How to benefit from the tax reliefs?

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The tax reliefs are a possibility for us to reduce the amount of taxes we pay regularly. We can apply for a tax relief by submitting Annual tax declaration but for some the law provides us with opportunity to apply also through our employer. To do so, in the period between 30th November and 31st December, we have to submit to him all of the required by law declarations and necessary attachments to it. Examples of the reliefs we can apply for with the help of our employer are relief for raising a minor, for raising a disable child, for additional voluntary contributions (AVC) for social security and insurance. In case we are not obliged by law to submit Annual tax declaration, this way may be considered as easier to go through.

Tax relief types.

The different types are provided in the Taxation of physical persons’ income Law (TPPIL) and some of them are:

Tax relief for reduced working ability – it is provided for people who are proven to have reduced working ability by 50% or more than 50% with a decision of a competent authority (like Medical labor-expert commission). The tax relief amounts to 7 920 leva with which the total amount of the tax bases is being deducted before the final calculation of the tax. For example – if we have received 10 000 leva (after exclusion of social security payments) in total for a year, before estimating the payable tax we exclude the tax relief (7 920 leva) – the tax base then amounts to 10 000 – 7 920 = 2 080 leva in total. Then, we multiple the tax base (2 080 leva) by the tax rate (10 %) and we have calculated the tax payable – 208 leva in the given example.

We can benefit from this relief through our employer – he has to reduce, on monthly basis, our tax base by 660 leva (in total 7 920 leva per year) and based on the result to calculate and the tax payable on our behalf.

Tax relief for additional voluntary contributions (AVC) for social security and insurance – these are two different tax reliefs. Each one of them can independently reduce our tax base up to 10% each. The specific decrease percent depends on the amount of the additional payments we have made through the year. Even if we have made contributions through the year which exceed 10% of our tax base, in the end we will have the right to decrease out tax base by just 10%.

Two different reliefs mean that if we pay, at the same time, for additional voluntary contributions for social security and for a “Life” insurance, we have the right to use two reliefs – in this way we can decrease the tax base twice, each time by maximum of 10% of the total amount. For example – we have received 10 000 leva (after exclusion of mandatory social security payments) and we pay 1 200 leva per year for AVC and another 800 leva per year for “Life” insurance, we have the right to decrease the tax base of 10 000 leva, first, by 10% (1 000 leva) because of the AVC (they estimate to 12% of the tax base but the law provides limit of 10%) and by another 8% (800 leva) because of the payments for the insurance. Then, the tax will be estimated as if we have earned 8 200 leva.

The relief can be requested with the ATD until 30th April or through the employer if he is the one making the deductions for the AVT for social security/insurance from our monthly salaries on our behalf. In the period between 30th November and 31st December of the tax year, we also have to submit to him а copy of the insurance contract.

Donation tax relief – this relief estimates to a different percent depending on the thing we are donating to – it varies from 5% to 15% for each donation and is being estimated in an identical manner as the relief for AVC for social security and insurance. Anyway, no matter how many donations we do we cannot decrease our tax base by more than 65%.

Young family tax relief – this relief can be used for the interest paid for mortgage credit and thanks to it we can decrease our tax bases with the amount of the paid interest for a year but we have to meet at the same time the following conditions:

  1. the person who applies for relief must be in civil marriage and he(she) and/or his(her) wife(husband) has concluded a mortgage credit contract;
  2. the wife and/or the husband have not reached 35 years of age by the time of the credit contract conclusion;
  3. the mortgaged real estate is the only housing for the family for the year declared.

The relief is limited – if the credit exceeds 100 000 leva, the amount of the tax relief will be estimated as if we have paid interest for credit of 100 000 leva. The tax payable is estimated after we exclude the paid interest for a year of the tax base. For example – we have earned 10 000 leva (after exclusion of social security payments) and we have paid 2 500 leva for interest for the year. The tax base after decreasing with the amount of the relief will estimate to 7 500 leva and we pay 250 leva less for taxes. The tax relief can be used by only one of the spouses.

Tax relief for minors – a parent who is not deprived from parental responsibility, legal guardian, family member or close relative with whom the child is placed for a period of minimum 6 month or adoptive parents with whom the child is placed for a long term in adoptive family.

The children must be under the age of 18 and the amount of the tax relief depends on their number. For one child the total amount of the tax bases is being deducted with 4 500 leva, for two underaged children – with 9 000 leva, and for three or more underaged children – with 13 500 leva. If we have earned 10 000 leva for a year (after social security payments exclusion) and we have 2 children, the tax base of 10 000 is being reduced – 10 000 – 9 000 = 1 000 leva. The tax payable will be 100 leva. The tax relief can be used also for the year in which the kid is born and for the year in which he/she turns 18.

Only one of the parents can benefit from the tax reduction. But if his/her income is lower than the amount of the tax relief, the rest of the relief can be used by the other parent. For example – if in the given example the mother’s income was 8 000 leva, she would have the right to use tax relief of 8 000 leva and the other parent may use the rest of 1 000 leva to reduce his own tax base.

Tax relief for raising children with disabilities – the persons who have the right to use it are the same as those who have right to use tax relief for raising minors. The children must be under the age of 18 by 1st January of the tax year and to be with 50% or over 50% disability, estimated by a final decision of a competent authority. The tax relied estimates to 9 000 leva and can be used in an identical manner as the tax relief for raising minors.

Tax relief for cashless payments – we can benefit from it if we fulfil the following conditions:

  1. we have earned taxable income through the year – for example – labor remuneration, rent, private deals;
  2. 100% of this income is paid to us by bank;
  3. at least 80% of this income has been spent by non-cash means of payment.

The tax relief estimates to 1% of the total amount of the tax payable but not more than 500 leva and we can request it only by submitting Annual tax declaration as per art. 50 of TPPIL. For instance, our annual income is 10 000 leva (after exclusion of social security payments) for which we owe 1 000 leva tax. But after applying the relief of 1% – we owe 990 leva.

Tax relief for improvements and/or repairment of immovable residential property – in the total amount of up to 2 000 leva (which are being deducted from the total amount of the annual tax bases of the different incomes – in this way, the maximum tax that can be deducted estimates to 200 leva) in case all of the following conditions are fulfilled: 

  • the immovable property is situated in the territory of the Republic of Bulgaria;
  • the taxable person is the owner or co-owner of the immovable residential property;
  • the improvements and/or the repairment are carried out by resident of a Member state of the European Union or State party to the Agreement on the European Economic Area; 
  • the immovable property is not included in the enterprise of a person who is engaged in business activities as a merchant within the meaning of the Commercial Law (CL);
  • the taxable person has a document which proves the provided paid service for improvement and/or repairment of the residential property, which includes the particulars as provided by article 6, par. 1 of the Accounting Law, accompanied by a document which proves the payment of the service provided (such as fiscal document, receipt, bank or another document);

Please note! The tax relief can be used only for expenses for the provided services and not for expenses made for the input materials!

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