Bulgarian Taxes

 

Corporate income tax

 

Corporate income tax rate
10% on the taxable profit.

 
Taxable entities 

• Companies   and partnerships established under Bulgarian law

• Permanent establishments of non-resident entities in Bulgaria

 

Taxable profit
Financial result adjusted for tax purposes.

 
Accounting rules 
IFRS or local Bulgarian GAAP (for small and medium-sized enterprises).

 
Tax adjustments  
E.g., non-business related or not duly documented expenses; interest restricted under the thin capitalization rules; expenses for impairment of assets; dividends received from local or EU based companies.

Tax depreciation rules

Maximum annual tax depreciation rates between 4% and 50%, depending on the type of asset.  

 Thin capitalization

If the debt to equity ratio of the company exceeds 3:1 (some of) the interest expenses may not be tax deductible in the current year. However they may become tax deductible in the following five consecutive years under certain conditions.

 

Tax loss carry forward  
Tax losses can be carried forward over the next five consecutive years.

 
Tax returns and payment

The annual corporate tax return has to be submitted by 31 March of the following year. The tax year is the calendar year.  
The corporate tax has to be paid also by 31 March. Quarterly or monthly advance installments are generally due during the year.  

Distribution of dividends

Subject to 5% withholding tax when distributed to individuals, resident non-profit entities and non-residents (except for EU / EEA entities).

Dividends distributed to resident companies are not included in their taxable income except for dividends distributed by:  

• Special purpose investment companies

Non-EU / EEA foreign entities

 

 

The withholding tax rates may be reduced under an applicable tax treaty

 

Payment

The tax should be withheld by the resident payer and remitted to the budget within:

• Three months following the month of accrual of the income when the recipient is tax resident of a country which has a tax treaty in force with Bulgaria

• One month following the month of accrual in all other cases

Withholding tax 

In case of capital gains, it is their recipient which should remit the withholding tax due within the terms indicated above.  

Double tax treaty application

If available, double tax treaty relief may be applied by the income recipient directly if the income accrued for the calendar year does not exceed BGN 100 thousand (approximately EUR 51 thousand). However, certain documents must be presented to the income payer (e.g., a tax residence certificate, a declaration for beneficial ownership and lack of a permanent establishment in Bulgaria).

In all other cases a non-resident can benefit from double tax treaty relief if an advance clearance is obtained from the Bulgarian revenue authorities under a specific procedure.

Otherwise the payer will be obliged to remit the withholding tax at the domestic rate within three months following the month of accrual. The non-resident can apply for a refund within five years following the year the tax became due.

Bulgaria has an extensive network of double tax treaties with over 60 countries, including most European countries, USA, Russia, China and India.

One-off tax on certain expenses

 

 

Corporate tax incentives and specific tax regimes  
Tax holiday

Up to the full amount of corporate tax due for agricultural activities, manufacturing, higher technology and infrastructure may be granted back for investment in regions with high unemployment.

The application of the tax holiday is subject to certain limitations and conditions, including the EU state aid restrictions.
For some of the activities above the tax holiday is not yet applicable and is awaiting authorization by the European Commission.

 
Exemptions from corporate tax  
Special purpose investment companies, close-ended licensed investment companies and collective investment schemes authorized for public offering in Bulgaria are not subject to corporate income tax.

 
Special corporate tax regimes  
Applicable to:

• Commercial maritime shipping companies

• Gambling businesses

• Some other (e.g., state organs, etc.)
•  

Transfer pricing rules  
The Bulgarian transfer pricing rules apply to transactions between related parties and are generally in line with the OECD Transfer Pricing Report. In certain cases the rules may be applied to unrelated party transactions as well.

The prices charged in related party transactions may be adjusted for tax purposes, if such transactions are made on terms that differ from the terms set in unrelated party transactions.

It is not possible to have an Advance Pricing Agreement in Bulgaria. 
The following 5 transfer pricing methods are acceptable:

• The Comparable uncontrolled price method

• The Resale price method

• The Cost plus method

• The Transactional net margin method

• The Profit split method

There are no special transfer pricing documentation or reporting requirements. However, during a tax audit the taxpayer should be able to prove the arm’s length basis of its related party transactions.

If the taxpayer has prepared transfer pricing documentation, the revenue authorities are obliged to use the chosen method as a starting point in their transfer pricing analysis.

 

Personal income tax

 

Taxable income

Generally, the taxable income includes monetary income, as well as benefits received in-kind (except non-taxable items and “social expenses”, see p. 6)

Bulgarian tax residents are taxed on their worldwide income, while non-residents are taxed only on their Bulgarian-sourced income.

 

Exempt income

Certain types of income are exempt from taxation, including capital gains from the disposal of shares on a regulated Bulgarian or EU / EEA market, interest on deposits in EU based banks or EU based branches of non-EU banks, income from disposal of certain real estate, etc.  


Tax deductions apply in some cases, including:

• Mandatory social security and health insurance contributions

• Statutory deductions for free lancers, for rental income, etc.

• Voluntary personal insurance up to certain limits

• Certain donations

• Other specific situations

Lump-sum taxation
Applicable to sole proprietorships with annual turnover less than BGN 50 thousand (approximately EUR 25 thousand).

 
Tax returns and payment

The annual personal income tax return has to be submitted by 30 April of the following year (the tax year coincides with the calendar year).

The tax has to be paid by the same deadline. A 5% reduction of the outstanding tax can be applied if:

• The annual tax return is filed and the tax is paid before 10 February of the following year; or

• The annual tax return is submitted electronically

 

Individuals who have received only employment income from Bulgarian employers, non-taxable income or income subject only to one-off tax are not obliged to file annual tax returns

 

One-off tax is due on dividends and liquidation quotas distributed to a Bulgarian resident by a non-resident entity.

 

One-off tax rates

• 0% for capital gains from disposal of shares on a regulated Bulgarian or EU / EEA market by EU / EEA country residents
• 5% for dividends and liquidation quotas

• 7% for income from voluntary life insurance received after the termination of the insurance policy (if older than 15 years)

• 10% for all other income

 

The one-off tax rates may be reduced under  an applicable tax treaty.
Social security and health insurance  

 

Mandatory insurance contributions

Between 31% - 31.7% paid by both the employer and the employee in a certain ratio. This includes:

Non-residents working in Bulgaria under management service contracts or supply of staff agreements do not pay contributions to the employees’ receivables guarantee fund.

 

Insurance base

The gross remuneration less statutory deductions in some cases. The insurance base is capped at BGN 2000 (approximately EUR 1000) monthly.

 

Social security treaties

Foreigners may be exempt from social security contributions in Bulgaria or the contribution they make may be recognized in their home country under an applicable bilateral social security treaty or for EU / EEA nationals subject to the coordination rules .

 

Value added tax (VAT)

The Bulgarian VAT legislation is based on the EU VAT rules and Directive 2006/112/EC.

 

VAT rates

• 20% for domestic supplies, intra-community acquisitions and importation from non-EU countries

• 7% for accommodation provided by a hotel as a part of a tourist package

 

Exemptions

rem over land (except for building land and land adjacent to newbuildings), the transfer of old buildings or parts thereof, rental for residential purposes to individuals (an option to tax these transactions is available); financial and insurance services; gambling; certain services related to health, education, religion, culture, etc.; other specific supplies (e.g. importation of certain goods and up to a limit, etc.)

 

Value added tax (VAT)

 

VAT registration

Entities are obliged to register for Bulgarian VAT purposes if they have performed:

• Transactions with a place of supply in Bulgaria exceeding BGN 50 thousand (approximately EUR 25.6 thousand) for the last 12 months

• Intra-community acquisitions exceeding BGN 20 thousand (approximately EUR 10.2 thousand) during the calendar year

• Distance sales in Bulgaria exceeding BGN 70 thousand (approximately EUR 35.8 thousand) during the calendar year

Entities established in an EU member state performing supply of goods with installation in Bulgaria to customers non-registered for VAT purposes are obliged to register irrespective of their taxable turnover.

Any entity may apply for voluntary VAT registration. However, if voluntarily registered, such entity will not be able to deregister for two years following the year of registration.

 

Fiscal representative

In order to register for VAT purposes foreign entities (including EU entities) have to appoint a local fiscal representative, except when they have a registered branch in Bulgaria

 

Value added tax (VAT)

Reverse charge mechanism

Foreign entities not established and not VAT-registered in Bulgaria performing certain supplies to local customers will not have to register for VAT purposes. The VAT will be self charged by the local customer.

Supplies to which reverse charge of VAT applies include:

 

Please note than in certain cases the local recipient has to be VAT registered in order for the reverse charge mechanism to apply. Certain other specific conditions may also apply.

 

Value added tax (VAT)

Bulgaria. Non-EU based entities may be entitled to a refund on a reciprocal basis.

 

Intrastat
Intrastat is a system for collecting statistical data about intra-community movement of goods between Bulgaria and the other EU member states.

All entities VAT-registered in Bulgaria have to file Intrastat returns if the thresholds for incoming (“arrival”) and outgoing (“dispatch”) intra-community movement of goods between Bulgaria and the other EU member states are exceeded.

The thresholds triggering the obligation to file Intrastat returns for 2009 are (thresholds are updated annually):

• BGN 250 thousand (approximately EUR 128 thousand) for arrival of goods; or

• BGN 400 thousand (approximately EUR 204 thousand) for dispatch of goods

 

The deadline for filing Intrastat returns is the 10th day of the month following the month of arrival or dispatch of the goods.

 

Local taxes and fees

 

Real estate tax
Between 0.05% - 0.2% annually on the gross book value (or the tax value for individuals) of the real estate. The exact rate is determined by the municipality in which the real estate is situated.

 

Transfer tax

Between 1.3% - 2.6% on the higher of the sales price or the tax value of the transferred real estate / on the insurance value of cars. The exact rate is determined by each municipality.

 

Vehicle tax

Depending on the type and characteristics of the vehicle. Applies to cars, ships and airplanes. The tax rate is determined by each municipality within ranges stipulated in the law.

 

Donation tax

Between 3.3% - 6.6% on the value of the donation. The exact rate is determined by each municipality. Lower rates and exemptions apply to donations between relatives.

 

Local taxes and fees

 

Inheritance tax

Inheritance by a spouse, children and their descendants are exempt.

The tax is between 0.4% -0.8% on inheritance exceeding BGN 250 thousand (approximately EUR 128 thousand) in favor of brothers, sisters and their descendants (between 3.3% - 6.6% for other heirs).

The exact rate is determined by each municipality.

 

Garbage collection fee

Determined by each municipality. Generally levied on the gross book value of the real estate. Alternatively, it may be determined on the basis of the number and volume of waste containers used.

 

Excise duties  
The Bulgarian excise duties legislation is based on the EU rules

 

Scope

Excise duties  are applicable for certain products including:

• Electricity

• Fuels (motor fuels, coal, etc.)

• Cars with engine power  exceeding 120 kW

• Alcohol

• Tobacco products

 

Excise duty rates

Generally, the excise duty rates are charged as a flat amount per unit of the product upon importation or release for consumption.

 

Tax warehouses and deferred payment of excise duties

The production of some excise goods (e.g. tobacco products, alcohol, etc.) should be carried only in tax warehouses.

Excise goods may be imported, processed and stored in tax warehouses as well as transported under a deferred payment regime.

 

Customs duties

Bulgaria applies directly the customs legislation and the Common Customs Tariff of the EU.

Customs duties on imports from non-EU countries are usually percentage rates calculated on the basis of the customs value (the transaction value increased by certain costs). Reduced or even zero duty rates apply on imports from countries granted preferential tariff treatment by the EU. In addition, the duties for certain imports can be suspended upon action of the businesses.

Goods can be imported in Bulgaria under customs procedures with economic impact – customs warehousing, inward processing, processing under customs control, temporary importation, outward processing.

As of 1 January 2008 businesses in Bulgaria can apply for AEO (approved economic operator) certification. Holders of AEO status enjoy preferential treatment with regard to customs controls and simplified procedures.

 

Environmental fees

The producers or importers (or the entity performing an intra-community acquisition) of products the use of which leaves large amounts of waste have to pay a product fee based on the type of waste.

The entities can avoid paying the product fee if they collect or recycle certain amount of the waste produced by their products either on their own or through a licensed collective waste management organization.

 

Scope

The products which are subject to the product fee  include:

• Certain motor vehicles and tires

• Goods with plastic, paper, metal, glass, wooden, textile, etc. packaging

• Batteries

• Motor oil

• Electric or electronic apparatus and appliances