Bulgaria
personal income tax rate is a flat 10%.
Bulgarian
residents are liable for income tax on their worldwide income, with tax credits
available for overseas taxes paid. If income is derived from a country with
which a double taxation treaty exists, the elimination of double taxation is
effected in accordance with that tax treaty.
Income
received from all sources during the year is taxable with some exceptions.
These include income from the sale of one or two properties under certain
conditions, scholarships for education in the country and abroad, and income
from interests and deposits in local commercial banks and branches of foreign
banks.
The taxable
annual income includes all cash and non-cash incomes, after deducting exempt
income. For every income source (employment, trading, real estate disposals,
etc) a special regime exists for determining the tax base. The taxable income
is the sum of the tax bases from all income sources.
A 10% flat
tax rate applies, except for the net income of sole proprietors which is taxed
separately by way of a 15% final flat tax.
The only
personal allowance granted under the Bulgarian tax regime is the annual BGN
7,920 allowance available to disabled individuals.
Taxation
must be paid in advance on income from civil contracts, royalties, management
fees and freelance arrangements. Tax payable in advance on employment income is
determined by the nature of the employer. If the income payer is a company, it
must withhold the tax and pay it by the 10th day of the month following the
month in which the income was earned. If the payer is an individual, the tax
should be paid by the recipient by the 15th day of the month following the
quarter in which the income was earned. Advance payments are deducted from the
annual tax due which should be paid by 30 April of the following year.
Taxable
incomes arising from contributions to voluntary health and life insurance
policies are taxed at 7% or 10%.
Taxable
income from dividends and liquidation distributions are taxed at 5%.
Inheritance
tax is levied on property situated in Bulgaria or abroad that is inherited by
Bulgarian citizens. It is also levied on property in Bulgaria inherited by
non-residents.
The rate is
0.4% - 0.8% when inherited from relatives in the lateral line or 3.3% - 6.6%
where not acquired from relatives. In some cases, (e.g. gifts to spouse and
relatives in the direct line) the inheritance is exempt from tax.
Gift tax is
levied on property acquired as a gift, or in any other way, for no
consideration. In general, the tax rates applicable for inheritance tax also
apply to gift tax and the tax is payable by the transferee. In cases when the
transferee in title to the property lives abroad, the tax is payable by the
party transferring the property. In some cases, exemption from taxation is
stipulated.
Basis –
Resident individuals are taxed on their worldwide income; nonresident
individuals are taxable only on Bulgariansource income.
Residence –
An individual is resident if he/she has a permanent address in Bulgaria,
resides in the country for more than 183 days in any 12-month period or is sent
abroad by the state, state organisations or a Bulgarian enterprise; or if
his/her centre of vital interests is in Bulgaria. Individuals who have a
permanent address in Bulgaria but whose centre of vital interests is not in the
country are not considered Bulgarian tax residents.
Filing
status – Each individual must file his/her own return; joint filing is not
permitted.
Taxable
income – Taxable income includes income from employment, income from business
or professional activities, capital gains, income from rent, etc.
Capital
gains – Capital gains arising from the sale of real property are generally
taxable (certain exemptions may apply).
Deductions
and allowances – Some deductions and allowances are available in computing
taxable income, depending on the type of the income.
Real
property tax – An annual real estate tax is levied on the owner of immovable
property at a rate between 0.01% and 0.25% of the tax value of the property.
Inheritance
tax – Inheritance tax is levied at a rate of 0.40% - 6.60% depending on the
relationship of the beneficiary. Tax rate is determined by each municipality.
Net
wealth/net worth tax – No
Social
security – The total social security insurance contribution is 29.00% - 29.70%
(the employer's portion is 16.90% - 17.60% and the employee's portion is
12.10%). The base for the contribution is the total income but no more than BGN
2,000 per month.
Minimum
thresholds per position and industry also apply.
Tax year –
Tax year in Bulgaria is the calendar year
Filing and
payment – An individual must file an annual tax return by 30 April of the year
following the calendar year. Income from employment is taxed via withholding at
source; an individual who receives only employment income during the calendar
year is not required to file an annual tax return if on 31 December of the year
the individual has only 1 employer that has performed an annual tax
reconciliation for the employment income received (including income from other
employers).
Penalties –
Interest penalties apply for late payment of tax, and administrative penalties
apply in various circumstances.
Bulgaria
Corporate Tax Rate
Bulgaria
corporate tax rate is 10%.
The income
tax of companies registered in Bulgaria is dependent on the nature of their
activities.
The profits
of local legal entities and business activities of foreign legal entities carried
on within the Republic of Bulgaria are subject to a 10% corporation tax.
Corporate
tax is payable by 31 March following the end of the tax year. There are also
advance payments which can be monthly or quarterly depending on the result of
the preceding year. If the preceding year produced a taxable profit, the
following year's payments would be due on a monthly basis and should be paid by
the 15th day of each month. The basis for assessment is the prior year's
result, adjusted by a co-efficient determined by the State. If the prior year
resulted in a tax loss, the following year's payments would be based on the
ongoing quarterly profit and should be paid by the 15th day of the month
following the quarter. Taxable persons, whose net income from sales in the
preceding year is not more than BGN 200 000 are exempt from quarterly payments.
The
following costs are also subject to a 10% tax:
- The
expenses of representation relating to the activity
- Social
expenses provided in kind to those employed under management and supervision
contracts (employees)
- Expenses
connected with the operation of vehicles where managerial activity is performed
therewith.
The amount
of this tax reduces the profit before taxation.
Tax on
expenses should be paid by the 15th day of the month, following the month of
expenditure.
ALTERNATIVE
TAXES
Alternative
taxes substitute the corporation tax and apply to:
- Gambling
Companies - From 2010, the tax rate is 15% based on the earnings from pledges
or the nominal value of the pledges printed on slip-forms, tickets and other
documents, depending on the type of gambling. This tax is final and payable
monthly. The tax on gambling games and casinos is calculated with reference to
the number of devices used and is paid quarterly. The receipts from auxiliary
and subsidiary activities within the meaning of the Gambling Law are subject to
a rate of tax of 12%.
- Budget
Enterprises - The tax rate is 3% (for municipalities - 2%) and is payable on
trading income and income from the rental of personal and real property. This
tax is final and payable monthly.
- Certain
entities or individuals performing nautical commercial navigation may choose
whether to pay corporation tax or an alternative tax in connection with
operating ships. The alternative tax is payable in monthly instalments at a
rate of 10% and is based on the net tonnage of the ship and the number of the
days in operation.
CAPITAL
GAINS TAX
Capital
gains are included in the taxable income of a company. Quoted shares sold on
the Bulgarian or an EU Stock Exchange are exempt.
BRANCH
PROFIT TAX
Overseas
companies earning profits in Bulgaria, including profits from branches, are
subject to the same tax rates as resident companies.
FRINGE
BENEFITS TAX
Social
expenses provided in kind to employees are taxable at a 10% rate on the
employer. Exemptions include:
- vouchers
for food up to BGN 60 per month per person - contributions to voluntary
pension, health and unemployment insurance schemes - transportation for workers
from home to their place of work.
Those
social expenses which are not in kind and constitute income of a natural person
are otherwise taxable.
OTHER TAXES
Compulsory
social and health security contributions vary from 24% to 28.5% depending on
what is insured. It can cover sickness, maternity, unemployment benefit and old
age pensions. Generally, contributions are based on earnings and levied on both
the employer and employee. The employer pays 60% and the employee 40% of the
total amount due.
The
employer also pays contributions for 'Labour accidents and occupational
disease' of between 0.4% and 1.1% depending on the economic activity of the
enterprise as well as 0.1% to the fund for 'Guaranteed claims by workers and
employees' up to a maximum of BGN 2,000.
Non-residents
who hold a long-term stay permit must pay health insurance at 8%.
DETERMINATION
OF TAXABLE INCOME
DEPRECIATION
Tax
deductible depreciation is available on all assets costing over BGN 700 used in
the enterprise concerned for more than one accounting period. The applicable
rate varies according to the type of asset from 4% (for buildings, equipment,
transmission devices, energy carriers, communication lines) up to 50% (for
computers and software).
Enterprises
may change their tax depreciation rates every calendar year but only within a
maximum allowable range depending on the asset's type. The rates of
depreciation included the business accounts are ignored for the purposes of
taxation.
STOCK/INVENTORY
Inventories
(raw materials, goods, production and production in progress) are valued at the
lower of their delivery value and net realisable value. Expenses arising from
devaluation are ignored for the purposes of taxation. Defined value, FIFO,
average value or LIFO are all acceptable methods of valuation for tax purposes.
DIVIDENDS
Dividends
received from companies resident in Bulgaria and other EEA states are exempt
from taxable income.
LOSSES
The tax
loss for the current year may be carried forward for the next five years. The
amount utilised each year cannot exceed the tax profit for that year. Losses
from foreign sources are deducted only from the profits arising from the same
source with the exception of losses or sources of income from another EU Member
State.
Losses may
not be carried forward in the case of certain corporate reconstructions.
FOREIGN
SOURCE INCOME
Resident
companies are taxed on their worldwide income and there are no special rules
relating to the taxation of overseas income. Foreign legal entities are subject
to corporate tax on profits realised from trading profits carried on by
permanent establishments within the Republic of Bulgaria.
INCENTIVES
Incentives
are given to encourage investment in municipalities with high unemployment,
agricultural production, the development of the fund market and donations to
charity.
FOREIGN TAX
RELIEF
Tax credits
are available with respect to foreign tax paid on overseas income by resident
individuals. The credit is limited to the amount of the Bulgarian corporation
tax and income tax payable on that income. If Bulgaria has signed a double
taxation treaty with the country where the income is sourced, the rules of the
treaty apply.
CORPORATE
GROUPS
There are
no special rules relating to corporate groups.
RELATED
PARTY TRANSACTIONS
For
taxation purposes, related party transactions should be at market value,
otherwise the taxable profit or income is adjusted by the difference.
WITHHOLDING
TAX
A 5%
withholding tax is levied on dividends and distributions arising on the liquidation
of resident companies to foreign legal entities, except where the dividends are
realised by a permanent establishment in Bulgaria.
Dividends
and similar distributions are exempt from withholding tax where paid to
companies and other legal entities resident in an EEA member state.
From 2010,
individuals who are resident in another EU or EEA member state may be exempt,
in some cases, from withholding tax on Bulgarian source income.
In
addition, residents of EU or EEA countries which have received income (other
than dividends and distributions) from sources in Bulgaria subject to
withholding tax may opt for recalculation of the withholding tax so as to pay
10% tax on a net basis, i.e. the tax which would have been payable had the
profit been derived by a Bulgarian tax resident. The income and the pertinent
expenses are to be determined in accordance with the IFRS.
Recipients
are entitled to a tax refund up to the amount of the tax on which they are
unable to claim credit in their home territory.
If a taxpayer
chooses to adopt the net basis of calculation, this must be applied to the
total income of the taxpayer from all source in Bulgaria received during the
calendar year. The recalculation option is exercised through filing a tax
return with the Bulgarian tax authorities by 31 December of the following year.
This
facility is not available to resident of EEA countries with which Bulgaria has
not concluded a double tax treaty or the concluded tax treaty does not contain
'exchange of information' or 'assistance in the tax collection' clauses (e.g.
Iceland and Liechtenstein).
In applying
the new alternative basis of taxation, rent from movable property is deemed to
be royalty income
EXCHANGE
CONTROL
Transactions
and payments between local and foreign persons can be made freely according to
Bulgarian legislation.
Direct
investments made by Bulgarian residents in foreign countries, as well as given
credits between local and foreign persons, need to be declared to the Bulgarian
National Bank (BNB). Residents are required to give the BNB information about
their receipts from and liabilities to foreign persons every quarter.
Transfers
and payments to foreign countries through commercial banks are made only after
declaring the reason for the transaction.
Types of
Corporations in Bulgaria
In
Bulgaria, the following are accepted forms of incorporation:
A limited
liability company (with the suffix OOD)
- At least 1 shareholder or more is required
to set up the company. The shareholders may be individuals or companies.
- The minimum share capital is BGN 5,000,
with the minimum nominal value of BGN 10 a share.
- At least 70% of the capital must be paid
up before registration.
- The owners of the company are liable only
for the amount of capital invested.
- An annual shareholders' meeting must be
convened at least once a year.
- A director must be appointed for the
company.
A liability
company with a single shareholder (with the suffix EOOD)
- This is an OOD company owned by one
individual, who may be a foreign resident.
- The single shareholder may serve also as a
director of the company.
A
consolidated company (with the suffix AD)
- At least 1 shareholder or more is required
to set up the company.
- The minimum share value is BGN 1.
- The company must have a minimum registered
capital of BGN 50,000. For banks, the minimum capital requirements are BGL 10
million.
- At least 25% of the registered capital
must be paid up before registration.
- The company is managed by a board of
management, or at two levels by 'a supervisory board' and a 'board of
management'.
A
consolidated company with a single shareholder (with the suffix EAD)
- The company is owned and controlled by a
single shareholder.
- It is compulsory to file an annual balance
sheet with the tax authorities.
Bulgaria
Sales Tax / Value Added Tax (VAT) Rates
The
standard tax rate of Value Added Tax (VAT) in Bulgaria is 20%.
From 1
January 2007, the Bulgarian VAT system has followed the one adopted by other EU
Member States. VAT is charged when goods or services are provided from
Bulgaria. Exempt transactions include health care, social care and insurance,
education, sport and culture, financial and insurance services and gambling etc.
Some transactions related to land and buildings are exempted from taxation but,
if the supplier chooses, they may be treated as taxable.
Transactions
are exempt where the place of execution is outside Bulgaria. No tax is charged
but the recipient has the right to claim tax credits on the related goods and
services.
The
standard tax rate is 20%. A reduced rate of 7% applies solely to the service of
accommodation, provided by a hotel-keeper, when it is part of organised
tourism. A zero tax rate is applicable to exports, as well as to transactions
exempted from VAT under international agreements to which Bulgaria is a party.
In all other cases of taxation, including the import of goods from countries
which are not members of the EU, the tax rate of 20% is applicable.
A reverse
charge applies in the case of Intra-community supplies. Changes to the
Bulgarian VAT Act apply from 1 January 2010 in accordance with Directives
2008/8/ EEC and 2008/117/EEC to 2006/112/EEC. The scope of services on which a
reverse charge applies has been expanded because of changes to the deemed place
of supply:
- If the
service is provided to a business, the place of supply is where the recipient
of the service carried on its economic activity. If, however, the recipient is
using the service for his personal benefit or for the private needs of his
workers and employers, the place of supply is the place where the service has
been supplied
- If the
service is provided to a private individual, the place of supply is where the
supplier carries
on its economic activity.
Exceptions
from this principle are limited and include services related to estate
property, passenger transport, cultural, sports, scientific, educational and
entertainment services.
The rules
for VAT registration have also changed. Where a person provides taxable
supplies of services with a place of supply in another member state, or
receives taxable supplies of services subject to a reverse charge, a
requirement to register for VAT arises. Registration must be made within seven
days of the relevant payment or the tax event whichever occurs first. VAT
registrants under such conditions do not have the right to deduct input VAT and
therefore have the option to register voluntarily for all taxable supplies for
a period of 24 months.
Foreign
persons established in countries that have established mutual assistance
arrangements with Bulgaria may register for VAT under the general terms of the
VAT Act, and can, upon their discretion, appoint VAT representatives. Such VAT
representatives are not jointly liable for the VAT liabilities of the foreign
persons concerned, as they are in other cases.