VAT Input Credit in Bulgaria — Right to Deduct (2026)

What Is Input VAT Credit

Under Art. 68(1) of the VAT Act, input VAT credit is the amount of tax that a registered person has the right to deduct from their tax obligations for:

1. Goods or services received under a taxable supply
2. Advance payments made before the chargeable event for a taxable supply has occurred
3. Imports carried out by the person
4. Tax due from the person as a payer under Chapter Eight (reverse charge)

The right to input VAT credit is a subjective right of the registered person and arises when the deductible tax becomes chargeable (Art. 68(2)).

Supplies Giving Rise to the Right to Deduct (Art. 69)

Art. 69(1) provides that a registered person has the right to deduct input VAT credit for goods or services that the supplier — also a registered person — has supplied or will supply, when the goods or services are used or will be used for the purposes of taxable supplies.

Under Art. 69(2), supplies giving rise to the right to full input VAT credit also include:

• Zero-rated taxable supplies under Chapter Three (exports, international transport, etc.)
• Supplies as an intermediary under Chapter Twelve (distance sales within the EU)
• Gratuitous supplies under Art. 6(3) and Art. 9(3), if they would have been taxable

Documentary Conditions for Exercise (Art. 71)

The right to deduct input VAT credit does not arise automatically — the person must possess a specific tax document:

1. For domestic supplies (Art. 71(1)): A tax document (invoice or debit note) with VAT stated on a separate line.
2. For imports (Art. 71(2)): A customs document for import in which the person is indicated as the importer, and the tax has been paid.
3. Under reverse charge (Art. 71(3)): The person has issued a protocol under Art. 117 and has charged the tax.
4. For intra-Community acquisitions (Art. 71(4)): An invoice meeting the requirements of Art. 114 and the person has charged the tax by issuing a protocol under Art. 117.

Practical note: The absence of a correct invoice or protocol for self-assessment is among the most frequent grounds for denial of input VAT credit during audits.

Restrictions on the Right to Input VAT Credit (Art. 70)

Art. 70 governs the cases in which the right to input VAT credit does not exist, even if the conditions of Art. 69 are formally met.

Main Prohibitions Under Art. 70(1)

• Para. 1 — Goods for exempt supplies: When goods or services are intended for making exempt supplies under Chapter Four (Art. 38-50).
• Para. 2 — Goods for gratuitous supplies: When goods or services are intended for gratuitous supplies or activities other than the person’s economic activity.
• Para. 3 — Entertainment or representation purposes: Including receiving guests, accommodation, food, excursions, business gifts, etc.
• Para. 4 — Passenger cars: Acquisition or import of motorcycles and passenger cars (up to 5 seats excluding the driver).
• Para. 5 — Related expenses: Maintenance, repair, improvement or operation of passenger cars, including fuel and lubricants.

Exceptions to the Prohibitions (Art. 70(2))

The restrictions under para. 4 and 5 do not apply when:

• The car is used exclusively for transport/security services, courier services or driving instructor training
• The car is intended for resale
• The car is intended for leasing
• The vehicle is category N1 (goods vehicle up to 3.5 tonnes) — it is not a “passenger car”

Deadline for Exercising Input VAT Credit (Art. 72)

Art. 72(1) establishes a 12-month preclusive deadline for exercising the right to input VAT credit. The registered person may exercise the right in the tax period in which it arose or in any of the following twelve tax periods.

Exercise is performed by:

• Including the relevant tax document in the purchases ledger
• Reflecting it in the VAT return for the respective tax period

Missing the 12-month deadline results in the permanent loss of the right to input VAT credit. The tax remains as a cost and cannot be deducted subsequently.

Sole exception: Under Art. 73a, when the tax has been charged by the supplier in a later tax period than it should have been, the right is exercised from that later period.

Partial Input VAT Credit (Art. 73)

When a registered person uses goods or services for both taxable and exempt supplies, they are entitled to partial input VAT credit, determined by the coefficient (pro rata) under Art. 73.

Calculating the Coefficient

Numerator: The sum of the tax bases of taxable supplies (including zero-rated).

Denominator: The sum of the numerator and the tax bases of exempt supplies.

Items excluded from the denominator (Art. 73(3)): supplies of fixed assets used by the person, supplies of financial assets, and incidental supplies of immovable property.

Annual Adjustment

In the last tax period of the year, the coefficient is recalculated based on actual annual data (Art. 73(6)). If the annual coefficient differs from the one applied during the year, an adjustment of the VAT credit is made.

Example

A company makes taxable supplies of EUR 500,000 and exempt supplies (residential rental) of EUR 100,000 annually. The Art. 73 coefficient is:

500,000 / (500,000 + 100,000) = 0.83

If the company receives an invoice with VAT of EUR 2,000, it may deduct EUR 2,000 x 0.83 = EUR 1,660. The remaining EUR 340 remains as a cost.

Right to Input VAT Credit Upon Registration (Art. 74-75)

Newly VAT-registered persons have the right to deduct input VAT credit for assets available on the date of registration, subject to the following conditions (Art. 74(2)):

• The requirements of Art. 69 and Art. 71 are met
• The supplier was a registered person on the date of issuance of the invoice
• A registration inventory (Appendix 2 to Art. 61(1)) has been prepared
• The inventory has been submitted no later than 45 days from the date of registration
• The assets were acquired within 5 years (for immovable property — within 20 years) before registration

Adjustments to Input VAT Credit (Art. 79-79b)

Adjustment Upon Change of Purpose (Art. 79)

• If goods for which VAT credit was utilised are subsequently used for exempt supplies or personal purposes — an adjustment is due (tax is charged)
• Conversely — if goods for which no credit was utilised are subsequently used for taxable supplies — credit may be claimed

Adjustment Periods

• For goods other than immovable property: 5-year adjustment period
• For immovable property: 20-year adjustment period
• For services: adjustment is made in full, in a single instance

Common Mistakes and NRA Audit Focus Areas

Typical Taxpayer Mistakes

1. Missing the 12-month deadline under Art. 72 — the right is permanently extinguished
2. Claiming input VAT credit for passenger cars without a valid basis under Art. 70(2)
3. Claiming credit for entertainment expenses classified as “entertainment” under § 1(62)
4. Absence of a protocol under Art. 117 for intra-Community acquisitions or services from foreign suppliers
5. Formal defects in invoices — missing or incorrect details
6. Incorrect determination of the Art. 73 coefficient

NRA Audit Focus

• Reality of the supply: The NRA verifies whether the supply has actually been made — transport documents, acceptance protocols, evidence of services rendered
• Connection to business activity: Whether the goods or services are connected to the economic activity
• Good faith: Where tax fraud in the supply chain is established (carousel fraud), the NRA may deny credit if the recipient knew or should have known of the fraud (CJEU case law in Cases C-439/04 Kittel and C-354/03 Optigen)

Practical Recommendations

1. Implement a system for tracking the 12-month deadline — particularly for invoices received with delay.
2. Verify the supplier’s registration in the VIES system or on the NRA website before claiming input VAT credit.
3. Document the business purpose of every purchase — in an audit, the burden of proof lies with the taxpayer.
4. Distinguish goods vehicles from passenger cars — the vehicle registration certificate must show category N1 or N2 for full input VAT credit.
5. For mixed supplies — maintain separate analytical accounting for taxable and exempt turnovers.
6. Monitor legislative changes — thresholds, rates and procedures are updated annually.

Frequently Asked Questions

Conclusion

The right to deduct input VAT credit is a fundamental right of VAT-registered persons, but its exercise is subject to numerous substantive and formal conditions. A systematic approach to documentation, compliance with deadlines and correct classification of supplies is essential for the tax efficiency of your business.

If you need advice on maximising your input VAT credit or handling an NRA audit, the team at Innovires Legal can help. Contact us for a consultation.

This article is for informational purposes only and does not constitute legal advice. For specific questions regarding the right to input VAT credit, please consult a qualified tax adviser or lawyer.