Bulgaria Personal Income Tax

Territoriality. Individuals who are tax residents in Bulgaria are subject to income tax on their worldwide income. Individuals who are nonresidents for tax purposes are subject to income tax on their income earned in Bulgaria.

Definition of tax resident. An individual is considered a tax resi­dent for a calendar tax year if he or she satisfies either of the following conditions:

  • On any day in that year, he or she has spent more than 183 days in Bulgaria in the previous 12 months.
  • His or her center of vital interests is considered to be in Bulgaria.

Days of entry and departure count as days of stay in Bulgaria.

The center of vital interests is considered to be in Bulgaria if the individual’s personal and economic interests are tightly connect­ed to Bulgaria based on actual facts and circumstances such as family residence, real estate owned or place of work.

Tax residence status is determined for an entire tax year, which coincides with the calendar year.

Income subject to tax

Employment income. Employed individuals are subject to income tax on remuneration (money or benefits in kind) paid or provided by or on behalf of an employer. Income derived from employ­ment activities performed in Bulgaria has a Bulgarian source. The following employment income is exempt from tax:

  • The amount of per diems related to business trips within Bulgaria and abroad up to double the statutory amounts determined by law
  • Travel and accommodation expenses relating to business trips covered by supporting documentation
  • Certain social benefits provided by and taxed at the level of the employer

Employer-provided share units or options are taxed as employ­ment income at the time of the transfer of the shares.

Self-employment and business income. Self-employment and busi­ness income is income derived from professional services and business activities, such as the following:

  • Income from activity as a sole entrepreneur
  • Copyright royalties
  • Agricultural income
  • Forestry income
  • Earnings from other self-employment and non-employment activities

A fixed deduction of 25%, 40% or 60% of gross revenue applies depending on the type of activity except that the actual expenses of the business may be deducted with respect to a sole entrepre­neur’s activities.

Interest income. Interest income on all types of bank accounts is taxable at a rate of 8%.

Directors’ fees. Management income, including directors’ fees, paid to residents is taxed as employment income. Any deductions that may be applied to residents may be claimed by nonresidents who are residents of European Union (EU) countries and Norway through the filing of an annual tax return (see Section D).

Other income. A fixed deduction equal to 10% of revenue applies when determining the taxable rental income of residents. Non­residents who are residents of other EU countries and Norway may apply the same deduction through the filing of an annual tax return (see Section D).

Payments for rights, damages and indemnities to residents in low-tax jurisdictions are subject to withholding tax at a rate of 10%.

Dividends and liquidation distributions realized through partici­pations in the profits of Bulgarian entities are considered Bulgarian-source taxable income. Foreign-source dividend income derived by Bulgarian tax residents is also taxable in Bulgaria at a rate of 5%.

Capital gains

Shares. Income derived from the sale of shares and other finan­cial assets is taxable. Gains on disposals of securities traded through the Bulgarian or an EU/EEA stock exchange are exempt from tax.

The taxable gain is the positive difference between the total amount of profits realized during the year less the total amount of losses during the year, both determined for each transaction.

Real estate. Bulgarian and EU/EEA tax residents are not subject to tax on a gain derived from the disposal of one principal private residence in a year if the residence has been owned for at least three years. Such residents are also exempt from tax on gains derived from up to two other real estate properties if the proper­ties have been owned for at least five years.

A fixed deduction of 10% of the taxable gain (sales price minus purchase price) on the disposal of real estate applies.

Exempt income. Income from scholarships, pensions derived from compulsory social security schemes in Bulgaria and abroad, alimony and certain insurance payments are not taxable.

Deductions

Donations. Gifts and donations to Bulgarian and similar EU/EEA charitable institutions and other welfare institutions are deduct­ible up to 5% of the annual tax base. A deduction of up to 50% applies to gifts and donations to special funds for children’s medical treatment and assisted reproduction.

Child benefits. Bulgarian and EU/EEA tax residents may now deduct BGN200 per child from their annual tax base for up to three minor children. A deduction of BGN2,000 from the annual tax base is also available for taking care of a child with disabilities. Only one of the parents or legal guardians can benefit from these deductions.

Mortgage interest. Interest paid on the first BGN100,000 of a mortgage loan is tax deductible for married couples if all of the following conditions are satisfied:

  • The taxpayer or his or her spouse was below the age of 35 when the mortgage agreement was concluded.
  • The mortgage loan contract is entered into after the date of the marriage.
  • The real estate subject to the mortgage is the only property owned by the family.

This deduction is also available to nonresidents from other EU/EEA countries.

Mandatory social security and health insurance contributions. Social security and health insurance contributions made by indi­viduals to mandatory Bulgarian and EU/EEA systems are deduc­tible for tax purposes. Official documentation of the social security institution must be presented as proof for the paid contributions. The deduction can be applied on a monthly or on an annual basis.

Voluntary social security contributions. Deductions equaling up to 10% of the tax base may be claimed for voluntary pension contributions by individuals. In addition, deductions equaling up to 10% of the tax base may be claimed for voluntary health and life insurance contributions made by individuals to Bulgarian or EU/EEA authorized funds.

Tax rates. The rate of income tax is a flat 10%, except for divi­dend income, which is taxed at a rate of 5%, and the income of sole entrepreneurs, which is taxed at a rate of 15%.

Inheritance and gift taxes

Inheritance tax is levied on all property located in Bulgaria and is paid by the recipient. Property located outside Bulgaria that is owned by Bulgarian citizens is also subject to inheritance tax. Spouses, parents and more remote ancestors and direct descen­dants are not subject to inheritance tax. The following flat rates apply for determining the inheritance tax for other heirs:

  • For brothers, sisters and their children, the tax rate ranges from 0.4% to 0.8% (determined by the local Municipal Council of the last permanent residence of the deceased) for an inheritance share over BGN250,000
  • For other heirs subject to inheritance tax, the tax rate ranges from 3.3% to 6.6% (determined by the local Municipal Council of the last permanent residence of the deceased) for an inheri­tance share over BGN250,000

Property acquired as a gift is taxable unless the gift is given by a spouse or the gift is made between descendants. The tax base is the value of the property at the moment of transfer determined by the tax authorities or the Municipal Council. The applicable rates vary by location and type of property.

Social security

Contributions. Different social security regimes apply to employ­ees and self-employed individuals. Social security contributions payable by self-employed individuals vary depending on the individual’s activity.

Individuals performing working activities in Bulgaria are subject to Bulgarian mandatory social security contributions unless an exemption is provided. Labor is divided into three categories, depending on the characteristics of the work performed. Profes­sions involving harmful or risky conditions are included in the first or second category. The following table provides the rates effective from 1 January 2016 for contributions payable by em­ployers and employees with respect to employees in the third labor category (normal work conditions) who were born after 1 January 1960 and work under employment contracts governed by the Labor Code.

Employer’s share (%) Employee’s share (%) Total

(%)

Pension Fund 7.1 5.7 12.8
Illness and Maternity Fund 2.1 1.4 3.5
Accident and Occupational Disease Fund 0.4 to 1.1* 0 0.4 to 1.1
Additional mandatory social insurance for individuals born on or after 1 January 1960 2.8 2.2 5
Unemployment Fund 0.6 0.4 1
Health insurance 4.8 3.2 8

 

* The percentage depends on the category of basic economic activities into which the company falls.

The monthly social security base is capped at BGN2,600.

Coverage. Employees working in Bulgaria under an employment contract are covered under all of the social security funds, as well as the Pension Fund.

Sole entrepreneurs and freelancers insure themselves by paying contributions on a level of monthly income selected by them of at least BGN420. For these individuals, the annual amount of social security and health insurance contributions is recalculated at the end of the year based on actual annual income received, up to a maximum of BGN31,200. The rate of the contribution is 20.8% or 24.3%, depending on the scope of coverage desired.

Exemption. Exemption from paying social security contributions in Bulgaria may apply under the provisions of the EU Regulation or a bilateral social security agreement. Bulgaria has entered into bilateral social security agreements with the following countries.

Albania                     Korea (South)                     Russian

Bosnia and                Kosovo                               Federation

Herzegovina             Libya                                  Serbia

Brazil (a)                   Macedonia                          Tunisia (b)

Canada                      Moldova                             Turkey (a)

Croatia                      Montenegro                        Ukraine

Israel

  • This agreement has a limited scope of applicability.
  • This agreement was ratified in 2016 and is pending entry into force.

Tax filing and payment procedures Payment of tax

Employment income. An advance tax payment on employment income is due on a monthly basis. The employer withholds advance tax from the salary payment and must remit and report it to the tax authorities before the 25th day of the month follow­ing the month of payment of the income. The tax rate of 10% is applied to the tax base.

Self-employment and business income. Self-employed individu­als must pay advance tax of 10% by the end of the month follow­ing the quarter of the earning of the income.

Advance tax of 15% applies to income derived from activities of sole entrepreneurs under the provisions of the Corporate Tax Act.

Directors’ fees. Management income is treated as employment income if derived by residents. If nonresidents derive manage­ment income with a Bulgarian source, it is subject to 10% with­holding tax on the gross amount. Management income earned from a fixed place of business outside Bulgaria is specifically distinguished from employment income.

Rental income. Rental income is subject to a 10% tax. This tax must be withheld and reported on a quarterly basis by the tenant if the tenant is an enterprise or a freelancer. For foreign entities or freelancers who do not have Bulgarian reporting obligations, the reporting must be done by the recipients of the income.

Interest income. Interest income is taxable at 10% on an annual basis. Withholding tax at a rate of 10% applies to nonresidents.

Dividend income. A 5% withholding tax applies to income from dividends and liquidation distributions received from resident entities.

Capital gains. A tax rate of 10% applies to capital gains, which are reported in annual tax returns for residents and quarterly tax returns for nonresidents.

Harmonization. Nonresidents who are residents of EU countries or Norway may apply the same deductions applicable for resi­dents and claim the refund of the excess tax withheld or paid in advance through the filing of an annual tax return.

Tax returns

Quarterly tax returns. Certain types of income are subject to quarterly tax payment and reporting by both residents and non­residents.

Annual tax returns. Annual tax returns must be filed and the bal­ance of tax due must be paid by 30 April of the year following the tax year. Extensions are not possible. Tax return filing require­ments do not apply to individuals who receive only employment income during the year if they have no outstanding tax liabilities and do not use tax relief. Individuals may benefit from this exception even if they have no employer on 31 December 2015 or their employer does not perform an annual reconciliation.

Discount. The Bulgarian income tax law provides for a 5% dis­count on the balance between the total annual tax liability and the advance tax payments made throughout the year if the following conditions are satisfied:

  • The individual has no other outstanding public liabilities sub­ject to public enforcement.
  • The tax return is filed online by 31 March of the following year.
  • The tax is paid by 30 April of the following year.

Penalties. Late filings and tax payments result in administrative fines and penalties.

Double tax treaties

The double tax treaties recently entered into by Bulgaria closely follow the Organisation for Economic Co-operation and Devel­opment (OECD) model treaty. Bulgaria has entered into double tax treaties with the following countries.

Albania                            Iran                              Qatar

Algeria                            Ireland                          Romania

Armenia                          Israel                            Russian

Austria                            Italy                              Federation

Azerbaijan                       Japan                            Serbia

Bahrain                            Jordan                          Singapore

Belarus                            Kazakhstan                   Slovak Republic

Belgium                           Korea (North)              Slovenia

Canada                            Korea (South)              South Africa

China                               Kuwait                         Spain

Croatia                             Latvia                           Sweden

Cyprus                            Lebanon                       Switzerland

Czech Republic               Libya                            Syria

Denmark                         Lithuania                      Thailand

Egypt                               Luxembourg                Turkey

Estonia                            Macedonia                   Ukraine

Finland                            Malta                            United Arab

France                             Moldova                      Emirates

Georgia                           Mongolia                     United Kingdom

Germany                         Morocco                      United States

Greece                             Netherlands                  Uzbekistan

Hungary                          Norway                        Vietnam

India                                Poland                          Yugoslavia*

Indonesia                         Portugal                       Zimbabwe

* The treaty applies to Bosnia and Herzegovina, Montenegro and Serbia.

Entry and visa requirements

EU nationals, citizens of EEA member states and citizens of Switzerland. EU nationals, citizens of EEA member states and citizens of Switzerland may benefit fully from the right of free movement. They may enter Bulgaria based on a valid identifica­tion card or international passport and reside freely in the coun­try. Individuals who intend to spend more than three months in Bulgaria should register with the Bulgarian Immigration Office. A long-term residence certificate is obtained through this registration.

Other nationals enjoying a visa-free regime. Nationals of countries under Annex II of Council Regulation 539/2001, as well as hold­ers of Schengen visas and residence permits issued by Schengen countries, Liechtenstein and Switzerland, are not required to obtain visas. They may stay in Bulgaria for 90 days within each 6-month period, counting from the date of the first entry into Bulgaria. These individuals are required to possess valid interna­tional passports to enter the country. If they intend to work or engage in self-employment activities in Bulgaria, they are subject to the same regime as citizens of non-preferred countries.

Holders of valid residence cards issued by other EU member states are not subject to visa requirements for Bulgaria.

Citizens of non-preferred countries. Citizens of non-preferred countries (countries whose nationals are not subject to a visa-free regime) need a valid international passport and a Bulgarian visa to enter the country. Citizens of some non-preferred countries may require a Type C visa to travel through the country or an air transit visa to stay in the international transit zone of a Bulgarian airport.

Visas. Visas are issued by the Bulgarian diplomatic and consular offices abroad. The following are the types of visas:

  • Type A: air transit visa.
  • Type C: short-term visa for a total stay of up to 90 days during a 6-month period beginning from the date of first entry. A Type C visa may be issued for tourist or business purposes. The Type C visa can be a single- or multiple-entry visa.
  • Type D: long-term visa for a total stay of up to 180 days. The Type D visa is also a prerequisite for a long-term residence permit. In exceptional cases, a Type D visa may be issued for a period of 360 days, such as for seconded personnel of an employ­er certified in accordance with the International Investments Act. The Type D visa also allows multiple entries into Bulgaria.

Work permits, EU Blue Cards and self-employment

EU nationals, citizens of EEA member states and citizens of Switzerland. EU nationals, citizens of EEA member states and citizens of Switzerland enjoy the right of free movement within the EU. They do not need to obtain a work permit or register with the Employment Agency to work or engage in self-employment activities in Bulgaria.

Individuals enjoying preferential treatment. The following indi­viduals do not need a work permit to work in Bulgaria:

  • Permanent residence permit holders
  • Family members of EU, EEA and Swiss nationals
  • Individuals granted asylum or humanitarian status
  • Individuals to whom the provisions of an international agree­ment apply

Other nationals. Individuals not enjoying preferential treatment who intend to work in the country under a local employment contract or under the terms of a secondment must obtain a work permit from the Employment Agency.

Applications for work permits are submitted by the intended employer. Individuals who obtain work permits are authorized to work only for that employer.

Work permits are issued to foreign nationals who possess proper education, special skills or professional experience, suitable to the position they intend to take. In most cases, the Bulgarian employer must perform a labor market test to establish the lack of Bulgarians and individuals enjoying preferential treatment who are suitable for the position. The market test requirement can be avoided under specific circumstances.

The number of non-EU nationals employed by a company may not exceed 10% of the average number of Bulgarian nationals and individuals enjoying preferential treatment that were employed by the company in the preceding year.

The term of validity of a work permit is up to one year. It can normally be extended for two consecutive years, and exception­ally beyond that period. In the case of a secondment, the one-year period can be extended only under extraordinary circumstances.

In general, non-EU nationals may not reside in Bulgaria while their work permit application is being processed.

Highly qualified foreign employees can be granted EU Blue Cards subject to prior approval by the Employment Agency. The Bulgarian employer must still perform a labor market test to establish the lack of Bulgarians and individuals enjoying prefer­ential treatment who are suitable for the position. An EU Blue Card allows its holder to work and reside in Bulgaria for up to one year. No labor market test is to be performed on extension.

As of October 2015, a new facilitated regime was introduced for the obtaining of work permits by highly qualified third-country nationals as part of the procedure for acquiring EU Blue Cards. This regime decreases by half the waiting time for individuals from certain professional groups.

Foreign nationals intending to perform self-employment activi­ties in Bulgaria should apply for a permit before entering the country.

Residence certificates and permits

Residence certificates. Residence certificates are issued to EU, EEA and Swiss nationals who intend to reside in Bulgaria for a period exceeding three months. Long-term and permanent resi­dence certificates may be issued.

A long-term residence certificate is issued for a term of up to five years. To obtain a residence certificate, an EU, EEA or Swiss national must present evidence of sufficient funds, accommoda­tion and health insurance. Residence certificates are also granted to such nationals who are employed by a Bulgarian employer or are enrolled in a Bulgarian educational institution. EU, EEA or Swiss nationals who hold a residence certificate may apply for a biometric residence certificate card.

EU, EEA or Swiss nationals may apply for permanent residence certificates if they have resided legally in Bulgaria for longer than five years. The granting of a permanent residence certificate is subject to some additional conditions. The term of a permanent residence certificate is indefinite.

Residence permits. Residence permits may be issued to non-EU nationals who have entered Bulgaria with a Type D visa.

Long-term residence permits are generally issued for a stay of up to one year, on the basis of employment, study, marriage or a management agreement. Depending on the grounds for applica­tion, the non-EU national must present a specific set of docu­ments to the Immigration Office.

Non-EU nationals who are holders of valid residence permits for other EU member countries and who are hired by Bulgarian employers or enrolled in Bulgarian educational institutions are subject to preferential treatment. Their long-term residence per­mits may be issued for a period of up to five years.

Non-EU nationals, who have legally and continuously resided in Bulgaria for the preceding five years, can acquire permanent resident status. Holders of permanent resident status enjoy equal treatment with Bulgarians with respect to access to work and self-employed activities and certain other matters.

Permanent residence permits are issued for an indefinite period. Permission for a permanent stay is also granted to foreign nation­als who have a substantial link to Bulgaria, such as the following:

  • They have been married to a Bulgarian national for more than five years.
  • They are of Bulgarian origin.
  • They have made a large investment in the country.

Investors. Long-term and permanent residence permits can be obtained based on investment in Bulgaria. For long-term resi­dence permits, an additional requirement is that the foreigner must settle in Bulgaria. Greater investments must be made to obtain a permanent residence permit without settling in Bulgaria. A family member of a permanent resident based on investment can also obtain a permanent residence permit for the same period as the initial holder’s residence. Recent amendments to local legislation provide opportunities for an individual and his or her family members to obtain Bulgarian citizenship based on an investment even though the investor does not have knowledge of Bulgaria and maintains other citizenships.

Family and personal considerations Family members

Family members of EU, EEA or Swiss nationals. Family members of EU, EEA or Swiss nationals who are not citizens of EU member states themselves can benefit from the right of free movement within the EU. They do not need a work permit to begin an employment relationship in Bulgaria. However, they need to register their employment with the Employment Agency. They may enter Bulgaria with an international passport and, if required as a result of their nationality, a visa. They can apply for a long-term residence permit on the grounds of their family rela­tionship with an EU, EEA or Swiss national. The term of validity of a residence permit of a family member depends on the term of residency of the EU, EEA or Swiss national whom the family member is accompanying. However, the term cannot exceed five years.

Family members of non-EU, EEA or Swiss nationals. Family mem­bers of non-EU, EEA or Swiss nationals must have separate permits to reside in Bulgaria. They can apply for a residence permit on the grounds of their family relationship with Bulgarian residence permit holders. The term of validity of their residence permits depends on the term of the residence permits granted to the non-EU, EEA or Swiss nationals whom they are accompanying.

They should apply independently for their own work permits if they wish to take up employment in Bulgaria.

Family members of an EU Blue Card holder can acquire a deriva­tive residence permit for the period of validity of the EU Blue card. Family members of a foreigner with permanent resident status can acquire a Bulgarian residence permit for up to one year with an option for an extension.

Marital property regime. Married couples whose marital relation­ships are governed by Bulgarian law may choose between a com­munity property regime or separation of assets regime. They may also choose to govern their relationship through a written mar­riage agreement.

The default regime is community property, under which all prop­erty acquired during marriage, except by gift or inheritance, is community property. However, on termination of the marriage each spouse is solely entitled to the property he or she brought to the marriage.

Under the separation of assets regime all property acquired dur­ing marriage belongs to the acquirer. On termination of the mar­riage, one spouse can claim part of the property that the other spouse acquired with his or her assistance.

Forced heirship. Bulgarian succession legislation provides for a “reserved part right” that entitles close relatives (surviving spouse, descendants and parents) to inherit a reserved part of an estate, regardless of the provisions of a will. The rules apply to the estate of a Bulgarian citizen or to property located in Bulgaria.

Driver’s permits. Foreign nationals, who reside in Bulgaria and have a valid driver’s license issued by EU or EEA member states or Switzerland, may drive legally in Bulgaria. Holders of licenses issued by other states that signed the Vienna Convention for Traffic Rules may drive legally in Bulgaria for up to one year.