Corporate income taxation
Corporate income taxation, Withholding tax, Value Added Tax (VAT), depreciation of assets
If you are looking to start up a new company in Bulgaria and need to know what the Corporate income taxation is and what the depreciation of assets is, what prevailing tax rates are, or if you are looking just to obtain up-to-date information for the corporate income taxation and the current tax rates effective in Bulgaria, you are in the correct page. Herein below, SKM provides a brief overview of the most important aspects of corporate income taxation, depreciation of assets, and alike, applicable to the companies operating in Bulgaria, as well as details of their amount, percentages, method of application and term of payment.
However, if you prefer to concentrate on your core business and do not want to waste your time trying to understand and apply the below figures, tax rates, tables and complicated calculations explaining the Corporate income taxation – just contact us. It is our duty to perform all the above activities, to take care of your corporate income taxation computation, as well as to apply tax percentages that will be most advantageous to you, as permitted by the local law. We, at SKM, enjoy working with figures and percentages and do tax calculations, and that is what we do best!
The major aspects of corporate income taxation in Bulgaria are governed by the Bulgarian Corporate Income Taxation Act, Value Added Tax Act, and Tax and Social Insurance Procedure Code.
Corporate Income Tax
| Basic rates | |
|---|---|
| Corporate Income Tax | 10% |
| Tax on Dividends | 5% |
| Distributed to EU Companies | 0% |
| Withholding Tax (WHT) | 10% |
| Tax on Entertainment Allowance | 10% |
A tax loss may be carried forward for a term of up to 5 years if only certain conditions are met. General operating costs are deducted from income generated prior to calculating the tax base whereon the corporate income tax is to be charged.
Withholding tax (WHT)
Withholding tax is levied on dividends and liquidation shares, distributed by resident legal persons in favour of:
- withholding tax – non-resident legal entities (companies), except for the cases when dividends are realized by non-resident legal entities by means of a permanent establishment in Bulgaria;
- withholding tax – resident legal persons who are not traders.
Withholding tax is not levied on dividends and liquidation shares when they are distributed to:
- withholding tax – a non-resident legal person that is resident for tax purposes in a Member State of the European Union (EU) or another State which part to the Agreement on the European Economic Area.
Withholding tax is also levied on the following types of income of non-resident legal persons, when these types of income have not been realized by means of a permanent establishment in Bulgaria:
- Incomes from interest, including interest, which is part of the payments under financial leasing;
- Incomes from rent or other granting of movable property;
- Royalties;
- Remuneration for technical services;
- Remuneration under franchise and factoring contracts;
- Remuneration for management or control of a Bulgarian legal person (Company);
- Income from rent or other granting of immovable property, located in Bulgaria.
Withholding tax rates are:
- Withholding tax – The tax rate for the tax on income as per Art.194 of the Corporate Income Taxation Act (dividends and liquidation shares) shall be 5 %.
- Withholding tax – The tax rate for the tax on all other types of income as per Art.195 of the Corporate Income Taxation Act shall be 10%.
Tax on entertainment allowance
Such allowances include: costs of lunches and dinners, gifts, clothes, food, taxi services, drinks, and other similar. These types of expenses should relate to the principal activity of the company. After the tax due thereon has been paid, these expenses become a tax deductible expenses for the company. However, VAT due on such expenses cannot be offset or claimed for reimbursement.
Terms of payment
| Annual Corporate Income Tax Return | must be submitted before the 31st March each year |
| Annual corporate profit tax | must be paid before the 31st March each year |
| Annual financial reports | must be published in the Commercial Register before the 30th June each year |
| Advanced corporate tax | must be paid before the 15th day of current month for the pervious month |
| Dividend tax | must be paid until the end of month following the month in which the decision was taken |
| Withholding tax (WHT) | must be paid by the end of the month following the quarter when the decision was taken or income was charged. |
| Tax on entertainment allowance | should be paid until the 15th day of the following month |
A tax liable person who submits its annual tax return by 31st of March by e-signature and pays the tax due within the same term shall have the right to a 1% discount on the tax due, but not more than BGN 1,000.
Bulgarian Tax Treaties
Bulgaria is a signatory to Double Taxation Conventions with many countries all over the world. When certain income is taxable under the Law on taxes on the income of natural persons but there is an exemption (reduced tax) under any Taxation Treaty, the income is taxed, if at all, but only according to the provisions of the Tax Treaty. Bulgaria has Treaties in force with following countries:
| Albania | Algeria | Armenia |
| Austria | Azerbaijan | Bahrain |
| Belarus | Belgium | Canada |
| China | Croatia | Cyprus |
| CzechRepublic | Denmark | Egypt |
| Estonia | Finland | France |
| Georgia | Germany | Greece |
| Hungary | India | Indonesia |
| Iran | Ireland | Israel |
| Italy | Japan | Jordan |
| Kazakhstan | Lebanon | Luxembourg |
| Kuwait | Latvia | Lithuania |
| Macedonia | Malta | Morocco |
| Moldova | Mongolia | Netherlands |
| Norway | North Korea | Poland |
| Portugal | Qatar | Romania |
| Russia | Serbia | Spain |
| Singapore | Slovakia | Slovenia |
| South Africa | South Korea | Sweden |
| Switzerland | Syria | Thailand |
| Turkey | Ukraine | United Kingdom |
| UAE | US | Uzbekistan |
| Vietnam | Zimbabwe |
For further details of the application thresholds, documents required to be submitted for application purposes, and the specific terms and conditions, you may contact directly the Double Taxation Treaties Directorate at NRA on the following telephone numbers:
+ 359 2 9859 3061
+ 359 2 9859 3071
+ 359 2 9859 3173, or just contact our experts.
depreciation of assets
The most common method of depreciation of assets in Bulgaria is the straight line method.
An asset the value of which is less than BGN 700 is not considered a fixed tangible asset and can be expensed directly i.e. there will not be a depreciation of assets. Below is a brief info of depreciation of assets in Bulgaria.
Depreciation of assets – here follows a table that shows the tax depreciation rates applied under the straight line method to the various items of assets:
| Type of Asset – depreciation of assets | Depreciation Rate |
| Buildings | 4% |
| Plant and equipment | 30% |
| Infrastructure, roads and transport vehicles | 10% |
| Hardware and software | 50% |
| Motor vehicles | 25% |
| Other fixed assets | 15% |
| Intangible Assets | 33.3% |
Value Added Tax (VAT)
| Rates | |
| Standard rate | 20% |
| For tourist industry (tour operators and hotel accommodation) | 9% |
| VAT on EU Supplies | 0% |
| VAT on Export | 0% |
The newly incorporated companies in Bulgaria do not automatically enter Bulgarian VAT system. There are two methods of registration under Value Added Tax (VAT) in Bulgaria – voluntary and obligatory registration for Value Added Tax (VAT). You can voluntarily register your company under Value Added Tax (VAT) at any time and at any turnover level (but not exceeding BGN 50,000 for the last 12 months). This method of registration is preferable.
The Bulgarian Value Added Tax (VAT) Act defines obligatory registration in Bulgaria when:
- the turnover of your Bulgarian company reaches the amount of BGN 50,000 for the last 12 months;
- you reach the threshold of BGN 70,000 making distance sales to Bulgaria (intra-community transactions to Bulgaria);
- your BG company provides services to other EU based business;
- you are not settled on the territory of Bulgaria and carry out leviable deliveries of goods, which are being mounted or installed on the territory of the state;
- you are not based in Bulgaria and provide telecommunication services, services for radio- and television broadcasting or services provided electronically, with recipients – tax non-liable persons based or having a permanent address or usual residence in the country.
Please note that you have to follow very carefully above thresholds and conditions, and submit all the needed paperwork in the Bulgarian Revenue Agency (NRA), normally one month before the break-event if you want to avoid any possible penalties.
Terms for Value Added Tax (VAT) return submission and payment
| VAT return submission | before 14th day of every month |
| VAT payment | before 14th day of every month |
Please note that we don’t have any exceptions or extensions from these terms. Also please note that we don’t have quarterly or annually VAT returns in Bulgaria.
Please bear in mind that any delays in submitting the monthly VAT returns, as well as any delays in paying the due VAT due, are subject to serious sanctions by the local tax authorities! Please check art. 178 and 179 para.1 from our VAT Act.
You can verify the validity of the Value Added Tax (VAT) number of your customer issued by any Member State by choosing that Member State from the drop-down menu and entering the number to be validated. Please follow this link to validate the VAT number.
Income tax on rental agreements
As of 1 January 2011, companies that pay real property rents to natural persons are now obliged to withhold and pay the tax due on the rent. The taxable base for this tax is 90% of the monthly rent agreed in the contract (10% are recognised as costs of the landlord). The tax rate is 10% on the above taxable base.
The tax has to be paid until the 10th day of the month following the month the rent is paid for.
Real estate taxes (Property Tax)
Real estate (property) tax in Bulgaria is an annual tax. It is due at the beginning of the year. This type of tax is paid usually together with the „household waste fee”. The tax and the fee can also be paid in 3 installments throughout the year.
The property tax is due on the sale of the property, when this property is not the principal housing of the person. The rates are determined by the Municipalities.
Further details of the property taxes applicable in Bulgaria, the method of their calculation and payment, as well as of the terms and discounts, may be found in the Local Taxes and Fees Act, published on our website.