VAT & Accounting Practices in Bulgaria

In the UK Chartered accountants have to be committed to continuing professional development & training every year to keep their knowledge and skills up-to-date, they have to follow a code of ethics and are subject disciplinary procedures if the are found to be in breach. They also have to have professional indemnity insurance to demonstrate their commitment to quality assurance and the upholding of the highest professional standards.

In Bulgaria as in the UK legally anyone can call themselves an 'accountant' however sadly over here there is no Bulgarian Institute of Charted Accountants. I am told there is what loosely translates as a Bulgarian association of auditors but its influence has never appeared to be as influential or all prevasive as the ICAEW (Institute of Chartered Accountants of England & Wales).

Accounting in Bulgaria is like feeding a voracious paper shredder with an insatiable appetite that fills Bulgarians, let alone foreign investors, with dread rather than offering them succor as they enter the maze of red tape and bureaucracy that is the Bulgarian tax regime. It seems that the former Communist regime is having the last laugh, gifting us with an army of Ex-Soviet era accountants, who still practice their dark arts as agents of the state!

VAT declarations are made monthly unlike in the UK with a strictly enforced deadline of the 14th. The closer to the 14th you get the more your feel your hackles rising in trepidation. It is not like anticipating Valentines day or a Birthday, rather a day of impending doom when a grey number cruncher (your Bulgarian 'accountant') visits your office to tell you how much you owe the state.

Small companies, as we all know are the lifeblood of any economy, employing upto 80% of the labour-force, yet (astonishingly!) the average size is only four persons, including the owner-manager. With this in mind the burden of being VAT registered in Bulgaria, is in my view too heavy for small business, acting as a brake on the dynamic start-up creation that the country needs to shake the crisis.

Tales abound that if you put a foot wrong, however unwittingly, without malice of forethought, the NAP ((BGN Inland Revenue), more like the Bulgaria equivalent of Al Qaeda!), will swoop down on your business, freezing accounts, demanding financial reports & scouring your books in search of wrong doing. With the NAP it feels you are guilty till proven innocent! Whilst on the one hand this is understandable in a nation afflicted by VAT fraud, there needs to be a sense of balance to temper this heavy handed approach. I once suffered the same fate with the NAP demanding a report and 100's of pages of supporting documentation to be translated into Bulgarian, within ten days of receipt of the registered summons dated 19th of December! Luckily we have that rare breed, a good Bulgarian accountant and were able to use contacts in the Ministry to explain that I would be away for Christmas with family in the UK, hence it was unreasonable. They thankfully offered and extension and we were able to sort out the issue in the new year. Whilst this is anecdotal, it gives one a sense of the capricious nature of the bureaucratic machine, once its cogs start to grind! It sometimes makes me wonder how any business gets done In Bulgaria? If this is life above ground no wonder so many businesses choose to live in the shadow economy rather than stare down the oncoming NAP juggernaut like some stunned rabbit, frozen in its headlamps!

I had high expectations of this esteemed profession however all too often In Bulgaria these so called 'accountants' cling to their title like a limpet to a rock in an ever changing sea of regulation with a misplaced pride and dignity that is breathtaking to behold! Instead of a proactive approach that denotes professionalism and engenders confidence, too many Bulgarian accountants see their main activity as filing tax returns, like giant paper eating tigers on the 14th of every month. They are not to be questioned or queried and are to be obeyed at all times. You are made to feel that you are there for them, not the other way around. Indeed you almost need to employ an in house administrator just cope with the demands of your paper hungry external accountant. All to often you are summoned to deliver documentation to their premises, at their behest even though you are paying for their services. Sadly many are little more than a glorified tax collectors, making it ironically one of the few successful state privatizations since the shift to Democracy.

Many accounting firms, even the big ones, are passive beyond belief. A client of mine (no names!) one day found that his bank account had been frozen by the authorities. He then discovered that he owed 50,000 BGN in unpaid property and waste collection rates. When he asked why his accountants had not pointed this out earlier? They explained they had not been asked, didn't have funds, or any number of excuses, such as breaking a finger nail on the day in question! One would think that they would red flag it like a lifeguard in Cape-town seeing a swarm of shark fins in the surf, but no, it was not part of their remit.

The moral of the story is don't try to get a Bulgarian accountant to take responsibility for his or her inaction. You are supposed to understand Cyrillic & accounting, in fact why bother with their services at all?!  All too often they point out what you should have done after the fact, like watching a car crash in slow motion, waiting to pick up the road kill once you have collided head on with the tax man over some minor bureaucratic transgression.

When you ask them to find creative, commercially orientated solutions to the practical accounting problems that affect your bottom line, they look at you as if you just asked footballing legend Hristo Stoichkov to read Tolstoy and provide a 20 second synopsis of the plot in English! ...Of course, how foolish, as highly trained and experienced accountants this is not what they are paid to do! I once asked a Bulgarian accountant for a monthly statement of income and expenditure only to be met with a pout as if I had just asked him to hand count the grains of sand on Bondai Beach!

Of course, if you have got this far you will be aware I am having a bit of a rant and fun with my own sense of personal melodrama, which is maybe more a reflection of my weakness in the field and my antipathy towards all things bureaucratic. Yet on a serious note in Bulgaria it is precisely a competent, proactive, trustworthy, English speaking accountant that one needs most yet they are nearly as rare as a hot Summer back in blighty! I have to add in case I cause offense that my preferred accounting firm in Sofia   is Dutch owned and staffed by competent and diligent Bulgarian accountants!

James Flint www.sofiacasa.com

If you have any queries with your Bulgarian Investments - ask James at investments@propertysecrets.net