Legal entities are obligated to pay different types of taxes in Bulgaria – corporate tax (income tax), VAT, tax on dividends and liquidation shares from participation in local legal entities, interest tax, etc. Here is a brief overview of tax regime in Bulgaria.
CORPORATE INCOME TAX (CORPORATE TAX)
According to the Corporate Income Tax Act (CITA) all local entities established under Bulgarian law are taxable for profit accruing from business activities within Bulgaria.
The tax period for determining the corporate tax is one calendar year.
The rate of corporation tax is 10%.
The taxable amount for assessment of the corporation tax is the tax profit.
Annual tax returns must be completed and submitted to the National Revenue Agency by no later than 31 March of the following year. The annual activity report shall be submitted together with the annual tax return. The taxable persons which did not carry out activity during the tax period shall not submit an annual tax return and annual activity report.
Any taxable person shall remit the corporation tax for the relevant year on or before the 31st day of March of the next succeeding year.
Taxable persons are:
- the resident legal persons;
- the non-resident legal persons which carry out economic activity in Bulgaria through a permanent establishment, which effect disposition of property of any such permanent establishment, or which receive income from a source inside the Republic of Bulgaria;
- the sole traders as well as the natural persons registered as tobacco manufacturers and farmers;
- the natural persons who are merchants within the meaning given by Article 1, para. 3 of the Commerce Act;
- the employers and the commissioning entities under contracts for management and control: in respect of the tax on the expenses on fringe benefits;
- any non-resident organizationally and economically distinct formation (trust, fund and other such), which independently carries out economic activity or performs and manages investments.
INCOME TAX FOR INDIVIDUALS
Subject of taxation under the Income Taxes on individuals Act (ITIA) is the income accruing to resident and non-resident natural persons.
Resident natural person, regardless of nationality, is any person:
- with a permanent address in Bulgaria, or
- present within the territory of Bulgaria for a period exceeding 183 days in any twelve-month period, or
- whose center of vital interests is situated in Bulgaria.
Аny resident in Bulgaria is liable to pay taxes in respect of any income acquired thereby from sources inside and outside the Republic of Bulgaria.
Аny non-resident is liable for taxation in respect of any income acquired from sources within the Republic of Bulgaria (income from remunerations, rentals, services, dividends from participation in local legal entities etc.).
Thе tax period is the calendar year. Taxable income and the tax base are determined by each source of income separately under provisions of the law.
The annual rate of the income tax in Bulgaria is 10% of the income.
Bulgarian residents submit an annual tax return for income accrued during the financial year, to the National Tax Agency, by no later than April 30 of following year.
For income from employment relationships the employer is obliged to withhold monthly advance tax at the rate of 10% of the monthly tax base.
Monthly tax base is determined, as the taxable income from employment, calculated for the respective month, is reduced by the withheld by the employer mandatory contributions, which are paid by the individual under the existing social legislation in Bulgaria.
The employer upon final payment of taxable income for the respective month withholds the tax. When during the respective month are made only partial payments for the current or for another month, the employer pays tax, determined on the gross amount of the partial payments.
The advance tax, which the employer is obliged to withhold, should be submitted by no later than 25th day of the current month. Following which, the tax is withheld or partial payments are made.
TAXES WITHHELD AT SOURCE
Under the Bulgarian law, companies in Bulgaria which accrue income to non-resident legal persons or non-resident individuals are obligated to withhold and to remit a withholding tax at the source.
The basic incomes that are taxable with withholding tax at the source are:
- Dividends and liquidation shares in local legal entities;
- Income from financial assets and transactions in financial assets, issued by local legal entities, the state and municipalities;
- Interest, including interest comprised in financial leasing installments;
- Income from rent or other provision for use of movable property;
- Author’s and royalties;
- Income from rent or other provision for use of immovable property situated in the country;
- Income from the disposal of immovable property situated in the country;
- Remuneration under franchising agreements and factoring;
- Remuneration for management or control of a Bulgarian legal entity;
- Income from agriculture, forestry, hunting and fishing on the territory of the country;
- Remuneration for technical services;
- Penalties and compensations.
The tax base, upon which the tax is payable at the source, is different for the different types of income in the above-mentioned income. In certain circumstances and assumptions, the legislation provides the appropriate exemptions from taxation. In determining the tax withheld at source on a particular type of income, the resident legal or natural person – payer of the income should comply with the specific provisions of the Convention between the government of the Republic of Bulgaria and the government of the resident legal or natural person if there is such with the country concerned, to prevent double taxation (DTC).
The tax rate on income tax from dividends and liquidation shares is 5%.
The tax rate in determining the tax on all other taxable income is 10%.
Bulgarian companies, which appear payers of income, are obligated to withhold and remit the withholding tax by the end of the month following the quarter of income assessment. For this purpose, by the end of the month following the quarter a declaration to the National Revenue Agency is prepared and submitted.
When the withholding tax is not withheld and remitted accordingly to the law, it is jointly payable by Bulgarian companies as well as the respective payers of such income.
TAX ON EXPENSES
A tax on expenses shall be levied on the following expenses supported by documents:
- Any business entertainment expenses. This type of expenses could be: expenses for meetings, stay and sending of guests and delegations; payment for a night’s lodging; consumption of food and beverages; organization of business meetings; celebrations, entertainment events; excursions;
- The expenses related to operation of means of transport where used to service management operations;
- Any expenses on fringe benefits provided in kind to hired persons, including the expenses on contributions (premiums) for supplementary voluntary social insurance and for voluntary health insurance and for life assurances and the expenses on food vouchers, etc.
Taxable persons shall be persons, which are subject to levy of corporate tax and have reported such expenses.
In general, the tax base for determining the tax on expenses, are the accrued expenses for the calendar year.
The tax rate of the tax on expenses is 10%.
The tax on expenses is declared and paid with an annual tax return submitted by the taxable person no later than March 31 of the following year.
VALUE ADDED TAX (VAT)
The regime of taxation with the value added the Value Added Tax Act (VATA) regulates tax.
Subject of taxation is any taxable supply of goods or services, if carried out by a taxable person under this Act and is with location of execution on the country’s territory, as well as the supply, taxable at zero rate, carried out by a taxable person, except in cases where this law provides otherwise.
A taxable person is any person who independently carries out any economic activity, whatever the purpose and results.
VAT registration is mandatory or optional.
Mandatory VAT registration must have any taxable person with a taxable turnover 50 000 BGN or more for a period not longer than 12 consecutive months before the current month. The person is required within 7 days of the expiration of the tax period, during which he has reached such turnover, to submit application for registration under this Act. Registration obligation arises regardless of the period for which taxable turnover is achieved, but not for a period longer than 12 consecutive months.
Any taxable person for whom there are no conditions for compulsory registration may register voluntarily under the VATA.
Persons who had performed compulsory VAT registration have the right of voluntary deregistration when the relevant reason is eliminated, namely when the taxable turnover for the last 12 consecutive months before the current month, falls below 50 000 BGN.
Persons, who had performed VAT registration optional, have no right to terminate their registration earlier than 24 months from the beginning of the calendar year following the year of registration under the VATA.
The tax rate of VAT in Bulgaria is 20% for all taxable supplies, unless explicitly indicated as zero-rated.
For the supplies related to the provision of tourist accommodation services in hotels and similar establishments is applied reduced tax rate of 9%.
The amount of tax shall be determined as the tax base is multiplied by the tax rate.
Tax period for reporting under this law is one month and coincides with the calendar month.
VAT registered persons shall keep the following accounting records:
- A purchase day book
- A sales day book
For each tax period, the registered person shall submit a VAT return, compiled on the basis of accounting registers for VAT. VAT registered person who has performed, during the tax period intra-Community supplies, supplies as an intermediary in a three partite operation or supply of services with location of performance on the territory of another Member State, together with the VAT return, he has to submit and VIES-declaration for the purposes of international exchange of tax information. Declarations and accounting registers for VAT are submitted to the National Revenue Agency up to and incl. the 14th day of the month, following the tax period to which they relate.
For more information or legal assistance in conjunction with the tax regime in Bulgaria please do not hesitate to contact us by e-mail: firstname.lastname@example.org or call us on: +359 2 851 72 59.