Understanding Bulgaria’s tax rate

Bulgaria’s tax system is recognized for its simplicity and competitive rates, making it an attractive destination for businesses, expatriates, and investors. With a flat tax rate of 10% on both personal and corporate income, Bulgaria offers one of the most straightforward and appealing tax environments in the EU.

We aim to provide a comprehensive guide to Bulgaria’s tax rates and compliance requirements. Whether you are a business owner looking to expand into Bulgaria, an expatriate considering relocation, or simply someone interested in the local tax landscape, this guide will equip you with the essential information you need to navigate Bulgaria’s tax system effectively.

Bulgarian tax system

The Bulgarian tax system is designed to manage both personal and corporate financial responsibilities, fostering a business-friendly environment. Whether you want to explore if Bulgaria taxes foreign income, or how to fill personal taxes; we aim to answer all these questions.

Personal income tax

Personal income tax in Bulgaria is set at a flat rate of 10%, applying to all personal income regardless of the amount. Key points include:

  • Tax residency: individuals with a permanent address in Bulgaria, those residing in Bulgaria for more than 183 days in a year, or those sent abroad by Bulgarian entities are considered tax residents.
  • Tax rate: the flat rate of 10% applies to all personal income, including wages, salaries, and self-employment income. Non-resident individuals are taxed at the same rate on income from Bulgarian sources.
  • Tax on foreign income: Bulgarian tax residents are taxed on their worldwide income, meaning all income earned both domestically and abroad is subject to Bulgarian personal income tax. Non-residents are taxed only on income from Bulgarian sources.
  • Dividends: dividends and liquidation quotas paid to both residents and non-residents are subject to a 5% tax.
  • Sole traders: income for sole traders is taxed at a higher rate of 15%.

Corporate tax

Corporate income tax in Bulgaria is straightforward, featuring a flat rate and clear guidelines for compliance. Some key points:

  • Tax rate: the corporate income tax rate is a flat 10%, applying to all taxable profits.
  • Taxable entities: this tax applies to companies incorporated under Bulgarian law, as well as non-resident companies generating income within Bulgaria or through a permanent establishment.
  • Tax year: the tax year aligns with the calendar year, with corporate tax returns due by March 31st of the following year.
  • Advance payments: companies with net sales above BGN 300,000 must make advance tax payments monthly or quarterly. Newly established companies are exempt from advance payments in their first year.
  • Loss carry forward: companies can carry forward losses for up to five consecutive years.
  • Corporate expenses: a 10% tax is imposed on corporate entertainment expenses, employee benefits, and vehicle maintenance costs.

Taxation of foreign income

Bulgarian local companies are taxed on their worldwide income, including both income generated within Bulgaria and from foreign sources. Non-resident companies are taxed only on income generated from sources within Bulgaria. Interested in exploring Bulgaria as an outsourcing destination? Learn more about it here.

Territorial tax system

Bulgaria does not operate a territorial tax system like many tax havens such as Hong Kong, Singapore, and various tropical islands. Instead, Bulgarian companies pay a flat 10% corporate tax on worldwide income. This tax rate has been stable for years and is considered low, especially given the global trend towards higher tax compliance and regulation by banks and governments. While a territorial tax system means that income earned outside the jurisdiction is not taxed, the Bulgarian system offers a straightforward and low flat tax rate, which can be more beneficial in today’s regulatory environment. Paying a modest tax rate like Bulgaria’s 10% is often preferable to paying nothing, as it ensures compliance and reduces risks associated with banking and governmental scrutiny.

Double taxation treaties

To further support international business activities, Bulgaria has signed double taxation treaties with more than 65 countries. These treaties ensure that international businesses and investors are not taxed twice on the same income. This framework facilitates smoother cross-border operations and enhances Bulgaria’s attractiveness as a business hub. The extensive network of treaties with major global economies supports robust international trade and investment.

Bulgaria has double taxation treaties with the following countries:

 

AlbaniaGeorgiaMacedoniaSlovak Republic
AlgeriaGermanyMaltaSlovenia
ArmeniaGreeceMoldovaSouth Africa
AustriaHungaryMongoliaSouth Korea
AzerbaijanIndiaMontenegroSpain
BahrainIndonesiaMoroccoSweden
BelarusIranThe NetherlandsSwitzerland
BelgiumIrelandNorth KoreaSyria
CanadaIsraelNorwayThailand
ChinaItalyPakistanTurkey
CroatiaJapanPolandUkraine
CyprusJordanPortugalUnited Arab Emirates
Czech RepublicKazakhstanQatarUnited Kingdom
DenmarkKuwaitRomaniaUnited States
EgyptLatviaRussian FederationUzbekistan
EstoniaLebanonSaudi ArabiaVietnam
FinlandLithuaniaSerbiaZimbabwe
FranceLuxembourgSingapore

Indirect taxes

Indirect taxes in Bulgaria include Value Added Tax (VAT) and excise duties. These taxes are applied to the consumption of goods and services, ensuring a broad-based revenue collection system.

Value added tax (VAT)

  • Standard rate: the standard VAT rate in Bulgaria is 20%, applied to most goods and services.
  • Reduced rate: a reduced rate of 9% is applicable to hotel accommodation services.
  • Zero rate: A 0% tax rate applies to intra-community and international transport, as well as exports outside the EU.
  • Registration: VAT registration is mandatory for businesses with taxable turnover exceeding BGN 50,000 over 12 months, among other specific conditions. The registration process must be completed within 14 days after the threshold is reached.
  • VAT Exemptions: certain transactions are exempt from VAT, including financial services, insurance, health services, education, and certain cultural activities.
  • VAT Reporting: VAT returns must be filed monthly by the 14th of the following month. The tax authorities refund recoverable VAT within four months after the declaration is submitted.
  • VAT Refund: businesses can claim a refund for recoverable VAT, which the tax authorities are required to process within four months after the declaration is submitted.

Excise duties

  • Applicable products: excise duties are levied on specific goods, including alcoholic beverages, tobacco products, and energy products such as fuels and electricity.
BeerBGN 1.50 per hectoliter per degree Plato, or BGN 0.75 per hectoliter per percent of alcohol by volume
CigarettesBGN 101 per 1,000 cigarettes plus an ad valorem component of 27% of the retail selling price
PetrolBGN 710 per 1,000 liters
ElectricityBGN 2 per megawatt-hour

Customs duties

  • EU Regulations: as an EU member state, Bulgaria follows the EU’s common customs tariff for imports from non-EU countries. Customs duties are applicable based on the nature and value of the imported goods.

Bulgarian tax system compared to other countries in EU

The Bulgarian tax system is often highlighted for its simplicity and competitive rates, particularly when compared to other EU countries. Here are several key aspects where Bulgaria stands out:

 

 BulgariaEU Average
Corporate Tax Rate10% flat rate20% – 30%
Personal Income Tax Rate10% flat rateProgressive rates up to 50% or more
Standard VAT Rate20%Around 21%
Tax IncentivesVarious incentives for R&D, SMEs, high-unemployment regionsComplex systems, often with more detailed requirements
Double Taxation TreatiesOver 65 treatiesExtensive networks, similar to Bulgaria

 

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