Employment Income in Bulgaria

For an employee it is your employer’s responsibility to deduct and pay your income tax to the government each month (similar to the PAYE scheme in the UK). They are also responsible for paying the Bulgarian equivalent of your social security and National Insurance contributions.

Income tax is calculated according to what rate-band your income falls into, and then is subject to a percentage tax plus a fixed figure tax. Examples of the tax rates and fixed rate taxes for income tax payable on employment income in 2007 are shown in the tables below:

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Monthly Tax Base

Monthly Income Tax

Up to 200 leva Nontaxable

200-250 leva 20% on the amount above 200 leva
250-600 leva 10 leva plus 22% on the amount above 250 leva
Over 600 leva 87 leva plus 24% on the amount above 600 leva

Annual Tax Base

Annual Income Tax

Up to 2,400 leva Nontaxable
2,400-3,000 leva 10% on the amount above 2,400 leva
3,000-7,200 leva 120 leva plus 10% on the amount above 3,000 leva
Over 7,200 leva 1,044 leva plus 10% on the amount above 7,200 leva

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Income from Letting Property in Bulgaria

The government basically assumes that 20 per cent of your income from rent goes towards costs, and you are only taxed on the remaining 80 percent of your income. The rate of tax is the same as the income tax outlined in the above tables. This tax should be paid before the 15th of the third month following receipt of the income. If, for example the rent is paid on 2nd of January then the tax should be paid by 15th March of that year.

Income from Selling Property in Bulgaria

Some important exemptions apply to all those resident in Bulgaria when it comes to selling property in Bulgaria (note that the first two points are the same as described above for EU citizens buying as non-residents). You are not required to pay income tax on sale of property if you sell:

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• only one residential immovable property in any one year, regardless of when the property was purchased.
• up to two immovable properties, as well as any number of agricultural and forest properties, provided that more than five years have elapsed
between the date you concluded the purchase of the property and the date of sale or exchange.
• property that you have received as an inheritance or from restitution (returned state-owned property to the original owners. In this case there is neither a time limit for ownership nor a limit on the number of properties you own. As an example, if you inherit three properties in February you can sell them all in June without paying tax.

The tax base for the sale of property is the difference between the selling price and the purchase price, with 10 per cent deducted for costs. The tax payable is again based on the income tax tables above.

Other Taxes Payable by Companies

Under Bulgarian legislation, non-resident companies and individuals are allowed to set up Bulgarian companies without any restrictions. Bulgarian companies owned by foreign shareholders are allowed to acquire any kind of real estate in Bulgaria, including land.

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Bulgarian companies are taxed on the letting of immovable property and/or the sale of such property under the general rules of the Bulgarian Corporate Income Tax Act (CITA).

The rate of corporate tax is 10 per cent. The tax is levied on the profits of the company as declared in its profit and loss account, adjusted for certain nondeductible items.

The after-tax profit of the Bulgarian company may be distributed as a dividend to the shareholder(s); alternatively these profits can remain within the company. If the money is taken out of the company, it is done so as dividends. As per the CITA, dividends are subject to seven per cent withholding tax in Bulgaria.

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Withholding tax will not be due in Bulgaria in the situation where:

• the shareholder(s) in the Bulgarian company are tax residents of an EU country; and

• the shareholder(s) are not considered tax residents of a third state on the grounds of a double tax treaty; and

• the shareholder(s) are payers of corporate income tax in their state of residence and are not entitled to any tax exemptions, tax holidays, etc.

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Many people register a company simply to own a property in Bulgaria, and have no interest in maintaining any links with Bulgaria once they have sold their property. In this instance, when you come to sell your property you can either sell the asset (the property) and then liquidate your company, oryou can sell the shares in the company to the buyer. Naturally, the price of the shares should reflect the price that you want to sell the property for.

If you are intending to continue some activities in Bulgaria then you should not liquidate your company when you sell any of its assets. If you do liquidate your company, you will be required to pay profit and dividend tax as outlined above.

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