From January 1 2008, income of physical persons in Bulgaria will be taxed at a flat tax rate of 10 per cent, Parliament decided on December 17, when it accepted in second reading changes to the Law on taxation of income for physical persons.

Income from life-insurance contracts after the end of the contracts, would be taxed at 7 per cent, Dnevnik dialy said.

Income taxes on dividend and liquidation of shares will be five per cent in 2008.

Rejected were proposals for the introduction of a income tax-free foot of 220 leva per month, as well as a proposal for the continuation of so-called family income tax.

People with disabilities causing 50 or more per cent reduced ability to work, will receive an income tax-free foot of 660 leva per month.

Maintained, after it had first been removed, were tax deductions on donations. Taxable income can be reduced with up to five per cent, if donations are made to organisations or institutions, Parliament decided. The list of organisations and institutions include hospitals, homes for social care, childcare institutions, orphanages, kindergartens, schools and academies, registered churches and organisations for people with handicaps. Deductable are also donations made to the Bulgarian Red Cross, cultural institutions or donations for cultural goals, international educational or scientific exchange, fund Energy efficiency, as well as donations made to communes for drug addicts.

Deductibles for certain categories of income will continue to apply, but at a lower rate. Forty per cent for income derived from the sale of products of agriculture, fishing, hunting and forestry, copyrighted works, licences, inventions, works of science, culture and art, artistic performances and crafts, 25 per cent for self employed and freelance work and 10 per cent for managerial work and participation in controlling bodies.

Income tax for sole traders was set at 15 per cent by Parliament.