Bulgaria, located in the heart of Southeastern Europe, has gained recognition not only for its rich cultural heritage and scenic beauty but also for its favourable tax environment. If you are seeking som tax efficient solutions for you and your business, Bulgaria pops up as one of the most preferred places.
This article will give you short overview of Bulgaria’s taxation system, covering key aspects such as personal and corporate taxation, VAT, social security contributions on monthly income, and tax compliance requirements. Keep in mind, before initiating any procedure, it is strongly recommendable to consult with a local specialist who could guide you through the process.
Overview of Taxation in Bulgaria
The Bulgarian tax system is designed to encourage compliance while ensuring simplicity and efficiency. Key features include:
- A flat tax rate for both personal and corporate income taxes – 10%.
- A competitive Value-Added Tax (VAT) structure. Usually, it is 20% for most of the goods and services, but there are such with lower VAT.
- Social security contributions for individuals with relatively low income threshold.
Compared to other EU countries, Bulgaria offers attractive and competitive tax rates which can help you maintain your activity low cost, especially at the beginning, while you need it.
Personal Income Tax in Bulgaria
Bulgaria offers one of the most competitive personal income tax rates in the European Union, with a flat rate of 10%. To use this beneficial tax rate you need to be a Bulgarian tax resident. There are two types: individuals who spend more than 183 days in Bulgaria within a 12-month period or have a center of vital interest in the country are considered tax residents. As the first on is pretty clear, the second may be interpreted differently. Tax residents are taxed on their worldwide income.
Exemptions:
Certain income categories, such as scholarships, government pensions, and specific allowances, may be exempt from taxation. This is one more benefit when it comes to taxation in Bulgaria. If you have income you think is part of the exemptions, you can contact us and check what income tax you should pay if you should at all.
Corporate Income Tax in Bulgaria
Companies registered in Bulgaria also benefits from flat corporate income tax rate of 10%, one of the lowest in Europe. Additionally there is 5% dividend tax rate for Bulgarian tax residents, so once you make profit and pay your 10% corporate tax, you can distribute dividends with additional 5% tax. And for this income, social security contributions are not applied.
Value-Added Tax (VAT) in Bulgaria
Bulgaria’s VAT system follows EU directives, making it consistent with broader European VAT practices.
- Standard Rate: The general VAT rate is 20%.
- Reduced Rates: Applicable to essential goods and services such as food, medicines, and books, typically ranging between 9% to 0% for specific items.
- Threshold for Registration: Businesses with an annual turnover exceeding BGN 100,000 are required to register for VAT.
- 0% VAT for selling goods and services in the EU, US, UK, Canada etc.
VAT Compliance:
Businesses must file monthly VAT returns and maintain accurate records of taxable transactions. The VAT registration is a game changer when it comes to accounting services as the VAT selling records should be kept and declared properly and in time. Otherwise, the penalties can be pretty high from the beginning.
Social Security Contributions in Bulgaria
Social security contributions fund Bulgaria’s health insurance, pensions, and social benefits systems. If you are freelancer in Bulgaria, you will have the responsibly to pay them on a monthly basis. If you are on an employment contract, your employer is obligated to pay the social securities on your behalf. Contributions are mandatory for both employers and employees.
- Contribution Rates:
- Employer: 17.8% of the gross salary.
- Employee: 13.72% of the gross salary.
Freelancers and Self-Employed Individuals
Freelancers are obligated to pay both parts, making their effective rate 31.62%. But here, you can use 25-40% legally recognised expenses which would reduce your tax base and respectively social security contributions, significantly.
Tax Compliance and Reporting
Taxpayers in Bulgaria must comply with the following requirements:
- Registration: All individuals and entities must register with the National Revenue Agency (NRA) to obtain a unique tax identification number. This may also happen with obtaining a residence permit in Bulgaria. This will grant you a Personal number with which you will be recognised before the authorities.
- Fill Tax Returns: Annual tax returns must be filed by April 30th of the following year for individuals, while corporate tax returns are due by March 31st.
- Proper Bookkeeping: Accurate records of income, expenses, and financial transactions must be maintained for audit purposes.
How Accountly.bg Can Help You
We are here to ensure your and your business full compliance while you are chasing your main goals. We are offering accounting and legal support when it comes to relocation of businesses and individuals.
At Accountly.bg, we have expertise in:
- Tax Residency Services: Assisting individuals in establishing tax residency in Bulgaria, including documentation and legal procedures.
- Corporate Tax Compliance: Helping businesses to be up to date with their tax and accounting obligations and maximize tax efficiency.
- Freelancer Support: From registration to guiding self-employed professionals through social security contributions and tax reporting.
Reach out on the website’s contact form with any quotation you have and we will answer until 1 business day.
