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Research by Country/Region January 17, 2018  

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A. Is this country a member of the Information Technology Agreement?

B. Customs documentation requirements for IT products

C. Software: duties and taxes, updates, licenses, electronically delivered

D. IT services: tax treatment and other regulations

E. Refurbished, used, or repaired computer equipment imports

Signatories to the Information Technology Agreement (ITA) have eliminated their import duties on a wide range of information technology products, including software and computer hardware. For more information on the ITA, and exact tariff elimination schedules of signatories, click here.
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What are the documentation requirements for the physical import of software? For other information technology products?
The physical import of software is accompanied by an original invoice, bill of lading, insurance policy, dual use certificate, and specification (if necessary).
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Are duties assessed on the intellectual property of the software or on the medium on which is it presented?
At the customs border, the importer pays duties and VAT on the customs value of the medium on which the software is presented. The import of the IP-rights is treated by the Bulgarian VAT Act as import of service (Art.10, item 1 of the VAT Act). Therefore, the importer may have to calculate and pay additional VAT on the IP of the software, if the particular preconditions set forth in Art.61 of the VAT Act are met. If any of these preconditions is not met, no VAT shall be levied on the value of the IP of the software. Then the only duties and taxes paid would be the ones charged on the customs value of the medium.

Are taxes assessed on the intellectual property of the software or on the medium on which is it presented?
See previous answer.

Is customized software treated differently than packaged software?
At present they are treated equally from an import/export and tax point of view.
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What are the customs duties and tax implications for software sold with updates when the full sales price, including cost of updates, is shown on the original commercial invoice? Are duties and taxes paid on that amount? What happens when the updates are sent at a later date? Are duties/taxes applied again? If so, based on what value? How should information presented on the commercial invoice for the original and subsequent shipments to avoid paying duties/taxes more than once on a single sale?
If the price of the updates is reflected in the original invoice, the importer will first have to pay duties and VAT on the customs value of the original set of media. In the event that VAT is also due on the IP of the software (as per Art.61 of the VAT Act), VAT might immediately be due on the price of the updates – depending on the form of the invoice (refer to section 4 below).

When the upgrades arrive at the customs border at a later date, the importer will also pay duties and VAT on the customs value of the updates. If VAT is due on the price of IP, and it has not been paid at the moment of import of the original shipment (depending on the invoice), the importer will pay additional VAT.

The best way is to have the invoice itemized in detail. The price of the medium should be shown clearly as a separate item (so that duties and VAT at the customs might be paid on it only). Whenever possible, the price of upgrades should also be listed separately (or even billed on a separate invoice).

In the relatively rare event when VAT is due on the price of IP on the grounds of Art.61 of the VAT Act, the tax with respect to the original shipment will be due upon the import (or even before that, if the payment is effected before the shipment). As to the upgrades, the date when such VAT would be due depends on the date of payment with respect to them – if the payment for the upgrades precedes the delivery of the upgrades (e.g. is paid with the price for the original software) the VAT on the IP of the upgrades will be due upon such payment; otherwise the tax will be due upon the delivery of the upgrades (evidenced by the bills of entry).
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Are software licenses classified in Harmonized System 4907?
Software licenses are not classified anywhere in the HS.

Are import duties/taxes applied? If so, on what cost/price base are they levied?
Import duties are not applied for the import of software licenses. As to import taxes (VAT) – please refer to answers above.

Are withholding or other additional taxes applied on software licenses? If yes, how?
When a Bulgarian licensee pays royalties to a foreign licensor, the licensee has to withhold the withholding tax. The applicable rate for non-treaty countries is 15% (reduced rate or 0% is introduced by some of the Tax Treaties for Avoidance of Double Taxation executed by Bulgaria). The licensee withholds the amount due when he/she effects the payment of royalties. The rate is levied on the gross amount of the royalties, i.e. 15% of the gross amount is collected as withhold tax and 85% goes to the licensor. The licensee has to pay in the withheld amount to the tax authorities by the end of the month following the month of the payment of royalties.

In the event that the licensee has not withheld the tax in compliance with the Corporate Income Tax Act, the licensor and the licensee owe such unpaid tax jointly (in practice the tax authorities are more likely to go after the Bulgarian licensee in order to collect the amount).
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If a U.S. license agreement is included in the packaging or is part of the installation/registration of shrink-wrapped software imported from the United States, would that agreement be binding on consumers in your market? If so, would U.S. or local laws pertain?
The issue is arguable and there is no court precedent to give us guidance as to what the attitude of competent state bodies would be.

We deem that the U.S. license agreement included in a packaging as described would be valid and binding for the following reasons: Neither the general rules of Art.36 – 40, nor the special rules of Art.70 – 71a (dedicated to software) of the Copyright Act require software licenses to be executed in written form.

Therefore, on the grounds of Art.293, para.2 of the Commercial Code, the software license agreement might be executed in other form – e.g. in this particular case the offer is made in written and the fact of installation and use of the software constitutes acceptance. Please note that according to Art.442d, para.2 of the Law on Obligations and Contracts if at the moment of execution of an agreement the parties are seated in different states, the agreement will be valid if it meets the requirements for contracts and agreements established by the law of either state. Hence, the described agreement would be recognized as executed and binding if the U.S. laws are satisfied with its form.

In practice, there is one additional argument that the U.S. licensor’s rights are guaranteed: if Bulgarian authorities refuse to recognize such agreements as valid and binding, this would mean that the Bulgarian users use the software without legal right to do so. Then the licensor may always undertake steps to terminate such usage.
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Are taxes applied to software delivered to the end-user over the Internet? If so, on what value?
There are no special provisions on Internet trade in Bulgarian law. The delivery via the Internet would have the same tax implications as the physical delivery of set of media. VAT might be due under the conditions of Art.61 of the VAT Act; withholding tax will be due if the royalties are paid to a licensor in a non-treaty state (refer to sections 1-4 and 6 above).

Would the situation be different if this software were instead delivered to a distributor who has a license to produce (replicate) and sell the software?

What are the documentation requirements for the electronically delivered import of digitized products (i.e. software, movie downloads) over the Internet or other networks?
There are no documentation requirements for the import of products over the Internet.

Must an electronically delivered software import be accompanied by a physical shipment of the same product?
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Are services (i.e. training, set-up, etc) relating to the sale of software taxed? If so, at what rate and based on what value?
Yes, they are taxed with VAT of 20% if rendered by a VAT-registered (in Bulgaria) person. If these services are “imported” (rendered by a foreign person to a Bulgarian person) VAT might be due if the particular preconditions set forth in Art.61 of the VAT Act are met. Furthermore, if such services are rendered to a Bulgarian recipient by a foreign person – resident of a non-treaty state, 15% on the gross price might be due (para.1.9 of the Additional Provisions of the Corporate Income Tax Act).

Are U.S. IT solution providers permitted to send personnel into the country to set up hardware/software-related systems?

Are special visa, work permits, and/or professional certification by an accredited body required?
No special visas or work permits are required for U.S. citizens in Bulgaria. If their stay is limited to 30 days, they just need a regular entry visa.
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Is the import of refurbished computer hardware, parts, and accessories (including toner cartridges) permitted?
The import of refurbished computer hardware, parts and accessories is permitted in Bulgaria.

If so, what are the documentation requirements?
To perform the import, one should present an original invoice, and preferably (but not absolutely necessary) the certificate of origin for the imported goods.

Is special labeling required?

What value should be shown on the invoice?
The invoice for refurbished/used computers should show the price for which the equipment has been purchased.

How are duties and taxes assessed?
There are no import duties (with exception for eco-tax for batteries) and there is VAT of 20%.
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Is the import of used computer hardware, parts, and accessories (including toner cartridges) permitted?
Answers are the same as for refurbished equipment. See section E.1. above.
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Are duties and taxes assessed on the re-import of repaired computer equipment?
No duties are assessed on the re-import of repaired computer equipment. Only 20% VAT is assessed.

How should the commercial invoice appear?
The commercial invoice for repaired computer equipment should show:
--if the equipment is under warranty: the price for which the equipment is purchased.
--if the equipment is not under warranty: the repair cost.
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This response was prepared by the U.S. Department of Commerce/Commercial Service in Sofia, Bulgaria, in April and May 2003. For further clarification please contact:
Tsvetanka Kolarova
Commercial Specialist
U.S. Embassy, Sofia

Special Notes: The above information is intended to serve only as unofficial guidance. In seeking to obtain government rulings in specific cases, it will often be necessary to refer to special laws, separate regulations and announcements, and case-by-case decisions by the government. Beyond the general guidelines shown above, legal counsel should be retained at an early stage of consummation of a major procurement contract, and before entering into any legal commitments.

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