Corporate Income Tax Act Amendments related to scholarship donations

Bulgaria/October 2013

New amendments to the Bulgarian Corporate Income Tax Act have been adopted on August 2, 2013. They mostly concern donations and more specifically donations in favor of students in secondary schools and/or universities carrying out their studies in an EU member state. The amendments will be effective as from January 1, 2014.

In accordance with the amendments, donations in the form of scholarships to students in a EU country will be recognised as expenses for tax purposes provided that certain requirements are met, while according to the previous text of the Act entities granting donations to students could decrease their profit with these grants, but only up to an amount not exceeding 10% of the profit for the financial year.

From January 1, 2014 the requirements for the recognition of grants for tax purposes are stipulated in a separate new article (Article 177a) of the Corporate Income Tax Act. The most important requirement is for the student to be enrolled in a secondary school or a university and the duration of the education course to be between 12 and 24 months. Furthermore, the student receiving the donation/scholarship must be in last two years of his/her educational course and the knowledge received must be of importance to and applicable to the entity grantor. Another important requirement is that the student, receiver of the scholarship is under 25 years of age. After graduation, the entity grantor is required to hire the student for a period not shorter than the period of the awarded scholarship. If the company does not hire the student or hires him/her for a shorter duration, i.e. if a scholarship was paid for a full year and the student was hired for six months after completing the studies, the grantor’s profit will be raised by the amount corresponding to the remaining six months of scholarship to be taxed).

The amendments aim to stimulate scholarship donations by recognizing the overall expense for tax purposes on one hand, and will motivate, on the other, young and educated people to return to Bulgaria, where they would apply the knowledge and abilities acquired abroad.

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