Corporate Tax in Bulgaria
Corporate Tax in BulgariaUpdated on Thursday 05th January 2023
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According to the Bulgarian law, Bulgarian entities are allowed to be acquired by foreign shareholders, even in commercial activities such as real estate. However, they are subject to a 10 percent corporate tax.
The corporate tax in Bulgaria is applied based on the profit of the company and the after-tax profit is allowed to be distributed as a dividend or it can be kept within the company.
Below, our lawyers in Bulgaria offer detailed information on the corporate tax levied here. You can also rely on us for assistance in registering a business and find out more about the Bulgaria corporate tax rate.
Determining tax residency for companies in Bulgaria
The main important aspect to consider when it comes to the Bulgaria corporate tax is that its levy is based on the residency of the business to be taxed, just like in the case of individuals. A company is subject to the corporate tax on its worldwide profits if it is incorporated in Bulgaria (it has a legal seat) or if it has a management place here.
Our law firm in Bulgaria can guide foreign investors who want to register companies here with the purpose of being applied one of the lowest corporate taxes in the European Union. Out of all the EU members, Bulgaria has the lowest rates of corporate and personal income tax. The company tax is a flat rate of 10%. Whatever the individual's income, the personal income tax rate is simply 10%. In the entire European Union, the health and pension contributions are the lowest. 68 nations worldwide have double taxation agreements with Bulgaria. If you are interested in immigration to Bulgaria, this information may be very useful in the future.
You can read about the corporate tax in Bulgaria in the infographic below:
How is the Bulgaria corporate tax imposed?
Companies registered in Bulgaria or foreign legal entities trading in Bulgaria through a branch are subject to a 10 percent corporate tax. If a company is not registered in Bulgaria and does not perform trading activities in this country through a branch, but it gains income from sources in Bulgaria, it is required to pay only a tax based on the respective revenue.
The corporate tax must also be paid by legal entities that are not having trading activities, but generate profits on transactions or on rental of movable of immovable property. They are subject to Article 1 of the Bulgarian Trade Act.
Bulgarian legal entities that conduct commercial activities, Bulgarian non-legal entities that generate profits on transactions governed by Article 1 of the Trade Act, as well as unincorporated companies in Bulgaria. Furthermore, the corporate tax also applies to foreign entities that make trading activities using a branch and foreign unincorporated entities that also have trading activities through a branch.
What companies pay other tax rates instead of a corporate tax?
A 3% tax rate applies to state budget-funded entities, such as departments and a 2% tax rate applies for municipal authorities. Companies that activate in the gambling activity pay a gambling tax calculated on the number of bets placed or on the number of machines operated. In this case the rate is 15%. A 10% tax on vessel operation is applied to merchants shipping operations based on the net vessel tonnage and foreign legal entities and unincorporated companies are subject to a 10 percent tax.
The Bulgaria corporate tax rate
Bulgarian and foreign companies are subject to the corporate tax, which is levied at flat rate, however, certain exceptions apply in some cases.
Here are the main aspects to consider about the Bulgaria corporate tax:
- the standard rate is 10% and it is imposed to the majority of businesses operating here;
- branch offices of foreign companies are imposed with a branch remittance tax imposed at rate of 10%;
- companies must also pay a capital gains tax on the sale of various assets, such as real estate or shares and can be taxed at a rate of 10% or 0% depending on several factors;
- an alternative tax is imposed on gambling companies – its rate is 15%;
- a tonnage tax of 10% is imposed on maritime companies for commercial activities.
Compared to other European countries, Bulgarian companies are imposed with other regional or municipal taxes or surcharges.
Income determination for the corporate tax in Bulgaria
The terms worldwide profits imply several types of incomes, Bulgarian companies can obtain which is why upon the appliance of the corporate tax there are several aspects to consider. The taxable income is calculated after companies file their annual tax returns and it is based on the statutory accounting principles that take into account the profits and losses of businesses adjusted to tax purposes.
Bulgarian companies can have their annual tax returns filed in accordance with the National or International Financial Reporting Standards (IFRS). However, IFRS is a mandatory requirement in the case of financial companies, such as insurance brokers and banking institutions operating in Bulgaria.
The Bulgaria corporate tax is imposed on the following types of income:
- business profits;
- dividend payments;
- capital gains;
- real estate property ownership and transfer of ownership;
- interest income;
- royalties income;
- foreign-sourced income.
It is important to know that in the case of both domestic and foreign companies, double tax treaty provisions can lead to a significant decrease of the tax rates applied on certain incomes. In other situations, incomes can be exempt from taxation or benefit from tax deductions. Bulgaria has a vast network of agreements for the avoidance of double taxation, each covering specific taxes.
If you need information on the tax legislation applicable in this country, our Bulgarian lawyers are at your service with detailed and updated information on the most recent changes.
Corporate tax compliance in Bulgaria
As mentioned above, under the Bulgaria corporate tax, domestic and foreign companies with activities here are required to file their annual returns with the local tax authorities which fall under the Administration of the Bulgarian Ministry of Finance.
The corporate tax is calculated in accordance with a company’s financial year, which in the case of most businesses is the same as the local year. Exceptions apply in the case of newly incorporated companies which benefit from special tax filing regulations.
It is worth knowing that each company needs to file its own return, as Bulgaria does not accept consolidated tax returns which is usually the case of holding companies (Bulgaria has no holding company regime).
Tax returns must be filed by the end of March of the following year for the current one. The payment of the corporate tax must also be made in the same period. Advance payments are also available and can be made on a monthly or quarterly basis. In case of payment failure, late payment interests and administrative fines apply.
If you have any questions about the Bulgaria corporate tax rate, our lawyers can clarify all aspects related to it. You can also rely on us for information on how to obtain various tax benefits under national programs and various grants provided by the government.
VAT in Bulgaria
The value added tax (VAT) applied in Bulgaria on any paid goods or services provided, as well as on intra-community acquisitions of new vehicles, excise goods or imports of goods. The applied tax rate is 20%, but hotel services benefit from a reduced rate of 9%. Activities such as exports, legal advice or incomes from financial services like insurance or banking services are exempt from VAT.
Registration for VAT is mandatory for each business that has a turnover of more than 50,000 BGL in the previous year and a bank account must be opened in order to pay the VAT.
Are you interested in opening a company in Bulgaria? Contact our Bulgarian lawyers and they will provide you all the information and they will help you through the entire process.