Tax returns and complianceTax ratesResidence rulesTermination of residenceEconomic employer approachTypes of taxable compensationTax-exempt incomeExpatriate concessionsSalary earned from working abroadTaxation of investment income and capital gainsAdditional capital gains tax (CGT) issues and exceptionsGeneral deductions from incomeTax reimbursement methodsCalculation of estimates/prepayments/withholdingRelief for foreign taxesGeneral tax creditsSample tax calculation
All income tax information is summarized by KPMG Bulgaria OOD, the Bulgarian member firm of KPMG International, based on the Bulgarian Personal Income Tax Act.
Tax returns and compliance
When are tax returns due? That is, what is the tax return due date?
The annual Bulgarian personal income tax returns should be filed and the outstanding personal income tax as reported in the tax return should be paid by 30 April of the year following the end of the tax year (the calendar year).
Individuals are entitled to a 5 percent deduction from their outstanding tax liabilities if they file the annual tax return online. Furthermore, such a deduction should also be available if the return is filed and the tax is paid within the preliminary deadline of 10 February of the following year. It should be pointed out that the two deductions cannot be applied simultaneously, that is, they are not cumulative.
What is the tax year-end?
The tax year in Bulgaria is the calendar year, that is, it ends on 31 December.
What are the compliance requirements for tax returns in Bulgaria?
The annual Bulgarian personal income tax return represents a standard form to be used for filing purposes by both residents and non-residents. Furthermore, the filing procedure and deadlines are also the same.
However, it should be pointed out that residents are obliged to report their total worldwide income generated during the respective year, while non-residents for tax purposes should only report their Bulgarian-source income. Another distinction to be made is that as a result of the receipt of certain types of income non-residents may be liable to withholding tax rather than the general personal income tax. In such circumstances, the individual might have to file a withholding tax return.
Individuals generating only employment income from a Bulgarian employer (formal or economic) are not obliged to file an annual Bulgarian personal income tax return.
Advance taxes also have to be paid during the year for most types of income. However, the payer of the tax to the state budget and the frequency of remittance depend on the type of income generated. For example, for employment income, it is an obligation of the Bulgarian employer to deduct at the source and remit to the state budget the amount of personal income tax due on that monthly remuneration until the 10th of the month following the one for which it relates. For rental income and dividends from foreign entities, the remittance obligation switches to the individual and there is also a longer payment period.
It is also possible that no advance personal income tax should be paid during the year and that all outstanding liabilities are to be covered at year-end with the filing of an annual Bulgarian personal income tax return. However, please bear in mind that these cases are rare and basically involve instances where the individual is generating employment income with a Bulgarian source but does not have a local formal or economic employer.
The obligation for payment of advance tax installments for non-residents is the same as already discussed for residents. However, it should be pointed out that different advance tax rules apply to income subject to withholding tax. The withholding of the tax is done with reference to the accrual of the income in the accounting books of the payer. The actual remittance of the tax is dependent again on the type of income and should be reviewed on a case-by-case basis
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What are the current income tax rates for residents and non-residents in Bulgaria?
Both residents and non-residents are subject to the same personal income tax rate for their income subject to Bulgarian personal income tax.
As of 1 January 2008, Bulgaria has abolished the progressive tax schedule and implemented a 10 percent flat tax rate applicable to all income levels, that is, there is no minimum non-taxable income.
The withholding tax rate is also 10 percent with the exception of dividends, which are subject to a reduced rate of 5 percent.
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For the purposes of taxation, how is an individual defined as a resident of Bulgaria?
Bulgarian tax residents are considered to be individuals who fulfill one of the following criteria irrespective of their citizenship.
- They have a permanent address in Bulgaria.
- They stay in the country more than 183 days in any 12-month period.
- They were sent on an assignment abroad by the Bulgarian State, by its institutions or by Bulgarian entities. Under this option, the family members of these individuals are also considered Bulgarian residents for personal income tax purposes.
- Their center of vital interests is considered to be in Bulgaria, that is, the individuals have closer personal and economic relations (such as family, social relations, occupation, and so on) with Bulgaria than with another country.
Generally, the four criteria are of equal importance in determining the tax residence status of the individual. However, the tax legislation provides for an exception: the center of vital interests has precedence over the permanent address criterion of the individual.
Non-residents under the Bulgarian tax legislation are all individuals, who do not comply with the earlier-mentioned criteria. These individuals are subject to tax in Bulgaria only on their income from a Bulgarian source.
Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.
As mentioned earlier, one of the criteria for tax residence in Bulgaria is the 183-day threshold in a 12-month period. The implementation of this threshold does not enforce continuous presence in Bulgaria. In determining the tax status of an individual in Bulgaria, the days of physical presence in the country in a 12-month period are counted regardless of the duration of the individual’s stay abroad.
Furthermore, there are no limits enforced by the Bulgarian legislation with regard to any limitation on visits/stay in Bulgaria after the repatriation of a foreign citizen to his/her home country.
What if the assignee enters the country before their assignment begins?
The days spent by the assignee in Bulgaria before the start of the assignment are counted towards the physical presence threshold of 183 days for determining the tax residence status of the expatriate.
Furthermore, it should be pointed out that depending on the citizenship of the individual, certain immigration documents (visas, work permits, Bulgarian identity cards) may have to be issued to the individual by the Bulgarian authorities within or outside the country.
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Termination of residence
Are there any tax compliance requirements when leaving Bulgaria?
There are no specific tax requirements that have to be met. However, provided that during the stay of an individual in Bulgaria, any reporting and/or remittance personal income tax obligations arose, these obligations may not be waived as a result of the individual’s departure/termination of assignment.
What if the assignee comes back for a trip after residency has terminated?
Visiting Bulgaria after the termination of the individual’s assignment in the country should not be an issue provided that he/she possesses all the necessary entry documents such as a visa (if needed).
Do the immigration authorities in Bulgaria provide information to the local taxation authorities regarding when a person enters or leaves Bulgaria?
Generally, upon request the immigration authorities may provide such information. However, it should be pointed out that in the case of entry to and departure from the country of an EU citizen, the provision of such information may be an issue since due to the free movement of people, the cross-over of EU borders by EU citizens may be unrecorded by the respective immigration authorities. This will be the case when the individuals choose to travel with their ID cards instead of their international passport.
Will an assignee have a filing requirement in the host country after they leave the country and repatriate?
As mentioned earlier, the fact that the assignment is terminated does not waive the reporting and remittance obligations of the individual in Bulgaria.
In view of this, if the individual repatriates in the middle of the tax year and as the filing deadlines are in the first four months of the following year, it is highly likely that the individual would have certain filing and respectively payment obligations following his/her departure from the country.
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Economic employer approach1
Do the taxation authorities in Bulgaria adopt the economic employer approach to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Bulgaria considering the adoption of this interpretation of economic employer in the future?
Until 1 January 2008, the definition of employer in the Bulgarian personal income tax legislation was strictly limited to instances where there are direct contractual relations between the Bulgarian entity and the individual. Thus, the concept of economic employer was not formally provided for. But in practice when applying Article 15 of the treaty the Bulgarian authorities would consider a Bulgarian entity an economic employer of the particular individual if the latter performs work for the entity and his/her remuneration is recharged to it.
As of 1 January 2008, the definition of employer for personal income tax purposes as defined in the law was extended to also include instances where a Bulgarian entity concludes a secondment agreement with a foreign entity under which the latter would send staff to work for the former. The local entity would thus be considered an economic employer of the assigned individuals.
Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?
There is no threshold in terms of number of days of physical presence to be surpassed in order to apply the provisions of the Bulgarian tax legislation, that is, it should apply from the first day of employment in Bulgaria provided that there is a secondment agreement between the sending and receiving entities.
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Types of taxable compensation
What categories are subject to income tax in general situations?
As a rule, all compensation and or income (monetary and/or non-monetary) are subject to personal income tax in Bulgaria unless it is specifically provided for as exempt. In view of this, broadly speaking the following categories of income will be taxable:
- employment income including salary payments, bonuses, housing allowances (in-cash or in-kind), provision of a company car (may not be taxable if properly documented for business use only), education allowances for children, and so on
- interest income
- income from other economic activity (such as, agricultural activities, royalties, activities performed under civil contracts, and so on)
- capital gains from the sale of property
- rental income.
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Are there any areas of income that are exempt from taxation in Bulgaria? If so, please provide a general definition of these areas.
The following items are not generally subject to personal income tax in Bulgaria for local and EU tax residents (special rules may apply to third-country nationals that are non-residents in Bulgaria):
- insurance benefits from local and foreign mandatory social security insurance
- certain additional insurance indemnities from local and/or EU and /or EEA countries insurance funds received as a result of the occurrence of an insurance event (such as retirement, unemployment, and death)
- capital gains on the sale of up to one residential property for which the period of ownership is at least 3 years as well as of other immovables (provided certain term of ownership may be proven)
- gains on the disposal of cars owned for more than one year
- income derived from trading in shares of public entities on the Bulgarian, EU or EEA stock markets
- reinvested dividends
- benefits received from compulsory Bulgarian and foreign social, health, and pension insurance
- aid received from social funds and organizations
- scholarships received towards the attainment of an educational degree in Bulgaria and/or abroad
- income from the sale of inherited property
- interest income generated on deposits and savings in Bulgarian banks as well as banks situated in other member states and EEA countries.
The following items are not generally subject to personal income tax if received as part of the individual’s employment relations.
- The value of free-protective catering (free catering for employees working under harmful conditions in certain specified sectors).
- The value of uniforms, protective, and special clothing provided by the employer.
- Daily travel and accommodation expenses for business trips of persons hired under employment/management contracts.
- The per diems received for the period of the business trip provided that they do not exceed twice a statutory predetermined minimum limit (currently BGN20 per day).
- The value of public transport fares from the place of residence to the place of work, provided by the employer.
- Social benefits-in-kind provided by the employer and subject to certain limitations.
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Are there any concessions made for expatriates in Bulgaria?
There are no expatriate tax regimes currently in force, that is, no expatriate concessions.
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Salary earned from working abroad
Is salary earned from working abroad taxed in Bulgaria? If so, how?
If an individual is a Bulgarian tax resident as per the criteria discussed earlier, he/she would be subject to personal income tax in Bulgaria on his/her worldwide income, including the salary earned abroad. However, relief may be sought under a valid double tax treaty.
If an individual is a foreign tax resident in Bulgaria, Bulgarian and foreign-sourced income will be treated differently. The foreign-sourced income will not be reportable or subject to personal income tax in Bulgaria provided that it is not related to the working activity performed in Bulgaria.
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Taxation of investment income and capital gains
Are investment income and capital gains taxed in Bulgaria? If so, how?
All investment income and capital gains of local residents are subject to tax in Bulgaria unless specifically exempt as already discussed (such as the capital gains realized from the sale of shares traded on the Bulgarian stock exchange and growth realized on investments in pension insurance schemes). Foreign residents are subject to tax on their investment income and capital gains from Bulgarian sources only.
Dividends received from Bulgarian entities are taxed at the source. Thus, the recipient is not obliged to report and pay personal income tax on these distributions upon their receipt.
Holdings in foreign entities should be disclosed separately as part of the tax return (acquisition price, number of shares held, and so on). Respectively the dividends received from these holdings should also be reported and taxed as part of the individual’s annual personal income tax return.
With respect to rental income, the remitter of the tax will vary depending on whether the payer of the income is a person or an entity. Should the payer of the rental income be an individual, quarterly advance tax installments should be paid by the recipient of the income during the year. In cases where the payer of the rental income is a Company, it is the company's obligation to withhold from the amount to be paid and remit to the state budget the personal income tax charges due on behalf of the recipient on a monthly basis. In both cases the recipient of the rental income should make a final reconciliation at year-end with the filing of an annual Bulgarian personal income tax return.
Rental income received from non-residents leasing property situated in Bulgaria is subject to withholding tax at the source.
The Bulgarian personal income tax legislation does not explicitly provide for a particular treatment of the different types of equity compensation. Thus, currently the practice in the area is centered on the interpretation of the general provisions on acquisition of income and receipt of non-monetary fringe benefits.
Following these principles, the table summarizes the general treatment of equity compensation. The particulars of each specific plan should be considered on a case-by-case basis:
||Y - if individual worked in Bulgaria between grant and vest|
|Other (if applicable)
The Bulgarian personal income tax legislation specifies that income paid in foreign currency for tax purposes should be converted into local currency based on the exchange rate of the Bulgarian National Bank at the day when the income was received.
Furthermore, the legislation specifies that currency trading is taxable in Bulgaria. Although it is not explicitly provided for in the law, the general interpretations is that it applies to regular and purposeful trading for the purpose of generating gains and not to accidental transactions.
It should be pointed out that if the assignee generated exchange rate losses and these are covered by the employer, the amount of the compensation received for the purpose would be treated as a taxable benefit.
As discussed above, the capital gains realized from the sale of up to one residential property per year, will be treated as tax-exempt regardless of the period of ownership or whether it has been a principal residence. There are no additional provisions applying particularly to gains from sale of the principal residence.
Capital losses are generally not deductible and may not be carried forward. However, there is one exception concerning the gains realized from the sale of financial assets. If losses are realized from such transactions, they may be offset against the gains realized from the sale of other financial assets in the same calendar year.
Non-monetary benefits are taxable based on their monetary value as at the date of their acquisition. However, the law does not further elaborate as to how this monetary value is to be determined especially if the asset is acquired for the long-term use by the employee. In view of this, the authorities allow discretion by individuals and entities with respect to the different calculation methods applied.
Property received in the form of donation or inheritance is not treated as income under the Bulgarian personal income tax legislation and therefore falls outside its scope. The gains realized from the sale of inherited property are exempt for tax purposes. However, this does not apply to donated property.
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Additional capital gains tax (CGT) issues and exceptions
Are there additional capital gains tax (CGT) issues in Bulgaria? If so, please discuss? Are there capital gains tax exceptions in Bulgaria? If so, please discuss?
The sale of shares in public entities traded on the Bulgarian stock exchange is a tax-exempt transaction. However, such transactions with shares traded on foreign exchanges continue to be treated as taxable (which may be deemed as a discriminatory practice when exchanges situated on the territory of the EU and EEA are concerned).
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General deductions from income
What are the general deductions from income allowed in Bulgaria?
The following may be treated as deductions for personal income tax purposes.
- Mandatory social, health, and pension insurance contributions made by the individual to a Bulgarian or foreign insurance system.
- Up to 10 percent of the personal income tax base for voluntary social and pension insurance contributions made by the individual to a Bulgarian insurance fund or a fund operating under the jurisdiction of another member state or an EEA country.
- Up to 10 percent of the personal income tax base for life and health insurance contributions made by the individual to a Bulgarian insurance fund or a fund operating under the jurisdiction of another member state or an EEA country.
- Up to 5/15/50 percent of the personal income tax base for donations made in favor of certain Bulgarian, EU or EEA beneficiaries.
- A fixed statutory deduction for disabled individuals.
- Statutory deductions at the rate of 25 percent for activities performed under a civil contract, 40 percent for royalties and certain agricultural produce, 60 percent for tobacco - growers.
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Tax reimbursement methods
What are the tax reimbursement methods generally used by employers in Bulgaria?
Generally, there are three reimbursement methods available in Bulgaria.
- If personal income tax is overpaid during the year as part of the monthly payroll, the Bulgarian employer has the obligation to perform an annual reconciliation at year-end and to automatically offset the amount of the overpaid personal income tax against the January tax liabilities of the individual.
- If the overpaid tax is from non-employment income, the individual may ask for reimbursement as part of the annual Bulgarian personal income tax return.
- If the overpaid tax is from non-employment income and the individual does not have a filing obligation in Bulgaria, he/she may file a special claim for reimbursement and support it with the necessary document evidencing that the tax is overpaid.
The second and third methods may also be used with respect to the reimbursement of the withholding tax paid on interest in Belgium, Austria, and Luxembourg.
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Calculation of estimates/prepayments/withholding
How are estimates/prepayments/withholding of tax handled in Bulgaria? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.
As mentioned earlier, for employment income the advance tax is paid monthly simultaneously with the payment of the remuneration to the employees but not later than the 10th of the month following the month to which it refers.
The advance tax for other types of income may be handled differently depending on the type of income and the payer.
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Relief for foreign taxes
Is there any Relief for Foreign Taxes in Bulgaria? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?
The Bulgarian tax legislation specifies that in the case of foreign-source income (where no double tax treaty exists) the tax credit method is to be applied.
Where there is a tax treaty in force, the provisions of the tax treaty regarding the avoidance of double taxation should be implemented. The treaties concluded by Bulgaria mainly provide for the exemption with progression and tax credit method depending on the type of income generated.
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General tax credits
What are the general tax credits that may be claimed in Bulgaria? Please list below.
Tax credit on the foreign tax paid on the income may be granted but not exceeding the amount of the Bulgarian tax due on that foreign-source income.
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Sample tax calculation3
This calculation assumes a married taxpayer resident in Bulgaria with two children whose three-year assignment begins 1 January 2009 and ends 31 December 2011. The taxpayer’s base salary is USD100,000 and the calculation covers three years.
|Moving expense reimbursement
|Interest income from non-local sources
Exchange rate used for calculation: USD1.00 = BGN1.50.
- All earned income is attributable to local sources.
- Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
- Interest income is not remitted to Bulgaria.
- The company car is used for business and private purposes and originally cost USD50,000.
- The employee is deemed resident throughout the assignment.
- Tax treaties and totalization agreements are ignored for the purpose of this calculation.
Calculation of taxable income
|Days in Bulgaria during year
|Earned income subject to income tax
|Net housing allowance (as it is net, it should be grossed up)
|Moving expense reimbursement
|Education allowance (assumed to be in cash)
|Total earned income
|Other income(interest income)
|Deductions: (approximate social security contributions, not enough information)
|Total taxable income
* The Bulgarian personal income tax legislation does not provide guidance as to how the car benefit should be calculated. In view of this, companies usually follow their internal policies for the purpose. In this calculation, KPMG in Bulgaria assumes that the amount of the benefit indicated in the table is the one calculated as per the internal policy.
** Moving expense reimbursement is not included in the calculation, since as per the particular scenario it is a tax exempt income according to the Bulgarian labor code.
Calculation of tax liability
|Taxable income as above
|Bulgarian tax thereon
|Domestic tax rebates (dependent spouse rebate)
|Foreign tax credits**
|Total Bulgarian tax
** The figures calculated represent the amount of the maximum tax credit that could be utilized on the income from foreign sources (in the particular case the interest income). If the amount of the foreign tax paid is smaller, it would be this smaller amount that would be deductible for tax purposes.
1Certain tax authorities adopt an "economic employer" approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee's salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.
2For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the economic employer approach.
3Sample calculation generated by KPMG Bulgaria OOD, the Bulgarian member firm of KPMG International, based on the Bulgarian Personal Income Tax Act.