Bulgaria legal and accounting and tax considerations in 2023
Considerations for all legal entities
- Companies in Bulgaria are subject to a corporate tax rate of 10% on their worldwide income. Tax returns must be filed and fully paid by March the 31st. Failure to do so may incur up to 12% monthly interest on the outstanding amount;
- Small and Medium Enterprises (SMEs) having an annual turnover of less than €153,358 per annum, however, are not required to pay for their corporate tax obligations in advance. Moreover, they enjoy audit exemption if they cannot reach certain operational criteria, including the company’s i) the balance sheet reaching over €1.02 million by 31 Dec; ii) annual turnover reaching over €2.04 million; and iii) operating with more than 50 employees;
- Standard VAT rate in Bulgaria is 20%. All businesses with sales over €25,000 must register for a VAT number and file its corporate VAT returns by the 14th of every month. Exemptions for paper filling are reserved only for very small companies;
- In 2021, Bulgaria will adopt a lower 9% VAT rate for tourism businesses;
- Bulgarian companies can carry forward their business losses for up to five years. Carry back of losses is not permitted;
- The Bulgaria tax authority considers capital gains as standard taxable income and henceforth levies corporate tax at the standard rate of 10% on them;
- Employers are required to pay monthly social security contributions representing up to 18.92%-19.62% of their employees’ gross salary. However, the maximum social security contribution is capped at €1330 per month;
- Bulgaria imposes multiple types of social insurance coverage, including: i) old-age pension insurance; ii) unemployment insurance; iii) industrial accident and occupational illness insurance; iv) health insurance; and v) maternity and general sickness insurance.
Considerations for entities within the EU/EEA
- Dividends received from a Bulgarian or any other EEA resident company are exempt from corporate withholding tax. However, all other dividends and royalties received from non-resident EEA company are subject to corporate withholding tax;
- Bulgaria does not impose participation exemption, except for local and EU/EEA dividends received;
- Legal entities resident within the EU/EEA region are taxed on their global business income;
- Capital gains derived from the sale of shares through EU/EAA countries’ stock markets or the Bulgarian Stock Exchange are exempt from taxes.
Considerations for EU/EEA non-resident entities
- Dividends payable to non-EU/EEA entities suffer 5% withholding tax, unless reduced under a double tax avoidance treaty;
- Interest and royalties paid to a non-EU/EEA entity are subject to a 10% withholding tax, unless reduced where a double tax treaty is applicable;
- Legal entities not resident in the EU/EEA and are doing business in Bulgaria are only taxed on their Bulgarian-sourced income.
Dividend scheme in Bulgaria
- The Dividend Scheme for the Companies in Bulgaria is governed by the Corporate Income Tax Act;
- Bulgarian companies are liable to pay 5% withholding taxes on its distributed dividends to all non-resident legal entities;
- Bulgarian companies are fully exempt from withholding taxes if it distributes its dividends to EU or EEA-resident legal entities;
- The shareholders of a Bulgarian company are not liable to withholding taxes if they are payers of corporate income tax in their resident state and do not benefit from any other tax exemptions. This stands true for non-resident shareholders who hold at least 15% of the shares in a Bulgarian company that distributes the dividends for at least two years;
- If dividends are distributed by a Special Purpose Investment Vehicles (REITS) or any non-member EU/EEA foreign entities to a Bulgarian entity, then these legal entities are not subjected to taxation on their distributed dividends;
- However, the dividend scheme poses various challenges to a non-Bulgarian resident shareholder since the person is liable to triple taxation from i) corporate income taxation; ii) withholding taxation; and iii) personal income taxation.
- Bulgaria has signed double taxation avoidance agreements with 64 countries, including UAE, Japan, Malaysia, Canada and Singapore among others;
- All Bulgarian companies are required to i) have their annual financial statements audited by a certified accountant; ii) file them with the Trade Registry by March the 31st; and iii) complete filing their monthly VAT returns electronically within 14 days from the end of the taxable period;
- Healy Consultants Group PLC will assist our Clients with i) documenting and implementing accounting procedures; ii) implementing financial accounting software; iii) preparing financial accounting records; and iv) preparing forecasts, budgets and performing sensitivity analysis;
- It is important our Clients are aware of their personal and corporate tax obligations in their country of residence and domicile; and they fulfil those obligations annually. Let us know if you need Healy Consultants Group PLC’s help to clarify your annual reporting obligations.
Legal and compliance
- All Bulgarian enterprises must maintain a registered office address in the country at all times;
- The Bulgarian Trade Register allows viewing of company details, including: i) company’s name and legal form ii) names and addresses of all shareholders and directors iii) the amount of paid up share capital and iv) annual financial statements;
- All Bulgarian registered companies are required to always keep records of their accounts and financial statements, as the Ministry of Finance and the Bulgarian National Audit Office has the right i) to conduct a corporate tax audit for up to 5 years back and ii) to request the company to provide additional proofs of revenue;
- VAT registration is compulsory for entities with taxable turnover of more than BGN50,000 (about €25,000) in VAT taxable supplies with a place of supply in Bulgaria in the past 12 months;
- Annually, all companies must file their financial statements with the Trade Register. Public limited liability companies must present the same audited by a qualified and registered auditor;
- The listing requirements and fees to register on the Bulgarian Stock Exchange are relatively lower than the rest of the EU;
- An employment contract must be signed and sent to the National Revenue Agency before the lawful commencement of employment. A Bulgarian contract can be drafted in any language, as long as it contains the mandatory implied terms. However, it is advisable to have a copy translated in Bulgarian;
- The Bulgarian Labor Codex sets for a maximum probation period of up to 6 months for all employees. Also, Bulgarian staff are entitled to receive at least i) 20 days of annual paid leave; and ii) 14 public holidays;
- The minimum wage is fixed at €261 per month, which is the lowest in the EU as of August 2018;
- In case of illness or injury, employees are entitled to 70% of their average daily gross wage for the first three days of absence. The remaining time is covered by the National Social Security Institute. An employee must have at least six months’ working experience to be eligible for the social insurance;
- Employers have the authority to suspend their employees’ employment contract in case of i) public intoxication or drug use during business hours; ii) negligent behavior on the workplace; iii) or any other disciplinary case listed in the Bulgarian Labour Code;
- Conflicts between employees and employers are settled in accordance with the Act of Labour Disputes. This said, employers must implement the so called “social dialogue”, monitored by the General Labour Inspectorate;
- Except during probation periods, all dismissed employees must be provided with at least a 1 month notice.
Other business regulations
- Bulgaria is a member of the European Union since 2007. Consequently, many regulations follow the guidelines set by the European Union;
- In 2021, Bulgaria is expected to adopt the Euro currency;
- The country is one of the founding members of the Organization for Security and Co-operation. Consequently, the country laws must adhere to the human rights guidelines set by the multi-country organization;
- Bulgaria is a member of the World Intellectual Property Organization, which allows i) foreign businesses to apply for a patent or a trademark; and ii) give them similar intellectual property protection conferred to Bulgaria nationals;
- Bulgaria has acceded to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (the New York Convention). Therefore, arbitration awards made in countries that are party to this convention should be enforceable in Bulgaria, according to the provisions of the convention;
- The most common way to settle a business dispute in Bulgaria involves referring for settlement with the district courts. There is a three-step court system with district courts at the lowest level, followed by provincial courts, which are then followed by administrative courts;
- Bulgarian Law punishes businessmen convicted of bribing public officers by i) up to one year of imprisonment; and ii) a fine of up to €5,000. This said, the regulation is not transparent and easily battled in Court;
- Non-EEA nationals must register a Bulgarian company if they wish to purchase commercial or residential property in the country. However, EEA nationals may purchase the property directly without initially incorporating a local company.