Mandatory VAT registration for the successive carrying out of homogeneous activity in one and the same commercial outlet by two or more related persons or persons acting in concert was introduced by amendments to the VAT Act, which came into force on 1 January 2020.
Taxable persons who, as at that date, meet the conditions for mandatory registration must submit an application for registration within 14 days, i.e. by 15 January 2020. Persons for whom the conditions for VAT registration arise after 1 January 2020 are obliged to submit an application for registration within 7 days of the date on which they reach a taxable turnover of BGN 50,000.
The purpose of the amendments is to prevent the avoidance of registration under the VAT Act through a formal change of the entity carrying out the same activity in the same outlet before reaching the threshold for mandatory registration. An example of this is bars and restaurants, where a new company takes over the activity when the old one approaches the registration threshold.
The new paragraph 10 of Article 96 of the VAT Act
Under the new provision, in the case of the successive carrying out of homogeneous activity in one and the same outlet by related persons or persons acting in concert, the turnover of each subsequent person shall also include the turnover of the preceding persons for the last 12 months. This turnover is deemed to have been realised by the new person from the first day on which it commences its activity in the outlet. The activity is deemed homogeneous if there is substantial identity in two or more of the following characteristics: the goods or services offered, the assets used, the staff, the trade mark, the suppliers or the customers.
If there is an interruption of the activity for more than one month between the preceding person and the new one, this shall not be regarded as the successive carrying out of the activity.
“Persons acting in concert”
“Persons acting in concert” are those between whom there is relatedness within the meaning of § 1 of the Tax and Social Insurance Procedure Code (ДОПК), or other forms of connection such as economic, organisational or family ties leading to the conclusion of concerted action.
Successive carrying out of homogeneous activity
The successive carrying out of homogeneous activity means the replacement or alternation of different persons carrying out the same activity in the outlet. In an opinion of the НАП (No. 20-00-8/10.01.2020) it is stated that an obligation to register for VAT on the basis of aggregating turnover does not arise where two or more persons carry out homogeneous activity simultaneously in one outlet.
The tax authorities will check whether the parallel activity is being used to avoid mandatory VAT registration. If one person, formally continuing to carry out activity in the outlet, does so with minimal volume while the actual activity is taken over by another person, it will be deemed that the first person has ceased its activity and the subsequent person will be obliged to register.
Parallel activity in a shared office
If two or more persons carry out homogeneous activity in one office, using shared assets and not dividing the costs between them, the tax authorities may hold that the persons are acting as an unincorporated partnership under Article 357 of the Obligations and Contracts Act. In that case, upon reaching a turnover of BGN 50,000, the partnership is subject to mandatory registration.
Fines and Sanctions
A person who fails to submit an application for VAT registration within the prescribed time limits is liable to a fine or a pecuniary sanction in the amount of BGN 500 to BGN 5,000. A sanction in the amount of the tax not charged, but not less than BGN 500, is imposed on a person who has failed to charge VAT owing to the absence of timely registration, despite being obliged to do so.
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