TAXES IN BULGARIA
People ask us a lot of questions concerning taxes in Bulgaria. Some of them (the most common ones) are:
1. What is the amount of a profit tax?
2. How much is the tax on dividends?
3. Do I owe taxes, if I pay a foreign a sum of money?
5. How much is the excise tax?
6. What is the amount of VAT and when is it due?
7. Is there a gambling tax? – and many others.
I shall try to answer, in brief and in essence, some of the most often asked questions, which are raised by foreign investors, that want to develop private initiative in Bulgaria.
A profit tax is 10% of a profit. The tax is calculated in the following way: Revenues minus expenditures are equal to a profit. Precisely, this difference (the profit) is taxed. In our country, it is generally accepted for this difference to be called a tax base. The due percentage for a tax is called a tax rate. After a tax payment, one has a profit after tax/an after-tax profit.
Whenever a certain deal is exempt from a profit tax, one should check whether some other tax is due, which replaces it, like for example an alternative tax (10%), a tax deducted at source (TDS-10%) or some other tax.
The tax on dividends amounts to 5%. It is levied on the amount, distributed as a dividend. One can distribute as a dividend not only profits after taxation of the current year, but also profits of past years. When is a dividend due, calculated and declared? – A dividend is distributed by dint of a formal written statement about dividend distribution or by dint of a written statement about the approval of annual financial statements at the end of the reporting year. In all cases, one should think over what dividend can be distributed, as year-end closing must have been performed at the moment of dividend distribution and the interim balance sheets and income statements must have been drawn up (whenever a dividend is distributed before the end of a financial year).
Whenever the owner of a single-member LLC, which will allocate a dividend is a legal person (or the owner of the limited liability company, which will distribute dividends, are legal entities), no tax on the distributed dividend is due. One can distribute only the after-tax profit as a dividend. It can be allocated completely or you can distribute a part of it. A tax is due only on the allocated amount.
A gift tax is 5%. Donations can be made between natural and legal persons by dint of a contract for a donation. Whenever a donation is made between relatives of a bloodline/a direct line of descent (a mother -> a child and vice versa; a father -> a child and vice versa), then no gift tax is due. Usually, this tax is paid by the donatee. Whenever one has no ability for its payment (for example, the gift recipient is a minor person or some non-personified entity, like floor property), it is good to be paid by the donator. It is so, because in certain cases a donator must deduct this tax instead of the donatee and to pay it into a national budget.
These taxes are flat. The amount of an income is of no importance, whereas a tax is a constant value.
Who determines which tax do I owe?
In order to determine whether you owe a profit tax, an alternative tax or a tax deducted at source, it is best to become familiar with Bulgaria’s Corporate Income Tax Act, if you are a company. You can read also when taxes are due in the same law.
If you are a natural person, you can find replies to these questions in Bulgaria’s Income Taxes on Natural Persons Act.
If you possess real estates in Bulgaria, you owe taxes under the Local Taxes and Fees Act. These are two basic kinds: 1) a building tax and 2) a rubbish tax. The amount of a building tax under the applicable Bulgarian law is between 2 and 4% of the real estate value. A real estate value means a market or a tax evaluation. The market evaluation of a real estate is made by an independent appraiser. Whenever a real estate is newly purchased, then it can be also the value according to a title deed. The tax assessment is made by a competent public official, working at tax administration. The real estate value according to a market evaluation and a tax assessment may not coincide and there can be a great difference in their amounts.
As far as the exact amount of a tax rate (between 2 and 4%) is concerned, one should check it at the relevant municipality, where the real estate in question is located. It is so, because every municipality has the autonomy to fix the tax rate for this kind of a tax. It is due not only by natural, but also by legal persons, that possess real estates.
If you are a Bulgarian citizen or a Bulgarian legal person and you pay a sum of money to a foreign person (natural or legal), you must pay a tax deducted at source (TDS) – 10%. In this case and whereas, there is no way for the Bulgarian state to compel a foreign person to pay its taxes, it most often imputes the responsibility to the payer of an income to deduct the tax and to pay it instead of a foreign person into a national budget.
This information is exceptionally general and non-precise. We advise you in in every concrete case to turn to your accountant or to the accounting house, providing services to you. You can always send an enquiry also to our consultants, using our contact details given herein.
As far as VAT and taxes on gambling winnings are concerned, we shall elaborate on them in a separate article, because there is detailed information about them
We hope that we were useful to you!