Taxes - Bulgaria

Bulgarian national taxes are administered by the National Revenue Agency (NRA).

• National Revenue Agency

Tax system

Direct taxation

Companies registered in Bulgaria are liable for corporation tax. Corporation tax is also payable by foreign non-personified entities trading in Bulgaria through a commercial location.  Companies not registered in Bulgaria and which do not operate in the country through a commercial location only pay tax on earnings generated in Bulgaria.

The corporation tax is 10%   and is regulated by the Corporate Income Tax Law.

• The Corporate Income Tax Law

Corporation tax is also paid by local non-trading legal persons on any profits they make on transactions subject to Article 1 of the Commercial Law or from the rental of movable or immovable property.

Who is liable for   corporation tax?

• Bulgarian legal entities and commercial entities.
• Bulgarian legal persons who are not traders pay tax on any profits they make on transactions subject to Article 1 of the Commercial Law or on the rental of movable or immovable property.
• Bulgarian non-personified companies.
• Foreign entities trading in Bulgaria through a commercial location.
• Foreign non-personified entities trading in Bulgaria through a commercial location.

The following pay tax which substitutes corporation tax:

• Budget-funded enterprises (departments, local authorities, etc). The tax rate is 3 % (2% for local authorities).
• Gaming and betting organisers pay a gaming tax on the basis of the bets made or the number of gaming machines operated. The rate of taxation is 15%. The tax for the use of gaming machines is based on the number of machines.
• Persons carrying on merchant shipping pay 10% tax on their vessel operations based on the net vessel tonnage per day of operation.
• Certain revenue of foreign legal entities and non-personified associations generated in Bulgaria is taxes at source. The rate is 10%.

A 5% tax is levied on dividends and shares in liquidation distributed by local legal entities to:

• foreign legal entities, with a few exceptions;
• local non-trading legal entities, including local authorities.

Tax is not deducted at source where the dividends and liquidation shares are distributed to:

• a local legal entity participating in the company as a representative of the state;
• a mutual fund;
• a foreign legal entity which for tax purposes is a local entity from the EU or the EEA, except for hidden profit distributions.

Income from interest, copyright and licence royalties is taxable at source at a rate of 5% when the following conditions are met:

- if the recipient of the income is a foreign legal entity from a European Union Member State or has is the commercial location in a European Union Member State of a foreign legal entity from a European Union Member State;

- if the recipient of the income is a local legal entity paying taxes or a person whose business location in Bulgaria is a taxpayer, is affiliated with the foreign legal entity receiving the income or the person whose commercial location is the recipient of the income.

The following are subject to tax at 10%:

• social benefits in kind provided to employees and contract workers under management agreements;
• costs of presentation for the company's activities;
• costs of operating vehicles for management purposes.

Tax on private individuals, including activities carried on as a sole trader, is regulated by the Law on Income Tax on Natural Persons.

• Law on Income Tax on Natural Persons

Persons subject to tax under this law are:

• local natural persons, on income from sources in Bulgaria and abroad;
• foreign natural persons, on income from sources in Bulgaria;
• local and foreign persons required to deduct and pay tax under the Law on Income Tax on Natural Persons (ZDDFL).

Types of tax payable on their income by private individuals are:

• tax on the total annual tax allowance - 10%
• tax on the annual tax allowance - 15%
• final tax - 10, 7 or 5%.

Income from employment relations, other business activities (working as a freelance professional or trader, etc.), rental and other means of allowing the use of rights or property in return for payment, income from the transfer of rights or property and income from other sources are subject to tax on the total annual tax allowance.

Income from activities as a sole trader and of natural persons registered as farmers or tobacco producers is subject to tax on the total annual tax allowance, which is charged in the same way as the tax on sole traders.

A final tax of 5% is levied on specific types of income charged/paid to foreign private individuals from sources in Bulgaria, as well as some other income obtained by local private individuals. The rate of this tax is 5% for income from dividends and liquidation shares which benefit local and foreign private individuals and 7% for taxable income under long-term life insurance policies (where the duration of the policy is 15 years or more). For all other income chargeable with a final tax under the ZDDFL, the rate is 10%.  

Where a taxation agreement or any other international agreement ratified by Bulgaria contains provisions which diverge from tax legislation, the provisions of the tax agreement or convention takes precedence.

Indirect taxation

The following are subject to VAT:

- every taxable supply of goods or services;

- any chargeable intra-community acquisition carried out in the country by a registered person or a person required to register;

- any chargeable intra-community acquisition of a new vehicle carried out inside the country;

- any chargeable intra-community acquisition carried out in the country by a registered person or a person required to register where the receipient is a required to pay tax or not required to pay tax and who is not officially registered;

- importing goods.

For the purposes of VAT on trade between the Member States of the European Union, the words 'import' and 'exports' shall be substituted by 'intra-community supply- and intra-community supply.

Intra-community supply   is defined as the supply of goods sent or shipped from the territory of one Member State to another.

Intracommunity acquisition is the acquisition of the title to goods which are sent or shipped into the counmtry from another Member State where the supplier is a taxpayer registered for VAT in another Member State.

Other intra-community operations are:

Distance sales are carried out by persons registered for VAT in one European Union Member State to persons not registered for VAT in another. The goods are shipped by or at the cost of the supplier from a Member State different from the destination of the goods.

Triangulation is the supply of goods between three VAT-registered persons in three different Member States A,B and C which simultaneously meet the following conditions:

1. the registered person in country A (the supplier) supplies goods to a person registered in country B (the intermediary), who then supplies them to a person registered in country C (the recipient);

2. the goods move directly from A to C;

3. the intermediary is not registered for VAT in A and C;

4. the recipient charges VAT as the recipient of the goods.

• With regard to imports and exports, points to bear in mind are that:.       

Imports of goods are defined as zero-rated supplies where the person registered for VAT making the supply has the right to offset a tax credit. Imports mean importing goods from outside the community into the country. It should be remembered that goods arriving in the country from another Member State are also regarded as imported goods if they are not community goods in the meaning of customs law.

The VAT law sets out a registration threshold of BGN 50 000. Anyone who does not meet the requirements for compulsory registration for VAT may register under the law.

The right to a tax credit may exercised during the tax period in which it arises, or in any of the following 12 tax periods.

• The basic rate of VAT is 20 percent. There is an exception for 'accommodation' supplies, where the tax rate for accommodation providers is 9 percent.
• The Value Added Tax Law
• VAT Law Implementation Rules.

For any VAT information not included above, please refer to the National Revenue Agency's website.

• National Revenue Agency

Customs duties

Customs duties are regulated by the Excise and Bonded Warehouses Law.

• Bulgarian Excise and Bonded Warehouses Law

Customs duty is payable on the following products:

• alcohol and alcoholic beverages;
• tobacco products;
• energy products and electricity;
• coffee and coffee extracts;
• cars.

Customs offices are operated by the Customs Service.

• Customs Agency

Local taxation

Local taxes are taxes and charges collected by municipalities. They include tax on property, inheritance, endownments, vehicles, tourist tax, catering taxes and charges for local services such as domestic waste, markets, pavements, child care facilities, technical and administrative services, etc. These differ from one region to another and are collected by the local authorities.

Property tax

Taxable properties - Article 10 of the Local Taxes and Charges Law:

- buildings: there is no legal definition of a 'building' in current legislation, but Article 110 of the Property Law, they are defined as buildings, structures and anything else that is naturally or artificially permanently fixed to the ground or a building is an immovable object.

- land within the buildable limits of populated areas and conurbations.

- land situated outside the buildable limits of.

- land within the buildable limits of populated areas and conurbations which have been designated pursuant to Article 8(1) of the ZUT as residential, public service, manufacturing, storage, resort, weekend home, sports and recreation functions, green areas and green corridors linking them and nature protection areas, areas for ornamental water systems, for traffic and transport, for technical infrastructure, for special-purpose sites, etc.

- agricultural land and forests that have been built on: the actual built area and attached land.

The following are not taxable:

- land occupied by streets, national and municipal roads and railways to their built boundary lines.

- land occupied by state and municipal water engineering facilities.

Persons required to pay VAT (Article 11/

- owners of taxable properties.

- users with right in rem, where a right has been established on the property.

- additionally for the land, in the case of owners of buildings built on state or municipal land.      

- concessionaires.

- persons to whom state or municipal property has been assigned for management.

Tax allowance:

- for residential properties belonging to private individuals and businesses at the tax valuation of the property pursuant to Annex No 2 to the Local Taxes and Charges Law.

- for non-residential property belonging to businesses at  book value (until 01 January 2011), and at the higher of the book value and the tax valuation pursuant to Annex No 2 after 01 January 2011.

- what is book value: legal definition in Section 1(17) of the Local Taxes adn Charges Law. Book vaue is the value at which an asset is written to the accounts of the devalued/revalued cost of the asset when it has been valued after first being written to the accounts.

Tax point:

- for newbuilds or parts thereof: from the month following the month in which they were completed or started to be used.  Where one of these two conditions is met, the site becomes taxable in the meaning of Article 10(1) of the Local Taxes and Charges Law.

- for transferring a property: from the month following the month.

- of the change in ownership or use, unless the tax has been paid by the transferror.

Declaration

For newly-acquired properties, the persons required to pay tax must complete a declaration pursuant to Article 14 of the Local Taxes and Charges Law withini two months of acquisition.

Basic conditions for exemption (Article 24(1) and (2) ):

- municipalities, property: public municipal property;

- central government, properties: public state property, unless it has been given in use to a third party and that party is not exempt from taxation;

- community centres.

- buildings owned by foreign governments housing diplomatic and consular representations under conditions of mutuality.

- buildings of the Bulgarian Red Cross and Red Cross organisations registered in another EU or EEA Member State.

- university and academy buildings used for teaching, research purposes, etc.

- for operational purposes only of public transport;

Tax on vehicles.

Tax on vehicles is covered by Section IV Chapter Two of the Local Taces and Charges Act.

The following are taxable:

1. vehicles registered for use on the Bulgarian road system;

2. vessels registered at Bulgarian ports;

3. aircraft registered in theState Register of Aircraft (Article 52 of the Local Taxes and Charges Law).

Vehicles subject to registration, and how to register and deregister them, is set out in Ordinance I-45 of 24 March 2003 on the registration of motor vehicles and their trailers and statistics thereon issued by the Minister of the Interior.

Persons liable for tax.

In the case of motor vehicles, the persons liable for tax are the owners (Article 53 of the Local Taxes and Charges Law).

Tax point.

If you buy a motor vehicle which is registered for use on Bulgarian roads at the time of acquisition, the tax point for the purchaser is the date of acquisition or the two-month period for declaring a newly-acquired motor vehicle from the date of acquistion (Article 54(1), sentence one of the Local Taxes and Charges Law). Tax is payable for the month in which the acquisition took place (Article 60(1) of the Local Taxes and Charges Law.

If you buy a motor vehicle which has not been registered for use on Bulgarian roads at the time of acquisition, the tax point is the month in which the vehicle was registered for use on the road, as unregistered vehicles are not subject to taxation following the logic of Article 52(1) of the Local Taxes and Charges Law.

Declaration.

Owners who have acquired a vehicle which is liable for tax must within two months of purchase submit a declaration within two months of acquiring it or registering it for use on the road in the municipality where they are permanently registered, or their registered office (Article 54(1) of the Local Taxes and Charges Law).

Setting taxes.

Vehicle taxes are set by municipal councils within the statutory limits depending on the output of the engine adjusted by a coefficient which is dependent on the year of manufacture (Article 55(1) of the Local Taxes and Charges Law):

End of tax liability.

If you transfer a vehicle, you are liable for tax up to the month in which the vehicle is transferred following the logic of Article 60(2) of the Local Taxes and Charges Law.

In cases other than the transfer of ownership, motor vehicles are not liable for tax from the month following the month in which they are deregistered at the relevant Traffic Police station (Article 58(4) sentence one of the Local Taxes and Charges Law). Where a vehicle is no longer in use and the law requires it to be handed over for dismantling, the tax liability expires after it has been removed from the register and a certificate of handing over for dismanglint is produced (Article 58(4) sentence two of the Local Taxes and Charges Law).

Tax concessions.

Article 58(1) and Article 59 of the ZMDT sets out a number of scenarios for tax-exempt vehicles, which include the vehicles of diplomatic representations and consulates on condition of mutuality (Article 58(1)(2) of the ZMDT).

Inheritance tax. 

Taxation on a deceased person's estate depends on the nature of the legator (Article 29( 1/:

- properties at home and abroad where the deceased is a Bulgarian citizen.

- properties at home where the deceased is a foreign citizen.

What is deemed as the estate (Article 30/.

- the movable and immovable property of the deceased and the rights thereto, as well as other property rights, receivables and debts at the time of death, unless otherwise provided for by law.

Persons required to pay tax (Article 31/

- legatees by law and testament and inheritors. Direct relations and surviving spouses are not liable for tax.

Declaration (Article 32/ 

- a pro-forma declaration must be submitted within six months of death. Direct relations and surviving spouses are not required to submit declarations.

Taxable estate (Article 34/

This consists of the remainder of the estate after the deduction of:

1. established debts owed by the legator at the time of death, if inheritance tax-exempt property is not acquired in settlement thereof;

2. debts of the heirs transferred to the state or municipalities within the statutory 6 month period in accordance with Article 32;

3. funeral costs of BGN 1000;

4. statutory exemptions.

Valuation of an estate for tax purposes (Article 33/

- at the moment of death as follows:

1. real estate is valued at its tax value pursuant to Annex 2;

2. foreign currency and precious metals are valued at the official rate of the BNB;

3. securities are valued at market value, or if the market value cannot be established without incurring significant costs or difficulties, at face value;

4. vehicles are valued at insurance value;

5. other chattels and rights are valued at market value;

6. enterprises or participations in businesses or cooperatives are valued at market value, or if this cannot be done without incurring significant costs and difficulties, on the basis of the accounting data.

Tax exempt property (Article 38/:

The following property is exempt from tax:

1. property of persons who died for Bulgaria or in execution of their official duties, or in industrial accidents and natural disasters;

2. property left to the state and municipalities;

2а. property left to the Bulgarian Red Cross, officially registered religions, community centres and other legal persons who are not traders, with the exception of non-commercial organisations designated for activities for private benefit;

3. ordinary chattels;

4. minor agricultural implements;

5. libraries and musical instruments;

6. works of art produced by the deceased, any of the heirs or their direct descendants, without limitation, and indirect descendants to the fourth degree;

7. undrawn pensions of the deceased;

8. property abroad of Bulgarian citizens on which inheritance tax has been paid in the particular country.