Tax on Vessels Operation Activity

The taxation on vessels operation is regulated in Articles 254-260 of the Corporate Income Tax Law (CITL).

The taxable persons may elect that the vessels operation activity thereof attract a tax on vessels operations activity instead of corporation tax.

Under the provision of Article 218(2) of CITL in respect of all other activities those persons shall be liable to corporation tax.

Within the meaning of § 1, point 41 of the CITL Supplementary Provisions "Vessels operation activities" shall be:

а) the effecting of carriage by sea by means of vessels of a net tonnage exceeding 100 tons, the chartering of any such vessels, as well as the sale of vessels subject to tonnage taxation, which have been acquired not less than five years prior to the sale thereof;

b) carriage by land, related to the carriage by sea, administrative and insurance services and other services provided to customers in connection with the effecting of the carriage by sea;

c) financial operations and value adjustments resulting from exchange rate fluctuation, related to the management of the working capital used for the vessels operation;

d) extraordinary activities related to the vessels operation, which do not come within the scope of Litterae (a) to (c) and which generate a turnover which does not exceed 0.25 per cent of the turnover generated by the activities referred to in Litterae (a) and (b).;

e) vessels management activities on the basis of management agreements according to Items 1 to 7, 9 and 10 of Article 225a of the Merchant Shipping Code."

Conditions to avail of the tax on vessels operation activity

This tax regime can be used by the persons carrying out maritime merchant shipping which simultaneously fulfil the following conditions:

1. they are corporations registered under the Commerce Law, or permanent establishments of a corporation which is resident for tax purposes in another Member State of the Economic Union, or a Member State of the European Economic Area, according to the relevant tax legislation and by virtue of a convention for the avoidance of double taxation with a third State is not considered to be resident for tax purposes in another State outside the European Union or the European Economic Area;

2. they operate their own vessels or chartered vessels, as well as charter vessels;

3. they do not refuse to train apprentices on board the vessels, with the exception of the cases where the number of apprentices exceeds one per fifteen officer members of the ship's complement;

4. they man the vessel with Bulgarian citizens or with nationals of other Member States of the European Union or of the European Economic Area;

5. vessels flying the Bulgarian flag or a flag of another Member State of the European Union or of the European Economic Area account for at least 60 per cent of the net tonnage of the vessels operated;

6. they carry out the activity thereof in conformity with the requirements of the international conventions and the law of the European Union regarding the safety and security of navigation, protection of the environment from pollution by vessels and the living and working conditions on board the vessel.

This tax regime can be used also by the persons carrying out maritime merchant shipping where the said persons manage vessels on the basis of management agreements and simultaneously meet the following requirements:

1. they are corporations registered under the Commerce Law, or permanent establishments of a corporation which is resident for tax purposes in another Member State of the Economic Union, or a Member State of the European Economic Area, according to the relevant tax legislation and by virtue of a convention for the avoidance of double taxation with a third State is not considered to be resident for tax purposes in another State outside the European Union or the European Economic Area;

2. vessels flying the Bulgarian flag or a flag of another Member State of the European Union or of the European Economic Area account for at least 60 per cent of the net tonnage of the vessels operated;

3. they carry out the activity thereof in conformity with the requirements of the international conventions and the law of the European Union regarding the safety and security of navigation, protection of the environment from pollution by vessels and the living and working conditions on board the vessel;

4. more than half of the office on-shore personnel or of the crew is composed of Bulgarian citizens or of nationals of other Member States of the European Union or of the European Economic Area;

5. at least two-thirds of the tonnage of the vessels managed is managed by companies which are resident for tax purposes in a Member State of the European Union or in another State which is a Contracting Party to the Agreement on the European Economic Area.

Tax on vessels operation activity shall not be applied to the following vessels:     

1. any seagoing vessels of a net tonnage under 100 tons;

2. any fishing vessels;

3. any pleasure vessels, with the exception of passenger vessels;

4. any vessels which the taxable persons have provided for management or under a bareboat charter, with the exception of the cases where any such vessels have been provided to the State;

5. any rigs for extraction of subsurface resources, any oil production platforms, and any vessels engaged in dredging operations and in tugging and towage operations.

Right of choice to use tax on vessels operation activity

The taxable persons shall exercise the right of choice thereof to levy of a tax on vessels operation activity by means of submission of a declaration in a standard form, endorsed by the Minister of Finance, on or before the 31st day of December of the last preceding year. Under the provision of Article 254(2) of CITL the tax shall be levied on the taxable persons who have elected to be liable for tax on vessels operation activity for a period not exceeding five years.

In the declaration under Article 259(1) of CITL on the right of choice the taxable persons shall declare the tax year wherefrom they have elected to be liable for the said tax.

Taxable amount

Under the provision of Article 257 of CITL, the taxable amount shall be determined as follows:

Taxable amount per vessel per day of service 

Net tonnage of vessel

Taxable amount

in respect of any vessel of a net tonnage of up to 1,000 tons inclusive

BGN 3.50 for each 100 tons or fraction

in respect of any vessel of a net tonnage from 1,001 up to 10,000 tons inclusive

BGN 35 plus BGN 3.00 for each 100 tons or fraction

in respect of any vessel of a net tonnage from 10,001 up to 25,000 tons inclusive

BGN 305 plus BGN 2.50 for each 100 tons or fraction above 10,000 tons

in respect of any vessel of a net tonnage in excess of 25,001 tons

BGN 680 plus BGN 1 for each 100 tons or fraction above 25,000 tons

Taxable amount per ship for a calendar month

The taxable amount per ship for a calendar month shall be determined by multiplying the taxable amount for the relevant vessel per day of service by the days of service of the relevant vessel during the calendar month.

Taxable amount for assessment of the tax

The taxable amount for assessment of the tax on vessels operation activity shall be the sum total of the taxable amounts determined for all vessels.

Rate of tax

The rate of tax on vessels operation activity shall be 10 per cent.

Declaring the tax

The taxable persons shall submit an annual tax return in a standard form on the tax on vessels operation activity on or before the 31st day of March of the next succeeding year.

The tax return shall be submitted to the National Revenue Agency territorial directorate exercising competence over the place of registration of the taxable person. An annual activity report shall be submitted together with the annual tax return. Under § 1, point 56 of the CITL Supplementary Provisions annual activity report shall be the report referred to in Article 20 (4) of the Statistics Law.

Tax Remittance

The taxable persons shall remit the tax due on vessels operation activity by 31 March the next succeeding year.

Sanctions

In accordance with Article 9 of the Corporate Income Tax Law, interest according to the Interest on Taxes, Fees and Other State Receivables Law shall be due on any taxes which are not remitted when due.

In accordance with the provisions of Article 261 of the Corporate Income Tax Law, any taxable person, which fails to submit a tax return under this Law, which fails to submit any such return when due, or which fails to state or misstates any particulars or circumstances leading to underassessment of the tax due or to undue reduction, retention of or exemption from tax, shall be liable to a pecuniary penalty varying between BGN 500 and BGN 3,000. Any repeated violation shall be punishable by a pecuniary penalty varying between BGN 1,000 and BGN 6,000.

Under the provision of Article 276 of CITL any taxable person, which fails to fulfil the obligations thereof under Article 259 (3) of the Law (to submit annual activity report), shall be liable to a pecuniary penalty of BGN 500 or exceeding this amount but not exceeding BGN 2,000 and, upon a repeated commission of the violation, to a pecuniary penalty of BGN 1,500 or exceeding this amount but not exceeding BGN 5,000.

Under the provision of Article 277 of CITL any taxable persons, which have applied the procedure for taxation of the vessels operation activity without qualifying for the right of choice, shall be liable to a pecuniary penalty of BGN 20,000 or exceeding this amount but not exceeding BGN 30,000 and, upon a repeated commission of the violation, to a pecuniary penalty of BGN 40,000 or exceeding this amount but not exceeding BGN 60,000.

Where the above administrative violation has been ascertained, the persons shall have no right to apply the procedure for taxation of the vessels operation activity for a period of five years.

In accordance with the provisions of Article 278 of the Corporate Income Tax Law, the written statements ascertaining the violations shall be drawn up by the authorities of the National Revenue Agency, and the penalty decrees shall be issued by the Executive Director of the National Revenue Agency or by an official authorized thereby. The ascertainment of violations, the issue, the appeal against and the enforcement of penalty decrees shall follow the procedure established by the Administrative Violations and Sanctions Law.

For further information: http://www.nap.bg/