Company Taxation

Corporate tax has been reduced to 15% for 2005. If this government carries on for a second term this may be reduced further, but if the Socialist Party gets in it will not be reduced and may even be increased in subsequent years.

In December 2003, Parliament provided that licensed special investment purpose companies will be exempt from corporate tax. Companies setting up in areas with high employment also pay 0% tax.

The tax year runs from 1st January to 31st December and company tax returns must be in by 31st March and taxes must be paid within 15 days of submitting the declaration. Monthly advance tax payments are obligatory and calculated on the basis of the previous year’s declared profit. The amount paid in April is then the difference between the advance tax paid and the actual profit declared.

Dividends are taxed at 15% at the source (the paying company or partnership), which is the final tax on this kind of income (except when the dividends are distributed to local commercial companies). Stock dividends are not taxable.

VAT

VAT is 20% and although a reduction has been mooted there are no concrete plans. The Socialist Party has said that if it wins the June 2005 elections it will reduce VAT on some products, namely those of primary importance. 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.

Personal Income Tax

Bulgarian tax residents are all individuals who have their permanent domicile in the country, spending more than 183 days in any 365-day period ending within the calendar year in question.

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, 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 dependants.

The annual income tax declaration is due by April 15 each year, and must be paid within 30 days of the submission of the tax declaration. Wages paid under a labour contract are taxed on a monthly basis and adjusted on an annual basis by applying the annual progressive scale below. Income Received by Civil Contractors and Freelancers is subject to a 20 per cent advance tax, but between 35 and 50 per cent of the gross income is tax deductible. The pre-paid tax is set off against the final annual tax obligation.

The taxation table changes each year, with the tendency to go down for the past several years.

Annual tax rate table

Double Taxation

Changes to taxation rules in 2003 provided that the income of a foreign person who is resident in a state with which Bulgaria has signed an agreement on avoiding double taxation, but who has earnings in Bulgaria, will be declared as subject to taxation under the terms and procedure of the respective Bulgarian tax law.
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.

Any income derived by an individual from the conduct of business on the territory of Bulgaria is considered to be from a Bulgarian source. A person is considered to have carried out business on the territory of the country where he has a permanent establishment or a fixed base in Bulgaria; he has assigned or performed an assignment on the territory of the country, whether in person or through a procurator, agent or in some other way.
Any income under an employment contract or derived from rendering services is considered to have been derived from a Bulgarian source where labour has been extended or services have been delivered on the territory of the country, regardless of the source of payment for the labour extended or services rendered.

Royalty payments and technical services fees, when paid to non-Bulgarian tax residents, are subject to a 15 per cent withholding tax at the source (the paying company or partnership). No additional tax is levied. Fees for management services are not considered technical services fees and are not subject to withholding tax.

Tax Exempt income

The following are considered tax exempt: incomes derived from the sale or exchange of certain types of immovable property (flats, houses or villas) or means of transport, subject to certain conditions; incomes derived from the sale or exchange of movable property except for the means of transport as per the preceding bullet, as well as the sale of shares, quotas and other equity interest in a commercial company, etc; compensations received as a result of statutory pension, health and social security insurance, as well as other certain compensations; interest accrued on deposits in local commercial banks and branches of foreign banks, the interest and expenses on court-awarded claims, as well as incomes derived from investments of the insurance reserves on life insurance, marriage and children's insurance and life insurance, if connected with an investment fund; cash and non-cash income from social financial aid and the unemployment compensations and subsidies; financial aid granted by social funds and organisations; subsidies from the state in respect of children and payments determined by court to support a child; student grants for Bulgarian resident individuals for their education in the country and abroad; prizes from the lottery and other games of fortune; salaries and emolument of foreign diplomats pursuant to the Vienna Convention on Diplomatic Relations; company profits distributed as new quotas and shares in commercial companies, as well as the profits distributed as an increase in existing quotas and shares' par value; rentals from agricultural land; and incomes derived from transactions with public companies' stocks and trading rights on public companies' stocks, made on the regulated Bulgarian stock market.
Incomes, not specified by PITA as tax exempt, are considered taxable.

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

20 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.