Taxation overview

In view of the country's upcoming European Union accession, Bulgaria has made considerable reforms in the taxation system to harmonise it with EU legislation.

In 2006, the corporate tax rate remains 15 per cent. Special-purpose investment companies and companies setting up in areas with high employment, however, are not liable to corporate tax. Insurance companies and organisations engaged in gambling.

The tax year runs from January 1 to December 31. The tax amount is calculated based on profit declared the previous year. Tax is paid in advance in monthly installments. Tax declarations should be submitted by March 31. In April, the company pays the difference between the tax amount paid over the previous year and the actual amount of tax owed.

Any “autonomous economic activity” performed regularly is liable to Value-Added Tax (VAT). Any such entity is liable to VAT on each supply of goods and services (including transfer of ownership) on Bulgarian territory. VAT is 20 per cent and although a reduction has been mooted there are no concrete plans. VAT is declared and paid on a monthly basis, the last deadline being the 14th of each month. Fines for late submission and payment are hefty. Tourism companies currently pay only seven per cent VAT.

All permanent residents in Bulgaria are liable for personal income tax. A permanent resident is considered anyone living over 183 days a year in the country. Every year employees are obliged to submit an annual income declaration by April 15 and pay the tax owed within 30 days from the submission. The wage you receive under a labour contract is taxed on a monthly bases.

The annual taxable base is the sum of all taxable incomes received during the calendar year, deducted by: incomes taxed with a final tax, mandatory and voluntary national insurance, pension, health insurance and unemployment fund contributions, as well as the premiums paid in on account of the persons under life insurance contracts and life insurance, if connected with an investment fund; statutory deductions applicable only to non-employment contracts (e.g., 35 per cent of the gross income for services contracts; 10 per cent for management fees); tax relief on donations not exceeding 10 per cent 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 dependents.

Double taxation
Foreigners not Bulgarian residents but receiving incomes from Bulgaria are also subject to taxation under the terms defined by Bulgarian laws. Provided Bulgaria has an agreement for avoiding double taxation with the foreigner's home state, after the tax payment, the foreign person may request a refund of the difference between the tax paid and the one due under the relevant double taxation agreement. In such cases, the foreign person has to prove that he is a resident of the country with which Bulgaria has signed such an agreement, and that he has no establishment or fixed base within Bulgarian territory related to the respective income.

Royalty payments [amount of money paid to the owner of an intellectual property rights (licensor)] for the use of copyright or patent. According to Bulgarian laws when paid to non-Bulgarian residents, the payments are subject to a 15-per cent withholding tax. The same rule is valid for technical services fees.

Tax exemption incomes include:
1.Income from the sale of certain types of residential apartments and cars
2.Money from the sale of securities
3.Deposit interests
4.State subsidies for children
5.Student grants
6.Lottery prizes

Capital Gains
The tax base in case of sale or exchange of immovable and certain movable property is the difference between the selling price and the higher price between the factual and updated price paid for the acquisition of such property. This rule applies to certain types of vehicles (e.g., aircraft, sea vessels and cars). For any other type of movable property the tax base is the difference between the selling price and the re-valued price for the acquisition of such property.

Rental Income Received
Twenty per cent of the income is tax deductible. If the rent is payable to a non-Bulgarian tax resident, a 15 per cent withholding tax is levied.