Organizing prize games (Giveaways), sending PR packages to influencers, or holding huge sales are favorite marketing strategies for every online store. But for VAT-registered businesses, these actions harbor a huge, often invisible trap. If your business has not yet reached the mandatory registration thresholds, you can familiarize yourself with the current rules in the article When should you register for VAT? New limits and business advantages in the Eurozone.
However, if you are already registered, have purchased goods, claimed a tax credit (reclaimed the VAT), and then decide to give them away or sell them at a nominal price, the NRA has strict requirements. Here is what you need to know in simple and understandable language.
1. The Golden Rule of VAT
Before we look at specific situations, you must remember one basic rule in the VAT Act (ZDDS): If you have used a tax credit when purchasing an item, you owe VAT upon its disposal.
The state refunded you 20% VAT when you bought the goods for your warehouse because it expected you to sell them at a profit and pay a larger amount of VAT later. If this chain is broken (the goods are gifted, stolen, or incorrectly scrapped), the state wants its VAT back.
2. Situation 1: Gifting (Giveaways and PR packages)
You decide to send a box of cosmetics to a well-known influencer or raffle off an expensive product in an Instagram giveaway.
- What the NRA sees:For tax authorities, this is a „gratuitous supply of goods“. Since the client (the influencer or the winner) does not pay you anything, you do not issue a fiscal receipt or an invoice to them.
- What happens with the VAT:To compensate the state for the tax credit used at the time of purchase, you mustcharge VAT at your own expense. This is done by drawing up a special protocol at the end of the month.
- Example: You bought headphones for 100 BGN excluding VAT (120 BGN including VAT) and reclaimed the 20 BGN. When you give them away as a gift, you issue a protocol and pay those 20 BGN to the state treasury out of your own pocket.
- Is there an exception? Yes! If you give away goods of insignificant value for promotional purposes (usually pens, notebooks, small samples with your logo, the unit price of which is very low), the law exempts you from the obligation to charge VAT. You can find more useful scenarios and exceptions in the article When is VAT not charged in Bulgaria? Main cases and exceptions.
3. Situation 2: Selling below cost
You decide to clear out the warehouse of old collections and release goods at prices lower than those at which you bought them from the supplier. Is this illegal? Absolutely not.
- Sales to random customers: If you are selling to complete strangers below cost (for example, you bought a t-shirt for 20 BGN and sell it for 10 BGN on Black Friday), you simply charge 20% VAT on the actual selling price (in this case, on the 10 BGN). There is no violation here, your company is just realizing a commercial loss, which is a normal business risk.
- The „Related Parties“ trap: The problem arises if you sell goods below cost to related parties – relatives, company managers, or another company of yours. In this case, the NRA (National Revenue Agency) will consider that you are trying to evade taxes. The law obliges you to charge VAT not on the reduced price, but on the market price of the goods.
4. What happens in the warehouse and accounting software?
Documentation is key so that there are no mix-ups during a potential audit:
- When giving away as a gift: The goods cannot simply „disappear“ from the warehouse software. They must be written off using a special document (a protocol for gratuitous delivery). This protocol is recorded in the Sales Ledger with the accrued VAT, and the value of the goods themselves is reflected as a marketing expense for the company.
- When selling below cost: The warehouse software issues a standard invoice or cash receipt at the lower price. The system automatically recognizes that the revenue from this sale is lower than the carrying value of the written-off goods and generates an accounting loss for the specific transaction.
Conclusion
Giveaway campaigns are not entirely „free“ for a business. If you are VAT-registered and you give away goods, you must be prepared to pay their VAT to the state. Maintain strict records in the warehouse software and always consult an accountant before giving away thousands of leva worth of goods. If you want to refresh your memory on the basic principles and obligations, check out the manual What is VAT and when do we need to register under the VAT Act?.
