Банкеръ Weekly



Banks will be no longer able to deduct losses from their profits in the next ten years, Cabinet-approved amendments to the Corporate Income Taxation Act stipulate. In that way, they will be treated as all other persons, liable to paying taxes, who have the right to deduct the reported losses from their profits within just five years. This means that if a bank reports a huge loss and small profits over the following five years, as of the sixth year it will begin to pay taxes, even if it has not deducted the entire amount of losses. The amendment will affect insignificantly financial institutions, as almost all of them have been reporting profits in recent years. The problem seems to concern only Tokuda Bank, mostly due to its huge BGN8.9MN loss for 2001. In the same year losses were reported also by ProCredit Bank, Citibank - Sofia branch, ING Bank - Sofia branch, Demirbank, Commercial Bank of Greece, and Private Entrepreneural Bank Texim; in 2002 losses were reported by Demirbank and the Sofia-based branch of Citibank, and in 2003 - by the newly-established East-West Bank. However, they will hardly face problems in covering their losses within five years. The amendments are mainly connected with the ceding of corporate tax (in that case the tax is calculated, but is not remitted to the budget if certain terms are observed). Elimination of the State assistance measures and of tax preferences that contradict the principles of free competition has been stipulated. According to European legislation, preferences are regarded as a kind of State support and it should be seen to it that competition is not deformed. That is why the Commission for Protection of Competition (CPC) will be already deciding if it is admissible to cede taxes for investment projects worth BGN75MN-plus. The due corporate tax regarding investments will be reduced when the respective conditions exist for State assistance to regional development in compliance with the State Support Act and the regulations for its application. One of these terms stipulates that the assets, acquired thanks to a tax preference, should amount to at least twice the size of the ceded tax. Moreover, at least 25% of the value of assets in which investments are made should be at the expense of the entrepreneur's own funds. The equipment and real estates should had been purchased at market prices and are not liable to selling within five years after their acquisition. The reduction of the due corporate tax in case of creation of new working positions will be valid if the firms have not received assistance from the State in any other form (e.g. abatement of debts). In the future a requirement will be set that the newly-employed people have been registered as jobless at employment offices at the moment of their hiring. The newly-opened working positions should be maintained for at least five years. The term of the preference for foreign investors shall be cut down. Under the revoked article 20 of the Foreign Investment Act, they were entitled to cede 30% of the corporate tax for the year 2007 as well. As per the legislative changes the year 2006 has been set as the final term, but during that time they will be able to deduct a higher percentage of the tax.The amendments will affect the concessions for the import of investment goods under the VAT Act and the order for deferring the payment of taxes under the Tax Procedures Act. Preferences under Decree No 2242 regarding free trade zones will concern not only foreign but local firms as well. Meanwhile, the Parliamentary Economic Commission approved at first hearing an entirely new draft law on free economic zones.

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