In recent years, platforms like Airbnb and Booking.com have revolutionised the way people travel and find accommodation. Whether you’re a homeowner looking to earn extra income or a traveller seeking unique stays, these platforms offer convenience and flexibility. However, amidst the allure of hosting or booking through these platforms, it’s essential to understand the tax implications involved. From income taxes to value-added taxes (VAT), navigating the tax terrain can be daunting. In this article, we’ll delve into the tax considerations associated with hosting and booking on Airbnb and Booking.com, exploring how much tax is owed, when it’s due, and why it matters.
In Bulgaria, rental income received from individuals is typically taxed at a flat rate of 10%. However, when it comes to income from these foreign platforms, it is considered that you are operating a small hotel business, subjecting you to taxation under the Local Taxes and Fees Act and the Tourism Act.
Nevertheless, the initial step towards comprehending and managing this income effectively involves registration. After receiving rental income, property owners must register as sole traders in the Bulstat register. Subsequently, they must submit a declaration to the National Revenue Agency (NRA) to initiate self-insurance and fulfill mandatory contributions to state social security, health, and pension insurance funds.
In addition to income tax, hosts may also be required to pay VAT on their rental earnings, depending on their location and turnover threshold. VAT is a consumption tax imposed on goods and services, including short-term accommodations. Hosts exceeding a certain turnover threshold within a specified period may need to register for VAT and charge it to their guests. The VAT rates can vary based on the type of accommodation and country regulations. For example, in Bulgaria, tourist accommodations may be subject to VAT rates of 9% or 20%, depending on categorization.
Short-term rental income obtained through online platforms like Airbnb and Booking.com requires a special registration under the Value Added Tax (VAT) Act. This is because intermediary services are utilised from platforms such as Airbnb and Booking, resulting in taxable supplies of services provided by foreign entities (the online platform) not established within the country’s territory. To comply, an application for registration based on Article 97a of the VAT Act must be submitted. Upon registration, obligations arise for submitting monthly VAT returns.
Income from short-term rentals may be subject to patent tax, especially if the property falls within specific categories under the Tourism Act, such as tourist facilities. The property owner must file a Declaration for Patent Taxation according to Article 61n of the Local Taxes and Fees Act (LTFA). This declaration is submitted to the municipality where the property is located by January 31st of the current year. The tax is paid in four instalments to the municipal administration, and the amount is determined by the municipality.
Ensuring tax compliance involves fulfilling reporting obligations and meeting filing deadlines. Hosts must accurately report their rental income and any associated taxes to the relevant tax authorities. This often entails filing quarterly or annual tax returns, depending on the jurisdiction and type of income earned. Additionally, hosts should keep meticulous records of their rental income, expenses, and any applicable deductions, such as maintenance costs or utility bills. These records not only facilitate accurate reporting but also serve as crucial documentation in case of an audit or tax inquiry.
To streamline compliance efforts, hosts may consider leveraging accounting software or hiring professional tax services to manage their financial records and ensure timely submission of tax returns. Failure to comply with tax regulations can result in penalties and legal repercussions. Therefore, it’s essential for hosts to stay informed about their tax obligations and seek professional advice if needed.
Foreign hosts operating on platforms like Airbnb and Booking.com in Bulgaria should also be aware of their tax obligations. While Bulgarian tax laws apply, there may be additional considerations for non-residents, such as double taxation treaties and registration requirements. Consulting with a tax advisor who understands international tax laws can help foreign hosts navigate these complexities and ensure compliance.
Navigating the tax considerations associated with short-term rentals through platforms like Airbnb and Booking.com involves various legal obligations and regulatory requirements. From registering as a sole trader to complying with VAT regulations and fulfilling patent tax obligations, property owners must adhere to a series of procedures to ensure tax compliance.
Seeking professional guidance and staying informed about the latest regulations are essential steps in navigating the complex tax implications of short-term rentals. By understanding the tax obligations, property owners can effectively manage their tax liabilities and operate their rental businesses in accordance with the law. Contact us today for peace of mind and seamless tax compliance
