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Taxation in Bulgaria

Taxation in Bulgaria

Updated on Monday 24th August 2020

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Any company or partnership incorporated in Bulgaria, as well as permanent establishments of foreign legal entities, are subject to taxation in Bulgaria. Bulgarian residents and Bulgarian resident companies are taxed on their worldwide income, while non-residents and non-resident legal entities are only taxed on their Bulgarian source income.
 
Business owners who want to open a company in Bulgaria should know that all of the main business entities are subject to taxation in Bulgaria and filing requirements.
 
Some of the most important types of companies subject to taxation in Bulgaria are:
 
  • the joint stock company,
  • limited liability company,
  • sole trader,
  • branch of a foreign company.
 
Our Bulgarian lawyers can help you choose the right type of company for your business.
 

The main taxes to be paid in Bulgaria

 
The Bulgarian taxation system is made of direct and indirect levies, just like in other European countries, thus making it easy for those who establish themselves here for business or employment reasons to get acquainted quite easy with the taxes they need to pay.
 
The most important taxes to pay in Bulgaria are the following:
 
  1. the income tax which is levied on the personal income of individuals and profits of companies;
  2. the value added tax (VAT) which is the most important indirect tax in Bulgaria;
  3. withholding taxes which are applied to dividends, interest and royalties payments;
  4. the capital gains tax which is levied on various incomes obtained in Bulgaria
  5. the real estate tax which applies on properties based on their value;
  6. the inheritance and gift taxes which are applied to Bulgarian residents.
 
It should be noted that taxation in Bulgaria is applied based on the residency status of the payers. Our law firm in Bulgaria can assist foreign citizens and investors who want to apply for residency here.
 
We have also created an infographic in order to present the main taxes in Bulgaria:
 
Main Taxes in Bulgaria

 

Tax residency in Bulgaria

 
As mentioned above, taxation in Bulgaria is determined based on the status of a resident or non-resident of a payer. The same principle applies to natural persons and companies, however, it should be noted that the establishment of the tax resident status is different.
 
For a person to be deemed as a resident of Bulgaria for taxation reasons, one or more of the following conditions must be met:
 
  • if the person has a permanent address in Bulgaria, he or she will automatically be considered a resident;
  • if the citizen spends at least 183 days in Bulgaria during an entire calendar year, he or she be taxed as a resident;
  • if the person has been relocated to work in a Bulgarian company, he or she will be considered a tax resident here for the respective period;
  • if the person has his or her center of vital interests in Bulgaria, he or she will be considered a tax resident.
 
In the case of companies, tax residency is easier to establish. A company that has a management place or legal seat in Bulgaria is a resident or domestic business.
 
Based on the tax residency status, the following situations can be encountered:
 
  • tax residents are imposed with the relevant taxes on their worldwide incomes;
  • non-residents will be taxed on the income obtained in Bulgaria.
 
In order to correctly assess the tax situation of foreign citizens and companies, Bulgaria has a well-established mechanism for the avoidance of double taxation with numerous countries around the world.
 
If you need information on the legislation applicable to the taxation of residents and non-residents, our Bulgarian lawyers can provide you with the necessary details.
 

Corporate taxation in Bulgaria

 
The standard corporate tax rate in Bulgaria is 10%. There are no applicable surtaxes or alternative minimum taxes. Certain incentives are available for investments in various economic areas and EU grants are also available in Bulgaria.
 
In Bulgaria, the tax year is the same as the calendar year. According to law, the annual corporate tax must be paid until 31 March, the following year. Quarterly or monthly advance instalments must be paid during the year. The annual corporate tax return also has to be filled until this date.
 
Dividends in Bulgaria are subject to a 5% withholding tax if they are distributed to individuals, Bulgarian non-profit companies and non-resident companies (except for EU/EEA companies). Royalties paid to non-resident companies are subject to a 10% withholding tax, if no double tax treaties apply. Technical service fees are also subject to a 10% withholding tax when paid to a non-resident company.
 
Companies in Bulgaria also need to make contributions to the social security and they are subject to other taxes, such as the real property tax or the transfer tax.
 
More than 60 double tax treaties were signed with other countries by the Bulgarian government over the years in order to attract foreign investment. Another advantage of these treaties is that the corporate tax is exempt and paid only in the country of origin or credited, this meaning that the corporate tax is paid in Bulgaria but the company will receive that amount as credit in your country of origin.
 
Bulgaria has a broad tax treaties network, under which relief from double taxation on different types of income and capital in Bulgaria could be sought by foreign investors. Austria and Bulgaria first entered into a double tax treaty in 1984.  The treaty was later revised following OECD model and a new treaty came into force at February 3, 2011. 
 
For example, according to the Austria-Bulgaria double tax treaty, double taxation may be avoided as it follows:
 
  • in Austria for: income tax, corporate tax, land tax, tax on agricultural and forestry enterprises and tax on the value of vacant plots;
  • in Bulgaria: for personal income tax, corporate income tax, final tax (tax levied on specifically listed income accrued or paid in favor of foreign persons from sources in Bulgaria, but has not been realized through a fixed base in the country) and real property tax.
 
Our Bulgarian lawyers offer a wide range of legal services to foreign investors and are able to guide you through different international tax treaties for avoidance of double taxation and taxation in Bulgaria issues that may appear.
 

Exemption or reduction of withholding tax in Bulgaria
 

Dividends payable to a nonresident by a Bulgarian company are subject to withholding tax of 5%.  A 10% withholding tax may be levied on interest, royalties and technical service fees (i.e. fees for the assembly of fixed assets, services of a consultancy nature and marketing research) earned by a nonresident in Bulgaria. Under the Bulgaria-Canada double tax treaty, a different degree of reduction and exemption in withholding tax is available to a Canadian company. Our Bulgarian lawyers specialize in taxation law and are ready to advise you on any enquiries on tax exemption under the treaty.

Under Bulgarian law, capital gains are included in taxable income and taxed at a corporate income tax rate of 10%. According to the treaty, a nonresident is subject to a full withholding tax of 10% on capital gains from the sale of shares in companies, the main assets of which are in real estate situated in Bulgaria through direct or indirect holding. However, gains on the disposal of shares listed on the Bulgarian and EU stock exchanges are exempt.
 

Personal taxation in Bulgaria

 
Individuals are considered Bulgarian residents if they have a permanent address in Bulgaria, they spend more than 183 days per year in the country or if their centre of vital interest is located in Bulgaria. By contrast, individuals can have a permanent address in Bulgaria and not have their main place or business in the country, therefore they are not taxed.
 
Married couples in Bulgaria cannot file their return jointly; each individual must file its own return. The taxable income for individuals in Bulgaria includes income from employment, income from business of professional activities, capital gains or income from rent etc. The standard tax rate is 10% and an 8% tax applies for interest from bank deposits.
 
The value added tax (VAT) applies for all goods sold in Bulgaria. The standard VAT rate is 20% and reduced rates apply to special services. Our Bulgarian lawyers can help you register for VAT in Bulgaria if it is required by law.
 
Our law firm in Bulgaria can offer you complete legal services and information about taxation in Bulgaria. Please feel free to contact us if you want to invest in Bulgaria.  
 

Tax rates applicable in Bulgaria

 
The standard income tax is levied at 10%. This rate is applied to both companies and individuals and is one of the lowest in Europe and the European Union. However, there are case in which it can differ.
 
Here are the main rates when it comes to taxation in Bulgaria:
 
  • sole traders are imposed with a tax rate of 15% on their net incomes, therefore they are taxed differently than companies;
  • the real estate tax is levied at rates between 0.15% to 0.30%, as commercial and residential properties are taxed differently;
  • the value added tax has a standard rate of 20%, however, a reduced rate of 7% is levied on certain categories of goods;
  • inheritances and gifts are taxed at rates ranging between 0,4% and 6,6% and only on income surpassing 25,000 BGN or approx. 128,000 euros.
 
Other taxes that need to be considered are the contributions as employers and employees. These are calculated on work-related income only and the rates applied are 13% per year in the case of employees and between 17.3% and 22.3% for employers.
 
Depending on the type of tax to pay, the Bulgarian Ministry for Finance has established different filing dates.
 

Tax filing requirements in Bulgaria

 
In order to pay taxes in Bulgaria, natural persons and companies must file their tax returns in order to have the amounts to be paid calculated. The dates vary on the type of income earned.
 
The tax year in Bulgaria is the same as the calendar year for both natural persons and companies, and returns must be filed by the 30th of April for the past year. There are also situations in which quarterly tax returns must be filed, this is usually the case of VAT payers who can also claim tax refunds for the amounts paid. Other tax incentives are also available for companies and individuals in Bulgaria.
 
Our lawyers in Bulgaria can assist local and foreign investors who open companies here with the registration for taxation and VAT purposes. so do not hesitate to contact us.
 
If ever in need of qualified legal consultancy in other European countries, clients are always welcomed to seek the help of our attorney partners in Cyprus or law firm in Switzerland