TAXES AND CONDITIONS IN BULGARIA
see also "Normarive deed"
Currency: Bulgarian Lev (BGN)
Accounting principles/financial statements: Bulgaria applies IFRS as a statutory accounting basis. Only certain entities are entitled to opt to apply the national financial reporting standards for small and medium sized enterprises.
Principal business entities: these are the limited liabilities company, joint stock company, sole trader and branch of nonresident company.
- Residence – Bulgarian residents include: a legal person incorporated under Bulgarian law; a company incorporated under Council Regulation (EC) No. 2157/2001 and any cooperative society incorporated under Council Regulation No. 1435/2003, when the registered office of the entity is in Bulgaria and the latter is entered in a Bulgarian register; or a branch office or permanent establishment of a foreign company.
- Basis – Residents are taxed on their world wide income, whereas nonresidents are taxed only on Bulgarian-source income.
- Taxable income – Taxable income comprises accounting profits as per the profitand loss account adjusted for tax purposes.
- Taxation on dividends – Dividend income recieved by a Bulgarian company from another Bulagrian company is not subject to taxation in the hands of the recipient, nor is the income taxed at the hands of the payer of the dividends. Dividends recieved from tax residents in the EU or the EEA are excluded from taxable income. Non-exempt dividends are taxed as part of overall taxable profits.
- Capital gains – Capital gains are included in taxable income and taxed at the normal corporate income tax rate. Gains and losses on the disposal of shares on the Bulgarian and EU official stock exchanges are exempt, subject to certain requirements.
- Losses – Tax losses may be carried forward for 5 years to offset against future taxable profits. The carryback of losses is not permitted.
- Rate – 10%
- Foreign tax credit – A tax credit or exemption may apply under a tax treaty. If no treaty relief is available, Bulgaria grants a unilateral domestic tax credit.
- Dividends – Dividends and liquidation proceeds paid to a nonresident are subject to a 5% withholding tax, unless a lower rate applies under a tax treaty. Dividends and liquidation proceds distrubuted to legal entities that are tax resident in EU/EAA member atates are exempt for withholding tax.
- Interest – Interest paid to a nonresident is subject to a 10% withholding tax, unless a lower rate applies under a tax treaty. Under a transactional regime applies under a tax treaty.
- Royalties – Royalties paid to a nonresident are subject to a 10% withholding tax, unless a lower rate applies under a tax treaty.
Bulgaria levies withholding tax on the gross amount of payment. However, as from 1 January 2010, EU resident entities may claim a refund of a portion of the withholding tax paid on the gross income for the calendar year.
- Real property tax – The owner of real property is subject to a real property tax between 0.1% and 2.5% of the gross book value of nonresidential property and 0.1%-2.5% of the tax value of residential property. The precise rate is determined annually by the municipality.
- 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 2 600 per month.
Minimum theresholds per position and industry also apply.
- Transfer tax – A transfer tax is imposed on the sale or exchange of immovable property and motor vehicles, at rates ranging from 0.1% to 3,0%, determined by the municipality.
- Other – Taxes on expenses (entertainment costs, in-kind fringe benefits and the maintenance , repair and use of vehicles for management purposes). A gift tax is levied at a rate ranging from 0.4% to 6.6% of the value of donated property, depending on the relationships between the donor and the donee. The rate is determined by each municipality.
- Transfer pricing – Bulgarian transfer pricing rules generally follow the OECD transfer pricing guidelines. There are no mandatory documentation requirements, but the tax authorities are permitted to request transfer pricing documentation during the course of an audit. In case of transactions involving non-residents, the burden of proof is transferred to the Bulgarian taxpayer.
- Thin capitalisation – A 3:1 average annual debt-to equity ratio applies. Non-deductable interest expense may be carried forward for 5 years.
Tax year – Calendar year: The tax return and final payment of tax is due by 31 March of the year following the tax year. Companies must make monthly or quarterly advance payments of tax, based on their taxable results for the previous or current year. When advance tax paid exceeds the final liability, it may be offset against the following year’s corporate tax liability, including advance payments.
Value Added tax: The standard rate is 20%, with a reduced rate of 9% applying to hotel accomodations booked as part of a tour package. Export and intracommunity supplies are zero-rated.
Registration is compulsory for persons with a taxable turnover exceeding BGN 50 000, with respect to VAT taxable supplies with a place of supply in Bulgaria in any previous period not exceeding 12 months. Registration may be made on a voluntary basis regardless of turnover. The tax period for VAT is the calendar month; VAT returns must be filed monthly by the end of 14th day of the following month.
Tax authorities: National Revenue Agency
see also "Normarive deed"