Doing business in Bulgaria
Saving taxes is one of the reasons why many businesspeople and companies have chosen to set up a company in Bulgaria. Bulgaria offers an excellent fiscal climate: a flat corporate income tax rate of 10%, a flat personal income tax rate of 10%, a dividend tax of 5% (dividends distributed to parent companies in the EU are taxed at 0%) and a wide network of double tax treaties.
Bulgaria is situated in South Eastern Europe. It is bordered by Serbia and Macedonia to the west, Greece and Turkey to the south, the Black sea to the east, and Romania to the north. The territory of the country is 110,994 square kilometres. The population is estimated at 7,37 million people. Bulgaria is a parliamentary republic and is a member of the EU, NATO, the Council of Europe and the Organization for Security and Co-operation in Europe (OSCE).
The capital is Sofia, Bulgarian is the official language and Cyrillic is the official script. The currency is the lev (BGN).
Doing business in Bulgaria and enjoying Bulgaria’s fiscal friendly climate is easier than you might think. Bulgaria offers excellent opportunities to companies and entrepreneurs from within the EU to minimise taxes. According to the EU’s freedom of movement principle, you are allowed to do business anywhere in the EU. The European Court confirmed that the freedom of movement also includes moving (part of) a company to another member state for taxation purposes only.
Over last decade all Bulgarian governments follow the practice to encourage foreign investors with:
- low taxes
- less restrictions
- less administrative procedures
- anti-monopoly actions
The newly elected government has announced its intentions to continue with these policies over the next 4 years.
- Some areas with 0% Corporate tax!!!
- New possibilities in the Northwest region!!
Corporate income tax
The corporate income tax applies to companies and partnerships established under Bulgarian law and permanent establishments of non-resident entities in Bulgaria. The corporate tax rate is 10% and is calculated on the taxable profit. The taxable profit is the annual financial result adjusted for tax purposes.
The taxable income for calculating withholding tax includes seven types of income when accrued to a non-resident entity:
- Capital gains resulting from transactions with real estate,
- Capital gains from disposal of financial assets issued by the State/municipalities or resident entities (there is an exemption for capital gains resulting from disposal of shares on a regulated Bulgarian/EU/EEA market),
- Dividends and liquidation quotas,
- Income from renting out movable property or real estates,
- Interest, royalties, franchising and factoring fees,
- Service fees and remuneration for the use of rights (except for the actually received rights); penalties or damage fees (with the exception of insurance compensation) accrued to entities having tax residence in low tax jurisdictions,
- Technical and management services fees.
The withholding tax rates are as follows:
- 5% on the gross amount of dividends and liquidation quotas (0% for distributions to EU/EEA entities)
- 5% on interest and royalties accrued to related party legal entities residing in the EU (under several conditions). Starting from the first of January 2015, Bulgaria has to implement the EU Interest and Royalties Directive: 0% withholding tax on interest and royalties paid to an associated company of another member state.
- 10% on the gross amount of all other taxable income
If tax treaties are applicable, the rates of withholding tax can be reduced.
The countries which concluded double taxation treaties with Bulgaria are:
Albania, Algeria, Armenia, Austria, Azerbaijan, Bahrain, Belarus, Belgium, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Democratic People’s Republic of Korea, the Republic of Korea, Kuwait, Latvia, Lebanon, Lithuania, Luxembourg, Macedonia, Malta, Morocco, Qatar, Moldova, Mongolia, Netherlands, Norway, Poland, Portugal, Romania, Russian Federation, Spain, Singapore, Slovakia, Slovenia, South Africa, Sweden, Switzerland, Syria, Thailand, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States of America, Uzbekistan, Vietnam, Yugoslavia, Zimbabwe.
Taken into account certain limitations and conditions (including the EU state aid restrictions), a tax holiday allows for a reduction of the amount of the annual corporate income tax due on profits from manufacturing activities.
Exemptions from corporate tax
Special purpose investment companies, close-ended licensed investment companies and collective investment schemes authorised for public offering in Bulgaria are exempt from corporate income tax.
Special corporate tax regimes
There are special corporate tax regimes for (1) commercial maritime shipping companies, (2) gambling businesses and (3) other entities, such as government institutions.