Draft Amendments to VAT Regime to Take Toll on Bulgarian Construction Firms
Construction companies may face new a new type of advance payments if a set of proposed amendments to Bulgaria's VAT Act is adopted.
If the changes take effect, starting 2012, VAT will be levied at the sale of the right to build, when a building permit is obtained, experts told news portal dnevnik.bg.
The deals will be VAT-exempt if they are sealed prior to the issuance of construction permits or if the sellers are natural persons who are not registered for VAT and will receive up to BGN 50 000 from the sale of the right to build.
"Companies investing their own capital will be negatively affected, while firms using lines of credit to finance their activities will find it easier to comply with the provision. Getting a loan nowadays is an extremely difficult job, though," explained Nikolin Gavrailov , Chair of the Bulgarian Entrepreneurial Chamber in Construction.
Under the new regime, a construction firm pays VAT when purchasing the right to build.
Once the project has been completed, the construction company levies VAT on the sale of the property.
When the customer pays, the construction company recovers the VAT paid in advance and contributes the remainder to the state budget.
Despite the recovery of the advance VAT payment with the sale of the property, building firms will find it difficult to meet this new type of expenses.
Valentin Stoyanov, senior advisor at the Parliamentary Committee on Economy Policy, Energy and Tourism, points out that the initiator of the amendments, the Finance Ministry, has failed to defend the need for their implementation or to provide an impact assessment.
Stoyanov believes the change will hit construction companies, owners and real estate agencies whose competitive advantage consists in profitable greenfield construction offers.
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