The annual financial closing is a key process for every registered company in Bulgaria. It ensures that all financial transactions from the past year are accurately recorded and comply with legal requirements.
For companies, especially those with complex business structures or diverse operations, this process requires strict adherence to numerous procedures and attention to detail. Preparing the annual financial report, submitting declarations to the National Revenue Agency (NAP) and other institutions, and verifying compliance with the Accounting Act are just some of the tasks that need to be completed.
This article will provide a detailed overview of the annual financial closing process for companies and its importance for business owners who do not have in-depth accounting knowledge. We will discuss the main steps, required documents, and optimization tips for the process.
Accounting Closing for Companies
According to Bulgarian legislation, every registered company, regardless of its legal status, is required to perform an annual financial closing. This applies to all legal entities, including sole proprietorships with limited liability (EOOD) and limited liability companies (OOD).
For legal entities, the requirements for annual financial closing are strictly regulated. They are obliged to prepare an annual financial report (AFR), which includes:
- Balance Sheet – shows the financial position of the company at the end of the year.
- Income Statement – reflects the financial results from the company’s activities.
- Notes and Explanatory Statements – additional information about financial transactions.
Additionally, companies must submit an annual tax return under Article 92 of the Corporate Income Tax Act (CITA). The documents must accurately reflect the company’s financial status and be submitted within the legally prescribed deadlines.
Failure to meet the requirements or missing deadlines can result in penalties, emphasizing the importance of proper and timely financial closing.
Main Stages of the Annual Financial Closing
The annual financial closing process involves several key stages that ensure all financial transactions are correctly recorded and reported. While the stages are similar for freelancers and companies, there are significant differences in their execution.
Documents and Deadlines
Meeting the deadlines for document submission is a crucial element of the annual financial closing. This ensures compliance with legal requirements and helps avoid possible financial and legal consequences. It is worth noting that the requirements may vary depending on the type of entity and organization, necessitating careful planning and precise preparation.
Besides the obligation to submit an annual financial report and tax return by June 30, there is also a requirement for the public disclosure of financial statements. These reports must be published in the Commercial Register, usually done by the company’s accountant or manager.
Companies subject to audits must also provide an auditor’s report, which must be attached to the financial report. This is particularly important for companies with large turnovers or specific activities requiring independent verification of financial results.
Tax Relief and Optimization Opportunities
- Investment Reliefs: Investments in long-term tangible and intangible assets, such as machinery, equipment, software, or technologies, can be deducted from taxable profit through depreciation deductions. Some asset categories, such as innovations and green technologies, may have accelerated depreciation schemes.
- Donations: Similar to freelancers, donations to certain organizations can reduce the taxable base of legal entities by up to 10% if directed towards public benefit causes or educational projects.
- Hiring People from Vulnerable Groups: Companies that employ individuals with disabilities or long-term unemployed persons can benefit from a reduced tax base or even subsidies for social security contributions.
- Reliefs for Research and Development (R&D): R&D expenses can be fully deducted from taxable profit. These types of reliefs encourage investments in innovation and technology.
- Green Investment Incentives: Companies investing in environmental protection, energy efficiency, or renewable energy projects often qualify for tax reductions.
Penalties and Consequences of Non-Compliance
Failure to meet deadlines or errors in document submission can have serious consequences, including additional audits by the NRA and penalties for late submission of the annual financial report (AFR).
Companies that do not submit their AFR or submit it late are subject to fines that are stricter than those for individuals. Penalties for legal entities start at 2,000 BGN and can reach up to 5,000 BGN, depending on the circumstances. Significant delays or errors in reports may lead to a detailed audit by the NRA.
Conclusion
Annual financial closing is essential for companies and requires precision and strict adherence to legal requirements. To avoid mistakes and penalties, it is advisable to rely on an experienced accountant or use professional accounting software. Proper and timely closing of the financial year not only protects you from potential problems but also provides a solid foundation for planning and developing your company’s future activities.
Learn more useful information by exploring the Smetalnik blog.
Author
