Bulgaria

Tax residency – An OOD is tax resident in Bulgaria if it is incorporated under Bulgarian law.

Basis – Corporate income tax is levied on worldwide income.

Tax rate – The corporation tax rate is 10%.

Capital gains – Capital gains are subject to the corporate tax standard rate. Capital gains resulting from the sale of shares in listed companies on an EEA regulated securities market may be tax-exempt.

Dividends – Dividends are subject to corporate tax. A tax exemption may apply if dividends are distributed by EU/EEA companies if the distribution is not treated as a tax-deductible expense by the distributing entity.

Interests – Interests are subject to corporate income tax.

Royalties – Royalties are subject to corporate income tax.

Withholding Taxes – Dividends paid to individuals or non-resident entities are subject to 5%. An exemption applies on dividends paid to EEA resident entities.

Interests and royalties paid to non-residents are subject to a 5% unless the rate is reduced under a tax treaty or the EU interest and royalties directive applies.

Technical service fees paid to a non-resident are also subject to 10% withholding tax.

Foreign-source income – Foreign-source income is generally subject to corporate income tax. A tax credit for foreign tax paid may be available, either via the provisions of a DTT or via a unilateral tax credit (which amount may not exceed the amount of tax that would be payable in Bulgaria)

Losses – Losses may be carried forward 5 years, The carryback of losses is not allowed.

Inventory - Inventory valuations are usually made at the lower of cost or market value. In general, the book and tax methods of inventory valuation will be acceptable. Last in first out method (LIFO) is not allowed for taxation purposes.

Anti-avoidance rules – Transfer pricing rules are applicable to all types of transactions between related persons, which must be conducted at arm’s length according to the OECD’s principles. Usually, there are no documentation requirements.

Thin capitalization rules apply where the liabilities of a company exceed three time its equity, and interest expenses incurred may not be deductible.

There are CFC rules in Bulgaria.

Labor taxes – Employers and employees must pay social insurance contributions up to 19.62% and 13.78% of gross salary, respectively. The total amount payable is capped at BGN 2,600 per month.

Tax credits and incentives – There are tax credits, incentives, and deductions for companies conducting agricultural activities, the hiring of long-term unemployed, handicapped or elderly persons, and investing in regions with high unemployment.

Personal income tax – Tax residents in Bulgaria are individuals who reside 183 days in Bulgarian territory in a tax year, or have a permanent address in Bulgaria, or have its center of vital interests in Bulgaria.

The criterion of the center of vital interests prevails for the one of permanent address. That is, someone who has a permanent address in Bulgaria, but whose vital interest center is in another country, may not be considered a resident for tax purposes.

Tax residents are subject to tax on their worldwide income at a flat rate of 10%. A tax credit for foreign tax paid is usually available.

Dividends and interest are subject to a final tax of 5% and 8%, respectively.

Capital Gains are taxed at the standard PIT rate. Being exempted those gains derived from companies listed in the Bulgarian or a European regulated stock exchange, and those from properties held 3 years (1 property) or five years (other 2 properties).

Other taxes – V.A.T. standard rate is 20%. Reduced rates of 9% apply to certain goods and services.

Bulgaria levies a real property tax of between 0.01% and 0.45% on the tax value of the property. There is an inheritance and gift tax of between 0.4% and 6.6%, depending on the relationship of the beneficiary. There are no net worth and transfer taxes.