Taxable Profits
Taxable profits are profits you make from:
- Business operations
- Investing
- Chargeable gains
- Financing, leasing, etc.
A Bulgaria-based international business is subject to paying tax on profits both from Bulgaria and abroad. A business with a branch or an office in Bulgaria is subject to paying tax only on profits made from its operations there.
If you want to make sure, that your company is meeting all tax obligations in Bulgaria, get in touch with Leinonen.
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 center 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.
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 is 10% of the salaries, to be paid to the state by the company paying the salary
- Outbound dividends and liquidation quotas paid to legal entities in the European Economic Area are exempt. Those issued to non-EEA entities or to natural persons are subject to a 5% withholding tax
- For dividends issued by local nonprofits or other such associations, the withholding tax is 5%
- The withholding tax to be paid from interests and royalties is 5% for associated entities from the EU
A Double Taxation Agreement (DTA) can be applied if it provides more favorable taxation of incomes acquired from a source in Bulgaria.
Profit that is generated by a permanent establishment in Bulgaria doesn’t have to pay further tax in the 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 endeavors to resolve the case.
Taxable Persons
- Non-resident legal entities are subject to withholding tax, unless dividends are administrated by a permanent establishment of the non-resident legal entity
- Non-commercial legal persons that reside in Bulgaria
- Non-resident legal entities whose receives income from a Bulgarian source, except in case of permanent establishment, royalties and license fees.
- Withholding tax also applies in case of:
- Franchising and factoring
- Income for management services provided to a Bulgarian company
- Rent income
- Capital gains
Non-taxable Persons
- A local legal person participating in the company’s capital as a representative of the State
- A contractual fund
- Legal persons tax resident in an European Economic Area country
Terms of Payment
- Subjects under Article 194 must pay withholding tax on dividends and liquidation quotas:
- in three months from the beginning of a new month after the resolution to distribute assets is made, if the beneficiary resides in a country with a Double Taxation Agreement with Bulgaria (e.g. if decision is made July 10th, due date will be October 31st)
- for other cases, in a month from the beginning of a new month after the decision is made (e.g. if decision is made July 10th, due date will be August 31st)
- Subjects under Article 195 must pay withholding tax on income of a non-resident:
- in three months from the beginning of a new month after the resolution to distribute assets is made, if the beneficiary resides in a country with a Double Taxation Agreement with Bulgaria (e.g. if decision is made July 10th, due date will be October 31st)
- for other cases, in a month from the beginning of a new month after the decision is made (e.g. if decision is made July 10th, due date will be August 31st)
- Withholding tax is paid to the NRA Regional Directorate of the relevant region (where the taxpayer is registered or subject to being registered)
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
Some luxury products and other goods fall under excise tax, which is paid on the import of dutiable products or on the first sale of local products.Custom Duties
International EU customs legislation applies directly in Bulgaria.
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
Important nuances to bear 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
Anyone not falling under the aforementioned categories are considered foreign persons.
TERMS OF PAYMENT
- A tax period is one calendar month, unless otherwise specified
- Tax statements have to be submitted, at the latest, on the 14th day of the month following the tax period relevant to the statement
- If tax is payable, it should be paid to the relevant NRA Regional Directorate within the tax filing term specified above
VAT REGISTRATION
Registration under the Value Added Tax ACT is either mandatory or optional.
VAT Registration is mandatory:
- If the company’s taxable revenue equals or exceeds 50 000 BGN for 12 months straight. Following the end of the 12th tax period when the amount was accrued, registration should take place within 14 days.
- If international sales supplied in Bulgaria exceed 70 000 BGN for the calendar year
- If intra-community acquisitions exceed 20 000 BGN in the current year
- If 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.
