Corporation Tax for Companies Over 5 yrs?

We don't like them but we gotta pay them! How does it work in Bulgaria?

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Postby BG9374 » Fri Sep 23, 2011 8:03 pm

Rosica Petkova-Kavazova says:
26/02/2011 at 17:26

Veselya, in terms of the limitation here is that you can benefit from:
The limitation period for money claims is generally three years. But claims of this type has many features. Normally, according to current regulations, if within three years due amounts are not sought by the creditor, then the expiration of that period the obligation is extinguished by prescription.


And the debt of is wiped out on the balance sheet, seen now as an asset and holding value is taxable income based on the extinguished debt??????? Close this down someone.

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Postby gimlet » Fri Sep 23, 2011 11:13 pm

Well, as has been said, UK law has very similar provisions. The release of a debt can result in a corporation tax liability for the debtor under the "loan relationship rules". In other cases the release of a debt may be a disposal that results in a taxable capital gain.

BG9374 is not, I think, strictly correct when he said the debt (liability) has transformed into an asset. It has transformed to income so the balance sheet item is wiped out and there is a credit to the profit and loss account. That is taxable as income of course.

When the company is closed down and the accrued balance on its profit and loss account is distributed that will presumably be taxable again. I seem to recall the rate is 5% but I could be dreaming.

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Postby BG9374 » Sat Sep 24, 2011 9:58 am

Gimlet, did mention on an earlier post the asset is seen to be income; pure profit.

Are spot on Gimlet on what have above written. The way out of the muddle, would be convert the debt to shares and then might have some taxable advantage for what be seen as offical, legal investment.

Either way its all a paper chase but funds must be traceable and so many should understand just cannot buy for a company without accountability for every стотинки (stotinki).

All means carry out DIY etc on your home from your own pocket. Don't expect when you sell that home then claim back those expenses unless your company is active and your filing those receipts with the revenue services via your accountant.

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Postby Milka » Sun Sep 25, 2011 10:54 am

I have tracked down a pdf print of an earlier Corporation Tax effective from 01.0.2007

http://www.lexadin.nl/wlg/legis/nofr/eur/lxwebul.htm

and scroll down to Tax Law. This is what the original Article 46 states:

Tax Treatment of Debts
Article 46. (1) Upon determination of the tax financial result, the accounting financial result shall be credited with the
amount of the debts of the taxable person originating from amounts which lead to a diminution in the tax financial result, and
the said crediting shall be effected in the year in which one of the following circumstances occurs:
1. the debts are extinguished by prescription, but not more than five years after the time when the debt became
exigible;
2. the bankruptcy proceedings against the taxable person have been closed by a confirmed plan for rehabilitation
which provides for incomplete satisfaction of the creditors; the crediting shall be effected by the amount of the diminution in
the debt;
3. an effective judgement of court has decreed that the debt or part thereof is undue;
4. the creditor has relinquished the claim thereof by a judicial procedure or has redeemed the said claim; the crediting
shall be effected by the amount redeemed;
5. before the lapse of the prescription period, the debts have been extinguished by virtue of a law;
6. the taxable person has submitted a motion for expungement.

(2) The accounting income accounted for in connection with a write-off of the debts referred to in Paragraph (1) shall
not be recognized for tax purposes.

The original section was definately aimed at reversing expenses/payments from trade creditors that in an earlier period reduced taxable profits and continued to remain unpaid:

the accounting financial result shall be credited with the amount of the debts of the taxable person originating from amounts which lead to a diminution in the tax financial result,

Me loaning my company funds to buy property hasn't lead to a diminuation in my company's tax financial results. The only time this may be seen to happen is when having sold the property I come to repay myself out to the profits of the sale, I draw down my director loan instead of taking the funds out as a dividend.

M

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Postby Hippyboy » Sun Sep 25, 2011 12:02 pm

From what Rosica Petkova-Kavazova it appears that , with a bit of jiggery-pokery , one can circumvent these rules ad-infinitum . The slight problem is that she mentions 3 years rather than 5 ; hopefully its 5 and I can start asking my company to pay back the money which I funded it with . Tim .

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Postby kazz » Sun Sep 25, 2011 1:24 pm

As I said I would I ran this past her accountant, with 3 questions.
1) Is the situation described on the page possible?
2) If it is possible are there ways to avoid it?
3) If there are ways to avoid it has she put them into practice on our accounts and on the accounts of anyone we're introduced to her?

Answers as follows.
1) Yes it is possible in theory, but will not happen if the accounts are done properly; meaning that the capital used to buy the property has been entered into the correct accounting category.

2) The way to avoid this is (guess!) to enter the capital used to buy the property into the correct accounting category!

3) Yes of course! She has entered capital correctly on the company financial reports and tax returns for all of her clients, trading or non trading British Bulgarian or any other nationality.

She also asked me why British property owners in Bulgaria seem to make a habit of getting their accountancy advice from solicitors rather than accountants.
:lol:

Finally she suggested that anyone who is concerned that this might be a problem for them should seek the advice of a qualified accountant. With copied of past reports and tax returns any competent accountant would be able to see if the accounts have been prepared showing this capital in the correct place. There are provisions in the paperwork for making amendments of past errors. Of course it's best if this is done when the error is uncovered. in the next return).

None of this is jiggery-pokery, it's not about circumventing rules it's about applying the correct rule in the specific case.

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Postby gimlet » Sun Sep 25, 2011 1:59 pm

There are provisions in the paperwork for making amendments of past errors


Only in the last 5 years I believe. There you are, another topic of conversation for when you see her next :lol:

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Postby kazz » Sun Sep 25, 2011 2:20 pm

Only in the last 5 years I believe. There you are, another topic of conversation for when you see her next


Almost certainly so, 5 years rings a bell for me and Gimlet is very rarely wrong (if ever?) :lol:
Do you happen to know if that's 5 years from the date of the first financial activity of the company or 5 years from the first tax return?

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Postby Hippyboy » Sun Sep 25, 2011 3:07 pm

Sure Kazz . I didn't mean that if the accounts were all in order , and this tax wasn't a liability that would need to be avoided that jiggery-pokery would be involved , rather if the reverse was the case that the suggested method of asking the company to pay you back thereby delaying/restarting the time frame of prescriptions would come into force and prolong the process into history ; clear as mud really . Tim .

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Postby kazz » Sun Sep 25, 2011 3:13 pm

With you Hippyboy!

But I think that if you're within the 5 year period it's possible to amend the accounts so you don't need to initate the process 'against' your own company and if you're past it then it's too late to ask for your money back!!!


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