Bulgaria is a famous business destination and one of the reasons for this is the lowest tax rates in Europe that the country has to offer to businessmen and investors. Having the lowest tax regime in the European Union Bulgaria has become a point of attraction and highly preferred destination for companies looking to relieve their tax burden.
Tax Residency
A person is liable for taxes in Bulgaria if they fulfill one or more of the following criteria:
• have a permanent address in Bulgaria
• spend more than 183 days in Bulgaria within any 365 day period ending in the tax year in question
• have been assigned abroad by a Bulgarian company or the Bulgarian state
• have their “center of vital interests” in Bulgaria (that is, their personal and economic ties are closer to Bulgaria than any other country)
Residents of Bulgaria are subject to taxes in Bulgaria on their worldwide income and gains. Non-residents of Bulgarian are taxed on income and gains derived from Bulgarian sources only.
The tax year in Bulgaria is the calendar year (1 January to 31 December).
Personal Income Tax
Personal income is taxed at a flat tax rate of 10%, with some variations:
• Self-employed income is taxed at a flat rate of 15% on net income
• Dividend income is taxed at 5%, and if paid by a Bulgarian company, this is withheld at source
Bank interest from an EU or EEA bank account is tax-exempt income in Bulgaria.
Corporate Tax
The rate of corporate tax in Bulgaria is a flat rate of 10%.
VAT (Value Added Tax)
The standard VAT rate is 20 %.
• VAT is payable on assets and services in Bulgaria as well as on imports into Bulgaria.
• Exports from Bulgaria are exempt from VAT.
• Income from financial services such as insurance and banking services are exempt from VAT. Legal advice is also exempt from VAT subject to the terms specified in law.
• Every business that had a turnover in excess of BGL 50,000 in the previous 12 months must register with the VAT authorities.
• A ‘VAT’ bank account must be opened that will be used for payments of VAT and receipt of refunds.
Real Estate Tax
Owners of real estate in Bulgaria are liable to pay an annual tax on the value of the real estate. The rate varies depending on whether the real estate is used for residential or commercial purposes. The rate for both residential and commercial property is fixed by the local authorities, but is within the 0.15% to 0.30% range. The tax is payable at the beginning of each year. These taxes are usually up to the equivalent of €150 per year, and are lower in rural areas. Transfer fees are between two and four percent.
Inheritance and Gift Tax
Residents of Bulgaria are liable to inheritance tax on property situated in both Bulgaria and overseas. Non-residents of Bulgaria are liable to inheritance tax on property situated in Bulgaria. It is the recipient who pays the tax. Inheritances received by the surviving spouse and direct relatives are exempt.
Brothers, sisters, nieces and nephews who inherit will pay inheritance tax of 0.7 percent on amounts received above BGN 250,000. All other beneficiaries pay inheritance tax at rates of up to 20 percent.
Gifts tax is payable at fixed rates depending on the relationship between the donor and the donee. Spouses and direct line inheritors are exempt.
Gifts between brothers and sisters are taxable at 0.7 percent and 5 percent for all other beneficiaries.
Wealth Tax
There is no wealth tax in Bulgaria.
Administration
Individual tax returns must be filed, unless the sole source of income is employment income from a Bulgarian company. The due date for submission of tax returns is 30 April following the end of the tax year.
Payment of tax is due by 30 April following the tax year. Payment of tax quarterly during the relevant year is required for certain income, with the balance being due by 30 April following the end of the tax year.
Aside from any tax credits granted under the terms of any double tax treaty, Bulgaria gives unilateral tax relief for taxes paid abroad on income which is also taxable in Bulgaria. The amount of credit available is the lower of the foreign tax paid on the income, or the Bulgarian tax due on that income.
Employees are liable to pay social security contributions at a rate of 13 percent per year. Contributions are payable monthly and are calculated on employment income only, up to a limit of BGN 2,000 per month.
Employer contributions are generally around 20.4 percent to 21.10 percent.