Сorporate taxation in Bulgaria
Corporate taxation is one of the most important instruments of the economic policy of states, and it can significantly affect the inflow of foreign investment and the competitiveness of national companies. In this article, we will look at corporate taxation in Bulgaria and compare it with taxation in other countries of the European Union, including Hungary, Romania and the Baltic countries.
Corporate tax overview in Bulgaria
Tax rates in Bulgaria for legal entities are quite low and competitive in the European Union. The income tax for companies in Bulgaria is 10%, which makes it one of the most attractive countries for investment in Europe.
However, in addition to income tax, companies in Bulgaria are also required to pay various other taxes and fees. For example, the value added tax (VAT) in Bulgaria is 20%, but for some goods and services, such as food and books, the rate may be lower.
In addition, there are also some tax incentives and taxation features for certain industries. For example, research and development companies can receive tax deductions based on research and development costs.
Another important aspect of corporate taxation in Bulgaria is the simplicity and transparency of the taxation system. Bulgaria uses a self-assessment taxation system, which means that companies must independently assess their tax liabilities and file appropriate returns.
In general, Bulgaria’s corporate tax rates are very attractive, making it one of the most competitive countries in the European Union. However, there are other aspects of corporate taxation in Bulgaria that need to be taken into account, such as value added taxes and tax incentives in various industries, before deciding to invest in the country.
Dividend withdrawal tax
In Bulgaria, there is a tax on the withdrawal of dividends, which is charged on dividends paid to legal entities and individuals who are not residents of Bulgaria. The tax rate on the withdrawal of dividends is 10%, but can be reduced to 0% in accordance with the current tax treaties between Bulgaria and other countries.
If the recipient of dividends is a resident of Bulgaria, no tax is charged on the withdrawal of dividends. However, Bulgarian residents are required to pay personal income tax (PIT) on the dividends they pay.
In general, the tax on the withdrawal of dividends in Bulgaria is quite low, which makes it an attractive country for investment. However, other aspects of dividend taxation, such as personal income tax and tax deductions for companies, must be taken into account before deciding to invest in Bulgaria.
Types of companies in Bulgaria
In Bulgaria, there are several types of companies that can be registered depending on the needs and goals of the owner of the company. Some of the most common types of companies in Bulgaria include:
- OOD (Limited Otvano Druzhestvo) is a type of limited liability company that also exists in Bulgaria. This means that the owners of the company are only liable to the extent of their investment in the company. If the company goes bankrupt, the owners will not be personally liable for the company’s debts.However, unlike the EOOD, the OOD can have several founders. The OOD is usually created by several people or companies that jointly own the business.To create an OOD, it is also required to register a company with the Turkish Register in Bulgaria (TR), determine the activities of the company, establish an address and appoint a director. In addition, you must set up a bank account and register with the tax authorities.The OOD has the same tax and contribution obligations as the EOOD, such as corporate income tax and social contributions. Tax rates for OODs are also low in Bulgaria, which makes this type of company attractive for business and investment.
If we consider the differences between EOOD and OOD, the main difference is that EOOD can have only one founder, while OOD can have several founders. In addition, the EOOD is often considered more flexible and easier to manage than the EOOD, but this may depend on individual circumstances.
- EOOD (Single Personally Restricted Defensively Friendship) is a type of limited liability company that exists in Bulgaria. This means that the owners of the company are only liable to the extent of their investment in the company. If the company goes bankrupt, the owners will not be personally liable for the company’s debts.However, an EOOD can have only one founder, which distinguishes it from another type of limited liability company in Bulgaria – OOD (Limited Otvazhno Druzhestvo), where there can be several founders.EOOD is the most common type of limited liability company in Bulgaria and is very popular among foreign investors due to its flexibility and ease of establishment and maintenance.To create a EOOD, it is required to register a company with the Turkish Register in Bulgaria (TR), determine the activities of the company, set the address and appoint a director. In addition, you must set up a bank account and register with the tax authorities.
The EOOD has obligations to pay taxes and contributions, such as corporate income tax and social contributions. However, tax rates in Bulgaria for companies are relatively low, which makes EOOD attractive for business and investment.
- AD (joint stock company) is one of the types of companies that can be registered in Bulgaria. Unlike EOOD and OOD, where the founders have limited liability, AD shareholders are liable only to the extent of their contributions to the company.In AD, the authorized capital is divided into shares, which are sold to investors. Each share represents an ownership interest in the company. Shareholders have the right to receive dividends from the company’s profits, as well as the right to vote at the annual meeting of shareholders.To register an AD in Bulgaria, the authorized capital must be at least BGN 50,000 (about EUR 25,000), and at least 25% of this amount (BGN 12,500) must be paid as an initial contribution. BP registration can take up to two weeks.BP can be open or closed. In an open AD, the company’s shares can be traded on the open market, while in a closed AD, shares can only be sold to members of the company.
An AD can be more complex and costly to manage than an EOOD or OOD and often attracts large companies and investors. However, AD can also be an attractive choice for companies that are looking for capital to expand their business and want to give their investors a say in how the company is run.
- ET (single trader) is the only entrepreneur who does not form a separate legal unit. It is not a legal entity, but is an individual engaged in entrepreneurial activities. The owner of an ET has no limit on the number of owners, but there can only be one owner.ET is an easy and cheap way to register a business in Bulgaria. The ET owner is not required to have an authorized capital and is personally liable for the company’s debts. This means that the owner’s personal property can be used to meet the company’s debts.However, ET cannot be registered in some industries such as pharmaceuticals and banking. In addition, ET is not entitled to tax benefits that are available to legal entities such as EOOD and AD.ET can register with the tax office as a payer of personal income tax. The ET owner is required to submit an annual income statement and pay tax on the profits received. Tax rates for ET depend on the amount of profit and range from 10% to 15%.
ET can be a good choice for small businesses or freelancers who don’t need a separate legal structure and don’t want to spend a lot of time and money setting up a company.
Each type of company has its advantages and disadvantages, and the choice of a certain type depends on the specific situation and goals of the company owner. For example, OOD may be the most appropriate choice for small and medium-sized enterprises, while AD may be the best choice for large companies with a large number of shareholders.
Specialists of White and Partners will help you choose the right type of company specifically in your case by clicking on this link.
Comparison of tax rates in Bulgaria and EU countries
- Bulgaria and Hungary
Hungary has one of the lowest income tax rates in the EU at 9%, but its complex tax system and tax incentives can make it difficult to account for and calculate taxes. In addition, there are additional taxes such as council tax and VAT which is 27% which is one of the highest rates in Europe. In Bulgaria the VAT rate is 20%, there is also a reduced rate of 9%. The threshold for VAT registration in Hungary is higher than in Bulgaria, namely companies with an annual turnover of less than 12 million forints (about 36,000 euros) are not required to pay VAT, while in Bulgaria this threshold is 50,000 leva (about 25 000 euros).
2. Bulgaria and Romania
Income tax is one of the main taxes in both countries. In Romania, the income tax rate is 16%, while in Bulgaria it is 10%. However, there are some tax incentives in Romania that can reduce the tax burden for companies. Bulgaria also has a number of benefits for companies, but they are not as extensive as in Romania.
Value Added Tax (VAT) in Bulgaria is 20% and in Romania it is 19%. However, Romania has two VAT rates: 19% and 9%. A rate of 9% applies to goods and services deemed necessary for the basic livelihood of the population, such as food, books and magazines, medicines and medical services. There are no such preferential rates in Bulgaria.
3. Bulgaria and Lithuania
Corporate tax in Lithuania is 15%, which is one of the lowest rates in the EU. In Bulgaria, the corporate tax rate is also 10%, but there is the possibility of obtaining additional incentives for investments in various industries.
Value Added Tax (VAT) in Lithuania is 21%, while in Bulgaria the VAT rate is 20%. However, in Lithuania it is possible to receive a VAT discount for certain categories of goods and services.
4. Bulgaria and Estonia
Bulgaria has a 10% income tax, making it one of the most competitive countries in Europe in this respect. Estonia has a 20% income tax, which, although higher than Bulgaria, is still one of the lowest in the EU. However, Estonia provides an opportunity to reduce income tax if part of the profit is reinvested in the business.
In Bulgaria, the VAT rate is 20%, which is the standard rate in the EU. In Estonia, the VAT rate is also 20%, but unlike Bulgaria, Estonia provides an opportunity for companies to be exempt from paying VAT when performing services or selling goods to other EU countries.
5. Bulgaria and Poland
In Poland, the income tax rate is 9% for new businesses during the first year and 19% as a standard tax rate for companies. In Bulgaria, the income tax rate is 10%. Thus, Bulgaria offers a more favorable income tax rate, which may be attractive for businesses.
In Poland, there is a system of free economic activity zones (Special Economic Zones), in which companies can receive significant tax benefits.
Value Added Tax (VAT) is also different in the two countries. In Poland, the standard VAT rate is 23%, while the reduced rate is 5% and 8%. In Bulgaria, the standard VAT rate is also 20%, but there is only one reduced VAT rate of 9%. This can be an important consideration for companies, depending on the type of product or service they provide.
Disadvantages of taxation in Bulgaria
Although the tax system in Bulgaria has its advantages, as mentioned above, it also has its disadvantages, which can have a negative impact on business.
One of the main disadvantages of taxation in Bulgaria is the limited tax base. This means that taxes are only levied on income earned in Bulgaria. This limitation can severely limit business development opportunities, especially for companies that operate internationally.
Another disadvantage is the difficulty in accounting for taxes. The taxation system in Bulgaria can be very complex, especially for non-residents and small businesses. The tax legislation in Bulgaria is constantly changing, which can lead to businesses having to spend additional resources on training and training staff in tax accounting.
Another drawback is the high rates of social taxes. The social insurance tax in Bulgaria is 17.8%. This can be a significant burden for companies, especially small businesses that may be on a tight budget.
Finally, there is the risk of double taxation for companies operating internationally. Bulgaria has double tax treaties with many countries, but in some cases there may still be a risk of double taxation.
In general, although the taxation system in Bulgaria has its advantages, it also has its disadvantages, which can have a negative impact on businesses. Therefore, before registering a company in Bulgaria, it is necessary to carefully study the tax legislation and consider all the pros and cons.
Double tax treaties
Bulgaria has Double Tax Treaties (DTTs) with over 80 countries, including most of the European Union countries, as well as many countries in Asia, Africa, America and Australia. Some of the most significant countries with which Bulgaria has DTTs include Germany, France, Italy, the UK, China, Japan, the US and Canada.
DTTs are designed to prevent double taxation and ensure a more efficient use of the resources of national economies. They define the rules for taxation of income received by foreign companies and individuals in the countries with which the agreement is concluded. Typically, DTTs set tax rates applicable to certain types of income, such as dividends, interest, royalties, and capital deductions.
By having a DTT, companies and individuals engaged in international activities can avoid double taxation and reduce their tax liability. DTTs also contribute to increasing the investment attractiveness of the country, as they reduce tax risks for foreign investors.
The conclusions on the corporate tax system in Bulgaria can be as follows:
- Bulgaria offers a competitive taxation system that may be attractive to entrepreneurs wishing to set up a business in the country.
- Income tax and VAT rates in Bulgaria are relatively low compared to other EU countries.
- Bulgaria has a taxation system that promotes the development of small and medium-sized businesses such as EOOD and OOD.
- There are several types of taxes that can affect the amount that companies must pay, such as tax on dividends and tax on non-resident income.
- In addition, the Bulgarian taxation system has its drawbacks, such as a limited tax base and difficulties in tax accounting.
- In general, the Bulgarian taxation system is attractive for businesses, but it must be taken into account that each business has its own characteristics, which may affect specific tax liabilities.
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