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General Information about the Bulgarian Tax System
Only Parliament can impose taxes. The tax year in Bulgaria is the calendar year. Bulgaria’s tax system is comprised mainly of direct taxes (corporate and personal income tax), indirect taxes (value-added tax, excise and customs duties) and real estate taxes. The current Bulgarian tax system includes the following main taxes:
(I) Corporate income tax
(II) Personal income tax
(III) Value added tax
(IV) Excise and customs duties
(V) Local taxes and fees
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Corporate Income Tax
Business profits are subject to corporate income tax and municipal tax. The table below shows the tax rates applicable for 2005, 2006 and 2007 :
Corporation Tax Rate |
| |
2005 |
2006 |
2007 |
| Corporate tax |
19.5% |
15% |
10% |
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Taxpayers, taxable base
Taxpayers are all resident entities (including non-incorporated business) and permanent establishments of non-residents. Resident taxpayers are taxed on their worldwide income. Other entities are taxed on their Bulgarian-source income. The Bulgarian branches of non-resident companies are deemed Bulgarian resident companies for tax purposes. Non-business organisations (including governmental) are taxed for their business activities. Representative offices are not subject to corporate taxation, due to the fact that they are not allowed to carry out business activities.
There are no group taxation rules. Tax anti-avoidance rules cover transfer pricing and related persons.
Taxable income is determined based on the accounting income adjusted for tax purposes. In principle, expenses related to business activities are tax deductible.
The tax deductibility of the depreciation expenses is restricted by tax allowable depreciation limits. For tax purposes the law determines tax allowable depreciation methods and depreciation rates.
Taxpayers are entitled to carry forward losses over the following 5 years (10 years for banks). Carry-forward of foreign source losses is restricted. Loss carry-back is not permitted. The loss carry-over can be used with regard to the advance tax payments as well as on an annual basis.
The thin capitalisation rules establish the maximum interest costs allowed as deductions, and apply if the debt financing of a company exceeds its equity financing for the respective year.
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Tax incentive for investments in depressed regions
Entities, investing in regions with high unemployment, enjoy a reduction of the corporate income tax (not the municipal tax) amounting to 10% of the investment. The sum used for reduction is accounted for as reserves and if greater than the corporate tax in the respective year, it can be used to reduce the corporate tax in the following 5 years.
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Personal Income Tax - Taxpayers, taxable base, tax rates
Bulgarian law distinguishes between resident and non-resident taxpayers. Residents, irrespective of their citizenship, are deemed those persons who have their permanent domicile in Bulgaria or reside in the country more than 183 days in any 365 days’ period (in this case the individual becomes a resident taxpayer for the calendar year in which the 183-day threshold is exceeded). Resident taxpayers are taxed on their worldwide income. Non-residents are liable only for their income derived from Bulgarian sources.
The annual taxable base is the sum of all taxable incomes received, deducted by:
- mandatory and voluntary national insurance, pension, health insurance, unemployment fund contributions
- statutory deductions applicable only to non-employment contracts (e.g. 35% of the gross income for services contracts; 25% for management fees)
- relieves for donations not exceeding 5% of the taxable income after other statutory deductions have been made – not applicable to employment income
There are no tax deductions related to personal allowances for spouses and dependants.
In principle, the total annual income is taxed in accordance with an annual progressive scale, the highest marginal rate being 40%.
Incomes derived under an employment contract are taxed on a monthly basis and the annual tax obligation is subject to adjustment on an annual basis, to which the annual progressive scale applies.
The law provides for of specific treatments of such types of income as royalty payments and technical services fees, interest payments, income received by independent contractors and freelancers, rentals, income of managers and board members, etc.
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Value Added Tax
The Bulgarian VAT legislation generally follows the provisions of the EU Sixth VAT Directive. VAT is charged on the price due to a supplier of goods or services, increased by certain costs, taxes and charges, less the VAT chargeable itself. Most supplies of goods or services and imports are subject to a 20% VAT. A zero rate of VAT applies to export supplies and to supplies of precious metals to the Central Bank. Foreign companies or individuals have the right to recover the Bulgarian VAT subject to certain conditions.
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Types of exempt supplies (VAT)
- Supplies delivered outside the territory of Bulgaria (Bulgaria has adopted the EC definition of place of supply of goods and services)
- Supplies of goods in customs warehouses within the frame of the respective customs procedure.
- Supplies exempt due to their subject, such as transfer of ownership and limited property rights on land; financial and insurance services, lease of buildings and parts thereof, if these are leased out for dwelling purposes, etc.
Specific rules apply to registered persons making both taxable and exempt supplies.
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VAT credit
Only VAT registered persons may charge VAT on taxable supplies and recover input VAT charged to them. The VAT refund can be made within 45 days following the 6-month term. Exporters are entitled to a VAT credit within 45 days. As a rule, VAT is not refundable to non-registered persons. The VAT credit can be offset against the VAT due and against other liabilities to the State within 6 months.
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Registration and tax period (VAT)
Compulsory Registration
Any taxable person having a taxable turnover of BGN 50,000 or more for a period not axceeding twelve consecutive months last preceding month shall be obligated to submit an application for registration under this Act within 14 days after lapse of the tax period during which such turnover has accrued to the said person.
Optional Registration (Voluntary)
Any taxable person, whereto the conditions for compulsory registration covered under herein do not apply, shall have the right to register VAT Act.
VAT registered persons must submit VAT returns and pay the VAT due to the State Budget on a monthly basis.
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Excise duties
Excise duties are charged on importation and sale within the country of specific goods such as fuel, tobacco products, alcoholic beverages, coffee, some types of cars. Excise duties are also charged on gambling. Excise duties are calculated as a percentage of the sale price/customs value (e.g. coffee), or as a flat amount in BGN per unit (e.g. fuel, tobacco). Excise duties do not apply to exports. Excise duties paid in respect of exported goods are refunded within 30 days from the date of the export.
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Local taxes
The Bulgarian tax system comprises such local taxes as real estate tax, inheritance tax, conveyance of property tax. Local fees are due for services provided by the municipalities as the most significant fee is the garbage collection fee.
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Tax on insurance and re-insurance premiums
Insurers pay a one-time 7% final tax on insurance premiums and on any other kind of income and are not obliged to pay corporate income taxes separately for their activities other than insurance or re-insurance. The rate applicable to life assurance income is 3%.
Taxation of companies in the gambling business
The income of companies (bets collected) organising the games:
TOTO, LOTTO and bets made on the outcome of sports matches, is subject to a 8% final tax, and
over the phone, BINGO, KENO, and other lotteries - 12% final tax.
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Taxation of company expenses
Entertainment and representative expenses, sponsorship and business gifts, that do not bear the trademark of the donating company, are subject to a final 25% tax.
Expenses representing bonuses to staff, benefits in kind, as well as expenses for maintenance, repair and exploitation of cars are subject to a final 20% tax.
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Withholding taxes
Certain types of income originating from Bulgaria and payable by a Bulgarian resident to foreign entities are subject to a 15% withholding tax, if the foreign entities do not realise them through a permanent establishment. These types of income are dividends and liquidation proceeds, interest, including such under finance leases, royalties, technical services fees, rentals, payments under operating leases, franchising and factoring, capital gains from sale of real estate, stakes in the limited companies’ capital, securities and financial assets.
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Patent tax
Individuals and legal entities conducting certain commercial activities and having a total annual income of up to BGN 75,000 (equal to EUR 37,500) pay patent tax as an alternative to the personal income tax. The amount of the patent tax does not depend on the income derived throughout the year, but is a lump sum set by law for each type of activity and for each region in the country.
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Double tax treaties
As per the Constitution, DTTs override the domestic laws. DTTs set reduced or zero rates of withholding taxes, and apply directly. Currently, Bulgaria is a party to 43 DTTs (please see table below).
Income
|
Dividends,
Per cent |
Interest,
Per cent |
Royalties,
Per cent |
Capital gains from securities,
Per cent |
Armenia (Note 1, 6) |
5/10 |
10/0 |
10 |
0 |
Albania (Note 3, 6, 9) |
5/15 |
10/0 |
10 |
0/15 |
Austria (Note 13) |
0 |
0 |
0 |
0 |
Belarus (Note 6) |
10 |
10/0 |
10 |
0 |
Belgium (Note 6) |
10 |
10/0 |
5 |
0 |
China (Note 2, 6, 9) |
10 |
10/0 |
7/10 |
0/15 |
Croatia |
5 |
5 |
0 |
0 |
Cyprus (Note 12) |
0 |
0 |
0 |
0 |
Czech Republic (Note 9, 11) |
10 |
10/0 |
10 |
0/15 |
Denmark (Note 3) |
5/15 |
0 |
0 |
0 |
Finland (Note 4, 9) (Note 13) |
10 |
0 |
0/5 |
0/15 |
France (Note 5) |
5/15 |
0 |
5 |
0 |
Georgia (Note 6) |
10 |
10/0 |
10 |
0 |
Germany |
15 |
0 |
5 |
15 |
Hungary (Note 6) |
10 |
10/0 |
10 |
0 |
India (Note 6) |
15 |
15/0 |
15/20 |
15 |
Indonesia (Note 6) |
15 |
10/0 |
10 |
0 |
Italy |
10 |
0 |
5 |
0 |
Japan (Note 3, 6) |
10/15 |
10/0 |
10 |
15 |
Kazakhstan (Note 8, 9) |
10 |
10 |
10 |
0/15 |
Luxembourg (Note 3) |
5/15 |
10 |
5 |
0 |
Macedonia (Note 3, 6, 9) |
5/15 |
10/0 |
10 |
0/15 |
Malta (Note 13) |
30 |
0 |
10 |
0 |
Morocco (Note 5, 9) |
7/10 |
10 |
10 |
0/15 |
Moldova (Note 3, 6, 9) |
5/15 |
10/0 |
10 |
0/15 |
The Netherlands (Note 3, 7, 9) |
5/15 |
0 |
0/5 |
0/15 |
Norway |
15 |
0 |
0 |
0 |
North Korea (Note 6) |
10 |
10/0 |
10 |
15 |
Poland (Note 6) |
10 |
10/0 |
5 |
0 |
Portugal (Note 3, 6) |
10/15 |
10/0 |
10 |
0 |
Romania (Note 3, 6) |
10/15 |
15/0 |
15 |
0 |
Russian Federation (Note 6) |
15 |
15/0 |
15 |
0 |
Spain (Note 3) |
5/15 |
0 |
0 |
0 |
Singapore (Note 6) |
5 |
5/0 |
5 |
0 |
South Korea (Note 5, 6) |
5/10 |
10/0 |
5 |
0 |
Sweden (Note 9) |
10 |
0 |
5 |
0/15 |
Switzerland (Note 3,10,14) |
5/15 |
10/0 |
0/5 |
0 |
Turkey (Note 3, 6, 9) |
10/15 |
10/0 |
10 |
0/15 |
Ukraine (Note 3, 6, 9) |
5/15 |
10/0 |
10 |
0/15 |
United Kingdom |
10 |
0 |
0 |
0 |
Vietnam (Note 6, 9) |
15 |
10/0 |
15 |
0/15 |
Yugoslavia (Note 3) |
5/15 |
10 |
10 |
0 |
Zimbabwe (Note 3, 6, 9) |
10/20 |
10/0 |
10 |
0/15 |
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