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Taxation
Bulgaria has reformatted significantly its taxation system to harmonise it with EU legislation.
The tax year begins on January 1 and ends on December 31.
Corporate tax
In 2006 Bulgaria’s Cabinet decided to decrease the corporate tax rate for 2007 to 10 per cent. Local and foreign companies operating in Bulgaria are liable to corporate tax. Organisations engaged in gambling and trade shipping, as well as state-owned companies which pay alternative taxes instead of corporate tax are an exception.
The tax amount is calculated based on the declared profit for the previous year. Tax is paid in advance in monthly installments. The deadline for submission of tax declarations is March 31.
In April, companies pay the difference between the tax amount paid over the previous year and the actual amount of tax owed.
VAT
Any “autonomous economic activity,” such as services, trade and production, which is performed regularly in Bulgaria is liable to Value-Added Tax (VAT) when the turnover reaches 50 000 leva for a year. VAT rate in the country is 20 per cent. A reduction of the tax amount has been considered for some time but no specific decisions have been taken yet.
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 severe. Tourism companies currently pay only seven per cent VAT.
Personal income tax
All permanent residents of Bulgaria, having income in the country are liable to 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 assets declaration by April 15 and to pay the tax owed within 30 days from the submission. The wage one receives under a labour contract is taxed on a monthly basis under the following scheme:
Monthly income Tax
Up to 200 leva 0%
200.01 to 250 leva 20% of the sum exceeding 200 leva
250.01 to 600 leva 10 leva and 22% of the sum exceeding 250 leva
Above 600.01 leva 87 leva and 24% of the sum exceeding 600 leva
At the end of the year the amount of the tax due is calculated under another scheme:
Annual income Tax
0 to 2400 leva 0%
2401 – 3000 leva 20% of the sum exceeding 2400
3001 – 7200 leva 120 leva and 22% of the sum exceeding 3000
7201 and above 1044 and 24% of the sum exceeding 7200
The difference between the tax already paid on monthly installments and the tax due is either paid in addition by the employee, or returned by the state.
Income received by civil contractors and freelancers is taxed under the same schemes. The difference is that the tax amount to be paid in advance every month can be deducted with up to 70 per cent of the total income depending on the activity of the contractor.
Double taxation
Foreigners, not Bulgarian residents but receiving incomes from Bulgaria are also subject to taxation. If Bulgaria has agreed with the foreigner's home state to avoid double taxation, the foreigner may require refund of the difference between the tax paid and the one due under the relevant double taxation agreement. To do so, the foreigner has to prove residence in the country with which Bulgaria has signed double taxation avoidance agreement. The foreigner should not have establishment or fixed base within Bulgarian territory related to the respective income.
Income which is not liable to taxation includes:
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 some 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.
The rule is applied to certain types of movable property such as 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.
Annual taxable base
The annual taxable base is the sum of all taxable incomes received during the calendar year, deducted by incomes taxed with a final (patent) tax, pension and health insurance, unemployment fund contributions, premiums received under life insurance.
Statutory deductions of 35 per cent of the gross income for services contracts and 10 per cent for management fees are applicable to non-employment contracts.
Tax relief on donations is also possible if they do not exceed 10 per cent of the taxable income after other statutory deductions have been made.
The tax year begins on January 1 and ends on December 31.
Corporate tax
In 2006 Bulgaria’s Cabinet decided to decrease the corporate tax rate for 2007 to 10 per cent. Local and foreign companies operating in Bulgaria are liable to corporate tax. Organisations engaged in gambling and trade shipping, as well as state-owned companies which pay alternative taxes instead of corporate tax are an exception.
The tax amount is calculated based on the declared profit for the previous year. Tax is paid in advance in monthly installments. The deadline for submission of tax declarations is March 31.
In April, companies pay the difference between the tax amount paid over the previous year and the actual amount of tax owed.
VAT
Any “autonomous economic activity,” such as services, trade and production, which is performed regularly in Bulgaria is liable to Value-Added Tax (VAT) when the turnover reaches 50 000 leva for a year. VAT rate in the country is 20 per cent. A reduction of the tax amount has been considered for some time but no specific decisions have been taken yet.
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 severe. Tourism companies currently pay only seven per cent VAT.
Personal income tax
All permanent residents of Bulgaria, having income in the country are liable to 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 assets declaration by April 15 and to pay the tax owed within 30 days from the submission. The wage one receives under a labour contract is taxed on a monthly basis under the following scheme:
Monthly income Tax
Up to 200 leva 0%
200.01 to 250 leva 20% of the sum exceeding 200 leva
250.01 to 600 leva 10 leva and 22% of the sum exceeding 250 leva
Above 600.01 leva 87 leva and 24% of the sum exceeding 600 leva
At the end of the year the amount of the tax due is calculated under another scheme:
Annual income Tax
0 to 2400 leva 0%
2401 – 3000 leva 20% of the sum exceeding 2400
3001 – 7200 leva 120 leva and 22% of the sum exceeding 3000
7201 and above 1044 and 24% of the sum exceeding 7200
The difference between the tax already paid on monthly installments and the tax due is either paid in addition by the employee, or returned by the state.
Income received by civil contractors and freelancers is taxed under the same schemes. The difference is that the tax amount to be paid in advance every month can be deducted with up to 70 per cent of the total income depending on the activity of the contractor.
Double taxation
Foreigners, not Bulgarian residents but receiving incomes from Bulgaria are also subject to taxation. If Bulgaria has agreed with the foreigner's home state to avoid double taxation, the foreigner may require refund of the difference between the tax paid and the one due under the relevant double taxation agreement. To do so, the foreigner has to prove residence in the country with which Bulgaria has signed double taxation avoidance agreement. The foreigner should not have establishment or fixed base within Bulgarian territory related to the respective income.
Income which is not liable to taxation includes:
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 some 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.
The rule is applied to certain types of movable property such as 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.
Annual taxable base
The annual taxable base is the sum of all taxable incomes received during the calendar year, deducted by incomes taxed with a final (patent) tax, pension and health insurance, unemployment fund contributions, premiums received under life insurance.
Statutory deductions of 35 per cent of the gross income for services contracts and 10 per cent for management fees are applicable to non-employment contracts.
Tax relief on donations is also possible if they do not exceed 10 per cent of the taxable income after other statutory deductions have been made.
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