VAT registration of an entity, whose manager has outstanding tax liabilities exceeding 5 000 BGN

refusalIt is a common case where the commercial activity of an entity requires VAT registration of a newly established company. However, it would be an obstacle if the manager has outstanding liabilities to the budget exceeding 5,000 BGN (which originate from another entity). The VAT Act allows NRA (the National Revenue Agency) to refuse VAT registration in such cases.

This is a special hypothesis for VAT registration refusal. Under Art 176a from the VAT Act, NRA can refuse VAT registration to an entity if one or several of its owners, managers, procurators and/or major shareholders are (or were, as of the moment of occurrence of the liability) owners, procurators, major shareholders, members of management or controlling bodies of other entities with non-settled VAT liabilities (or if they themselves have such liabilities) exceeding 5,000 BGN.

This rule requires that the other entities (or entity), which were VAT registered, have non-paid tax liabilities, but specifically for VAT and not for any other tax liabilities in general. Such tax payables may originate from a final tax act from completed VAT audit by NRA, or non-paid liabilities under submitted VAT returns, but not from corporate tax bills, personal income tax liabilities or other type of taxes and/or social and health social security contributions.

In any such cases, prior to refusing VAT registration NRA is obliged to submit a request to the entity to provide collateral in cash, government bonds or unconditional & irrevocable bank guarantee for a period of one year. NRA must issue and provide to the manager of the entity a collateral request, where they also have to define the deadline till when the collateral must be provided. Only when the deadline has expired and the manager of the entity has not provided collateral, NRA can refuse VAT registration. In case NRA has not submitted a collateral request to the entity, then the VAT registration refusal is lawless and can be cancelled following an appealing procedure.

The VAT registration refusal can be appealed against administratively before NRA and then in court under the rules of the Tax and Insurance Procedure Code.

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