Public body: National Revenue Agency
Website: https://nra.bg/wps/portal/nra/nachalo
Lowest Corporation tax in the Eurozone (10%)
Corporation tax in Bulgaria is 10% of the company’s profit. There is an additional 5% tax on income from dividends.
This compares to 15% in Germany and 25% in France.
Licence tax (also referred to as patent tax)
The scope of taxation covers the following list of commercial activities: tourist accommodation of not more than 20 rooms, categorised with one or two stars or registered under the Tourism Act; mass-catering and entertainment establishments for example restaurants, cafes and patisseries and bars; services such as carpenter, tailor, cobbler, hairdresser, cosmetic, watchmaker, upholsterer, car repair and glazier.
An annual licence tax is applied to the income generated from the above activities provided that the sole trader turnover does not exceed 25,565 Euro for the 12 months prior and the person is not registered under the Value Added Tax Act.
A separate licence tax is paid for each type of activity. For example, if a business includes a hairdresser and a cosmetic saloon the total tax due for a year is the sum of the two 429 Euro and 787 Euro.
The amount of licence tax for each activity is defined by the municipality of each respective geographical area.
Tax on income from activity in sole-trader capacity (15%)
The taxable income accruing from activity in a sole trader capacity shall be the taxable profit formed according to the procedure established by the Corporate Income Tax. Excluded from taxation here are any activities on which alternative taxes are levied such as licence tax.
The annual taxable amount in respect of income from economic activity in a sole-trader capacity shall be determined by reducing the taxable income for the tax year with the contributions which the self-insured person is obligated to make for the tax year for his or her account according to the procedure established by the Social Insurance Code and of the Health Insurance Law. The tax rate is 15%.
Income tax and National insurance (a combined 22.4%)
Individuals employed in Bulgaria pay about 13.8% of the national insurance contribution. This rate is applied to the gross salary and covers contributions towards state pension, job-seeker allowance and health insurance.
In addition, there is an income tax of 10% on the gross salary less the national insurance contribution. The result is a total of circa 22.4% of tax and national insurance. For example, a gross salary of 2,000 Euro will result in a net (take-home) salary of 1,552 Euro (77.6%).
Consider opening a Bulgarian bank account to receive your monthly salary.
VAT (20%) and working with international clients
VAT registration in Bulgaria is mandatory upon reaching a turnover of 51,130 Euro over a period of 12 months. But for IT freelancers working with clients in the EU, VAT registration is often imperative. This is especially true if you work through platforms like Upwork or Fiverr. This allows invoicing without VAT under the reverse charge mechanism.
Tax residency in Bulgaria
Two criteria apply:
- 183-day rule – If you have resided in Bulgaria for 183 days or more within a calendar year
- Permanent base (habitual residence) – If you have a registered permanent address or main center of vital interests in the country
Bulgaria has bilateral agreements for the avoidance of double taxation with many countries. This is beneficial when working with foreign clients and platforms (e.g. Upwork, Toptal, Fiverr). It is important to apply a correct income code, to fill in the relevant fields in the annual declaration and, if necessary, to use a certificate of residence issued by the NRA.
Tax-free income in Bulgaria
Tax-free is the income from:
- property sale (when the property ownership is 3 years or longer)
- car sale (when the car ownership is 1 year or longer)
- rent from agricultural land
- interest from bank accounts
- insurance compensations
For more info please contact us at hello(at)move2bulgaria.com or visit our Submit a tax return page.