Organizing giveaways, sending PR packages to influencers, or running massive clearance sales are favorite marketing strategies for any online store. But for VAT-registered companies, these actions hide a huge, often invisible trap. If your business has not yet reached the thresholds for mandatory registration, you can familiarize yourself with the current rules in the article When to Register for VAT? New Thresholds and Business Advantages in the Eurozone.
However, if you are already registered, have purchased goods, claimed a tax credit (got your VAT back), and then decide to give them away or sell them for pennies, the NRA (National Revenue Agency) has strict requirements. Here is what you need to know in simple and understandable language.
1. The Golden Rule of VAT
Before looking at specific situations, you must remember one basic rule in the Value Added Tax Act (VATA): If you have claimed a tax credit when purchasing a good, you owe VAT when it is written off.
The state returned the 20% VAT to you when you bought the item for your warehouse because it expected you to sell it at a profit and pay a larger VAT afterward. If this chain is broken (the item is gifted, stolen, or improperly written off), the state wants its VAT back.
2. Situation 1: Giving Away (Giveaways and PR Packages)
You decide to send a cosmetics box to a famous influencer or raffle an expensive product in an Instagram game.
- What the NRA sees: For the tax authorities, this is a “free supply of goods.” Since the customer (the influencer or the winner) pays you nothing, you do not issue them a receipt or invoice.
- What happens with the VAT: To compensate the state for the tax credit used upon purchase, you must charge VAT at your own expense. This is done by compiling a special protocol at the end of the month.
- Example: You bought headphones for 100 BGN without VAT (120 BGN with VAT) and got the 20 BGN back. When you give them away, you issue a protocol and pay those 20 BGN into the state treasury from your own pocket.
- Is there an exception? Yes! If you give away items 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. More useful scenarios and exceptions can be found in the article Opportunities for VAT Exemption in Bulgaria.
Free 30-minute consultation for new clients.
3. Situation 2: Selling Below Cost
You decide to clear the warehouse of old collections and offer goods at prices lower than those at which you bought them from the supplier. Is this illegal? Absolutely not.
- Selling to random customers: If you sell to completely unknown customers below cost (e.g., you bought a t-shirt for 20 BGN, and you 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 simply realizes a commercial loss, which is a normal business risk.
- The “Related Parties” Trap: The problem arises if you sell an item below cost to related parties – relatives, company managers, or another company of yours. In this case, the NRA 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 good.
4. What happens in the inventory and accounting software?
Proper documentation is key to avoiding confusion during a potential audit:
- When giving away: The item cannot simply “disappear” from the inventory program. It is written off through a special document (protocol for free supply). This protocol enters the Sales Ledger with the charged VAT, and the value of the item itself is recorded as a marketing expense for the company.
- When selling below cost: The inventory software issues a standard invoice or cash receipt at the low price. The system automatically records that the revenue from this sale is less than the book value of the written-off item and generates an accounting loss for the specific transaction.
Conclusion
Giveaway campaigns are not entirely “free” for the business. If you are VAT-registered and give away goods, you must be prepared to pay their VAT to the state. Keep strict records in your inventory software and always consult an accountant before giving away thousands of levs worth of goods. If you want to recall the basic principles and obligations, review the guide What is VAT and when do we have to register for mandatory VAT?.
