Taxation of Companies in Bulgaria

Bulgaria has become an attractive destination for businesses due to its favorable corporate tax regime, strategic location in Europe, and relatively low operational costs. This guide outlines the key aspects of corporate taxation in Bulgaria, helping businesses navigate the system effectively.

Corporate Income Tax (CIT)
The corporate income tax rate in Bulgaria is one of the lowest in the European Union, set at a flat 10%. This applies to all resident companies on their worldwide income and to non-resident companies on their income generated within Bulgaria.

Tax Residency and Scope
A company is considered a tax resident in Bulgaria if it is incorporated under Bulgarian law or has its place of effective management in the country. Resident companies are subject to taxation on their global income, while non-resident companies are taxed only on their Bulgarian-sourced income.

Withholding Taxes
Certain payments made to non-resident entities are subject to withholding taxes, including:
- Dividends and liquidation proceeds – 5%
- Interest and royalties – 10%
- Service fees – 10% (applies only in specific cases)
These rates may be reduced or eliminated under Bulgaria’s extensive network of double taxation treaties (DTTs).

Value-Added Tax (VAT)
Bulgaria operates a Value-Added Tax (VAT) system, which includes:
- Standard VAT rate – 20%
- Reduced VAT rate – 9% (applicable to specific goods and services, such as tourism-related services)
- Zero VAT rate – Applies to intra-community and international transportation services VAT registration is mandatory for companies with an annual turnover exceeding BGN 100,000 (approximately €51,000).

Social Security and Payroll Taxes
Employers in Bulgaria are responsible for withholding and contributing to social security and health insurance funds. The total contribution rates are approximately 30%–32% of an employee’s gross salary, with the employer covering about 18%–19% and the employee covering the rest.

Corporate Tax Compliance and Reporting
Companies must file an annual tax return and pay any outstanding corporate tax by March 31st of the following year. Taxable income is determined based on the accounting profit, adjusted for tax purposes in accordance with Bulgarian tax legislation.

Tax Incentives and Exemptions
Bulgaria offers several tax incentives to encourage investment, including:
- Reduced tax for manufacturing companies in less developed regions
- R&D incentives, allowing certain expenses to be deducted from taxable income
- Investment promotion benefits, including corporate tax relief for large-scale investments

In conlusion is Bulgaria’s corporate tax system simple and business-friendly, making it an attractive destination for local and foreign investors. With its low corporate tax rate, VAT incentives, and strong network of double taxation treaties, Bulgaria provides a competitive edge for companies looking to establish or expand operations in the European market.

Working with our experts can help streamline this process, providing valuable insights and tailored strategies to ensure successful outcome. Don’t hesitate any longer. Apply to become a client today to work with our experts on legal strategies to overcome barriers.

Indotco International

Taxation of Companies in Bulgaria