An in-depth view of Taxation in Bulgaria
Taxes can be complicated, but it’s one of those matters that can make or break our business decisions. in this article, we try to shed light on the complete taxation system in Bulgaria. Let’s start with some of the basics
Income taxable
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- Business operations
- Investment
- Accrued profit
- Financing, leasing, etc.
If you own an international business, you will pay income tax both in Bulgaria and abroad.
If you have a branch or office in Bulgaria, then only the income received in Bulgaria is subject to taxation.
Direct and indirect taxes
In Bulgaria, taxes are divided into two categories.
Direct taxes are:
- Corporate tax in the annual tax return
- Personal income tax
- Withholding tax
Indirect taxes are:
- VAT
- Excise duty
Income tax
Income tax is paid by tax residents, it is:
- People who have a living address in Bulgaria;
- Who lives in Bulgaria for more than 183 days in 12 months
- Those who are sent abroad by the Bulgarian government, Bulgarian organizations, or their families have a center of vital interests in Bulgaria.
The tax rate is 10% regardless of where Bulgarian citizens live (in the country or abroad), as much as income from self-employment.
Non-resident individuals pay tax only on income received in Bulgaria, the rate of which is also 10%.
Dividends and liquidation quotas are subject to 5% tax regardless of residence, and the final amount is calculated on the basis of gross income.
For individual entrepreneurs, the tax rate is 15% of their income.
The personal income tax is also applicable to local companies, even those that are not registered as legal entities but operate in Bulgaria.
The tax is applied to income received both in the country and abroad.
Corporate tax
In Bulgaria, local companies pay taxes on their international income, while non-resident companies pay only profits earned in Bulgaria.
The tax rate is 10%, primarily for taxable entities that are companies registered in accordance with Bulgarian law, as well as non-resident companies.
The tax year in Bulgaria is equal to a calendar year, and corporate returns are submitted by March 31 of the year following the year in which the tax is paid.
The annual corporate tax is paid in parts (advances) during the year, and the amount of tax is calculated based on the profit forecast for the year.
If the net sales are below 300,000 levs, no advance payments are required. If sales exceed 300,000 levs, monthly or quarterly tax payments are required. New (newly created) enterprises are not guilty of paying advance payments during the year in which they registered.
Losses can be transferred for 5 years in a row.
Learn more about the ins and outs of setting up your business in Bulgaria
Tax on corporate expenses
Annual tax in Bulgaria on corporate entertainment expenses, the cost of social benefits for employees, etc. is 10%, but travel expenses are not taxed, provided that corporate trips are related to the company’s activities, provided that this is documented.
Withholding Tax
- The 10% of the salary paid by the company for the employee to the state. Outstanding dividends and liquidation quotas paid to legal entities in the European Economic Area are not taxed. Those organizations or individuals who are not members of the EEA pay a tax of 5%.
- Dividends issued by local non-profit or other similar associations are taxed at 5%.
- Interest and royalties are taxed at 5% for EU associates.
The Double Taxation Agreement (DTA) can be applied if it provides for more preferential taxation of income derived from a source in Bulgaria.
Income derived from a permanent establishment in Bulgaria is not subject to additional tax in the country of origin of most double taxation agreements.
Withholding Tax
- Non-resident legal entities are taxed at source, except in cases when dividends are administered by a permanent establishment of a non-resident legal entity
- Non-profit legal entities located in Bulgaria
- Non-resident legal entities that receive income from a Bulgarian source, except in cases of permanent representation, royalties and license fees
The withholding tax also applies in the case of:
- Franchising and factoring
- Revenue from management services provided by the Bulgarian company
- Rental income
- Capital increase
Non-taxable persons
- A local legal entity that participates in the company’s capital as a representative of the state;
- Contract fund;
- Legal entities that are tax residents of the European Economic Area.
Payment terms
Article 194 An entity pays withholding tax in proportion to dividends and liquidation:
- If the beneficiary resides in a country with which Bulgaria has concluded a double taxation treaty, three months after the start of the month following the distribution decision;
- In other cases - within one month of the start of the new month following the decision.
Section 195 entities must be taxed on non-resident sources of income:
- If the beneficiary resides in a country with which Bulgaria has concluded a double taxation treaty, three months after the start of the month following the distribution decision;
- In other cases - within one month of the start of the new month following the decision.
Remit the withholding tax to the NRA regional office in the relevant region (taxpayer registration or registration required)
Transfer Pricing
Transfer pricing rules apply to all transactions with related parties.
The guidance recommends creating and maintaining all relevant transfer pricing documentation. Taxpayers must prove that their contracts were entered into at market prices.
If the tax authorities decide the price is unfair, they can withdraw the profits and impose additional fees.
Indirect tax
Excise duties
The following product groups are subject to GST:
- Alcohol
- Tobacco products
- Energy Products and Electricity
Some luxury goods and other goods are subject to excise duty, which is paid when importing taxable goods or on the first sale of local goods.
Customs duties
The EU’s international customs laws apply directly to Bulgaria.
Value Added Tax (VAT)
The VAT legislation in Bulgaria is basically the same as the EU VAT legislation. VAT applies to any goods or services produced in Bulgaria or any other EU member state. VAT rates are as follows:
- 20% on all goods and services;
- 9% for hotel accommodation;
- 0% for domestic and international transportation.
Important nuances to keep in mind:
- Exports outside the EU are taxed at a zero rate, while imports are subject to Bulgarian VAT and paid by the importer.
- The purchase of VAT in the Community is subject to VAT reimbursement by the Bulgarian recipient under certain conditions: when the supplier is established in another EU Member State and is not registered in Bulgaria as a VAT payer. Also when the recipient is identified to pay VAT in Bulgaria
- Buying a new vehicle from another EU country is an intra-community agreement.
- The refund is also applied when the Bulgarian recipient receives services from foreign suppliers. If the supplier is a non-resident taxpayer and the supply is taxable, the tax is borne by the recipient.
Taxable person
All residents, including foreigners living in Bulgaria. For residents, tax liabilities mean income received from sources in Bulgaria and abroad. Foreigners’ tax liabilities are deprived of income from sources in Bulgaria.
A resident is a person:
- Who has a permanent address in Bulgaria.
- Who stays in Bulgaria for more than 183 days in any 12-month period.
- Who was sent abroad by the Bulgarian government, government agencies and / or organizations, Bulgarian companies, and family members
- Center of vital interests located in Bulgaria.
Foreigners are considered not to fall into the above categories.
Terms of payment
- The tax period is one calendar month unless otherwise specified.
- Tax returns must be submitted no later than the 14th day of the month following the tax period for which the report relates.
- If the tax is payable, it must be paid to the relevant regional office of the NRV within the above deadline for filing the tax return.
Value Added Tax (VAT)
Registration under the Value Added Tax Act is mandatory or optional.
VAT registration is required:
- If the company’s taxable profit is equal to or exceeds BGN 50,000 for 12 consecutive months. Registration must be completed within 14 days of the end of the 12th tax period for the accrued amount.
- When Bulgaria’s international supply exceeds 70,000 BGN per calendar year.
- If the acquisition within the community exceeds BGN 20,000. this year
- If the EU taxpayer sells goods with an establishment agreement in Bulgaria (if the goods are not supplied to a person registered for VAT)
Please note that the registration procedure takes 14 days after submitting the application. It must state the grounds for registration and must be submitted together with information on the monthly tax turnover for 12 consecutive months.
Exemption from VAT
The list of exceptions is the same as in EU directives.
Examples:
- Agreements with “old” houses (parts) and adjacent land plots or lands of unregulated law, renting out for residence to individuals;
- Financial and insurance services;
- Gambling;
- Non-profit activities of relevant organizations;
- Certain services related to health care, education, etc.
Supply of goods for which the VAT tax credit has not been used due to legal provisions.
For investment projects related to the import of machinery and equipment worth more than 5,000,000 euros, Bulgaria offers a two-year VAT exemption on imported equipment.
Special VAT registration regimes:
- If an unregistered company provides or buys services in another EU Member State, the application must be submitted 7 days before the service is provided or received.
- MOSS: every non-resident taxable person providing telecommunications, radio, and television services or electronic services to recipients who are not taxpayers residing in Bulgaria, subject to special VAT registration, is subject to a special VAT registration in another EU country.
VAT registration of non-residents
A non-resident who is not registered in Bulgaria but sells taxable goods in the country. However, there is an exception – it does not apply to supplies that require self-taxation.
VAT reporting
All companies registered as VAT payers must declare and pay VAT monthly by the 14th of the following month.
All invoices (including abroad) and credit notes received during the current month must be included. Invoices for purchase may be included within the next 12 months.
VAT refund
The tax authorities are obliged to reimburse VAT before reimbursement within four months (three months for offsetting and 30 days for actual reimbursement) after filing the return. A shorter VAT refund procedure is provided for the intra-Union shipment and supply of goods.
Intra-Community supplies of goods and services to recipients registered for VAT purposes in other EU Member States should be included in the VIES / VAT Information Exchange System / Declaration.
Pay attention! Serious fines are applied in case of violation of the Law on VAT.
Avoidance of double taxation
This government agreement offers tax benefits for companies operating in several countries. Bulgaria has concluded double taxation agreements with more than 65 countries, including all major economies in the world, to avoid double taxation.
For example, this applies to foreign investors who receive income from two different jurisdictions. In addition to double taxation agreements, Bulgaria has also signed several protocols on the exchange of information to gain a clear picture of legal entities that require double taxation exemptions.
Countries that have double taxation treaties with Bulgaria:
Albania, Algeria, Armenia, Austria, Azerbaijan, Bahrain, Belarus, Belgium, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Democratic People’s Republic of Korea, the Republic of Korea, Kuwait, Latvia, Lebanon, Lithuania, Luxembourg, Macedonia, Malta, Morocco, Qatar, Moldova, Mongolia, Netherlands, Norway, Poland, Portugal, Romania, Russian Federation, Spain, Singapore, Slovakia, Slovenia, South Africa, Sweden, Switzerland, Syria, Thailand, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States of America, Uzbekistan, Vietnam, Yugoslavia, Zimbabwe.
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