Bulgaria is relatively small country situated in South-Eastern Europe with a population of 7.5 million people. In 2007 Bulgaria joined the EU and currently offers the lowest level of taxation in the European Union. There are treaties in force for avoiding double taxation with 58 countries (most EU countries, Switzerland, USA, Canada, etc.) and the European legislation is fully implemented. The country applies the general VAT system of the EU. The legal system is based on the continental law.
Resident companies, defined as those, incorporated under Bulgarian law, and those incorporated under foreign law but which have their place of effective management in Bulgaria, are subject to corporate income tax on their worldwide income. Other companies are taxed on their income from sources in Bulgaria, subject to the terms and conditions of any relevant double tax treaty.
The corporate income tax rate is 10%. The basis of taxation is calculated upon a special regulation stipulated in the Statute on Corporate Income Taxation. Not every expense can be recognized for tax purposes (the restrictions are few).
Capital gains are taxed as income with 10% rate.
Losses may be carried forward for relief against future profits for up to five years.
The dividends received by local companies from partnerships in other Bulgarian or EU or EEA (Economic European Area) resident companies are not subject to taxation in Bulgaria.
There is no tax consolidation regime for groups of companies.
Companies must file tax returns by reference to their tax year, which is the calendar year. Tax returns are due by 31 March of each year. The dormant companies (without activity during the year) must also file a tax return.
Companies with turnovers for the previous year exceeding 300,000 leva (about EUR 153,800) must make monthly advance payments of corporate tax during the year, based on their corporate tax liability for the previous year.
Shipping companies could choose to pay “tonnage tax” or corporate taxes.
Dividends, interests, including financial lease, incomes originating from transactions with financial assets, issued by local companies, incomes originated from rent of movable and immovable property, copyright and royalty payments, incomes originating from franchise and factoring, remunerations for management and control of any local entity, consulting services, incomes connected with any real estate property located in Bulgaria, paid to recipients abroad are subject to withholding tax of 10%. When the recipient of the income is a resident of a country with which Bulgaria has a double tax treaty the rates of withholding tax may be reduced under the terms of the treaty (Bulgaria has tax treaties with 58 countries, for more information you can check here).
Bulgaria applies the general VAT system of the EU. The European legislation applies directly and therefore the directives regarding VAT are fully implemented and applied in the local legislation. Value added tax (VAT) is levied on the selling price of goods and services and on the value of goods imported into Bulgaria. Companies and individuals must register for VAT if their taxable supplies in the last 12 months exceed BGN 50,000 (about EUR 25,640). However voluntary registration is also available. The rate of VAT is 20%. Exports are zero tax rated. Some supplies are designated as exempt, including banking and insurance services, education, healthcare services and gambling. Businesses, other than those making exempt supplies, can generally recover the VAT they are charged with, subject to few exceptions, including the VAT charged on vehicles, goods or services for personal use and those for entertainment purposes.
Personal income taxes
Resident individuals are subject to income tax on their worldwide income.
Other individuals are taxed on their income from sources in Bulgaria, subject to the terms of any relevant double tax treaty.
The personal income tax rate is 10%.
The dividends are levied by the company payer of the income. The tax rate is 5%.
Interest from deposits and savings in banks located in any EU Member State or in countries from the EEA are subject of 10% tax. All local banks have special savings accounts that are exempt from taxation.
Incomes originating from transactions with financial instruments on a regulated market in Bulgaria and EU are not subject to taxation. Incomes originated from currency trade transactions (the so-called Forex) are subject to taxation. The tax rate is 10%.
Donations and inheritances are subject of taxation with a tax rate between 0.4% and 6.6 %.
There is no wealth tax.
Social security contributions and health care contributions are payable by employers and employees based on the gross salary, subject to minimum and maximum levels of the base between BGN 420 and BGN 2400. The employer pays 17.4% and the employee pays 12.9%.
Real estate taxes
Municipalities impose annual taxes on the value of land and buildings that vary depending on the location of the property. They are relatively low.
Tax on transfers of real estate
Taxes apply to transfers of real estate. The tax is calculated at 2% of the sale price.
Municipalities impose annual taxes on the value of each vehicle. The amount is calculated based on the power and the year of manufacturing of the vehicle. The rates are relatively low.
For some business activities (craftsman activities, retail trade, etc.), provided by small companies with an annual turnover up to 50,000 BGN (about EUR 25,640) a patent tax is due. The tax rate is fixed and is not related to profits. These companies are not subject of taxation with a corporate tax.
This brief overview on the taxation in Bulgaria is prepared exclusively for general information purposes and might not be fully comprehensive or precise. A reader of this overview should neither act on the basis of this information nor prepare business plans and forecast without seeking a professional advice. The review is updated as at November 01, 2014.
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