FEDERAL TAXES AND LEVIES
As a result of the accession of Bulgaria into the EU on 1 January 2007, new tax laws have been introduced in order to harmonise domestic legislation with EU Directives.
The income tax of companies registered in Bulgaria is dependent on the nature oftheir activities.
The profits of local legal entities and business activities of foreign legal entities carried on within the Republic of Bulgaria are subject to a 10% corporation tax.
The following are exempted from corporation tax:
- colective investments schemes allowed for public offering in Bulgaria as well as licensed closed-type investment companies, stipulated by the Public Offering of Securities Act
- companies stipulated by the Law for Companies as having a special investment purpose
- the Bulgarian Red Cross
Corporate tax is payable by 31 March following the end of the tax year. There are also advance payments which can be monthly or quarterly depending on the result of the preceding year. If the preceding year produced a taxable profit, the following year’s payments would be due on a monthly basis and should be paid by the 15th day of each month. The basis for assessment is the prior year’s result, adjusted by a co-efficient determined by the State. If the prior year resulted in a tax loss, the following year’s payments would be based on the ongoing quarterly profit and should be paid by the 15th day of the month following the quarter. Taxable persons, whose net income from sales in the preceding year is not more than BGN 200 000 are exempt from quarterly payments. The following costs are also subject to a 10% tax:
– The expenses of representation relating to the activity
– Social expenses provided in kind to those employed under management and supervision contracts (employees)
– Expenses connected with the operation of vehicles where managerial activity is performed therewith.
The amount of this tax reduces the profit before taxation.
Tax on expenses should be paid by the 15th day of the month, following the monthof expenditure.
Alternative taxes substitute the corporation tax and apply to:
- Gambling companies – from 2010 the rate is 15% based on the earnings from pledges or the nominal value of the pledges printed on slip-forms, tickets and other documents, depending on the type of gambling. This tax is final and payable monthly. The tax on gambling games and casinos is calculated with reference to the number of devices used and is paid quarterly. The receipts from auxiliary and subsidiary activities within the meaning of the Gambling Law are subject to a rate of tax of 12%.
- Budget enterprises – the rate is 3% (for municipalities – 2%) and is payable on trading income and income from the rental of personal and real property. This tax is final and payable monthly.
- Certain entities or individuals performing nautical commercial navigation may choose whether to pay corporation tax or an alternative tax in connection with operating ships. The alternative tax is payable in monthly instalments at a rate of 10% and is based on the net tonnage of the ship and the number of the days in operation.
CAPITAL GAINS TAX
Capital gains are included in the taxable income of a company. Quoted shares sold on the Bulgarian or an EU Stock Exchange are exempt.
BRANCH PROFIT TAX
Overseas companies earning profits in Bulgaria, including profits from branches, are subject to the same tax rates as resident companies.
SALES TAX/VALUE ADDED TAX
From 1 January 2007, the Bulgarian VAT system has followed the one adopted by other EU Member States. VAT is charged when goods or services are provided from Bulgaria. Exempt transactions include health care, social care and insurance, education, sport and culture, financial and insurance services and gambling etc. Some transactions related to land and buildings are exempted from taxation but, if the supplier chooses, they may be treated as taxable. Transactions are exempt where the place of execution is outside Bulgaria. No tax is charged but the recipient has the right to claim tax credits on the related goods and services. The standard tax rate is 20%. A reduced rate of 7% applies solely to the service of accommodation, provided by a hotel-keeper, when it is part of organised tourism. A zero tax rate is applicable to exports, as well as to transactions exempted from VAT under international agreements to which Bulgaria is a party. In all other cases of taxation, including the import of goods from countries which are not members of the EU, the tax rate of 20% is applicable.
A reverse charge applies in the case of Intra-community supplies. Changes to the Bulgarian VAT Act apply from 1 January 2010 in accordance with Directives 2008/8/EEC and 2008/117/EEC to 2006/112/EEC. The scope of services on which a reverse charge applies has been expanded because of changes to the deemed place of supply:
- if the service is provided to a business, the place of supply is where the recipient of the service carried on its economic activity. If, however, the
recipient is using the service for his personal benefit or for the private needs of his workers and employers, the place of supply is the place where the service
has been supplied
- if services is provided to a private individual, the place of supply is where the supplier carries on its economic activity.
Exceptions from this principle are limited and include services related to estate property, passenger transport, cultural, sports, scientific, educational and
The rules for VAT registration have also changed. Where a person provides taxable supplies of services with a place of supply in another member state, or receives taxable supplies of services subject to a reverse charge, a requirement to register for VAT arises. Registration must be made within seven days of the relevant payment or the tax event whichever occurs first. VAT registrants under such conditions do not have the right to deduct input VAT and therefore have the option to register voluntarily for all taxable supplies for a period of 24 months.
Foreign persons established in countries that have established mutual assistance arrangements with Bulgaria may register for VAT under the general terms of the VAT Act, and can, upon their discretion, appoint VAT representatives. Such VAT representatives are not jointly liable for the VAT liabilities of the foreign persons concerned, as they are in other cases.
FRINGE BENEFITS TAX
Social expenses provided in kind to employees are taxable at a 10% rate on the employer. Exemptions include:
– vouchers for food up to BGN 60 per month per person
– contributions to voluntary pension, health and unemployment insurance schemes
– transportation for workers from home to their place of work.
Those social expenses which are not in kind and constitute income of a natural person are otherwise taxable.
Real estate tax is levied on the owners of land and buildings. Farm land and forests are exempt. The tax rates are set by municipalities and range from 0.1 to 2.5% of the book value (the net book value of the property plus accumulated depreciation cost). From 2011 the tax base will be the higher of the book value and the amount assessed for tax purposes. All vehicles registered in Bulgaria are subject to transportation vehicle tax.
Charges are payable to municipality budgets in the form of local taxes for the following services:
- Garbage collection
- Use of market places auctiion places pavements squares street lanes
- Use of kindergartens day scholls vacation centres hostels social care centres and other forms of social service
- Holidays or medical treatment in a resort
- Technical services and administrative services etc
The assessment of all local taxes is wholly the responsibility of the relevant municipality.
From 2010 the maximum limit up to which the municipalities may fix the percentage of the tax payable on transfers of immovable properties and motor vehicles is 3% on the value of the property.
Compulsory social and health security contributions vary from 24% to 28.5% depending on what is insured. It can cover sickness, maternity, unemployment benefit and old age pensions. Generally, contributions are based on earnings and levied on both the employer and employee. The employer pays 60% and the employee 40% of the total amount due.
The employer also pays contributions for ‘Labour accidents and occupational disease’ of between 0.4% and 1.1% depending on the economic activity of the enterprise as well as 0.1% to the fund for ‘Guaranteed claims by workers and employees’ up to a maximum of BGN 2,000.
Non-residents who hold a long-term stay permit must pay health insurance at 8%.