Dividends paid to a Bulgarian company by EU subsidiaries or paid to EU subsidiaries by Bulgarian Company can qualify for a 0% withholding tax rate within European Union. The withholding tax exemption is based on the Parent-Subsidiary Directive, but may deviate per country depending on the implementation laws.

The conditions that must be met by the Parent company (located anywhere within EU) for applying the 0% dividend withholding tax rate are:

1. The shareholder is a corporation which qualifies as a tax resident of another EU member state or EER state (with the exception of Liechtenstein);
2. The shareholder has no dual residency status with a country outside the EU or the EER;
3. The shareholder qualifies as “beneficial owner” of the shares and finally.

These requirements are based on the Parent-Subsidiary Directive and its Bulgarian implementation. If your company receives dividends from EU country other than Bulgaria please check with your local advisors there for the local requirements in that country.

It is noted that the Directive offers the possibility for Member States to implement anti-abuse provisions. Bulgaria has not implemented such provisions. Most EU member states have incorporated anti-abuse provisions in their domestic legislation to prevent abuse of the EU withholding tax exemptions for dividend. In general these provisions tend to demand:
• true beneficial ownership of the recipient of the income and/or
• at least 50% ultimate EU shareholder control and/or
• local substance of the recipient of the income in its home country.

Please note however that as a consequence of an EU-Court case in 2006 many EU countries are forced to abolish their anti-abuse rules for foreign shareholders, in particular if no such anti-abuse rules apply to domestic shareholders.

It should be verified country by country what the current status of their anti-abuse rules for foreign shareholders is per today.

Olsen and Partners team