Legal entities carrying out activities in Bulgaria are subject to various tax obligations, which include corporate tax, personal income taxes, withholding tax and value added tax (VAT).

Corporate tax (Tax on profit)

Pursuant to the requirements of the Corporate Income Tax Act (ЗКПО), all legal entities that are resident and incorporated under the legislation of Bulgaria are subject to corporate tax on the profits realised from activities in the country.

The tax period for corporate tax is one calendar year in duration. The rate of this tax is 10%, with the tax base being formed by the annual profit.

Legal entities file an annual tax return and an annual activity report with the National Revenue Agency by 31 March of the year following the reporting year. An exception to this obligation is made for entities that have not carried out any activity during the tax period.

Persons subject to corporate tax:

  • Resident legal entities, including commercial companies;
  • Resident legal entities that are not traders but generate profit from transactions under Article 1 of the Commerce Act or from the letting of movable and immovable property;
  • Unincorporated companies and insurance funds registered under Article 8 of the Social Insurance Code;
  • Foreign legal entities that carry out activities on the territory of Bulgaria through a permanent establishment;
  • Foreign unincorporated companies that pursue economic activity in the country through a permanent establishment.

The liable persons must pay the corporate tax for the reporting year by 31 March of the following year.

Personal income tax

The income of resident and non-resident natural persons is subject to taxation under the Personal Income Tax Act (ЗДДФЛ).

Which persons are considered resident natural persons? A resident natural person is one who meets any of the following conditions:

  • Has a permanent address in Bulgaria;
  • Resides in the country for more than 183 days in any 12-month period;
  • Their centre of vital interests is located in Bulgaria.

Resident natural persons are obliged to pay tax on their income, regardless of whether it was acquired in Bulgaria or abroad. Non-resident natural persons owe tax only on income from sources in Bulgaria, such as income from employment remuneration, rents, dividends from participation in resident legal entities, and others.

Tax period and rate: The tax period covers the calendar year, and the annual rate on the total taxable income is 10%.

Resident natural persons must file an annual tax return for the income received by 30 April of the following year. In the case of income from employment relationships, the employer withholds an advance tax of 10% on the monthly tax base.

Determining the monthly tax base: The monthly tax base is formed by reducing the taxable income by the mandatory social security contributions withheld that are for the account of the employee.

The advance tax withheld by the employer is paid by the 25th day of the month following the month of the withholding or of the partial payments.

Taxes withheld at source

In Bulgaria, legal entities that pay income to foreign natural and legal persons have the obligation to withhold tax at source. The taxable income includes:

  • Dividends and liquidation shares from participation in Bulgarian companies;
  • Income from financial assets and transactions with them;
  • Interest, including interest under a financial lease;
  • Rental income from movable property;
  • Royalties and licence fees;
  • Remuneration for technical services, management or control in a resident legal entity;
  • Income from transactions with immovable property and agricultural activity;
  • Penalties and compensation.

The rate for the tax on dividends and liquidation shares is 5%, and for the remaining taxable income — 10%.

Legal entities pay the tax withheld at source by the end of the month following the quarter in which the income was accrued. The declaration is filed by the same deadline. If the tax is not paid in due time, the obligation also remains jointly and severally with the payer of the income.

Tax on expenses

The following documented expenses are subject to the tax on expenses:

  • Entertainment expenses related to the activity (accommodation, food, drinks, the organisation of meetings and events);
  • Expenses for the operation of vehicles used for management purposes;
  • Social expenses in kind provided to employed persons, including food vouchers and expenses for voluntary insurance.

The tax base for this tax is the total amount of entertainment expenses accrued for the calendar year, and the tax rate is 10%.

The liable persons declare and pay the tax on expenses with the annual tax return by 31 March of the following year.

Value added tax (VAT)

VAT is regulated by the Value Added Tax Act. Subject to taxation are all supplies of goods and services on the territory of Bulgaria carried out by a taxable person.

Compulsory and voluntary VAT registration: VAT registration is compulsory for every person with a taxable turnover of BGN 100,000 or more over the last 12 months, and the deadline for registration is 7 days after the end of the period in which this turnover was reached. Persons who do not meet the requirements for compulsory registration may opt for voluntary registration.

VAT rates: The general rate is 20%, while for accommodation in hotels and similar establishments a reduced rate of 9% applies.

Reporting and filing of declarations: The tax period for reporting VAT is one calendar month. Registered persons keep a purchase ledger and a sales ledger. VAT declarations and reports are filed with the National Revenue Agency by the 14th day of the following month. For intra-Community supplies and other specific transactions, persons also file a VIES declaration for the international exchange of tax information.

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