Want to learn more about taxes for freelancers in Bulgaria?

We have prepared this short guide to provide our foreign clients with fundamentals of freelancer taxes in Bulgaria. If you want to further explore whether it makes sense financially to move to Bulgaria, consider booking a free online meeting with our consultants.

Here is what this guide covers:

1. Taxes for freelancers in Bulgaria
2. Social security contributions/national insurance for freelancers
3. The application of tax treaties
4. Residency in Bulgaria for living and tax purposes
5. Registration procedures
6. VAT rules
7. Upfront and recurring expenses

Taxes for freelancers in Bulgaria

Freelancers in Bulgaria, unlike companies, pay taxes over their income and not over their profits. Bulgaria applies a flat income tax rate of 10% but effectively the tax rate for freelancers is reduced to 7.5% of the actual income derived from freelancing. The Bulgarian tax law does not expect freelancers to keep track of all their work-related expenses. Instead the country has adopted the concept of “recognized expenses” which are always 25% of the income. These 25% are deducted from the tax base (the total income) and over the rest a 10% tax rate is applied.

Simply put, the tax is 10% but only over 75% of the income so effectively you pay just 7.5% of personal income tax. The tax base (the taxable income) is further reduced by the social security contributions (national insurance) that is to be paid by Bulgaria residents. More on this in the next paragraph.

As a freelancer in Bulgaria, you pay your taxes on a quarterly basis but you also need to file an annual tax declaration.

Summary for freelance tax:

Social security contributions when freelancing in Bulgaria

Income derived from freelancing in Bulgaria is considered Social Security income. This means that freelancers need to pay social security contributions over their actual monthly income. However, the Bulgarian Social Security Code applies a minimum and maximum monthly income for the purpose of social security. Currently, the maximum monthly income for social security is EUR 2100 per month. Any income that you earn over that amount is not considered income for the purpose of social security.

The actual amount of the social security contributions for freelancers that earn more than the maximum income for social security is ~EUR 600 per month.

What is the effect of social security on the taxes for freelancers in Bulgaria?

As mentioned above the social security contributions are further deducted from the taxable income. Here is a simple calculation for an annual income of EUR 50 000 (BGN 100 000):

1. You deduct 25% of your total income. This is EUR 12 500.
2. The social security contributions will be the maximum amount of EUR 7200 for the whole year.
3. The social security contributions are further deducted from the tax base so you are left with EUR 30 100 of taxable income.
4. You apply a 10% rate over the taxable income and your taxes will be EUR 3 010 for the whole year.

Summary for social security:

The application of tax treaties

International taxes are a complex matter but we will try to simplify the basics. There are two main concepts that you need to understand if you consider making use of the low taxes in Bulgaria:

1. Tax residency
2. Taxation of international income and specifically income from commercial activities

Tax residency

You pay your taxes in the country that you are considered a tax resident of. When moving from one country to another you must consider that your tax residency does not automatically follow your actual residency. Every country applies certain criteria for individuals that are to be considered tax residents of this country. Usually this criteria involves one of the following:

1. Staying for more than 183 days in the country for a calendar year.
2. Having a permanent address in the country.
3. Having a centre of vital interests in the country.

When one of these criteria is present in more than one country, the respective countries need to decide which one is going to consider you a local tax resident. That’s why countries sign tax treaties and these treaties are important to consider until which moment you need to pay taxes in your home country.

Your tax residency is determined for a financial year. This usually coincides with the calendar year.

If you pay yourself remuneration you will be entitled to also pay social security contributions. More on them below.

Taxation of income derived from commercial activity

Under most tax treaties, what you earn as a freelancer is considered an income derived from commercial activity. This is a rather special type of income which is usually only taxed at the country where it is derived from.

What does that actually mean? It means that when working as a freelancer in Bulgaria your income will be taxed here even if your tax residency hasn’t yet changed. Whether you need to pay additional tax in your home country is decided according to the provisions of the respective tax treaty.

Summary for tax treaties:

Residency in Bulgaria

Citizens of the EU can stay in Bulgaria for a period of 3 months without any permit or visa. After that they need to apply for a residence permit. It is really easy to obtain a residence permit as an EU citizen in Bulgaria. The whole procedure lasts ~10 days and you are more than likely going to receive a residence permit for 5 year which can further be prolonged.

In order to obtain a residence permit you will need an address registration. This means that you will want to sign a long-term rent (usually 1 year) for a property in Bulgaria.

Obtaining a residence permit in Bulgaria for citizens of countries that are not members of the EU is a lot more complex. For these matters it may be best to just book a meeting and let us handle the specific case.

Summary for residency:

Registration procedures

In order to work in Bulgaria as a freelancer and stay in the country for the long term you will need to go through three administrative procedures:

1. Registering with the BULSTAT register as a freelancer (self-employed person)
2. Obtaining a residence permit
3. Registering with the National revenue agency for the purpose of social security

Usually you do the procedures in that order. None of them is especially hard but you will need to prepare certain documents for the respective institutions. These include:

• A digital copy of a diploma or other certificate which proves that you have the necessary skills and knowledge for freelancing.
• Your passport or national ID.
• A rental agreement and a certain declaration from your landlord for the residence permit.
• In some cases a VAT registration may be necessary but more on this in the next paragraph.

Summary for registrations:

VAT rules for freelancers in Bulgaria

As a freelancer you are performing services. In the vast majority of cases these will be B2B services so we will focus on them in the current article. A VAT registration is only mandatory if your client(s) are based in the EU or if you receive services from the EU.

Even if you have a VAT registration due to your services toh clients in the EU you will still not charge VAT on your invoices. This is because of the reverse VAT charge mechanism of the EU.

Since VAT shouldn’t be a major concern for freelancers we won’t really go into too much detail here.

VAT rules summary:

Expenses

We decided to split the expenses into one-time and recurring. The one-time costs you need to pay upfront and the recurring ones are usually paid on a monthly basis.

One-time costs

The state fees for a freelancer registration and a residence permit are rather negligible and amount to ~EUR 50 in total. These also cover some minor translation costs and the state fee for the issuance of an ID card for a foreign citizen.

If you decide to work with our team we have a fixed price that covers all fees for all the procedures and it is EUR 750.

Recurring costs

Apart from the cost of living in Bulgaria which is definitely not high, the major expense that you need to consider is accounting services. A reasonable price for freelancer accounting goes ~EUR 150.00 per month but you could also find it cheaper.

Summary for expenses:

Filing obligations

Freelancers in Bulgaria need to file declarations (forms) for taxes and social security with the National Revenue Agency (NRA) of Bulgaria. These filings are conducted through the NRA platform which can easily be accessed with the use of a Personal Identification Code (PIC). A PIC is nothing else but credentials for access of the platform that resemble a digital certificate. It is always useful to have one and pretty easy to get it as well.

Freelancers have monthly, quarterly and annual obligations.

Monthly filings

On a monthly basis you need to file the following forms:

• Declaration Form 1 for monthly social security contributions – no later than 25th of the month following the one for which the payment is due;
• VAT filings and VIES declaration if you are registered for VAT (this one can not be filed with a PIC) – no later that 14th of the month following the month for which VAT is due.

Quarterly filings

The only quarterly filings that you need to consider are the tax filings for advance (preliminary) tax. These are filed through another form – Declaration under art. 55 of the Personal income tax code. You need to file it for the first three quarters of the financial (calendar) year. The deadline is the last day of the month following the respective quarter:

• For January 1 to March 31 – no later than April 30;
• For April 1 to June 30 – no later than July 31;
• For July 1 to September 30 – no later than October 31;
• For October 1 to December 31 you don’t file quarterly tax filings bur rather annual tax declaration.

Annual filings

Every year you need to file the following:

• Annual tax filings under art. 50 of the Personal income tax code;
• Declaration under form 6 for social security contributions on an annual basis.

The deadline is April 30 of the year following the respective financial year. However, it is best to file your taxes and pay them before March 31 because you are entitled to a small tax relief for early filing and payment (5% of the tax due but no more than EUR 250).

Summary for filings:

• Monthly
  • Social security contributions
  • VAT and VIES declarations
• Quarterly
  • Advance income tax delcaration
• Annual
  • Annual tax filings
  • Final social security filing