Doing Business in Bulgaria

There are many European countries that offer appealing tax benefits to foreign investors, but Bulgaria outshines all of them. Bulgaria’s flat rate tax framework is beneficial for both companies and personal tax purposes, offering the best of both worlds at the same time.

Bulgaria is a country situated in the south-eastern region of Europe that opens up to the Black Sea, making it possible for companies to make use of these popular trade routes. The capital, Sofia, is also steadily on the rise as an economic hotspot.

Bulgaria’s flat tax rates

An international tax system is used in Bulgaria and residents are taxed on their world income. Companies are taxed at 10% whilst profit at the end of the financial year based on an adjusted scale. Individuals are also subject to a 10% income rate.

Bulgaria as a great outsourcing destination

The country offers an affordable business environment to residents and foreign investors. It has an excellent internet structure making international business extremely easy. Many EU countries offer amazing business opportunities but high tax rates, which is why Bulgaria is often favoured above the rest. A Bulgarian company can function as a subsidiary of a non-EU parent company, achieving minimum tax leakage and efficient building up of profits.

Tax holiday, tax exemptions and special regimes

A tax holiday is implemented to lessen the amount of tax that is payable per year by the company and it is based on profits from manufacturing activities. Companies that are exempt from corporate tax income are companies like specialized investment companies and collective investment schemes.

Popular types of companies in Bulgaria

There are 3 types of companies that are popular in Bulgaria:

  • Limited liability company (Bulgaria OOD) – this is a commercial company established by natural or legal entities that are responsible for the company’s obligations. There must be at least 1 director and 1 shareholder of any nationality. A minimum capital of 1 EUR is required which must be registered to each shareholder with values not smaller than 0.50 EUR. An audit has to occur if it exceeds 750,000 EUR fixed assets, annual turnover of 1,250,000 EUR and has a workforce of 50 or more employees.
  • Single person limited liability company (Bulgaria EOOD) – similar to an OOD, but of which the capital is owned by one legal or natural entity. The requirements are the same to the above mentioned.
  • Joint stock company (Bulgaria AD) – the capital of a joint stock company is divided into shares and the company is fully responsible for its assets. There must be at least 3 directors, 1 chairman and 2 shareholders of any nationality. There is a minimum capital requirement of 25,560 EUR and it has to be audited regularly.

Bulgaria as a holding location

If a Bulgarian company should receive dividends, they are free of tax if subsidiaries are residents in the EEA. The dividends that are paid by such a company are also tax exempt if the resident is an EEA member. All other dividends received will be taxed at 5% and capital gains will be taxed at a flat rate consisting of 10%.

Other withholding taxes

Royalties and interest received from an external source will be taxed at 5%. If, however, they are paid to another member state it will be tax-free. Taxation of 10% is applied to the gross figure of other types of external payments.

Recent developments

In terms of taxation, Europeans are at an ambiguous stage at the moment. On the one hand, average personal income tax is rising, but on the other hand, corporate tax is decreasing. In high-income countries, lowering corporate tax is just not sufficient anymore. One of the solutions is to avoid heavy personal income tax and to combine it with a tax-efficient corporate structure. This will not only assist the country in question, but it will enhance the entire EU as companies and individuals will have more economic freedom within the states itself.

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