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What Is Depreciation?
This is the gradual reduction in the value of a fixed asset over time. It reflects wear and tear, usage, or becoming outdated.
When your business buys an asset like a machine, a vehicle, or office furniture, you don’t expense the full cost in the year you buy it. Instead, you spread the cost over the asset’s useful life. This helps show a more accurate financial picture and matches the expense with the income the asset helps you generate.
Why Depreciation Matters
Depreciation is important for two reasons: accounting and taxes.
- Accounting: Ensures your financial statements reflect actual value and aren’t overstated.
- Tax: Depreciation is a deductible expense that reduces your company’s taxable profit.
In Bulgaria, depreciation is governed by both accounting standards and tax legislation, so accuracy is essential.
Depreciation Method in Bulgaria
The most common method in Bulgaria is the straight-line method, which deducts the same amount each year over the asset’s useful life.
Here are common maximum depreciation rates:
- Company vehicles: 25% annually over 4 years
- Computers and software: 50% over 2 years
- Office furniture: 25% over 4 years
- Machinery: 10%–30% over 3–10 years
- Buildings: 4% annually (over 25+ years)
These rates are mandatory for tax reporting purposes.
Example: Depreciating a Car
If your company buys a vehicle for 40,000 BGN, you can depreciate 10,000 BGN per year at the 25% rate. This amount is recorded as an expense and lowers your taxable profit accordingly.
How to Handle Depreciation Properly
- Maintain a fixed asset register – include purchase date, cost, and type.
- Apply the correct depreciation rate per Bulgarian tax laws.
- Record depreciation monthly or annually in your accounting system.
- Track accounting vs. tax depreciation separately for reconciliation at year-end.
Additional Tip: Asset Revaluation
- In some cases, especially with real estate or machinery, it may be appropriate to revalue assets to reflect current market value. This is particularly useful for improving your balance sheet or securing financing.
- In Bulgaria, revaluation must follow IAS 16 and be supported by an independent expert appraisal. Revalued amounts affect the asset’s book value and must be recorded carefully to comply with both accounting and tax regulations.
- If your company plans major investments or needs to align asset values with real market trends, consider whether revaluation alongside depreciation is right for you.
- This is more than just a compliance step — it’s a tool for smart financial planning. Done correctly, it reduces tax burden, provides financial clarity, and supports business decisions.
If you want peace of mind that your company is handling asset depreciation in Bulgaria the right way, contact us at ASB Accounting Services Bulgaria. We’ll ensure your business stays compliant and optimized for success.