Cash on delivery is one of the most popular payment methods for online purchases in Bulgaria. Often used by freelancers and small businesses, this method allows the buyer to pay upon receipt of the goods.
Although convenient for consumers, it is important to understand how to properly declare and account for cash on delivery income. This is essential for freelancers and businesses to avoid future problems with the IRS and penalties.
We will now take you through the importance of declaring cash on delivery income and how to properly manage financial reporting for this type of income.
Locations in Bulgaria where cash on delivery is available
There are several established companies in Bulgaria that offer cash on delivery services, including Bulgarian Post, Econt, Speedy, Europat, DHL and others. These companies provide a convenient and widely used payment method for delivery. In this method, the payment of the goods is made upon receipt, and the courier company collects the money and transfers it to the seller. This makes cash on delivery the preferred method for online sales.
Each of these companies has its own rules and procedures for documenting deliveries and payments received.
For example, with Econt, Speedy and Europass you receive receipts and documents that verify both the delivery and the payment.
International shipments cash on delivery
When selling goods cash on delivery and sending parcels abroad, there are a few key aspects to consider to avoid complications and penalties. Within the European Union, tax regimes and accounting procedures are simplified thanks to common rules on the movement of goods. However, you must ensure that you comply with the local tax requirements in the country to which you are sending the goods.
For example, shipping to a country with higher tax rates may require a different approach to accounting and revenue recognition.
Outside the European Union, the situation is complicated as each country has its own specific tax regimes and customs rules. In such cases, in addition to the standard accounting of duty revenue, you will need to prepare a customs declaration, which often includes information on the value of the goods, the country of origin and details of the transaction.
In addition, you need to be aware of the import tax rules in the relevant country. Many non-EU countries apply high duties and taxes on imported goods, which can affect the final price of the product and the terms of delivery. It is important to keep track of these requirements to ensure that your international shipments are accountably and legally sound.
One best practice is to make sure you have a complete record of all documents related to international transactions, including customs and courier documents. This will allow you to answer any questions or checks from the tax authorities and ensure that your income is correctly declared.
Consulting with an accountant experienced in international trade is essential to avoid mistakes and misunderstandings, especially regarding the different tax laws in different countries.
Reporting of cash on delivery income
When it comes to reporting cash on delivery income, freelancers and businesses must follow specific rules that ensure fairness to the tax authorities.
It is important to note that for freelancers, any payment, regardless of the frequency of sales or the scale of the business, is treated as income that is subject to declaration and accounting. This means that even small, occasional transactions that may seem insignificant must be included on your tax return to avoid penalties.
In addition to reporting cash on delivery income, the way in which related expenses are reported also matters. For freelancers, statutory expenses are fixed as a percentage, i.e., it doesn’t matter what type of expenses we incur.
The process is more detailed for companies (sole traders and limited companies). They have to keep a record not only of the revenue but also of the costs associated with each delivery, such as courier services, packing, and other direct costs. These costs can be accounted for as business-related expenses, which will help reduce the tax base.
Accounting for goods when sold on cash on delivery
Freelance
When selling goods, it is mandatory to keep a record of each transaction, and each sale must be documented by invoices or receipts. Even for smaller and infrequent sales, freelancers must keep correct records to prove receipts to the IRS upon inspection.
In the case of cash on delivery sales, courier companies issue receipts for payment received, which should be included in the accounting records. This will ensure full revenue transparency and help in case of tax audits. Even when the sales volume is not large, integrating these documents into the accounts is mandatory for proper revenue accounting.
For a higher volume of transactions, it is advisable to use sales management software. This will help freelancers more easily keep track of their financial flows and generate the necessary documents automatically.
Companies (Sole Traders, Ltd.)
In the case of companies (sole traders, LDT), the accounting of cash on delivery sales follows even stricter rules. Each sale must be accompanied by an invoice or receipt, and the company must issue the relevant documents to the customer for each transaction.
Courier companies provide documentation for payments, which must also be kept and included in the company’s accounts.
With a higher volume of sales, these costs can play a significant role in profit determination and tax optimization.
The use of specialist sales and financial management software is key for businesses as it automates processes and reduces the risk of errors.
Courier companies and the National Revenue Agency (NAP)
Courier companies in Bulgaria, such as Econt, Speedy, Europat and others, play an important role not only in the delivery process but also in ensuring transparency before the tax authorities. They have the obligation not only to transmit information to the NRA about each payment made but also to store the data on the payments made. This includes detailed information on each transaction – who the seller is, what amount was received and when the transaction took place. This data forms the basis for tracking revenue received by merchants.
The information that courier companies submit is processed by the NRA, allowing discrepancies between declared revenue and actual amounts received from cash-on-delivery sales to be quickly identified. This requires strict accountability on the part of traders, as any discrepancy can be easily detected.
It is important to note that data is submitted to the NRA regularly, which means that any delay or failure to declare revenue can result in serious financial penalties.
In addition to transmitting information to the NRA, courier companies also allow merchants to access detailed records of all shipments sent and payments made. These reports can be used for internal accounting and sales analysis. This provides merchants with a tool to track their revenue and control their financial reporting, making the process of declaring and accounting to tax authorities much easier.
What happens if we do not declare our cash on delivery income?
Failure to report cash on delivery income can lead to serious consequences for both freelancers and businesses. The NRA has automated systems to check and compare the data submitted with the information it receives from courier companies. In case of discrepancies, the tax authorities can take immediate action.
You may initially receive a warning or an invitation to file a corrective return, but if you do not respond promptly, more serious measures will follow.
In addition to penalties, which can vary depending on the scale of the non-compliance, there may be additional charges for interest on the tax due.
In the event of systematic non-compliance, the NRA may initiate a tax audit, which involves additional costs and time. In more severe cases, it may result in bank account freezes or legal action.
The best way to avoid these problems is to follow the rules for declaring cash on delivery income and ensuring accurate reporting for each transaction. This will allow you to avoid fines and build a stable and transparent business model.
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Optimisation of taxation and accounting
Optimizing taxation for cash on delivery sales also involves strategic revenue and expenditure planning. One way to do this is to carefully plan how and when to record revenue so that you maximize tax benefits and spread tax liabilities more evenly across the year.
For example, if you’re a business and you know that you have a higher volume of transactions in certain months, you might consider shifting some of the expenses to the same period to reduce your taxable income.
Another effective approach is to analyse the costs associated with deliveries and courier services. These costs can be a significant part of your overall expenses and their proper accounting and optimization can have a direct impact on your tax base.
Carefully review contracts with courier companies and terms and conditions for commissions and fees. You may be able to negotiate more favourable terms for higher volume deliveries, which will ultimately reduce your overall costs and increase your profitability.
Working with an accountant is also key, not only for proper accounting but also for recognizing opportunities to reduce taxes through tax credits or deductions that may not be obvious at first glance. An accountant can help you identify areas to take advantage of existing tax reliefs, such as for investment in certain assets, infrastructure improvements or business expansion.
VAT and cash on delivery income: professions and businesses
Freelancers
If you work as a freelancer and your cash on delivery sales income exceeds the VAT registration threshold (currently 166,000 BGN in the last 12 months), you will need to register for VAT.
Once registered, you will be required to charge VAT on every sale, including those made by cash on delivery. This means that the final price to customers will include the tax, which is important to explain clearly to your customers to avoid misunderstandings.
As well as charging VAT on revenue, you will be able to claim tax credits on costs associated with your business, such as supplies or the purchase of materials. This means that you will be able to reduce the amount of VAT due to the state by the amount of VAT paid on these expenses.
Companies (Personal Trader, LTD)
If your turnover from cash on delivery sales exceeds the VAT registration threshold, you will need to register and start charging VAT to all your customers. This includes not only sales of goods, but also any services your business provides if they are taxable under VAT law.
One peculiarity of businesses is that they often have a greater number of costs associated with them—for example, courier commissions, logistics costs, warehouse rent, etc. All these costs are subject to VAT, and companies can claim a tax credit. This will allow them to reduce their VAT liability by deducting the tax paid on these costs from the amount they owe the state.
In the case of international sales, businesses and the professions should also be aware of the VAT rules in the countries where they trade. If intra-EU sales exceed certain thresholds, businesses may also need to register for VAT in the relevant Member States, which requires careful management of financial reporting and interaction with different tax regimes.
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Conclusion
Reporting COD income is an important aspect of freelance and small business activity. Skipping this process can lead to penalties and problems with the IRS, so it’s essential to be aware of and follow the rules. We encourage you to use electronic filing platforms and consult with an accountant when necessary to ensure everything is correctly and timely accounted for.
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