Taxation in Bulgaria

What profits go under the company tax?

Taxable profits include the money your company or association makes from:
● Conducting business
● Making investments
● Selling assets for more than they cost (chargeable gains)
● Commercial activity or lease of property, etc.
● If your company is based in Bulgaria, it pays company tax on all its profits from Bulgaria and abroad

If your company isn't based in Bulgaria but has an office or branch there, the company only pays company tax on its profits from its activities in Bulgaria.

Direct and indirect taxes

Bulgaria has two main tax categories – direct and indirect.

Direct taxes are:
● Corporate tax on the annual tax returns
● Income tax on the revenues of individuals
● Withholding tax

Indirect taxes are:
● Value Added Tax
● Excise duties

Personal income tax

Bulgarian tax residents are:
● People who have a permanent address in Bulgaria
● Who reside in Bulgaria for more than 183 days over a 12-month period
● Who are sent abroad by the Bulgarian government, Bulgarian entities, or their families have their centre of vital interests in Bulgaria

Tax rate for Bulgarians is 10% regardless of their income and whether they live and work in Bulgaria or abroad. Self-employment income is also charged with 10% tax. Non-resident individuals are taxed only on their income from sources in Bulgaria. The tax rate is 10%.
Dividends and liquidation quotas paid to resident or non-resident individuals are subject to 5% tax. The final amount is calculated on the gross income.
Sole-traders are subject to a 15% tax on their incomes.
Personal income tax applies to local companies, including unincorporated companies carrying out business activities in Bulgaria. It is administered in respect of their profit and income both in Bulgaria and abroad.
Payment terms
Annual tax return and the payment of the corporate tax after deduction of any advance payments must be done by 31 March of the following calendar year. Fiscal year runs according to the calendar.
The annual tax return is submitted by the taxable person or their authorised representative at the regional directorate of the National Revenue Agency.

Corporate income tax

Bulgarian local companies are taxed on their worldwide income in Bulgaria, whilst non-resident companies are taxed only on income generated within Bulgaria.
Corporate income tax rate is 10% flat rate. Taxable entities are primarily companies incorporated under Bulgarian law and non-resident companies in respect of their income generated from sources in Bulgaria, or income derived through a Bulgarian permanent establishment.
Tax year in Bulgaria corresponds to the calendar year. The corporate tax returns are required by 31 March of the following year of which the tax is due.
Annual corporate tax is deducted in advance installments paid during the year. The amount is determined on the basis of the profit forecast for the current year.
If the net sales stay below BGN 300 000 advance payments are not required. Net sales above that amount require monthly or quarterly tax installments. Newly established companies are not required to pay advance corporate tax installments for the year of incorporation.
Losses can be carried forward consecutively during the next five years.

Tax on corporate expenses

Bulgaria imposes 10% annual tax on corporate entertainment expenses, on the cost of social benefits for employees, maintenance, and running costs of vehicles.
Costs for business trips are tax exempt provided that the corporate outings are connected with the company’s activity, documented and certain thresholds are not exceeded.

Withholding taxes

● The withholding tax in Bulgaria is 10%. It is withheld by the company paying the income and transferred to the state budget
● The withholding tax is 5% on dividends and liquidation quotas distributed by local entities for the benefit of foreign entities and by not-for-profit local entities, including municipalities
● The tax rate on income from interests and royalties is 5% if the income owner is a foreign legal entity from a member state of the European Union, while the local entity payer of the income is a related person to the foreign legal entity – owner of the income

Double Taxation Agreements (DTA) can be applied if it provides more favorable taxation of incomes acquired from source in Bulgaria.

Profit that is generated by a permanent establishment in Bulgaria doesn’t have to pay further tax in a home country in most DTAs. Although, the procedure in most current DTAs does not require the Competent Authorities (CAs) to reach an agreement that eliminates the double taxation but only that they use best endeavours to resolve the case.

Taxable Persons
● Non-resident legal persons (legal entities), except for the cases when dividends are realized by the non-resident legal person by means of a permanent establishment in Bulgaria
● Resident legal persons who are not traders
Dividends and liquidation quotas distributed by resident legal entities to the benefit of foreign legal entities, except cases where the dividends are generated by a foreign legal entity through a permanent establishment in Bulgaria. Also, resident legal entities that are not business entities, including municipalities.

The tax also applies to income of foreign legal entities that is generated by a source in Bulgaria. It must not, though, be created by a permanent establishment such as income from rent or any other movable property for use, royalties and license fees.

Also:
● Considerations under franchise and factoring agreements
● Fees for management or control of a Bulgarian legal entity
● Income from rent or any other provision of real property for use, including any indivisible interest in real property located in the country
● Income from disposal with real property, including indivisible interest or limited rights in rem to real property located in the country

Non-taxable Persons
● A local legal person participating in the company’s capital as a representative of the State
● A contractual fund
● A non-resident legal person that is resident for tax purposes of a Member State of the European Union or a State party to the Agreement on the European Economic Area

The tax is not applied if the dividends and liquidation quotas are distributed to the benefit of a resident legal entity which has an interest in the capital of a company as a representative of the government; contractual fund, and foreign legal entities that are residents for tax purposes of EU Member States or other countries which are parties to the EEA Agreement, except cases of hidden distribution of profit.

Payment terms
● Payers of income that deduct withholding tax under Article194 (dividends and liquidation quotas) must pay the due taxes as follows:

○ within three months from the beginning of the month following the month in which the   decision for distribution of dividends or liquidation quotas is taken: in the cases where    the beneficiary of the income is a resident of a country with which Bulgaria has concluded a double taxation convention and the convention is in force
○ by the end of the month following the month in which the decision for distribution of     dividends or liquidation quotas is taken: in all other cases

● Payers of income who deduct withholding tax under Article195 (income of foreign persons) must pay the due taxes as follows:

○ within three months from the beginning of the month following the month of calculation of the income: in the cases where the beneficiary of the income is a resident of a country with which Bulgaria has concluded a double taxation convention and the convention is in force;
○ by the end of the month following the month of calculation of the income: in all other cases.

● The tax shall be paid to the relevant regional directorate of the National Revenue Agency
according to the place of registration or where the payer of the income is subject to registration.

Transfer Pricing

Transfer pricing rules apply and are applicable to all transactions between related parties.

Guidelines recommend preparing and maintaining all relevant transfer pricing documentation. Taxpayers must prove that their transactions are negotiated according to arm’s length prices.

If tax officials conclude that prices are not at arm’s length they may recalculate profits and impose additional levies.

Indirect Taxes

Excise duties

The following groups are subject to excise duties:
● Alcohol beverages
● Tobacco products
● Energy products and electricity

Certain luxury products, as well as certain other goods listed by the law are subject to excise duties. Excise duties are payable as one-time consumption tax on the import of dutiable products in Bulgaria, or on the first sale of locally manufactured products in Bulgaria by their manufacturer.

Custom Duties
Bulgaria is applying the International EU customs legislation directly.

Value Added Tax (VAT)

VAT legislation in Bulgaria is generally the same as the EU VAT legislation. VAT applies to all goods or services executed in either Bulgaria or any other EU member state.

VAT rates are as follows:
● 20% on all goods or services
● 9% on hotel accommodation
● 0% on intra-community and international transport

Couple of important nuances to bare in mind:
● The export outside the EU is zero-rated, while the import is subject to Bulgarian VAT and is payable by the importer
● VAT intra-community acquisitions are subject to VAT reverse charge by the Bulgarian recipient under certain conditions: when the supplier is established in another EU member state and is not VAT-registered in Bulgaria. Also, when the recipient is identified for VAT in Bulgaria
● Buying a new vehicle from another EU country is a intra-community transaction
● Reverse charge is also applied when Bulgarian recipient receives services from foreign providers. The tax is payable by the recipient when the provider is a non-resident tax person and the delivery is taxable

Taxable person
All residents, i.e., foreigners residing in Bulgaria. For residents tax liability means income generated from sources in Bulgaria and abroad. Foreigners tax liability applies for income generated from sources only 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 has been sent abroad by the Bulgarian government, by state authorities and/or organizations, by Bulgarian enterprises, and the family members
● Whose centre of vital interests is situated in Bulgaria

Foreign natural persons are everyone else not covered by the info above.

Payment terms

● The tax statement must be filed by the 14th day of the month following the relevant tax period
● If applicable, the tax must be paid to the competent regional directorate of the National Revenue Agency within that tax period
● The tax period is one month for all registered persons and usually coincides with the calendar month

VAT Registration

Registration under the Value Added Tax ACT is either mandatory or optional.

VAT Registration is mandatory:
● When taxable turnover is 50 000 BGN or more for the last 12 consecutive months. In this case an application for registration under the Law on Value Added Tax must be filed within 14 days after the end of the tax period
● When international sales supplied in Bulgaria exceed 70 000 BGN for the calendar year
● When intra-community acquisitions exceed 20 000 BGN in the current year
● When an EU taxable person sells goods with installation agreement in Bulgaria (unless the goods are supplied to a VAT-registered person)
Please note that the registration procedure takes 14 days after the application is submitted. It must state the grounds for registration and be submitted together with information about the monthly taxable turnover for the 12 consecutive months.

VAT Exemptions

The list of exemptions is the same as in the EU directives.
Here are a couple of examples:
● Transactions involving (parts of) “old” buildings and adjacent land or non-regulated land, rental for residential purposes to individuals
● Financial and insurance services
● Gambling
● Non-profit activities of eligible institutions
● Certain services related to health, education, religion, culture, etc.
● Supply of goods for which VAT tax credit has not been used because of legislative provisions
For investment projects related to importing machines and equipment which cost more than 5 000 000 EUR, Bulgaria offers a two-year VAT exemption for the imported equipment.

Special regimes for VAT registrations:

● When unregistered company provides or purchases services from another EU member state the application must be submitted 7 days before the service is rendered or received
● MOSS: subject to special VAT registration shall be every taxable person, who is not based in the country and provides telecommunication services, services for radio- and television broadcasting, or services provided electronically to recipients who are non-liable tax persons residing in Bulgaria, except for having such registration in another EU country

VAT registration of non-resident persons

Non-resident person who is not established in Bulgaria but sells taxable supplies within the territory of the country. There is an exception though – it doesn’t apply to supplies requiring self-taxation.

VAT reporting

All companies registered for VAT should declare and pay their VAT monthly by the 14th of the following month.

All sales invoices (including overseas) and credit notes received within the current month must be included. Purchase invoices may be included within the next 12 months.

VAT refund

The tax authorities are required to refund recoverable VAT within four months (three months for offsetting and 30 days for effective refunding) after the declaration is submitted. A shorter procedure of VAT reimbursement is provided for intra-community dispatch 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 VIES /VAT Information Exchange System/ declarations.

NB! Serious penalties apply when violating the VAT Act.

Double taxation

The double tax measure offers tax relief for companies operating in multiple countries. Bulgaria has established double tax agreements with more than 65 countries, including all major economies around the world in order to avoid double taxation.

For example, this applies to foreign investors who derive income from two different jurisdictions. Along with the double tax treaties, Bulgaria also signed several exchange of information protocols to have a clear image of the legal entities requesting double taxation relief.

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.