Having to pay taxes on purchases because my company was not VAT registered.

[greenline]

Hello OCT, glad I have found this forum.

I registered a Bulgarian company in 2023 and got licensed around the same time, however, I did not register for VAT, and during the time I was not registered I made some payments to a company in Ukraine. Fast forward to March 2024, I hired an accountant who took care of everything up to that month. My company was fined for these transfers which do not exceed 25,000 euro. Around 400 euro fine, which was paid immediately, and we had nothing else from the tax office, they did not tell us about any other payment or that we have to pay VAT for these expenses.

2 days ago my accountant sends me an email telling me that he got an email from the tax office telling him we have to pay close to 5,000 euro in taxes. This because I was not VAT registered at the time of these transfers so we can't 0 it out between us and receiver.

Why do I have to pay almost double when tax is 10% in Bulgaria?
Company is not profitable so this money is all investment from personal portfolio, tax still applicable?

 

[daniels27]

I think it depends what the payment was for. If you bought digital goods for which the seller was liable to pay VAT and he did not, I think the Bulgarian VAT office can now claim those.

Is this possible? Or what was the payment for?

 

[greenline]

I think it depends what the payment was for. If you bought digital goods for which the seller was liable to pay VAT and he did not, I think the Bulgarian VAT office can now claim those.

Is this possible? Or what was the payment for?

I paid for the development of a software, digital goods yes.

 

[daniels27]

Maybe, you can post the email from the tax office without any personal details (but with the quoted law here)? Please add a Google translation to avoid getting deleted. It is unclear on what ground they ask for this payment. Details would need to be checked to assess your case.

 

[Xshore]

Why do I have to pay almost double when tax is 10% in Bulgaria?

It's not (profit) tax, it's VAT. Services sold/bought between businesses is considered to be delivered where the customer belong. That means you have to pay VAT when buying a service from another company, even when outside the EU. If your company is VAT registered these purchases are zero rated, however as your company was not VAT registered then you have to pay the VAT unfortunately.

 

[EliasIT]

I did not register for VAT, and during the time I was not registered I made some payments to a company in Ukraine. Fast forward to March 2024, I hired an accountant who took care of everything up to that month.

Why did you send a payment TO A COMPANY ?

It does not make sense that you have to pay VAT if you send to, it is the opposite. You sell a service and charge the customer the amount + VAT - VAT amount has to be paid to the tax office. If you are not registered for VAT you have to pay that amount in taxes on profits of the company.

 

[Xshore]

Why did you send a payment TO A COMPANY ?

It does not make sense that you have to pay VAT if you send to, it is the opposite. You sell a service and charge the customer the amount + VAT - VAT amount has to be paid to the tax office. If you are not registered for VAT you have to pay that amount in taxes on profits of the company.

It appease you don't know much about VAT.

 

[EliasIT]

It appease you don't know much about VAT.

That may be what you think, in which case I must have misread the thread.

You don’t pay VAT to the tax authorities on goods you purchase; if you’re not VAT-registered, you simply can’t reclaim the VAT. He says he has sent money to someone.

 

[redeye]

I agree with @EliasIT

If you are VAT-registered, you must charge VAT on your sales and remit this VAT to the tax authorities.

If you purchase goods from abroad (EU) without being VAT-registered, you often have to pay import VAT to the customs authorities.

As a non VAT registered company, you do not owe VAT to the tax authorities, but you also cannot deduct VAT on your purchases.

 

[Xshore]

That may be what you think, in which case I must have misread the thread.

You don’t pay VAT to the tax authorities on goods you purchase; if you’re not VAT-registered, you simply can’t reclaim the VAT. He says he has sent money to someone.

On services bought you have to pay.

 

[EliasIT]

On services bought you have to pay.

With your short sentences, it seems like you haven’t understood anything about how VAT actually works.

 

[Xshore]

With your short sentences, it seems like you haven’t understood anything about how VAT actually works.

Here is a short summary by chatgpt, look at point 2c, and the conclusion. We don't know all the details about OP's case. But this seems to be what the bulgarian tax authorities are wanting.

When a company that is not registered for VAT buys services from another company, VAT implications depend on several factors, including the location of both companies and the type of service.

1. Domestic Transactions (Same Country)​

• If both companies are in the same country, the seller will typically charge VAT on the invoice.
• Since the buyer is not VAT-registered, they cannot reclaim the VAT.
• The VAT is simply an extra cost for the buyer.

2. Cross-Border Transactions (International Services)​

• If a company that is not VAT-registered buys services from a company in another country, different rules apply:

a) Buying Services from an EU Country (for non-EU buyers)​

• The supplier might zero-rate the service under the reverse charge mechanism (for B2B transactions).
• However, if the buyer is not VAT-registered, they are treated as a consumer (B2C), and the supplier may need to charge VAT according to the supplier’s local VAT rules.

b) Buying Services from an EU Country (for EU buyers)​

• If the buyer is also in the EU but not VAT-registered, the supplier will generally charge VAT based on the supplier's country unless a special rule applies (e.g., digital services fall under the VAT MOSS scheme, where VAT is charged based on the customer's location).

c) Buying Services from a Non-EU Country​

• Many non-EU suppliers do not charge VAT when selling to foreign businesses.
• However, the buyer might have to account for import VAT or self-account for VAT under local tax rules.

3. Reverse Charge Mechanism​

• Normally, in B2B transactions, the buyer would apply the reverse charge mechanism, where they self-account for VAT.
• But since the buyer is not VAT-registered, they cannot apply the reverse charge and might instead have to pay VAT as if they were a consumer.

4. Special Cases​

• Digital Services (e.g., software, subscriptions): Many countries have special rules requiring foreign sellers to charge VAT based on the buyer’s location.
• Consulting & Professional Services: Typically follow the general rule that VAT is charged based on where the customer is located, but if the buyer is not VAT-registered, local VAT rules apply.

Conclusion​

• If you are a non-VAT-registered business, you will generally pay VAT on services purchased.
• You cannot reclaim this VAT.
• If buying internationally, check if local rules require reverse charge registration or VAT reporting.

 

[EliasIT]

We don't know all the details about OP's case. But this seems to be what the bulgarian tax authorities are wanting.

Why are you accusing me of not understanding VAT regulations? You are selfish and self-centered!

You’re only capable of posting something from a chatbot because you don’t know anything about VAT yourself, nor can you even understand what it spits out! You’re completely off track!

Check my post and tell me again that I’m wrong, you’re not thinking straight!

Or are you just trying to increase your post count?

 

[Xshore]

Why are you accusing me of not understanding VAT regulations? You are selfish and self-centered!

You’re only capable of posting something from a chatbot because you don’t know anything about VAT yourself, nor can you even understand what it spits out! You’re completely off track!

Check my post and tell me again that I’m wrong, you’re not thinking straight!

Or are you just trying to increase your post count?

Ok, calm down and try to talk about the facts.
I think you're wrong as you're only mentioned rules on goods, and not on services.
On what point do you think I'm wrong? I interpreted from OP post that he was buying services. As buying services as a non VAT registered business there is a potential that you have to pay the VAT that you should have otherwise paid if you bought it from a domestic seller. You didn't seem to be aware of this fact. Now, do you understand, and do you still disagree with this? I highlighted several times that I'm talking about services, while you only mentioned goods.

 

[EliasIT]

Whether you are purchasing a service or goods from another company makes no difference.

If Business A (not VAT registered) buys a product from Business B (VAT registered), then Business B will issue an invoice including VAT to Business A. The invoice must be paid in full, including the VAT amount.

That’s it, Business A does not have to pay VAT separately to the tax authorities, as the VAT has already been included in the payment to Business B.

This applies to all types of VAT applicable purchases.

 

[daniels27]

@EliasIT, @Xshore, @redeye why be so mean to each other? If you do not like what the other writes, you can simply ignore them. Here is how it works (courtesy of @EliasIT):
https://www.offshorecorptalk.com/th...ng-wealth-and-assets.46084/page-3#post-320652

If he buys something for which the UA company should have remitted VAT but did not, he will have to pay VAT. It is quite logical.

But what I suspect is that they think it is digital goods (on which the UA company has to remit VAT), while actually it may not be. That's why I asked him for more details. I think the will be more clear then.

 

[EliasIT]

I registered a Bulgarian company in 2023 and got licensed around the same time, however, I did not register for VAT, and during the time I was not registered I made some payments to a company in Ukraine.

Let's break up this line:

a) company A is in Bulgaria not registered for VAT
b) company A buys a service or product from Ukraine business B

Where does the VAT apply to the tax office? we have no clue what so ever what he bought, did he get an invoice, is it a service, is it goods, did he got charged VAT by company B or did he not. So how can you say he has to pay VAT to the tax office?

 

[daniels27]

Let's break up this line:

a) company A is in Bulgaria not registered for VAT
b) company A buys a service or product from Ukraine business B

Where does the VAT apply to the tax office?

If it is was digital goods or physical goods, he (or the UA company) would have to pay VAT on it. As this has not been paid, the VAT office will ask for it.

we have no clue what so ever what he bought, did he get an invoice, is it a service, is it goods, did he got charged VAT by company B or did he not.

He said he paid for software development. At the same time, he said it is digital goods, which is a contradition. Let's wait for whim with facts.

2 days ago my accountant sends me an email telling me that he got an email from the tax office telling him

This is not a base of discussion and we can only speculate. While it won't help you, it will help us increasing post count and getting angry at each other. Not so good. Hence:

Maybe, you can post the email from the tax office without any personal details (but with the quoted law here)? Please add a Google translation to avoid getting deleted. It is unclear on what ground they ask for this payment. Details would need to be checked to assess your case.

I suggest, we put this discussion at rest until he comes with more details. I am sure the email from the VAT office will substantiate any claims. It is not our job to speculate on rumors just because of a bad question. A discussion based on nothing is useless.

 

[dany]

It is was digital goods or physical goods, he (or the UA company) would have to pay VAT on it. As this has not been paid, the VAT office will ask for it.

where do you read it is what he has?

He said he paid for software development. At the same time, he said it is digital goods, which is a contradition. Let's wait for whim with facts.

where did he said he got that invoice with VAT or without VAT ?

All posts since OP's last posts is speculation, yet people keep posting.

 

[Xshore]

Independently of OP's situation, my point was to point out that a non VAT registered business might have to pay VAT to the local tax office when buying services from abroad. This can be good to know about, it seems several posters in in this tread are not aware of this.
Whiile there might be other reasons, this would explain OP's case and why his tax office wants 5K from him.