Taxable profits are profits you make from:
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.
Bulgaria has two main tax categories – direct and indirect.
Direct taxes are:
Indirect taxes are:
Bulgarian tax residents are:
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.
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.
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.
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.
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.
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.
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:
Important nuances to bear in mind:
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:
Anyone not falling under the aforementioned categories are considered foreign persons.
Registration under the Value Added Tax ACT is either mandatory or optional.
VAT Registration is mandatory:
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.
The list of exemptions is the same as in the EU directives.
Here are a couple of examples:
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.
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.
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.
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.
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.
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