Corporate Taxation in Bulgaria
Bulgaria offers an attractive corporate income tax rate of only 10%! Additionally, the process of VAT registration in Bulgaria is both simple and speedy, typically taking just 14 days.
– Taxable Entities: Companies and partnerships established under Bulgarian law.
– Permanent establishments of non-resident entities in Bulgaria.
– Taxable Profit: The taxable profit is the financial result adjusted for tax purposes.
– Accounting Rules: Companies can adhere to either International Financial Reporting Standards (IFRS) or the local Bulgarian Generally Accepted Accounting Principles (GAAP), particularly designed for small and medium-sized enterprises.
– Carry Forward of Tax Losses: Tax losses can be carried forward over the next five consecutive years.
– Tax Returns and Payment: The annual corporate tax return must be submitted by March 31st of the following year.
– Tax year is the calendar year: The corporate tax, which follows the calendar year, is due by March 31st. Quarterly or monthly advance installments are also required throughout the year.
Value Added Tax (VAT)
The Bulgarian VAT legislation is aligned with EU VAT rules and Directive 2006/112/EC.
Bulgarian VAT Rates
20% for domestic supplies, intra-community acquisitions, and importation from non-EU countries.
9% for hotel accommodation services.
Exemptions
Certain transactions and supplies are exempt from VAT, including those related to international trade, exports to non-EU countries, and supplies with the right to deduct input VAT, among others. However, no right to deduct input VAT applies to specific transactions, such as the transfer or rental of land, financial and insurance services, and more.
Applying for VAT registration in Bulgaria
Entities are obliged to register for Bulgarian VAT under the following conditions:
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– Transactions with a place of supply in Bulgaria for which the supplier must charge VAT, exceeding BGN 50,000 (approximately EUR 25.6 thousand) over the last 12 months.
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– Intra-community acquisitions exceeding BGN 20,000 (approximately EUR 10.2 thousand) during the calendar year.
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– Distance sales in Bulgaria exceeding BGN 70,000 (approximately EUR 35.8 thousand) during the calendar year.
Foreign entities with premises in Bulgaria performing supply of goods to non-VAT registered customers must register, regardless of their taxable turnover. Additionally, foreign entities receiving services in Bulgaria with a place of supply requiring self-charging of Bulgarian VAT must also register. Any entity may apply for voluntary VAT registration, but once registered voluntarily, deregistration is not possible for two years following the year of registration.
VAT Returns and Payment in Bulgaria
Monthly VAT returns must be filed by the 14th of the following month. The tax period follows the calendar month. European Sales List (VIES) returns must be submitted monthly by the same deadline if intra-community supplies of goods or certain services were provided during the respective month.
Withholding Tax in Bulgaria
Withholding tax applies to various types of income when accrued to non-resident entities. These include dividends, interest, royalties, and more. The withholding tax rates vary, depending on the type of income and other factors. These rates may be reduced under applicable tax treaties.
Distribution of Dividends
Dividends distributed to individuals, resident non-profit entities, and non-resident entities (except EU/EEA entities) are subject to a 5% withholding tax. However, dividends distributed to resident companies are generally not included in their taxable income, with certain exceptions.
Double Taxation Treaties
Bulgaria currently has 68 tax treaties (DTTs) in force, including DTTs with all EU Member States. These DTTs primarily follow the OECD Model Convention, though some older treaties with developing countries and the DTT with the USA are based on different models. It’s important to note that DTTs do not apply automatically in Bulgaria. Taxpayers must follow a specific procedure, including collecting necessary documents as evidence of tax residency and real beneficiary status, and obtaining preliminary approval from Bulgarian tax authorities for a DTT to apply to income exceeding a specified threshold.
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