Corporate tax in Bulgaria

Summary

Corporate Income Tax Rate (%) 10
Capital Gains Tax Rate (%) 10 (a)
Branch Tax Rate (%) 10
Withholding Tax (%) (b)
Dividends 5 (c) (d)
Interest 0 / 10 (e) (f) (g)
Royalties from Patents, Know-how, etc. 0 / 10 (e) (f)
Fees for Technical Services 10 (f)
Rent and Payments Under Lease, Franchising and Factoring Agreements Derived from Sources in Bulgaria 10 (f)
Net Operating Losses (Years)
Carryback 0
Carryforward 5

a) Capital gains derived from the sale of shares and government bonds through the Bulgarian stock market or stock exchanges in European Union (EU) or European Economic Area (EEA) countries are exempt from tax.

b) An EU/EEA recipient of Bulgarian-source income that is subject to withhold­ing tax may claim a deduction for expenses incurred in earning that income by filing an annual corporate income tax return. The return must be filed by 31 December of the year following the year of accrual of the income.

c) This tax does not apply to payments to entities that are resident for tax pur­poses in Bulgaria or EU/EEA countries. However, under the general anti-tax avoidance rule provided in the domestic corporate income tax law, no exemp­tion from withholding tax is granted to an arrangement or a series of arrange­ments that, taking into account all of the relevant facts and circumstances, are not genuine and result in tax avoidance.

d) This rate may be reduced by tax treaties for dividends distributed to entities not resident for tax purposes in EU/EEA countries.

e) The zero rate applies to EU associated companies (a minimum holding of 25% of the share capital must be maintained for at least two years).

f) This tax applies to payments to nonresidents only and may be reduced in accordance with an applicable tax treaty.

g) Interest on debt (other than government or municipality bonds) extended to the Bulgarian state or a municipality is exempt from withholding tax. Interest income on bonds or other debt instruments issued by Bulgarian resident com­panies, the Bulgarian state or municipalities on a regulated EU/EEA market is exempt from withholding tax. The exemptions mentioned in the two pre­ceding sentences are granted to all corporate investors, regardless of their tax residency. Interest income paid to nonresident issuers of bonds or other debt instruments is not subject to withholding tax in Bulgaria if all of the follow­ing conditions are met:

– The issuer of these bonds or debt instruments is a tax resident of an EU/ EEA member state.

– The purpose for the issuance of the bonds or other debt instruments is that the proceeds will be used for granting a loan to a Bulgarian tax resident company.

– The bonds or other debt instruments are issued on a regulated market in Bulgaria or another EU/EEA member state.

Taxes on corporate income and gains

Corporate income tax. Bulgarian companies are subject to corpo­rate tax on their worldwide income. Bulgarian companies are companies incorporated in Bulgaria. Foreign companies are taxed in Bulgaria on their profits generated from activities conducted through a permanent establishment in the country and on income from Bulgarian sources.

Rates of corporate tax. The corporate tax rate is 10%.

A 10% tax is imposed on certain expenses, such as employee-related, in-kind fringe benefits and representation-related expens­es, there by increasing the effective tax rate for companies incur­ring such expenses (see Section D).

Capital gains and losses. Capital gains from disposals of assets, including shares, are included in the current year tax base and are subject to tax at the standard corporate tax rate of 10%. No roll­over relief is provided. Capital losses are de ductible for tax pur­poses.

Capital gains derived from the sale of shares and government bonds through the Bulgarian stock market or stock exchanges in EU/EEA countries are exempt from tax. Similarly, losses from sale of shares through such stock exchanges are not deductible for tax purposes.

Administration. The tax year is the calendar year. Annual tax returns must be filed by 31 March of the year following the tax year.

Companies subject to tax must make advance payments of tax. Only persons that have net sales revenue from the preceding year in excess of BGN3 million must make monthly advance pay­ments. Newly established companies and companies with sales of less than BGN300,000 for the preceding tax year are not required to make advance payments. These taxable persons may opt for quarterly advance payments. Companies with sales ranging from BGN300,000 to BGN3 million for the preceding tax year are subject to quarterly advance corporate tax payments. The tax base for the monthly advance payments is one-twelfth of the compa-ny’s forecasted annual taxable income for the tax year. The tax base of the quarterly advance payments is one-fourth of the com-pany’s forecasted annual taxable income for the tax year. The tax rate for calculating the advance payments is 10%. No quarterly payment is required for the last quarter.

The monthly advance payments for January, February and March are due on 15 April of the current tax year. For the months from April through December, the monthly advance payments are due on the 15th day of the respective month. The quarterly advance payments for the first and second quarters are due on the 15th day after the end of the respective quarter. For the third quarter, the advance payment is due on 15 December. Companies must pay the corporate tax due for the tax year, less the advance install­ments, by 31 March of the following year.

The tax on certain expenses (see Section D) is payable on an annual basis by 31 March of the following year.

Dividends. A 5% withholding tax is imposed on dividends paid by Bulgarian companies to companies resident for tax purposes in non-EU/EEA countries, as well as on hidden profit distributions to residents of EU/EEA countries.

Remittances of profits by branches to their home countries are not subject to withholding tax.

Foreign tax relief. Bulgarian companies are entitled to a tax credit for identical or similar foreign taxes imposed abroad. The tax cred­it is limited to the amount of the Bulgarian tax that would have been paid in Bulgaria on the income subject to the foreign tax. In addition, a per-country limitation applies. Bulgarian tax treaties normally provide an exemption from Bulgarian taxation for in – come from foreign real estate and foreign permanent establish­ments.

Determination of taxable income

General. Taxable income is based on annual accounts prepared in accordance with International Financial Reporting Standards (IFRS) or, for small and medium-sized enterprises, Bulgarian accounting standards. However, taxable income does not equal the profit shown in the accounts, because certain adjustments to revenue and expenses are required for tax purposes with respect to items such as accrual for bonuses, unused leave, depreciation and impairment of assets.

The write-down of assets as a result of impairment is not deduct­ible for tax purposes. The loss is deductible on realization.

Inventories. All cost methods that are applicable under IFRS may be used for tax purposes. For manufacturing entities, the quantity of raw material exceeding the usual quantity of raw materials required for the production of a particular unit is treated as avoid­ance of taxation and is subject to adjustment for tax purposes.

Provisions. Impairments and write-offs of receivables are not de ductible for tax purposes until their materialization or the expi­ration of the five-year statute of limitation to pursue the claim at court. This rule does not apply to financial institutions, which may deduct impairments and write-offs of receivables in the year in which they are booked. Provisions for payables are not deduct­ible for tax purposes until their materialization.

Tax depreciation. Tax depreciation of fixed assets is determined using the straight-line method. The law provides the following maximum tax depreciation rates for categories of assets.

Category Assets Rate (%)
1 Buildings, facilities, communication devices, electricity carriers and
Communication lines
4
2 Machines, manufacturing equipment and other equipment 30 (a)
3 Transportation vehicles, excluding
automobiles, road coverings and aircraft runways
10
4 Computers, software and the right to use software, and mobile phones 50
5 Automobiles 25
6 Intangibles and other tangible assets
that are legally protected for a limited time period
— (b)
7 Other tangible assets 15

a) The rate may increase to as high as 50% for new machines for investment purposes.

b) The depreciation rate is determined by dividing 100 by the number of years of the legal restriction. The maximum rate is 331/3%.

The Corporate Income Tax Act contains measures requiring com­panies to prepare tax depreciation plans.

Goodwill arising from business combinations is not treated as a depreciable asset for tax purposes.

Relief for losses. Tax losses may be carried forward for five years. Losses may not be carried back.

Groups of companies. Bulgarian law does not include measures for filing consolidated returns or relieving losses within a group.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Value-added tax; imposed on all domestic
supplies of goods and services, imports
And intra-EU acquisitions in Bulgaria
20
Tax on expenses; imposed on payers of fringe
Benefits, representation-related expenses and
car expenses for management purposes;
amount is not further subject to tax in the
hands of the recipient
10
Real estate property tax; rate varies by
Municipality
0.01 to 0.45
Real estate transfer tax; rate varies by
Municipality
0.1 to 3

Miscellaneous matters

Foreign-exchange controls. The Bulgarian currency is the leva (BGN). The exchange rate of the leva against the euro (EUR) is fixed at BGN1.95583 = EUR1.

Bulgaria does not impose foreign-exchange controls. However, some reporting requirements exist.

Each business transaction between local and foreign persons that involves financial credits or direct investment of a local company or sole proprietor abroad, must be declared for statistical pur­poses to the Bulgarian National Bank (BNB) within 15 days after the date of the transaction.

Under the act, bank payments of up to BGN25,000 may be made freely after the payer declares the purpose of the payments. For payments over BGN25,000, certain requirements must be satis­fied, including the submission of certain documents to the bank.

The act does not restrict the amount of foreign currency that may be purchased or imported into Bulgaria. Bulgarian and foreign individuals may export foreign currency of up to the equivalent of EUR10,000 without filing a declaration. The individual must file a declaration for exports exceeding EUR10,000. For exports of cash exceeding EUR25,000 or the equivalent in another cur­rency, the individual must provide to the customs authorities a certificate from the tax authorities stating that he or she has no outstanding tax liabilities.

Debt-to-equity rules. Thin-capitalization provisions regulate the deductibility of interest expenses related to certain transactions such as the following:

  • Nonbank loans from related and unrelated parties
  • Financial leases entered into with related parties
  • Bank loans obtained from related parties or guaranteed by relat­ed parties

If the total amount of debt of a company exceeds three times the company’s equity, the thin-capitalization restrictions on tax de ductibility are triggered. The tax deductibility for the net amount of the interest expenses subject to the thin-capitalization provi­sions (after deduction of any interest income) is limited to 75% of Earnings Before Interest and Tax (EBIT). If the financial result before taking into account the interest expense is a loss, the entire amount of the interest expense is nondeductible.

The add-back under the Bulgarian thin-capitalization rules may be a timing difference because the thin-capitalization rules allow for a five-year carryforward of disallowed interest expenses, subject to the application of the limitations described above.

Hidden distributions of profit. Adjustments to taxable income as a result of violations of the arm’s-length principle are treated as hid­den distributions of profit. The definition of hidden profit distri­bution also includes the following:

  • Amounts not related to the business activity
  • Amounts exceeding the customary market levels for both ex­penses accrued and amounts paid or distributed in any form in favor of shareholders, partners or persons related to them, ex­cluding dividends
  • Interest on certain hybrid instruments (debt contracts that, sub­ject to a specific test provided for in the Corporate Income Tax Act, seem to be more akin to equity)

Hidden distributions are treated like dividends and are accord­ingly subject to 5% withholding tax (if distributed to nonresi­dents). In addition, an administrative sanction in the amount of 20% of the distributed amount is imposed. However, voluntary disclosure of hidden profit distributions in the annual corporate income tax return relieves taxpayers of this penalty.

Treaty withholding tax rates

The rates of withholding tax in Bulgaria’s tax treaties are described in the following table.

Dividends (y)

%

Interest (ss)

%

Royalties

%

Albania 5/15 (h) 10 10
Algeria 10 10 10
Armenia 5/10 (m) 5/10 (ll) 5/10 (mm)
Austria 0/5 (tt) 0/5 (uu) 5 (vv)
Azerbaijan 8 0/7 (dd) 5/10 (ee)
Bahrain 0/5 (nn) 5 0/5 (oo)
Belarus 10 10 10
Belgium 10 10 5
Canada 10/15 (n) 0/10 (aaa) 10
China 10 10 7/10 (a)
Croatia 5 5 0
Cyprus 5/10 (r) 7 10
Czech Republic 10 10 10
Denmark 5/15 (b) 0 0
Egypt 10 12.5 12.5
Estonia 0/5 (ff) 0/5 (gg) 5
Finland 10 (c) 0 0/5 (d)
France 5/15 (e) 0 5
Georgia 10 10 10
Germany 5/15 (qq) 0/5 (rr) 5
Greece 10 10 10
Hungary 10 10 10
India (fff) 15 0/15 (bbb) 15/20 (ccc)
Indonesia 15 10 10
Iran 7.5 5 5
Ireland 5/10 (r) 5 10
Israel 7.5 5/10 (u) 7.5
Italy 10 0 5
Japan 10/15 (f) 10 10
Jordan 10 0/10 (hh) 10
Kazakhstan 10 10 10
Korea (North) 10 10 10
Korea (South) 5/10 (j) 0/10 (eee) 5
Kuwait 0/5 (v) 5 10
Latvia 5/10 (b) 5 5/7 (w)
Lebanon 5 7 5
Lithuania 0/10 (aa) 10 10
Luxembourg 5/15 (h) 0/10 (kk) 5
Macedonia 5/15 (p) 0/10 (hh) 10
Malta 0 (g) 0 10
Moldova 5/15 (h) 10 10
Mongolia 10 10 10
Morocco 7/10 (q) 10 10
Netherlands (fff) 5/15 (i) 0 0/5 (pp)

 

Dividends (y)

%

Interest (ss)

%

Royalties

%

Norway (ggg) 5/15 (jjj) 5 (kkk) 5 (lll)
Poland 10 10 5
Portugal 10/15 (ddd) 10 10
Qatar 0 0/3 (ww) 5
Romania (hhh) 10/15 (l) 15 15
Russian Federation 15 15 15
Singapore 5 5 5
Slovak Republic 10 10 10
Slovenia 5/10 (b) 5 5/10 (x)
South Africa 5/15 (h) 5 5/10 (z)
Spain 5/15 (i) 0 0
Sweden 10 0 5
Switzerland 10 (xx) 5 (yy) 0
Syria 10 10 18
Thailand 10 10/15 (s) 5/15 (t)
Turkey 10/15 (o) 10 10
Ukraine 5/15 (i) 10 10
United Arab
Emirates 0/5 (ii) 0/2 (jj) 0/5 (jj)
United
Kingdom (iii) 0/5/15 (mmm) 5 (nnn) 5
United States 0/5/10 (bb) 0/5/10 (cc) 5
Uzbekistan 10 0/10 (xx) 10
Vietnam 15 10 15
Yugoslavia 5/15 (h) 10 10
Zimbabwe 10/20 (k) 10 10
Non-treaty
countries
5 10 10

a) The 7% rate applies to royalties for the right to use industrial, commercial and scientific equipment; the 10% rate applies to other royalties.

b) The 5% rate applies if the beneficial owner is a company, other than a part­nership, holding directly more than 25% of the capital of the payer.

c) This rate applies to dividends paid from Finland to Bulgaria. The treaty does not provide a withholding rate for dividends paid from Bulgaria to Finland.

d) The 5% rate applies to royalties for specified types of intellectual property. The rate for other royalties is 0%.

e) The 5% rate applies if the beneficial owner of the dividends is a company, other than a general partnership, that holds directly at least 15% of the capital of the payer; the 15% rate applies to other dividends.

f) The 10% rate applies if the recipient is a legal person owning at least 25% of the voting shares of the payer for at least six months before the end of the accounting period for which the distribution of profits is made. The 15% rate applies to other dividends.

g) The rate is 0% for dividends paid from Bulgaria to Malta. For dividends paid from Malta to Bulgaria, the withholding tax is the lower of 30% of the gross dividend or the tax imposed on the profits out of which the dividends are paid.

h) The 5% rate applies if the recipient is a company owning directly at least 25% of the capital of the payer; the 15% rate applies to other dividends.

i) The 5% rate applies if the recipient is a company, other than a general part­nership, owning directly at least 25% of the payer. The 15% rate applies to other dividends .

j) The 5% rate applies if the recipient is a company that is the beneficial owner of the dividends and holds at least 15% of the capital of the payer. The 10% rate applies to other dividends.

k) The 10% rate applies if the beneficial owner of the dividends is a company that holds at least 25% of the capital of the payer. The 20% rate applies to other dividends.

l) The 10% rate applies if the beneficial owner of the dividends is a company that holds more than 25% of the capital of the payer. The 15% rate applies to other dividends.

m) The 5% rate applies if the beneficial owner of the dividends has invested at least USD100,000 or an equivalent amount in another currency in the capital of the payer. The 10% rate applies to other dividends.

n) The rate of 10% applies to dividends paid by a Canadian investment com­pany, of which at least 10% of the voting shares are controlled directly or indirectly by a foreign company. The 15% rate applies to other dividends.

o) The 10% rate applies if the beneficial owner of the dividends is a company, other than a general partnership, that holds at least 25% of the payer. The 15% rate applies to other dividends.

p) The 5% rate applies if the beneficial owner of the dividends is a company, other than a partnership, holding directly at least 25% of the payer. The 15% rate applies to other dividends.

q) The 7% rate applies if the beneficial owner of the dividends is a company, other than a partnership, holding directly at least 15% of the capital of the payer. The 10% rate applies to other dividends.

r) The 5% rate applies if the recipient is a company owning directly at least 25% of the payer. The 10% rate applies to other dividends.

s) The 10% rate applies to interest paid to financial institutions, including insurance companies. The 15% rate applies to other interest payments.

t) The 5% rate applies to royalties received for the use of, or the right to use, copyrights. The 15% rate applies to other royalties.

u) The 5% rate applies to interest on loans from banks or financial institutions. The 10% rate applies to other interest payments.

v) The 0% rate applies if the beneficial owner is a company, other than a part­nership, holding directly more than 25% of the capital of the payer.

w) The 7% rate applies to royalties received for the use of, or the right to use, copyrights, patents, logos, models, plans, secret formulas or processes. The 5% rate applies to other royalties.

x) The 5% rate applies to royalties received for the use of, or the right to use, copyrights (except for cinematographic movies), or scientific, commercial or industrial equipment. The 10% rate applies to other royalties.

y) A 0% rate applies to dividends paid to entities from EU countries if certain conditions are satisfied.

z) The 5% rate applies to copyright royalties and other similar payments with respect to the production or reproduction of cultural, dramatic, musical or other artistic works (but not including royalties with respect to motion pic­ture films and works on film or videotape or other means of reproduction for use in connection with television) and to royalties paid for the use of industrial, commercial or scientific equipment. The 10% rate applies to other royalties.

(aa) The 0% rate applies if the beneficial owner of the dividends is a company, other than a general partnership, that holds at least 10% of the payer. The 10% rate applies to other dividends.

(bb) The 5% rate applies if the beneficial owner is a company that owns directly at least 10% of the voting stock of the company paying the dividends. The 0% rate applies if the beneficial owner is a pension fund resident for tax purposes in the United States. Other conditions must also be observed.

(cc) The 0% rate applies if any of the following circumstances exist:

  • The beneficial owner is an institution wholly owned by the state.
  • The beneficial owner is a financial institution, provided the interest is not paid with respect to a back-to-back loan.
  • The beneficial owner is a pension fund, provided that the interest is not derived from the carrying on of a business, directly or indirectly, by such pension fund.
  • The interest concerns debt claims guaranteed, insured or financed by the state.

The 10% rate applies to the following payments:

  • Contingent interest arising in the United States that does not qualify as portfolio interest under US law
  • Interest arising in Bulgaria that is determined with reference to receipts, sales, income, profits or other cash flow of the debtor or a related person, to a change in the value of any property of the debtor or a related person or to a dividend, partnership distribution or similar payment made by the debtor or a related person

The 5% rate applies to other cases.

(dd) The 0% rate applies if either of the following applies:

  • The payer or the recipient of the interest is the government, an administra­tive territorial subdivision or a local authority thereof, the national bank of either contracting state, the state or the State Oil Fund of Azerbaijan.
  • The interest is paid with respect to a loan guaranteed by any of the insti‑

tutions mentioned in the first bullet.

The 7% rate applies to other cases.

(ee) The 5% rate applies to royalties received for the use of patents, designs or models, plans, secret formulas or processes, or for information, regarding in dustrial, commercial and scientific experience (know-how). The 10% rate applies in all other cases.

(ff)    The 0% rate applies if the beneficial owner of the dividends is a company holding directly at least 10% of the capital of the payer. The 5% rate applies in all other cases.

(gg) The 0% rate applies if any of the following circumstances exists:

  • The interest is paid to the government, local authority or the central bank of a contracting state.
  • The interest is paid on a loan granted, insured or guaranteed by any of the institutions mentioned in the first bullet.
  • The interest is paid with respect to the sale on credit of industrial, com­mercial or scientific equipment.
  • The interest is paid on a loan granted by a bank.

(hh) The 0% rate applies to interest originating from one of the contracting states that is paid to the government or the central bank of the other state.

(ii)    The 0% rate applies if the beneficial owner of the income derived from one of the contracting states is any of the following:

  • The other state or a political subdivision, local government, local author­ity or the central bank of the other state
  • The Abu Dhabi Investment Authority, Abu Dhabi Investment Council, International Petroleum Investment Company or any other institution cre­ated by the government, a political subdivision, a local authority or a local government of the other state, which is recognized as an integral part of the government, as agreed in an exchange of letters between the compe­tent authorities of the contracting states

(jj)    The 0% rate applies to income originating from one of the contracting states that is paid to any of the following:

  • The other state, a political subdivision, a local government, a local author­ity or the central bank of the other state
  • The Abu Dhabi Investment Authority, Dubai Investment Office, Inter­national Petroleum Investment Company, Abu Dhabi Investment Council or any other institution created by the government, a political subdivision, a local authority or a local government of the other state, which is re cogniz-ed as an integral part of the government, as agreed through the exchange of letters between the competent authorities of the contracting states

(kk) The 0% rate applies if any of the following circumstances exists:

  • The interest is paid with respect to the sale on credit of industrial, com­mercial or scientific equipment.
  • The interest is paid with respect to the sale on credit of goods or merchan­dise delivered by an enterprise to another enterprise.
  • The interest is paid on a loan, not represented by bearer shares, granted by a financial institution or by the government.

(ll)    The 5% rate applies to interest paid on loans granted by banks or financial institutions.

(mm) The 5% rate applies to royalties paid for the use of, or the right to use, copyrights of literary, artistic or scientific works, including cinemato­graphic films, and films or tapes for television or radio broadcasting.

(nn) The 0% rate applies to dividends paid to the government, a local authority, statutory body, agency, the national bank or a wholly owned company of a contracting state.

(oo) The 0% rate applies to royalties paid to the government, a local authority, statutory body, agency, the national bank or a wholly owned company of a contracting state.

(pp) The 0% rate applies as long as the Netherlands’ tax laws do not levy a tax at source on royalties.

(qq) The 5% rate applies if the recipient of the income owns at least 10% of the capital of the company paying the dividends.

(rr)    The 0% rate applies to interest paid on the following loans:

  • Loans granted or guaranteed by the Bulgarian government or municipal and state institutions
  • Loans guaranteed by Germany with respect to exports or foreign direct investment or granted by the government of Germany, the Deutsche Bundesbank, the Kreditanstalt für Wiederaufbau or the Deutsche Inves-titionsund Entwicklungsgesellschaft
  • Loans related to the sale on credit of equipment and merchandise
  • Loans granted by banks

(ss) A 0% rate (unless explicitly indicated otherwise in the table) broadly applies to interest paid to governments, statutory bodies or central banks. Under certain treaties, it may also extend to other financial institutions and/or local authorities, subject to explicit reference in the respective double tax treaty.

(tt) A 0% rate applies to dividends distributed to Austrian companies. A 5% rate applies to distributions to partnerships and in all other cases. (uu) A 0% rate applies to interest paid on the following loans:

  • Loans granted by banks
  • Loans granted to the government of Austria or to the government of Bulgaria
  • Loans granted, insured or guaranteed by the Oesterreichische Kontroll-bank AG or any comparable Bulgarian institution for purposes of pro­moting exports
  • Loans granted in connection with the sale on credit of industrial, com­mercial or scientific equipment.

A 5% rate applies in all other cases.

(vv) A 5% rate applies to royalties.

(ww) The 0% rate applies to interest paid on loans granted by the Bulgarian National Bank, the Qatar Central Bank, the Qatar Investment Fund, the capital pension authority of Qatar, administrative authorities, the Qatar Development Bank, other financial institutions wholly owned by the gov­ernment of Qatar and other banks or institutions mutually agreed on by the contracting states.

(xx) A 0% rate applies to dividends distributed to the following beneficial owners:

  • Resident companies holding directly at least 10% of the capital in the company paying the dividend for at least one year before the payment of the dividend
  • Pension schemes
  • The central bank of the other contracting state

A 10% rate will apply to distributions to partnerships and in all other cases.

(yy) A 0% rate applies to interest paid on loans granted by the Bulgarian National Bank or, in the case of Uzbekistan, by the Central Bank or the National Bank of the Foreign Economic Activity of the Republic of Uzbeki­stan, or any other similar financial institution as agreed through an exchange of letters between the competent authorities of the contracting states.

(zz) A 0% rate applies to interest paid on the following loans:

  • Loans related to the sale on credit of equipment, merchandise or services
  • Loans granted by financial institutions
  • Loans granted to pension schemes
  • Loans granted to the government of Bulgaria or the government of Switzer land, a political subdivision or local authority, or the central bank of Bulgaria or Switzerland
  • Loans granted by a company to a company of the other contracting state

if such company has directly held 10% of the capital for at least one year before the payment of the interest or if both companies are held by a third company and such company has directly held at least 10% of the capital of the first company and 10% of the capital of the second company, for at least one year before the payment of the interest

(aaa) The 0% rate applies to interest paid on the following loans:

  • Bonds or similar obligations of the government, political subdivisions or local authorities
  • Loans granted by the government or state-owned central banks
  • Loans and credits made, guaranteed or insured by the Export Development Corporation
  • Loans made, guaranteed or insured by the Bulgarian National Bank, the Bulgarian Foreign Trade Bank or other entity as agreed through an ex­change of letters between the competent authorities of the contracting states

(bbb) The 0% rate applies to interest paid on the following loans:

  • Loans granted by the government, political subdivisions, local authorities or the central banks
  • Loans and credits extended or endorsed by the Bulgarian Foreign Trade Bank and the Export-Import Bank of India (Exim Bank) to the extent such interest is attributable to financing of exports and imports only, as well as by other institutions in charge of public financing of external trade
  • Loans and credits extended or endorsed by other persons to the extent that the loan or credit is approved by the government

(ccc) The 15% rate applies to royalties relating to copyrights of literary, artistic or scientific works, other than cinematographic films or films or tapes used for radio or television broadcasting. The 20% rate applies to other royalties and technical service fees.

(ddd) The 10% rate applies if the beneficial owner held directly 25% of the capital of the paying entity for an uninterrupted period of at least two years before the payment of the dividend.

(eee) The 0% rate applies to interest paid on the following loans:

  • Loans granted by the government, political subdivisions, local authori­ties or the central banks
  • Loans or credits made or guaranteed by the Export Import Bank of Korea and Korea Development Bank, as well as by the Bulgarian For­eign Trade Bank, or any other institution as agreed through an exchange of letters between the competent authorities of the contracting states
  • Loans related to the sale on credit of industrial, commercial or scien­tific equipment

(fff)      The existing treaty is being renegotiated. A copy of the official text is not yet available.

(ggg) The new treaty with Norway for the avoidance of double taxation with respect to taxes on income, which was signed in July 2014, entered into force and applies to income accrued on or after 1 January 2016.

(hhh) The Bulgarian National Assembly approved the new income and capital tax treaty with Romania. The new treaty is not yet in force. The new treaty provides for 5% withholding tax on dividends, interest and royal­ties. Inter est paid to the government, a political subdivision or local authority or on loans guaranteed by a governmental institution will be exempt.

(iii)      The new treaty with the United Kingdom for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income and on capital gains entered into force and applies to income accrued on or after 1 January 2016. The treaty contains special provisions limiting the treaty benefits if the main purpose or one of the main purposes of the relevant transaction is to gain a tax advantage.

(jjj)      The rate is 5% if the beneficial owner of the dividends is a company (other than a partnership) that holds directly at least 10% of the capital of the company paying the dividends. The rate is 15% in all other cases.

(kkk)    The rate is 5% for interest on loans other than loans granted by banks, the government, a political subdivision or local authority, loans granted, insured or guaranteed by a governmental institution for the purposes of promoting exports or loans in connection with the sale on credit of indus­trial, commercial or scientific equipment.

(lll)      The rate is 5% for royalties received for the use of, or the right to use, copyrights of literary, artistic or scientific works, including cinemato­graphic films, and films, tapes or other means of image or sound repro­duction for radio or television broadcasting, patents, trademarks, designs or models, plans, secret formulas or processes, or for information (know-how) concerning industrial, commercial or scientific experience.

(mmm) A tax exemption applies to dividends distributed to companies and pen­sion funds. The withholding tax rate is 15% if the dividends are paid out of income (including gains) derived directly or indirectly from immovable property by an investment vehicle. In all other cases, the withholding tax rate is 5%.

(nnn)    The rate is 5% for interest on loans other than loans granted by financial institutions or pension schemes, the government, a political subdivision or local authority, loans to the central bank, loans between associated companies (that is, a direct holding relationship of at least 10% was maintained for at least one year before the payment of the interest) and loans in connection with the sale on credit of any equipment, merchan­dise or services.

A treaty between Bulgaria and Bosnia and Herzegovina with respect to taxes on income has been initialed. A copy of the offi­cial text is not yet available.