Accounting for Advertising Expenses from Facebook and Instagram

Accounting for advertising expenses on social networks like Facebook, Instagram, Google, and other similar platforms is an almost inevitable aspect of any business that aims to achieve high search engine rankings and gain public visibility and recognition from its targeted audience. In accordance with Bulgarian legislation, these expenses must be properly documented and accounted for to ensure accurate bookkeeping and compliance with tax requirements, particularly under the Value Added Tax Act (VAT Act).

Key Steps in Accounting for Advertising Expenses

1. Obtaining an Invoice:

To recognize advertising expenses as tax-deductible, it is necessary to have a correctly issued invoice from the service provider. The invoices must contain all mandatory details, including the name and address of the provider, VAT identification number, description of the service, date of issuance, and the amount of the expense. For EU providers, you must ensure that their VAT number is valid.

2. Currency and Conversion Rate:

Since advertising expenses are often in foreign currency, it is important to convert them into Bulgarian levs (BGN) using the official exchange rate of the Bulgarian National Bank (BNB) on the date of the invoice. This ensures that the expenses are accurately recorded in the local currency.

3. Self-Assessment of VAT:

According to the VAT Act, when you receive services from foreign providers like Facebook or Google, you must self-assess VAT. This is done by issuing a protocol under Article 117 of the VAT Act. This protocol specifies the value of the service and the amount of VAT due. Depending on your VAT registration type, the protocol may be recorded in both the purchases and sales journals. It is crucial to note that if you are not VAT-registered but receive services from foreign providers, you are required to register for VAT under Article 97a of the VAT Act, seven days before receiving the service.

4. Recording in Accounting Registers:

Advertising expenses must be recorded in the company’s accounting registers as current advertising expenses. The accounting accounts typically used for this purpose include “Advertising Expenses” and “Suppliers.”

VAT Credit

If your company is VAT-registered, you are entitled to a VAT credit for the self-assessed VAT on the received services, provided that the services are related to the company’s taxable activities. To exercise this right, it is necessary:

– The invoices must be correctly issued and contain all required details.

– The protocols under Article 117 of the VAT Act must be correctly prepared and recorded in the purchase and sales journals.

Documentation and Storage

All documents related to advertising expenses must be stored in accordance with the requirements of the Accounting Act. This includes invoices, protocols under Article 117 of the VAT Act, payment orders, and other related documents. These documents must be stored for at least 10 years.

Practical Tips

• Expense Control: Regularly review your invoices and advertising expenses to ensure there are no errors or unjustified costs.
• Electronic Documents: Store electronic invoices in a reliable document management system to ensure easy access and information security.
• Consultation with Specialists: If you have any questions or uncertainties regarding the accounting of advertising expenses, consult a qualified accountant or tax consultant.

Conclusion

Accounting for advertising expenses from Facebook, Instagram, and Google in Bulgaria requires careful adherence to local legal and tax requirements, particularly those under the VAT Act. Proper documentation and accounting of these expenses not only ensure legal compliance but also support the effective financial management of the company.