Key challenges for multinational companies in Bulgaria that keep their accounting in global Shared Services Centers

The local accounting requirements and applicable tax regulations create important challenges for subsidiaries of multinational groups in Bulgaria, where the accounting processes are centralized in global Shared Services Centers (SSC).

Specifics of the local legislation

In Bulgaria, the subsidiaries of multinational companies must comply with the local accounting rules and tax regulations.

• The companies should keep records of all business transactions that result in changes in the financial position, financial results, cash flows and equity, in a chronological order.
• The accounting software system used by the companies should meet the requirements of the Bulgarian Accountancy Act.
• The data, records and reports processed by such software system should be in Bulgarian language.
• Accounting documents must be prepared in Bulgarian language and in Bulgarian currency (BGN).

Challenges associated with the globalization of Finance functions

The globalization of the Finance functions of multinational companies has led to the establishment of SSCs in other countries such as Poland, Romania and the Far East. The accounting and financial reporting processes for many of the Bulgarian subsidiaries are centralized in such SSCs that multinational companies operate in other countries.

However, in a number of cases, the accounting systems and processes operated centrally in other countries do not meet the requirements of the Bulgarian legislation. For example, SSCs in other countries usually keep accounts in a foreign language and in a different reporting currency. As we mentioned, the Accountancy Act places the above comprehensive requirements that concern the accounting processes and systems of the Bulgarian companies, and not only on the financial statements. Therefore, it would not be sufficient to periodically translate into Bulgarian only the financial statements or the trial balances of a Bulgarian subsidiary that is served by a SSC in another country.

Potential penalties and other consequences

Non-compliance with the local requirements, which lead to carrying out or allowing the carrying out of bookkeeping which is not compliant with the requirements of the Bulgarian accounting legislation, and this led to the avoidance of establishing or paying tax liabilities in large amounts, may be sanctioned with fines for the company and its legal representatives, as well ascould lead to criminal liability. Large amounts are defined as BGN 3,000, thus the thresholds are quite low. In addition, compliance with local regulations and rules is essential to maintain a good reputation in the market and prevent legal consequences.

How can EY help?

As one of the largest professional accounting services firms in the country, EY has developed solutions for the effective preparation of the Bulgarian bookkeeping of companies based on the accounting records that are maintained by the SSCs. Such an approach involves periodic reconciliations of the company's local and corporate accounting records. In many cases, the bookkeeping service of the Bulgarian company is combined with other services for tax compliance, payroll, statutory reporting to various regulatory authorities. In this way, subsidiaries of multinational groups receive a comprehensive service, as well as the opportunity to promptly monitor changes in the regulations that affect their business in Bulgaria.