Want to learn more about taxes in Bulgaria?
We have prepared this short guide to provide our foreign clients with some basic information on business taxes in Bulgaria. Here you will learn how different taxes work and what strategy might work best for your personal and corporate income.
Taxes can be complicated and we know that. Keep in mind that this guide should only lay the foundations of your knowledge of taxes in Bulgaria. For further information and a more comprehensive analysis based on your personal and business income fee free to contact us.
The corporate tax rate in Bulgaria is 10% and the tax base is the annual profit of the company. The profit is calculated by deducting the total expenses of the company from the total revenues for the financial year which coincides with the calendar year (Jaunary 1 – December 31).
On an annual basis local companies have to file corporate tax declarations and pay the respective corporate tax. In rare cases the corporate tax is due in advance but this does not apply to SMEs.
Revenues and expenses for taxation purposes?
In order to plan your corporate taxes in Bulgaria you must learn to calculate your tax profits. Not all financial operations are consdered when determining the corporate tax base. In terms of revenues those that aren’t taken into cinsideration for tax purposes are expetions, the most important one bieng dividends from other companies based in Bulgaria or the EU. Expenses that are not deductible from the tax base are more often and iclude all expenses that are not directly related to the business as well ass representative costs and some donations to third parties.
Some tax reliefs are available for the corporate taxes of the company. The more important ones include donations to non-profit entities, reliefs for early filing of taxes, and hiring unemployed people.
Summary for corporate tax:
Personal dividend tax
If your company makes profit for the financial year, it can distribute the profit among shareholders in the next year(s). When the beneficiary of the dividend is a person, that person must pay a dividend tax. The dividend tax rate in Bulgaria is 5% and the tax base is the received income from dividends.
The is a different taxation regime for local and foreign tax residents. Bulgarian citizens and tax residents declare income from dividends in their annual tax declaration. Foreign tax residents have to file and pay their dividend taxes in advance in the same year when the income has occurred.
Important considerations for foreign tax residents
The dividends that you receive from Bulgarian companies are probably subject to dividend or personal income tax in your own country. Bulgaria has entered into international tax agreements with a lot of countries in order to avoid double taxation of dividends but your local tax rate may still apply. If you want to enjoy the benefit of the 5% dividend tax rate you may consider becoming a Bulgarian tax resident.
Summary for dividend tax:
Personal income tax
Instead of paying yourself a dividend, you may consider a personal remuneration instead. As a company manager you are entitled to receive remuneration from your own company but it is not mandatory. Personal income tax in Bulgaria is 10%. The tax base is your total income that derives from within the country. The benefit for the company is that the salary is deductible from the company profit and thus effectively only 10% personal income tax will be paid by the manager if they receive all company profits as a remuneration. Some personal tax benefits may also apply that further lower the tax.
The need for residence permit
The complications that come with this type of profit distribution is that the company manager should get a residence permit in advance. That’s not a hard thing to do in Bulgaria, especially for European citizens and the residence permit is the first step to the effective change of tax residency. An important consideration is once again the fact that your income from Bulgaria may also be taxed in your own country.
If you pay yourself remuneration you will be entitled to also pay social security contributions. More on them below.
Summary for personal income tax:
Social security contributions
Local residents are subjects to mandatory social security and health insurance contributions. The amount of the contributions depend on the income of the person and whether the person is registered as a freelancer or receives remuneration as company employee or manager. Although these contributions may vary, their amount is usually ~25% of the income. However, there is a minimum and maximum income on which the social and health insurance contributions are calculated. From these the more siginificant one is the maximum income which for 2021 is set at BGN 3000 (~EUR 1500) per month. Any income, exceeding the maximum, is not subject to social security and health contributions and is only taxed with the personal income tax.
When does it make sense to pay them?
In many cases, when the income from the business is expected to be relatively high, it may make more sense to pay yourself a salary instead of dividend. This may sound counterintuitive at first, but upon further consideration may ensure a more beneficial tax regime, espescially for foreign citizens who want to establish in Bulgaria for a longer period in order to lose the tax resident status in their own country.
Summary for social security and health insurance contrbutions:
VAT regulations and registration
VAT regulations are largely harmonized at European Union level, which is why European citizens can expect a tax regime similar to that in their own countries. The general VAT rate for goods and services is 20% and some small exceptions apply for the medical, food and book industries. VAT is administered and paid on a monthly basis. For foreign businesses the VAT registration is a must since it also provides the European VIES number and the threshold for mandatory VAT registration in Bulgaria is set at BGN 50 000 for a period of 12 consecutive months.
VAT registration procedure
The VAT registration procedure in Bulgaria is pretty straightforward and most companies apply for voluntary registration upon registration. The procedure only takes a couple of days after the registration of the company at the Bulgarian Commercial register.