Bulgaria property news and articles

A lot of people who live in Bulgaria and who are legally obliged to pay tax there simply do not do so. A lot of people who do not live in Bulgaria but who are obliged to pay taxes to the Bulgarian government because they have, for example, let out their home in Bulgaria also do not pay tax to the government in Bulgaria. If they do not pay taxes in Bulgaria they usually also fail to pay the taxes they owe in Britain or wherever else they live.

They do not think of this as being wrong (although it is illegal). It is just that there has, in the past, been a culture of not paying taxes. This is particularly true of people working for themselves or who receive income from property rental.

So the first decision you will have to make, when dealing with Bulgaria, is to decide whether you are going to abide by the law or whether you are going to follow the old-fashioned local ‘customs’.

The author believes that the time has come when it is necessary to comply with your obligations. The changes that came about in Spain, Portugal and Greece after their accession to the European Union will inevitably occur in Bulgaria, and this will dramatically reduce the scope and possibility of tax evasion. It will also – over time – change people’s attitudes so that evading tax liabilities is much less acceptable than it is now-and more heavily punished.

This does not mean that if you don’t make a full tax declaration you will be in immediate danger of detection or punishment by the Bulgarian authorities -that will probably be a year or two away. But if you have not laid the foundations of payment of tax, then the time is likely to come when someone will ask you questions. If it is not the Bulgarian authorities it could well be the UK authorities. This is because one of the features of recent international relationships is the extensive exchange of information between countries, using the prevention of terrorism, drugs and money-laundering to justify an unprecedented disclosure of confidential information between governments.

Most people will sleep easier in their beds if they pay the taxes that are due to them. That does not mean that you have to pay a lot of money. New rules introduced after Bulgaria joined the EU mean that EU citizens are able to sell their properties without paying any tax (in certain circumstances). Since many foreigners buying property in Bulgaria do so via a company, their profit from selling their properties will be subject not to individual but to corporate tax, which in Bulgaria is the lowest in Europe and one of the lowest in the world.

Under Bulgarian law it is your responsibility as an individual to fill in a tax return each year when you have any taxable income. Please note that this applies only for individuals; all companies have an obligation to submit annual tax returns each year regardless of their activities (even if there is a null declaration). The tax offices in Bulgaria are not very helpful, so you should seek professional assistance or at least take a translator with you.

Property Tax and Refuse Tax

Property tax is similar to the UK’s council tax and is paid annually to the local municipality on the basis of the tax evaluation of your property. This tax evaluation is calculated from information provided by the owner in a declaration that is submitted not later than two months after the purchase of the said property. The declaration form requires information about the size of the property, how many floors, when it was built and so forth. The actual tax charged is 1.5/1,000 (0.0015%) of the tax evaluation. Generally speaking, the property tax is very low.

In addition to the property tax, you are required to pay a refuse tax. This tax is often higher than the property tax. Both taxes come as one bill. You normally receive a letter at the start of the year (but not everyone seems to receive one).

The taxes are payable in four instalments, the first payable by the end of April and the fourth payable by the end of the calendar year. You can receive a 5 per cent discount if you pay the bill in full by the end of April. If you declare that the property is your main residence, you only have to pay 50 percent of the tax.

Tax residence in Bulgaria is determined largely by one simple rule – if you spend more than 183 days a year in Bulgaria, you are regarded as being resident there for tax purposes.

Tax Residence in More than One Country

Remember that you can be a tax resident in more than one country under the respective rules of those countries. For example, you might spend 230 days of every year in Bulgaria and 135 days in England. In this case you could end up, under the rules of each country, being responsible for paying the same tax in two or more countries.

Bulgarian properties for sale

This would be unfair, so many countries have signed reciprocal double taxation treaties, and the UK and Bulgaria have such a treaty. It contains ‘tiebreakers’ and other provisions to decide, where there is the possibility of being required to pay tax twice, in which country any particular category of tax should be paid. The basic principle of the double taxation treaty is to protect people from being taxed twice for the same activity.

Decisions to Make about Residency

The most basic decision that you will have to make when planning your tax affairs is whether to cease to be resident in the UK, whether to cease to be ordinarily resident here and whether to change your domicile to another country. Each of these has many consequences, many of which are not obvious.

The second consideration is when in the tax year to make these changes.

For many ordinary people, getting these decisions wrong can lead to unnecessary extra taxation and a great deal of aggravation and inconvenience. It is vital that you seek proper professional advice from specialist lawyers, accountants or financial advisers, all of whom should be able to help you.

Taxes Payable in the UK

The significance of the residence rules is that you will continue to be liable for some British taxes for as long as you are either ordinarily resident or domiciled in the UK. The decision on your UK tax residence will be determined by the information you provide to the authorities.

Broadly speaking, if you leave the UK to live in Bulgaria:

• You will continue to have to pay tax in the UK on any capital gains you make anywhere in the world for as long as you are ordinarily resident in the UK – i.e. spend more than three months there in any one year-or domiciled in the UK. If you go to live permanently in Bulgaria with no intention of returning, and inform the UK authorities, you can apply to no longer be considered domiciled, though changing your domicile is very difficult.

• You will continue to be liable for UK inheritance tax on all of your assets located anywhere in the world for as long as you remain domiciled in the UK. This will be subject to double taxation relief. Other, more complex rules also apply in certain circumstances.

• You will always pay UK income tax (Schedule A) on income arising from land and buildings sited in the UK – wherever your domicile, residence or ordinary residence.

• You will pay UK income tax (Schedule D) on the following basis:

• Income from ‘self-employed’ work carried out in the UK (Cases I and II) -normally taxed in the UK if income arises in the UK.

• Income from interest, annuities or other annual payments from the UK (Case III) – normally taxed in the UK if income arises in the UK and you are ordinarily resident in the UK.

• Income from investments and businesses outside the UK (Cases IV and V) – normally only taxed in the UK if you are UK domiciled and resident or ordinarily resident in the UK.

• Income from government pensions (fire, police, army, civil servant, etc.) – in all cases taxed in the UK.

• Sundry profits not otherwise taxable (Case VI) arising out of land or building in the UK – always taxed in the UK.

• You will pay income tax on any income earned from salaried employment in the UK (Schedule E) only on any earnings from duties performed in the UK unless you are resident and ordinarily resident in the UK – in which case you will usually pay tax in the UK on your worldwide earnings.

If you are only buying a holiday home and will remain primarily resident in the UK, your tax position in the UK will not change very much. You will have to declare any income you make from your Bulgarian property as part of your UK tax declaration. The calculation of tax due on that income will be made in accordance with UK rules, which will result in a different taxable sum from that used by the Bulgarian authorities.

Since your property is located in Bulgaria.you will also have to pay taxes to the Bulgarian tax authorities. The taxes you will have to pay are discussed below. The UK Inland Revenue will give you full credit for the taxes already paid in Bulgaria. On the disposal of the property, you must disclose the profit made to the Inland Revenue, which again will give full credit for Bulgarian tax paid. Similarly, on your death, your assets in Bulgaria must be disclosed on the UK probate tax declaration but, once again, you will be given full credit for sums paid in Bulgaria.