Tax benefits in Bulgaria

One of the requirements that businesses need to grasp fully in the markets in which they operate is taxation. Arguably, Bulgaria is one of the countries with the most favorable taxation system in Eastern Europe. Note that whereas most European countries have attractive corporate tax regimes, their personal income tax is unattractive. However, Bulgaria has exceptional personal and corporate tax framework in the European Union.

Therefore, it is essential to note that Bulgaria has a worldwide income tax system that tax residents on their worldwide income. In this regard, this country levies a 10% flat personal income tax.

Importantly, in the last few years, this nation has entered into double tax treaties with other member states of the European Union with the aim of exempting individuals from paying taxes to their countries of origin on income earned in Bulgaria. As a result of this, non-citizen individuals only need to pay 10% tax on personal income earned in Bulgaria thus avoiding double taxation. This means that a resident of a high-tax country who lives in Bulgaria only pays 10% tax, both at the personal and corporate tax level.

With respect to corporate income tax, businesses are required to pay only 10% tax on their income that they earn in Bulgaria. In this case, the Corporate Income Tax Law outlines that non-resident companies pay tax only on income derived within the Bulgarian market while resident companies pay corporate income tax on their worldwide income.

Importantly, a company is termed as a Bulgarian tax resident if it is established under the European Union regulation 2157/2001 or a cooperative created under the European Union Regulation 1453/2003, and has been entered in the Bulgarian register. Similarly, companies incorporated under the Bulgarian legislation are considered as Bulgarian tax residents. Moreover, companies with a taxable income less than €150,000 do not need to pay advance tax (deposit of tax) with regard to the following year. On the other hand, companies with a taxable income of between €150,000 and €1.5 million must deposit a quarterly advance tax for the following year. The advance taxes are based on the taxable profits of the preceding year.

The Bulgarian tax system has a well-defined tax exemption, deductible expenses and tax incentives. Notably, income on dividends is classified as exempt as long as it is earned from the European Union, the European Economic Area (EEA) and Bulgaria. Similarly, income after the disposal of financial instruments on regulated markets is considered as exempt income. In the same way, expenses such as scholarships to students, social insurance contributions and salaries for hired employees who were registered for a long time as an unemployed are considered as deductible expenses.

Furthermore, the Bulgarian tax system offers corporate income tax incentives for production companies that invest in municipalities that have unemployment rate above the national average rate, collective investment schemes and licensed real estate investment trusts, and manufacturing companies that invest in depressed areas. Note that these are exempted from corporate income tax up to 100%. In addition to this, all export to, and import from the European Union is duty free in Bulgaria. Therefore, foreign companies investing in Bulgaria stand a chance to benefit a lot from its attractive taxation system.