What is an annual closure?
In practice, the annual closure is the point at which you sort out all your income, expenditures, and financial liabilities for the past year and file your annual tax return with the National Revenue Agency (NAP). This process is not just a formality—it helps you make sense of your financial situation and plan your future professional steps.
Obligations under the law:
Anyone freelancing in Bulgaria must file an annual tax return under Article 50 of the Personal Income Tax Act. This includes persons registered as self-employed who receive income from work, intellectual or creative activity.
What are the deadlines?
The key deadline for filing your annual tax return is 30 April. By this date, you must:
- Submit your return electronically through the National Revenue Agency (NAP) portal.
- Pay any tax due on your income.
If you made advance tax payments during the year, these will be deducted from the final amount you owe.
What is included in the annual closure for freelancers?
1. Collection of documentation
The first step is to collect all the documents that reflect your income and expenses for the year. This may include:
- Invoices: all invoices issued and received.
- Bank Statements: If you work with bank transfers, these are an important part of the accounts.
- National Insurance Contributions: Proof of social and health insurance contributions paid regularly.
💡 Tip: Keep a record of your documents throughout,t the year. That way you won’t waste time and nerves when it’s time to close.
2. Calculation of taxable income
One of the benefits of freelancing is the ability to use allowable expenses. This means that a certain percentage of your income is automatically considered an expense and excluded from your tax base.
For example:
- If you are a consultant or designer, 25% of your income is recognized as an expense.
- If you are an artist, writer or musician, the percentage is 40%.
This simplifies the process as you don’t have to prove these expenses with paperwork.
3. Use of tax benefits
Don’t forget that you can reduce your tax bill by using tax credits. Here are some of them:
- Relief for children: parents can reduce their taxable income by a certain amount for each child.
- Donations: If you have made donations to certain organizations, this also reduces your tax base.
- Voluntary pension and health insurance: Contributions to voluntary insurance can also be deducted.
💡 Tip: Consult a professional accountant to ensure you use all available reliefs.
4. Submission of the declaration
The declaration can only be submitted online through the National Revenue Agency (NAP) portal.
💡 Important: If you file your return online and pay the tax due by 31 March, you can get a 5% discount on the amount, provided you have no old debts.
How to prepare for you’ve successfully completed the year, use this time to create better habits for managing your finances:
- Automate processes: use software for invoicing and expense tracking.
- Keep documentation in order: Organize your documents into folders (electronic or physical) by month.
- Schedule insurance: Spread insurance payments evenly throughout the year to avoid accruing liabilities.
What happens if you miss the deadlines?
Missing the filing deadline or making mistakes could result in:
- Fines: The minimum penalty is 500 BGN.
- Interest: Daily interest is charged for unpaid tax.
- Audits: Errors or delays can attract the attention of the NRA, leading to audits.
If an error is found in the return, it can be corrected once by 30 September of the same year.
Conclusion: you are not alone in this process
Year-end closing for freelancers may seem like a challenge, but with good preparation and the right advice, anything is achievable. If you’re unsure about any of the steps, don’t worry about seeking help from an accountant – it’s an investment that will save you time, stress and potential problems.
Remember, this process is not only an obligation but also an opportunity to reflect on the past year, assess your successes, and plan for the future.
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