Bulgaria has one of the most favourable European tax regimes regarding individual software developers.
The reasons for this are two:
First, individuals residing in the small Balkan country are subject to a fixed personal income tax of just 10%.
Second, such individuals can deduct for tax purposes statutory expenses (forfeit) amounting to 40% from certain categories of income.
One of these categories is the income from author’s rights and licenses, including, but not limited to, income from the sale of inventions. No other expenses can be deducted from these categories of income. The right to deduct statutory expenses of 40% applies only to individuals who are not traders under the Bulgarian commercial law.
Thus, self-employed software developers based in Bulgaria will need to pay tax amounting to 6% of their gross income from author’s rights and licenses. Such author’s rights and licenses may relate not only to software, but also to visual art, films, literary works, music, trademarks, utility models, secret formulas, industrial designs, patents, know-how, and other intellectual property materials. However, payments received from licenses allowing users to use a copy of the software, without the right to copy, distribute, modify, publicly perform, or otherwise commercially exploit the software, are not regarded as payments from author’s rights and licenses.
In addition to the extremely low tax rate, software developers can also benefit from:
- the membership of Bulgaria in the European Union (EU) and the associated with this regulatory framework and access to the EU internal market;
- the opportunity to hire affordable assistants (in December 2019, the average monthly salary in the country was about EUR 674)
- the relatively low prices of the real estate in the capital Sofia and other major Bulgarian cities (in 2019, the average price of a two-bedroom apartment in the city centre of Sofia was just EUR 94,500);
- the corporate tax rate is 10% which makes the establishment of companies an attractive option;
- the geographical location of Bulgaria on the crossroad between Europe and Asia (a flight from Sofia to Brussels takes less than 3 hours and a flight from Sofia to Dubai takes less than 5 hours); and
- the software industry in Bulgaria is well developed and is expected to contribute 7,6% of the GDP by 2024. In 2019, in this sector of the economy were working 300,000 people.