Double Tax Treaties in Bulgaria

Double Tax Treaties in Bulgaria

The new bilateral treaties for the avoidance of double taxation may have a significant impact on foreign investors doing business in Bulgaria

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Over the last years, Bulgaria re-negotiated some of the most frequently
applied treaties for the avoidance of double taxation. As a result of this
initiative, the old tax treaties with Austria, Germany, Switzerland, and, most
recently, the United Kingdom, were terminated and new treaties entered into
force. Negotiations on a new tax treaty with the Netherlands are also
underway.
 
One of the practical issues to be considered when a new treaty enters into
force is the need to initiate a new advance clearance procedure in order to
continue to apply treaty relief, if such is available at all.
 
The articles of the new tax treaties demonstrate that Bulgaria is successful
in negotiating the right to tax income from interest and royalties in cases
where such income used to be exempt in Bulgaria under the old treaty. These new treaty rules do not affect the possibility for withholding tax exemption of
payments of interest and royalties between associated companies in the European Union if the respective requirements in the domestic legislation are met.
 
In many cases, the new tax treaties change the period of time in relation to
a building site, construction or installation project which constitutes a
permanent establishment.
 
Some of the new treaties also introduce new rules with respect to taxation of
capital gains. For example, it is expected that the new tax treaty with the
Netherlands will entitle Bulgaria to tax capital gains received by a Dutch
entity from the sale of shares in a Bulgarian entity. Considering the large
number of international groups who have invested in Bulgaria through Dutch
entities, such a change may have an impact on potential exit strategies.
 
The above trends will require many international groups to reconsider and
restructure their intra-group relations.
 
The topic was discussed at the 2016 KPMG Business Seminar for
clients.

© 2017 KPMG Bulgaria OOD, a Bulgarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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