necessary current expenses for maintaining operations. To the cash funds are also added amounts that may be obtained from realising assets at their book value — with the exception of assets without which it is impossible to continue the business activity — as well as the collection of due receivables from third parties.

  2. Financial ratios of profitability and efficiency: The ratios of profitability, efficiency and financial autonomy for the preceding two years and for the period for which deferral or instalment payment is requested must be within the limits laid down in the Ordinance on the ratios and evidence required.

  3. Provision of security: The security must cover the amount of the principal and the interest for the period during which the permission is in effect.

Documents Required with the Request:
  1. Documents on the financial and economic situation and a development forecast: Sole traders and legal entities must submit information on their current situation and a plan for future development. Natural persons submit information on their family and property situation.
  2. All liabilities to the State and to private creditors.
  3. Evidence of profitability and the financial ratios for previous periods.

The statement of the financial and economic situation covers the preceding two years and up to the current date for the year in which the request is filed. It includes data on equity, long-term and short-term liabilities, net revenues, expenses and efficiency. The development programme contains a business strategy, a cash-flow forecast and data on the financial ratios.

Cases in Which Deferral or Instalment Payment Is Not Permitted

Deferral and instalment payment are not allowed:

  • for companies declared in liquidation or against which insolvency proceedings have been opened;
  • for VAT and excise liabilities, except under revision acts that have entered into force;
  • for liabilities in respect of mandatory social-insurance contributions and taxes that have been withheld but not paid over;
  • where a public enforcement agent has taken a decision to sell the debtor’s property;
  • for liabilities in respect of social-insurance contributions, save in cases of natural disasters or industrial accidents.
Special Cases of Deferral and Instalment Payment

In the case of natural disasters or industrial accidents that cause significant material damage, the debtor may request deferral or instalment payment. For the period of the deferral or instalment payment in such cases, no interest is charged. In the case of industrial accidents where the risk is covered by insurance, only the base interest rate is charged. The debtor must present evidence of these circumstances, and the competent authority may also gather it ex officio.

Competent Authority for Deferral and Instalment Payment

Permission for deferral or instalment payment is issued by the following authorities, depending on the type and amount of the liability:

  • The territorial director of the НАП — for tax liabilities, excluding excise duty and mandatory social-insurance contributions, up to BGN 100,000 and for a period of up to one year. For instalment payment of mandatory social-insurance contributions up to BGN 10,000, written consent is required from the head of the НОИ’s territorial division, and for amounts from BGN 10,001 to BGN 100,000 — from the Governor of the НОИ.

  • The executive director of the НАП — for liabilities from BGN 100,001 to BGN 300,000 or a period of up to two years. In the case of mandatory social-insurance contributions, the consent of the Supervisory Board of the НОИ is required.

  • The Minister of Finance — for liabilities exceeding BGN 300,000 or for more than two years. In the case of mandatory social-insurance contributions, written consent from the Supervisory Board of the НОИ is required.

Where the liability has been established by another administration, for amounts up to BGN 300,000 and a period of up to two years the permission is issued by the head of the relevant administration; in the remaining cases — by the Minister of Finance.

Issuance of Permission for Deferral or Instalment Payment

The time limit for issuing the permission is up to three months, and in the case of the Minister of Finance — up to four months. The permission is communicated to the debtor within 7 days. While a ruling from the competent authority is awaited, enforcement of the liability is suspended if security measures have been imposed.

The period of deferral or instalment payment is set so that the payments amount to no less than 50% of the net cash flow for each year.

Refusal of Deferral or Instalment Payment

A refusal to issue permission is made by a reasoned decision, which is communicated to the debtor within 7 days. In the absence of a ruling within the time limit, a tacit refusal is deemed to have been given, which may be appealed within 14 days.

Should you require further information, assistance or consultation regarding the deferral and instalment payment of public liabilities, please contact us on telephone 0887550706 or by e-mail: [email protected]