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4. Taxation

Direct and indirect taxes


In Bulgaria there are two main categories of taxes - direct and indirect.

 

Direct taxes are:

  • Corporate tax on the annual tax returns;
  • Income tax on the revenues of individuals;
  • Withholding tax.

Indirect taxes are:

  • Value Added Tax;
  • Excise duties.

 


Corporate tax


Corporate tax on the annual tax returns in Bulgaria is set at 10%. Taxable persons are local entities, including unincorporated entities, conducting business in the country for the profits and income from all sources in Bulgaria and abroad. Foreign entities are taxed for the profits earned through a permanent establishment in Bulgaria or for the sale or transfer of property as well as for the income from a source in Bulgaria.

 

The Corporate Income Tax Act contains special provisions for minimum and regional state aid in the form of tax relief. For example, taxpayers are released from payment of corporate tax up to 100% on the taxable profit from the exercise of their manufacturing operations, including manufacturing with materials supplied by the client, if in municipalities with unemployment higher than the national average rate. To benefit from the tax relief the taxpayer must carry out the production activities only in municipalities where during the preceding year the rate of unemployment is 35% or higher than the average for the country.

 

Tax relief representing state aid to farmers is also provided for by the law. In this case, the corporate tax is not due up to 60% for the profit of from production of unprocessed plant and animal production persons registered as farmers.


The Corporate Income Tax Act contains provisions for tax incentives in case of hiring unemployed workers and for companies employing people with disabilities.


Exempt from corporation tax are collective investment schemes, which are subject to public offering in Bulgaria as well as licensed closed-end investment companies under the Collective Investment Schemes Act, special investment purpose companies and the Bulgarian Red Cross.

 

Corporate tax

Legal framework

  • The Corporate Income Tax Act

Taxable persons/taxation subject

  • The taxable persons are resident legal entities, including unincorporated entities, carrying out business activities in the country, in respect of their profit and income from all sources within Bulgaria and abroad. Resident legal entities are legal entities established according to the Bulgarian law, and also companies set up according to Council Regulation (EC) 2157/2001 and cooperative societies established under Council Regulation (EC) 1435/2003 if they are seated in Bulgaria and are registered in a Bulgarian register.
  • Foreign legal entities are subject to tax on the profit generated through a permanent establishment in Bulgaria or by disposal with the property of such permanent establishment, and also on the income with a source in Bulgaria. Foreign legal entities are persons that are not residents.

Tax base

  • The tax base for determining the corporate tax is the taxable profit

Tax amount

  • The corporate tax amounts to 10%.

Declaring and payment terms

  • Submission of the annual tax return and the payment of the corporate tax after deduction of any advance payments shall be done by 31 March of the following calendar year;
  • The annual tax return shall be submitted by the taxable persons or their authorised representative at the regional directorate of the National Revenue Agency according to the entity's registration.

Tax relief

  • The Corporate Income Tax Act contains certain tax incentives such as tax relief for carrying out production activities in municipalities with unemployment rate higher than the average rate in the country; tax relief being state aid for farmers; tax incentives for employment of unemployed or disabled persons.
  • Corporate tax exemption is provided to collective investment schemes which are admitted to public offering in Bulgaria and licensed closed investment companies under the Act on the Activities of Collective Investment Schemes and Other Collective Investment Entities; special purpose vehicles under the Special Investment Purpose Companies Act; the Bulgarian Red Cross.

 

 

Withholding tax


The withholding tax in Bulgaria is 10%. It should be withheld by the entity paying the income and transferred to the state budget. The withholding tax is final, i.e. the income is taxed only at the recipient level.

 

The withholding tax is 5% on dividends and liquidation quotas distributed by local entities for the benefit of foreign entities (except where dividends are realized by a foreign entity through a permanent establishment in the country) and by non-for-profit local entities, including municipalities. The tax does not apply to dividends and liquidation quotas distributed in favour of a foreign legal person which is a resident for tax purposes of a member state of the European Union or another country - party to the European Economic Area, except in cases of hidden profit distribution. The tax rate on income from interests and royalties is 5% if the income owner is a foreign legal entity from a member state of the European Union, while the local entity payer of the income is a related person to the foreign legal entity - owner of the income.

 

Withholding tax

Legal framework

  • The Corporate Income Tax Act

Taxable subject

  • Dividends and liquidation quotas distributed by resident legal entities to the benefit of foreign legal entities, except cases where the dividends are generated by a foreign legal entity through a permanent establishment in Bulgaria; resident legal entities that are not business entities, including municipalities.
  • The tax is not applied if the dividends and liquidation quotas are distributed to the benefit of a resident legal entity which has interest in the capital of a company as a representative of the government; contractual fund; foreign legal entities that are residents for tax purposes of EU Member States or other countries which are parties to the EEA Agreement, except cases of hidden distribution of profit.
  • The tax also applies to income of foreign legal entities from a source in Bulgaria if it is not generated by a permanent establishment in the country such as income from rent or any other provision of movable property for use, royalties and license fees; considerations under franchise and factoring agreements; fees for management or control of a Bulgarian legal entity; income from rent or any other provision of real property for use, including any indivisible interest in real property located in the country; income from disposal with real property, including indivisible interest or limited right in rem to real property located in the country

Tax amount

  • 5% in case of dividends and liquidation quotas
  • 5% in case of income from interest, royalties and license fees, if all of the following conditions are satisfied:
    • the beneficiary of the income is a foreign legal entity from an EU Member State or a permanent establishment within an EU Member State of a foreign legal entity from an EU Member State ;
    • the resident legal entity being the payer of the income or the person whose permanent establishment within Bulgaria  the payer of the income is a affiliated to the foreign legal entity which is the beneficiary of the income or to the person whose permanent establishment is the beneficiary of the income.
  • 10% in all other cases

Declaring and payment terms

  • Payers of income that deduct withholding tax under Article 194 (dividends and liquidation quotas) must pay the due taxes as follows:
    • within three months from the beginning of the month following the month in which the decision for distribution of dividends or liquidation quotas is taken: in the cases where the beneficiary of the income is a resident of a country with which Bulgaria has concluded a double taxation convention and the convention is in force;
    • by the end of the month following the month in which the decision for distribution of dividends or liquidation quotas is taken: in all other cases.
  • Payers of income who deduct withholding tax under Article 195 (income        of foreign persons) must pay the due taxes as follows:
    • within three months from the beginning of the month following the month of calculation of the income: in the cases where the beneficiary of the income is a resident of a country with which Bulgaria has concluded a double taxation convention and the convention is in force;
    • by the end of the month following the month  of calculation of the income: in all other cases.
  • The tax shall be paid to the relevant regional directorate of the National Revenue Agency according to the place of registration or where the payer of the income is subject to registration.

 

 

Income tax on individuals


Income tax on individuals is 10%. Bulgarian residents are subject to tax on their income from sources in Bulgaria and abroad (including the business as a sole trader) and the incomes of foreign individuals are taxed only if they are acquired from sources in Bulgaria.

 

Income tax on individuals

Legal framework

  • The Personal Income Tax Act

Taxable persons

  • The subject of taxation is the income of resident and foreign natural persons. Resident natural persons bear tax liability for income generated from sources in Bulgaria and abroad. Foreign natural persons bear tax liability for income generated from sources in Bulgaria.
  • According to Article 4 of the Personal Income Tax Act a resident natural person, irrespective of nationality, is a person:
    • who has a permanent address  in Bulgaria, or
    • who stays in Bulgaria for more than 183 days in any 12-month period, or
    • who has been sent abroad by the Bulgarian government, by state authorities and/or organizations, by Bulgarian enterprises, and the family members, or
    • whose centre of vital interests is situated in Bulgaria.
  • Foreign natural persons are persons who are not residents within the meaning of the Personal Income Tax Act.

Tax amount

  • 10% (15% for the income from business activities as a sole proprietor company and also for the income from business operations under Article 29а of natural persons registered under the Value Added Tax Act who are registered as tobacco producers and farmers).

Advance payment of the tax

  • The advance tax regarding income from employment relations is determined by the employer every month on the basis of the monthly tax base.
  • The law provides for advance payment of tax on income from business operations and advance tax on income from rent or any other provision of any rights or property for use for consideration.

Declaring and payment terms

  • The annual tax return shall be submitted by 30 April of the year following the year of the income acquisition at the regional directorate of the National Revenue Agency according to the permanent address of the natural person, including sole proprietor companies, bearing the tax liability.
  • Taxable persons who file their annual tax returns by 10 February of the following year benefit from a 5% discount on the additional portion of the tax paid within the same term as per the tax return.
  • Taxable persons who submit their annual tax returns electronically by 30 April of the year following the year of the income acquisition benefit from a 5% discount on the additional portion of the tax paid within the same term as per the tax return provided they have not applied the foregoing discount.
  • The discount described above may be applied if the natural persons under the obligation to pay advance tax have paid the full amount of the due tax within the terms under Article 67 of the Personal Income Tax Act.

 

 

Value Added Tax


The value added tax in Bulgaria is 20% except for certain hotel services which are levied with VAT of 9%. There are also zero-rated supplies specified in the law.

 

Value added tax is levied on the following transactions:

 

  • taxable supplies of goods or services;
  • intra-Community acquisition for consideration with place of performance on the territory of the country, carried out by a person registered under the VAT Act;
  • intra-Community acquisition for consideration of new vehicles with place of performance on the territory of the country;
  • intra-Community acquisition for consideration of excise goods with place of performance on the territory of the country;
  • import of goods.

 

Registration under the Value Added Tax ACT may be mandatory or optional. Registration is mandatory of persons with taxable turnover of BGN 50,000 or more for a period not exceeding 12 consecutive months.

 

The law contains tax incentives for major investment projects worth over BGN 10 million, which create more than 50 new jobs and whose period of implementation is up to 2 years.

 

There is also a special procedure for charging the tax on imports: it may be accounted by a VAT registered person if they have permission from the Minister of Finance and the imported goods are according to a list approved by the Minister of Finance. In this case the customs authorities may allow the release of goods without the tax being effectively paid or without a guarantee being provided. The VAT Act also provides for a short 30-day period for refund of the VAT.

 

Value Added Tax

Legal framework

  • The Value Added Tax Act

Taxable subject

  • The subject of taxation is the income of resident and foreign natural persons. Resident natural persons bear tax liability for income generated from sources in Bulgaria and abroad. Foreign natural persons bear tax liability for income generated from sources in Bulgaria.
  • According to Article 4 of the Personal Income Tax Act a resident natural person, irrespective of nationality, is a person:
    • who has a permanent address  in Bulgaria, or
    • who stays in Bulgaria for more than 183 days in any 12-month period, or
    • who has been sent abroad by the Bulgarian government, by state authorities and/or organizations, by Bulgarian enterprises, and the family members, or
    • whose centre of vital interests is situated in Bulgaria.
  • Foreign natural persons are persons who are not residents within the meaning of the Personal Income Tax Act.

Tax amount

  • The standard tax rate of 20% is applied to: taxable deliveries except those that are expressly specified as zero-rated; import of goods within the country; taxable intra-Community acquisitions.
  • The decreased tax rate of 9% is applicable in the cases of accommodation provided at hotels and similar establishments, including the provision of holiday accommodation and letting of places for campsites or trailers.
  • Some supplies explicitly specified in the law are zero-rated, such as supply of goods sent or transported outside the European Union; international transport of passengers and goods; intra-Community supply of goods, etc.

Registration

  • Mandatory and optional registration.
  • Mandatory registration of persons with taxable turnover of BGN 50 000 or more for a period no longer than the last 12 consecutive months before the current month. In such case the person is under the obligation to file an application for registration under the  Law on the Value Added Tax within 14 days after the end of the tax period in which the turnover is reached.

Declaring and payment terms

  • With regard to each tax period the registered person submits a statement based on the accounting registers. The statement shall be filed by the 14th day of the month following the relevant tax period.
  • If the result for the period is payable tax, the registered person must pay the tax to the national budget into an account of the competent regional directorate of the National Revenue Agency within the term for submitting the statement for that tax period.
  • The tax period is one month for all registered persons and usually coincides with the calendar month.

Tax relief

  • In respect of large investment projects special procedures are provided for accruing the tax upon import of goods; the tax may be accrued by the person registered under the Law on the Value Added Tax if the person has an authorisation from the Minister of Finance and imported goods (except goods subject to excise duty) according to a list approved by the Minister of Finance. In such case customs authorities allow the goods to be taken even if the tax has not been effectively paid or secured. The investor may pay the tax within 30 days from the submission of the statement.
  • The investment project is approved by the Minister of Finance when all of the following conditions are satisfied: the project implementation term is no longer than two years; the investment amount is more than BGN 10 for a period not longer than two years; more than 50 new jobs are created; the person has the capacity to finance the project and to build and maintain facilities ensuring its implementation; the forecast cash inflows are plausible, consistent with the market conditions and sufficient to cover the investment and project expenses.