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Bulgaria

Country Name: Bulgaria
Currency: Bulgarian Lev (BGN)
Primary Tax Authority: National Revenue Agency (NRA)
Key Legislation:

  • Corporate Income Tax Act
  • Personal Income Tax Act
  • Value Added Tax Act

Fiscal Authority Allocation

Centralized Fiscal System:
Bulgaria operates a centralized tax system, with the National Revenue Agency (NRA) responsible for administering and collecting taxes, including corporate income tax (CIT), personal income tax (PIT), and VAT. Local governments are responsible for property taxes and minor municipal fees.

Corporate Income Tax (CIT)

Standard Rate: 10%
Bulgaria applies a flat corporate income tax rate of 10%, one of the lowest in the European Union. Resident companies are taxed on their worldwide income, while non-resident companies are taxed only on Bulgaria-sourced income.

Corporate Forms and Taxation:

  1. Limited Liability Company (Druzhestvo s Ogranichena Otgovornost – OOD): The most common corporate form, subject to the 10% CIT rate.
  2. Joint-Stock Company (Aktsionerno Druzhestvo – AD): Typically used by larger businesses, taxed at the 10% CIT rate.
  3. Branches of Foreign Companies: Taxed on Bulgaria-sourced income at 10%.

Exemptions and Incentives:

  • Investment Incentives: Bulgaria offers various tax exemptions and reductions for investments in certain regions and sectors, including manufacturing and R&D.
  • Free Zones: Companies operating in free zones benefit from tax reductions and exemptions, including full or partial CIT exemptions for a certain period.

Goods and Services Tax (GST) / Value-Added Tax (VAT)

Standard Rate: 20%
Bulgaria applies a VAT rate of 20% to most goods and services. A reduced rate of 9% applies to specific items, such as hotel accommodations and books.

Exemptions:
Healthcare, education, and financial services are generally VAT-exempt. Exports are zero-rated, allowing businesses to reclaim VAT on input costs related to exported goods.

Personal Income Tax (PIT)

Flat Rate: 10%
Bulgaria levies a flat personal income tax rate of 10% on worldwide income for residents and Bulgarian-sourced income for non-residents.

Dividends:
Dividends are taxed at a flat rate of 5%.

Additional Mandatory Contributions

Social Security Contributions:
Both employers and employees must contribute to Bulgaria’s social security system, which covers pensions, healthcare, and unemployment benefits.

  • Employer Contribution: 18.92% to 19.62% of gross salary, depending on the sector.
  • Employee Contribution: 13.78% of gross salary.

Withholding Taxes

  • Dividends: 5%
  • Interest: 10%
  • Royalties: 10%
    Withholding tax rates may be reduced under Bulgaria’s double taxation agreements (DTAs).

Transfer Pricing Rules

Bulgaria adheres to OECD transfer pricing guidelines. Transactions between related parties must comply with the arm’s-length principle, and businesses are required to maintain proper documentation for cross-border related-party transactions.

Special Tax Regimes

  • Micro-enterprise Regime: Small businesses with a turnover below BGN 50,000 can opt for a simplified tax regime with lower administrative requirements.
  • Free Economic Zones: Businesses operating in designated free economic zones benefit from tax exemptions, customs duty relief, and reduced CIT rates.

Other Taxes

  • Real Estate Tax: Local municipalities levy real estate taxes, typically between 0.1% and 0.45% of the property’s taxable value.
  • Capital Gains Tax: Capital gains are taxed at the standard 10% rate for individuals and are included in the CIT base for companies.
  • Excise Duties: Excise duties apply to products such as alcohol, tobacco, and fuel.

Double Taxation Agreements (DTAs)

Bulgaria has signed over 70 double taxation agreements with countries worldwide, including major trading partners such as Germany, France, and the United States. These treaties help prevent double taxation and reduce withholding taxes on dividends, interest, and royalties.

Local Taxes

Local governments in Bulgaria collect real estate taxes, vehicle taxes, and certain municipal fees. However, income tax and VAT are centrally managed by the National Revenue Agency.

Compliance and Reporting

Annual Filing:
Corporate tax returns must be filed by March 31st of the following tax year. Personal income tax returns are due by April 30th. The tax year follows the calendar year.

Penalties for Late Filing:
Penalties for late filing or non-compliance include interest on overdue tax payments and fines. The interest rate for overdue taxes is generally 0.03% per day.

Recent Developments

Digital Services Tax:
Bulgaria is considering the introduction of a digital services tax aimed at taxing large multinational companies that provide online services in the country, in line with broader EU initiatives.

Green Energy Incentives:
The Bulgarian government has introduced tax incentives for investments in renewable energy and energy-efficient infrastructure, including accelerated depreciation for energy-efficient equipment and reduced excise duties for electric vehicles.

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