When it comes to choosing an ideal jurisdiction for tax efficiency, Bulgaria stands out as one of the most attractive destinations in Europe. Bulgaria is commonly known for its low tax rates, strategic location, investor-friendly environment and good economic forecasts.
The low taxation in Bulgaria is beneficial for both businesses and individuals while enjoying a stable legal and regulatory framework. Whether you are an entrepreneur, freelancer, or looking to incorporate a company, Bulgaria provides a suitable tax regime.
In this article, we discuss the key tax aspects of Bulgaria’s system along with its benefits. We also highlight anti-avoidance rules such as Controlled Foreign Corporation (CFC) rules, Exit Tax, and the availability of Double Tax Treaties (DTTs).
If you are interested in establishing your business or personal tax residency in Bulgaria, the experts at TaxMove will help you throughout the process in compliance with the regulations of relevant authorities.
Corporate Income Tax in Bulgaria
Bulgaria is known for offering one of the most competitive corporate tax regimes in the European Union. This low taxation model is particularly attractive for companies looking to maximize their profits while staying compliant with European Union regulations.
Corporate Income Tax Rates and Incentives
Flat Corporate Income Tax Rate: The corporate income tax rate in Bulgaria stands at 10%. This applies to the worldwide income of Bulgarian-resident companies. If your company is incorporated in Bulgaria, you will pay taxes on all income generated worldwide, making it an attractive proposition for multinational enterprises looking to establish a presence in the EU.
Tax Benefits for Small and Medium Enterprises (SMEs): Bulgaria offers various incentives for small and medium enterprises, including tax relief on specific investments in technology, R&D, and innovation.
Personal Income Tax in Bulgaria
Bulgaria’s personal income tax system is equally attractive, especially for freelancers and self-employed individuals who want to get benefit from low taxation while enjoying a high standard of living.
Personal Income Tax Rate
Flat Personal Income Tax Rate: Bulgaria employs a flat tax rate of 10% on personal income, regardless of the amount. This rate applies to wages, salaries, income from freelancing, and other personal income.
Tax Residency for Individuals
To become a tax resident in Bulgaria, an individual must meet one of the following criteria:
Spending More than 183 Days per Year in Bulgaria: If you spend more than 183 days in Bulgaria within a 12-month period, you are considered a tax resident.
Permanent Place of Residence: If your permanent place of residence is in Bulgaria, you will also be considered a tax resident. This rule only applies if your center of vital interests is in Bulgaria.
The center of vital interests is in Bulgaria: If you have your personal and economic ties to Bulgaria.
Tax residents of Bulgaria are subject to tax on their worldwide income, while non-residents are only taxed on their Bulgarian-source income.
Withholding Tax on Dividends
Bulgaria levies a 5% withholding tax (WHT) on dividend distributions. However, this rate can be reduced through the EU Parent-Subsidiary Directive or through the application of Double Tax Treaties (DTTs).
These treaties can significantly reduce the tax burden on dividend payments between countries, which makes Bulgaria an even more appealing destination for cross-border business operations.
Tax Benefits for Freelancers
Freelancers and self-employed individuals in Bulgaria can benefit from a favorable tax regime, making it an ideal location for remote workers and digital nomads. With a flat tax rate of 10% and a straightforward filing process, freelancers can retain more of their income compared to higher-tax jurisdictions in Europe.
Freelancers can reduce their taxable income by deducting business expenses. By default, they are allowed to deduct 25% of their income as standard business expenses without needing to provide receipts or documentation. However, if a freelancer’s actual business expenses exceed this 25% threshold, they have the option to document and deduct the full, actual costs instead.
With the 25% deductible expense, the effective income tax rate for freelancers in Bulgaria is 7.5%.
Social Security Contributions for Self-Employed Individuals
Freelancers in Bulgaria are obligated to make monthly social security contributions, which include payments for health insurance, pension, and other social benefits.
These contributions are based on a chosen income base, with the minimum base set at BGN 933 (circa €480) and the maximum at BGN 3,750 (circa €1,900).
The total social security rate typically ranges from 27% to 32%, depending on the specific contributions selected.
This means freelancers will pay between BGN 252 (circa EUR129) and BGN 280 (circa EUR143) per month if they opt for the minimum base.
Double Tax Treaties and Anti-Avoidance Rules
Bulgaria has an extensive network of Double Tax Treaties (DTTs) with more than 70 countries, designed to avoid double taxation and reduce the withholding tax on dividends, royalties, and interest payments. These treaties ensure that income is not taxed twice, providing an additional layer of tax efficiency for both businesses and individuals.
Controlled Foreign Corporation (CFC) Rules
Bulgaria has implemented CFC rules as part of its commitment to combat tax avoidance and base erosion. These rules target companies that are based in low or no-tax jurisdictions but have significant connections to Bulgaria. If a Bulgarian tax resident controls a foreign entity that meets certain criteria, the foreign income may be subject to Bulgarian taxation.
Some exemptions apply, including one that exempts profits of CFCs engaged in substantive economic activity from being taxed in Bulgaria.
Exit Tax in Bulgaria
Bulgaria imposes an exit tax on companies and individuals who transfer their tax residency or assets abroad. This tax is designed to prevent tax avoidance when companies or individuals decide to relocate to another jurisdiction. The exit tax is calculated based on the fair market value of the assets transferred.
Summary Table: Tax Rates in Bulgaria
| Tax Type | Tax Rate |
|---|---|
|
Corporate Income Tax |
10% |
|
Personal Income Tax |
10% |
|
Withholding Tax on Dividends |
5% |
|
Exit Tax |
Applicable on assets transferred abroad |
|
Standard VAT Rate |
20% |
Company Formation in Bulgaria
There is a simple and easy process of setting up a company in Bulgaria. The main types of business entities in Bulgaria include:
Limited Liability Company (LLC): The most common type of company in Bulgaria, requiring at least one shareholder and a minimum capital of BGN 2 (about €1).
Joint-Stock Company (JSC): Suitable for larger businesses, requiring a minimum capital of BGN 50,000 (circa €25,500).
Average Cost of Setting up a Business in Bulgaria:
The cost of incorporating a company in Bulgaria can vary depending on the complexity of the setup. On average, the costs for registering a standard LLC are approximately €1,000 to €1,800, which includes registration fees, legal costs, and the first year of mandatory accounting services.
How Can We Help You?
Bulgaria is one of our favorite destinations for companies and individuals in Europe together with Cyprus, Malta and Romania.
At TaxMove, we specialize in guiding international businesses and individuals through the complexities of taxation and corporate structuring. Whether you are considering relocating to Bulgaria or establishing a business here, our team of experienced professionals is ready to assist you.
From advising on tax residency and corporate tax planning to helping you get benefits from Bulgaria’s low taxation opportunities and tax treaties, we ensure that your tax strategy is optimized for long-term success in compliance with government regulations.
Submit the form to get tailored advice from our experts
What are the corporate and personal income tax rates in Bulgaria?
Corporate Income Tax: Bulgaria has a low flat corporate tax rate of 10% on taxable profits, which applies to the worldwide income of companies incorporated in Bulgaria.
Personal Income Tax: Individuals are subject to a flat 10% personal income tax rate on all income, regardless of amount.
How are freelancers and self-employed individuals taxed in Bulgaria?
Freelancers and self-employed persons in Bulgaria benefit from the 10% flat income tax. They can deduct 25% of their income as standard business expenses without receipts or, alternatively, deduct actual expenses if documented, resulting in a typical effective tax rate of around 7.5% after deductions.
What is the process and cost of incorporating a company in Bulgaria?
Process: The most common business entities in Bulgaria are Limited Liability Companies (LLCs) and Joint-Stock Companies (JSCs). The LLC, which requires only one shareholder, is a preferred structure due to its simplicity.
Cost: Incorporation of a standard LLC in Bulgaria typically costs €1,000 to €1,800. This amount includes registration fees, legal costs, and the initial year of mandatory accounting services.
Capital Requirement: For an LLC, the minimum capital requirement is 2 BGN (around 1 EUR), while a JSC requires a minimum of 50,000 BGN.
What withholding taxes apply to dividend distributions in Bulgaria?
Dividends distributed to non-residents and Bulgarian residents are subject to a 5% withholding tax. However, this rate may be reduced or exempted under the EU Parent-Subsidiary Directive or through Double Tax Treaties between Bulgaria and other countries.
What are the social security contributions for self-employed individuals in Bulgaria?
Social security contributions for freelancers are based on a chosen income base, ranging from a minimum of BGN 710 (approx. €362) to a maximum of BGN 3,400 (approx. €1,738). Total contributions generally amount to 27%-32% of the income base.
