2025 Guide for Bulgarian Companies
Today we will address an important question: Do you need to charge VAT when selling digital services to clients outside the European Union?
What Is Considered a Digital Service?
According to European and Bulgarian tax legislation, digital services are generally services provided electronically with minimal or no human intervention. These include, but are not limited to:
- Software and applications
- E-books and digital publications
- Music and video streaming
- Online courses and digital educational content
- Web hosting and cloud services
- Digital marketing services
- Digital platforms for selling goods or services
- Games and virtual goods
These services are usually subject to VAT when supplied within the EU. However, VAT rules differ when services are sold to customers outside the EU.
VAT Within the EU vs. Outside the EU
For EU customers, EU VAT rules apply:
- B2C sales: VAT is generally due in the customer’s country and is managed via the OSS system.
- B2B sales: The reverse charge mechanism usually applies.
For non-EU customers, such supplies are outside the scope of EU VAT. However, many non-EU countries have their own VAT, GST, or sales tax regulations for digital services.
What Does This Mean for Your Business?
- You do not charge Bulgarian VAT on sales of digital services to customers outside the EU.
- Your invoice should clearly state:
“Supply of digital services to a customer outside the EU – outside the scope of EU VAT.”
Always check whether the customer’s country applies local VAT, GST, or sales tax rules. Countries such as the United Kingdom, Australia, or Canada may require foreign suppliers to register locally once certain thresholds are exceeded.
Documentation and Evidence
To correctly apply VAT treatment, you must keep sufficient documentation proving that the customer is located outside the EU, including:
- Customer billing address outside the EU
- IP address location (if available)
- Payment and billing data
- Contracts or written agreements confirming location
Proper documentation is essential in case of audits or tax authority reviews.
Local Tax Obligations by Country / Region
| Country | VAT Status (Non-EU) | Local VAT/GST Registration Required? | Examples |
|---|---|---|---|
| USA | Outside EU VAT scope | No, usually not required in most states | Sales from Bulgaria to US clients |
| United Kingdom | Outside EU VAT scope, UK VAT may apply | Yes, if turnover exceeds £85,000 | Sales to UK consumers |
| Australia | Outside EU VAT scope, Australian GST may apply | Yes, if turnover exceeds AUD 75,000 | Sales to Australian consumers |
| Canada | Outside EU VAT scope, Canadian GST may apply | Yes, if sales exceed CAD 30,000 | Sales to Canadian consumers |
| New Zealand | Outside EU VAT scope, NZ GST may apply | Yes, if turnover exceeds NZD 60,000 | Sales to NZ consumers |
| India | Outside EU VAT scope, Indian GST may apply | Yes, if turnover exceeds INR 2,000,000 | Sales to Indian consumers |
| Japan | Outside EU VAT scope, Japanese Consumption Tax may apply | Yes, if sales exceed JPY 10,000,000 | Sales to Japanese consumers |
| Brazil | Outside EU VAT scope, Brazilian ISS may apply | Yes, if local thresholds are exceeded | Sales to Brazilian consumers |
When selling digital services from Bulgaria to customers outside the EU, Bulgarian VAT is not charged. However, local tax obligations abroad must not be ignored, as many countries are tightening regulations for foreign digital service providers.
T&G Consulting provides additional practical guidance and support on this topic.
This content is for general informational purposes only and does not constitute tax, accounting, or legal advice. Each case should be reviewed individually.