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  Company Formation Advantages Bulgaria
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• Domicile Tax Residency

In Bulgaria, understanding the concepts of domicile and residence is important for personal taxation, as they determine an individual's tax obligations. Due to the complicated nature of taxation, it is crucial that you understand the taxation criteria of each country and how it will impact your plan. Here’s a detailed overview of both concepts and their implications for personal taxation in Bulgaria:

Domicile in Bulgaria

Domicile refers to the country that a person treats as their permanent home or lives in and has a substantial connection with. In Bulgaria, domicile plays a role in determining an individual’s tax obligations, especially in the context of inheritance and estate taxes, although Bulgaria does not have an inheritance tax for direct descendants.

Residence in Bulgaria

Residence is a more critical concept for taxation purposes. The Bulgarian tax system distinguishes between residents and non-residents:

- Tax Resident: An individual is considered a tax resident if they meet any of the following criteria:
- They reside in Bulgaria for more than 183 days in any 12-month period.
- They have their center of vital interests (i.e., personal, economic, and social relations) in Bulgaria. This includes factors such as family, property, business, and social connections.

- Non-Resident: An individual who does not meet the criteria for tax residency is considered a non-resident.

Personal Taxation in Bulgaria

Tax Residents

Tax residents in Bulgaria are subject to taxation on their worldwide income. This includes income from employment, business activities, capital gains, rental income, and other sources, regardless of where the income is earned.

- Personal Income Tax Rate: The flat rate for personal income tax in Bulgaria is 10%.
- Social Security Contributions: Residents must also pay social security contributions, which are shared between the employee and the employer.
- Double Taxation Agreements (DTAs): Bulgaria has DTAs with many countries to avoid double taxation, ensuring that income is not taxed both in Bulgaria and the country of origin.

Non-Residents

Non-residents are only taxed on their income derived from Bulgarian sources. This typically includes:

- Income from employment in Bulgaria.
- Income from Bulgarian real estate.
- Business income from activities conducted within Bulgaria.
- Personal Income Tax Rate: Non-residents are also subject to a flat rate of 10% on their Bulgarian-source income.

Schengen Visa

From 31 March 2024, the Republic of Bulgaria issues uniform (Schengen) visas valid throughout the Schengen area. A Schengen visa issued by the Republic of Bulgaria after 31 March 2024 will allow its holder to travel throughout the Schengen area in accordance with the Schengen rules (no more than 90 days in any 180-day period), regardless of internal land border checks.

The short-term stay (90 days in any 180 days) within the Schengen area begins to be counted from the moment of entry into the territory of Schengen, including for the Republic of Bulgaria.

Key Considerations

- Tax Declaration: Tax residents are required to file an annual tax return declaring their worldwide income. Non-residents need to declare only their Bulgarian-source income.
- Tax Relief and Deductions: Residents may be entitled to certain tax reliefs and deductions, such as those for personal allowances, dependent children, and specific expenses.
- Center of Vital Interests: The determination of the center of vital interests is subjective and considers various factors, including the location of an individual's family, business activities, and social connections.

In Bulgaria, social security contributions are mandatory for employees, employers, and self-employed individuals. These contributions fund various social security benefits, including pensions, health insurance, and unemployment benefits.

Social Security Contributions

Contributions for Employees and Employers

Both employees and employers must contribute to the social security system. The contributions are calculated as a percentage of the employee’s gross salary, with different rates applicable for different types of benefits.

- Employee Contributions: Typically range from 12.9% to 13.78% of the gross salary.
- Employer Contributions: Typically range from 18.92% to 19.62% of the gross salary.

These percentages include contributions to various social security funds, such as:

- Pension Fund: For retirement benefits.
- Health Insurance: For healthcare services.
- General Illness and Maternity: For sick leave and maternity benefits.
- Unemployment Fund: For unemployment benefits.
- Accident at Work and Occupational Illness Fund: The rate varies depending on the risk category of the work performed.

Contributions for Self-Employed Individuals

Self-employed individuals are also required to make social security contributions. The rates for self-employed contributions are generally similar to the combined rate for employees and employers, but self-employed individuals must pay the entire contribution themselves.

- Self-Employed Contributions: Typically around 27.2% to 32.2% of the chosen insurable income, which must be between the minimum and maximum insurable earnings set by the government.

Minimum and Maximum Insurable Earnings

The government sets minimum and maximum thresholds for insurable earnings, which are adjusted annually.

- Minimum Insurable Earnings: The minimum insurable earnings for employees depend on the sector and occupation, but the general minimum monthly threshold for 2024 is BGN 780 (398 Euro).
- Maximum Insurable Earnings: For 2024, the maximum insurable earnings are capped at BGN 3,400 per month.

Social Security Benefits

The contributions fund several benefits, including:

- Pensions: Old-age pensions, disability pensions, and survivors' pensions.
- Health Insurance: Coverage for medical care, hospitalization, and other healthcare services.
- Sick Leave and Maternity Benefits: Financial support during illness or maternity leave.
- Unemployment Benefits: Financial support during periods of unemployment.
- Accidents at Work and Occupational Illness Benefits: Compensation for work-related injuries or illnesses.

Administration and Compliance

- National Revenue Agency (NRA): The NRA administers the collection of social security contributions and ensures compliance with the regulations.
- Reporting and Payment: Employers must report and pay contributions monthly. Self-employed individuals must also report and pay their contributions, typically on a quarterly basis.

Summary

In Bulgaria, social security contributions are a critical part of the social welfare system, funding various benefits for employees, employers, and self-employed individuals. Contributions are based on a percentage of gross salary or chosen insurable income, with specific rates and thresholds set by the government. Understanding these contributions and complying with the reporting and payment requirements is essential for both employers and self-employed individuals. 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.
 

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