All income tax information is summarized by KPMG Bulgaria OOD, the Bulgarian member firm of KPMG International, based on the Bulgarian Personal Income Tax Act.
The annual Bulgarian personal income tax returns should be filed and the outstanding personal income tax as reported in the tax return should be paid by 30 April of the year following the end of the tax year (the calendar year).
Individuals are entitled to a 5 percent deduction from their outstanding tax liabilities if they file the annual tax return online until 31 March of the following year. The deduction can be utilized provided that the tax payer does not have outstanding public liabilities subject to enforcement as at the moment of submission of the tax return.
The tax year in Bulgaria is the calendar year, that is, it ends on 31 December.
The annual Bulgarian personal income tax return represents a standard form to be used for filing purposes by both residents and non-residents. Furthermore, the filing procedure and deadlines are also the same.
However, it should be pointed out that residents are obliged to report their total worldwide income generated during the respective year, while non-residents for tax purposes should only report their Bulgarian-source income. Another distinction to be made is that as a result of the receipt of certain types of income non-residents may be liable to withholding tax rather than the general personal income tax. In such circumstances, the individual might have to file a withholding tax return.
Individuals generating only employment income from a Bulgarian employer (formal or economic) are not obliged to file an annual Bulgarian personal income tax return inless they fulfill certain personal circumstances. Such personal circumstances that trigger an obligation for filing an annual Bulgarian personal income tax return are the following:
Please note that the arising tax return filing obligation is for reporting purposes only and should generally not result in an additional personal income tax liability.
Advance taxes also have to be paid during the year for most types of income. However, the payer of the tax to the state budget and the frequency of remittance depend on the type of income generated. For example, for employment income, it is an obligation of the Bulgarian employer to deduct at source and remit to the state budget the amount of personal income tax due on that monthly remuneration until the 25th of the month following the one for which it relates. For rental income who should remit the due tax to the state budget depends on who payer of the income is (an entity or an individual). With respect to dividends from foreign entities, the remittance obligation switches to the individual and there is also a longer payment period.
It is also possible that no advance personal income tax should be paid during the year and that all outstanding liabilities are to be covered at year-end with the filing of an annual Bulgarian personal income tax return. However, please bear in mind that these cases are rare and basically involve instances where the individual is generating employment income with a Bulgarian source but does not have a local formal or economic employer.
The obligation for payment of advance tax installments for non-residents is the same as already discussed for residents. However, it should be pointed out that different advance tax rules apply to income subject to withholding tax. The withholding of the tax is done with reference to the accrual of the income in the accounting books of the payer. The actual remittance of the tax is dependent again on the type of income and should be reviewed on a case-by-case basis.
Both residents and non-residents are subject to the same personal income tax rate for their income subject to Bulgarian personal income tax.
As of 1 January 2008, Bulgaria has abolished the progressive tax schedule and implemented a 10 percent flat tax rate applicable to all income levels, that is, there is no minimum non-taxable income.
The withholding tax rate is also 10 percent with the exception of dividends, which are subject to a reduced rate of 5 percent as well as interest income generated from bank deposits which is subject to a rate of 8 percent.
Bulgarian tax residents are considered to be individuals who fulfill one of the following criteria irrespective of their citizenship.
Generally, the four criteria are of equal importance in determining the tax residence status of the individual. However, the tax legislation provides for an exception: the center of vital interests has precedence over the permanent address criterion of the individual.
Non-residents under the Bulgarian tax legislation are all individuals, who do not comply with any of the earlier-mentioned criteria. These individuals are subject to tax in Bulgaria only on their income from a Bulgarian source.
Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.
As mentioned earlier, one of the criteria for tax residence in Bulgaria is the 183-day threshold in a 12-month period. The implementation of this threshold does not enforce continuous presence in Bulgaria. In determining the tax status of an individual in Bulgaria, the days of physical presence in the country in a 12-month period are counted regardless of the duration of the individual’s stay abroad. Please note that the days of arrival and departure are counted as full days of presence in Bulgaria.
Furthermore, there are no limits enforced by the Bulgarian legislation with regard to any limitation on visits/stay in Bulgaria after the repatriation of a foreign citizen to his/her home country.
The days spent by the assignee in Bulgaria before the start of the assignment are counted towards the physical presence threshold of 183 days for determining the tax residence status of the expatriate.
Furthermore, it should be pointed out that depending on the citizenship of the individual, certain immigration documents (visas, work permits, Bulgarian identity cards) may have to be issued to the individual by the Bulgarian authorities within or outside the country.
There are no specific tax requirements that have to be met. However, provided that during the stay of an individual in Bulgaria, any reporting and/or remittance personal income tax obligations arose, these obligations may not be waived as a result of the individual’s departure/termination of assignment.
Visiting Bulgaria after the termination of the individual’s assignment in the country should not be an issue provided that he/she possesses all the necessary entry documents such as a visa (if needed).
Do the immigration authorities in Bulgaria provide information to the local taxation authorities regarding when a person enters or leaves Bulgaria?
Generally, upon request the immigration authorities may provide such information. However, it should be pointed out that in the case of entry to and departure from the country of an EU citizen, the provision of such information may be an issue since due to the free movement of people, the cross-over of EU borders by EU citizens may be unrecorded by the respective immigration authorities. This will be the case when the individuals choose to travel with their ID cards instead of their international passport.
Will an assignee have a filing requirement in the host country after they leave the country and repatriate?
As mentioned earlier, the fact that the assignment is terminated does not waive the reporting and remittance obligations of the individual in Bulgaria.
In view of this, if the individual repatriates in the middle of the tax year and as the filing deadlines are in the first four months of the following year, it is highly likely that the individual would have certain filing and respectively payment obligations following his/her departure from the country.
Do the taxation authorities in Bulgaria adopt the economic employer approach to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Bulgaria considering the adoption of this interpretation of economic employer in the future?
Until 1 January 2008, the definition of employer in the Bulgarian personal income tax legislation was strictly limited to instances where there are direct contractual relations between the Bulgarian entity and the individual. Thus, the concept of economic employer was not formally provided for.
As of 1 January 2008, the definition of employer for personal income tax purposes as defined in the law was extended to also include instances where a Bulgarian entity concludes a secondment agreement with a foreign entity under which the latter would send staff to work for the former. The local entity would thus be considered an economic employer of the assigned individuals.
Are there a de minimus number of days2 before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?
There is no threshold in terms of number of days of physical presence to be surpassed in order to apply the provisions of the Bulgarian tax legislation, that is, it should apply from the first day of employment in Bulgaria provided that there is a secondment agreement between the sending and receiving entities.
As a rule, all compensation and or income (monetary and/or non-monetary) are subject to personal income tax in Bulgaria unless it is specifically provided for as exempt. In view of this, broadly speaking the following categories of income will be taxable:
Are there any areas of income that are exempt from taxation in Bulgaria? If so, please provide a general definition of these areas.
The following items are not generally subject to personal income tax in Bulgaria for local and EU tax residents (special rules may apply to third-country nationals that are non-residents in Bulgaria):
The following items are not generally subject to personal income tax if received as part of the individual’s employment relations.
There are no expatriate tax regimes currently in force, that is, no expatriate concessions.
If an individual is a Bulgarian tax resident as per the criteria discussed earlier, he/she would be subject to personal income tax in Bulgaria on his/her worldwide income, including the salary earned abroad. However, relief may be sought under a valid double tax treaty.
If an individual is a foreign tax resident in Bulgaria, Bulgarian and foreign-sourced income will be treated differently. The foreign-sourced income will not be reportable or subject to personal income tax in Bulgaria provided that it is not related to the working activity performed in Bulgaria.
All investment income and capital gains of local residents are subject to tax in Bulgaria unless specifically exempt as already discussed (such as the capital gains realized from the sale of shares traded on the Bulgarian/EU/EEA stock exchange and growth realized on investments in pension insurance schemes). Foreign residents are subject to tax on their investment income and capital gains from Bulgarian sources only.
Dividends, interest, and rental income
Dividends received from Bulgarian entities are taxed at the source. Thus, the recipient is not obliged to report and pay personal income tax on these distributions upon their receipt.
Holdings in foreign entities should be disclosed separately as part of the tax return (acquisition price, number of shares held, and so on). Respectively the dividends received from these holdings should also be reported and taxed as part of the individual’s annual personal income tax return.
With respect to rental income, the remitter of the tax will vary depending on whether the payer of the income is a person or an entity. Should the payer of the rental income be an individual, quarterly advance tax installments should be paid by the recipient of the income during the year (with the exception of the fourth quarter). In cases where the payer of the rental income is a Company, it is the company's obligation to withhold from the amount to be paid and remit to the state budget the personal income tax charges due on behalf of the recipient, which should again be done on a quarterly basis. With respect to the fourth quarter, there is a choice, i.e. whether the Company is to withhold tax on the income during that period depends on the preference of the individual. In both cases the recipient of the rental income should make a final reconciliation at year-end with the filing of an annual Bulgarian personal income tax return.
Rental income received from non-residents leasing property situated in Bulgaria is subject to withholding tax at the source.
Gains from stock option exercises
The Bulgarian personal income tax legislation does not explicitly provide for a particular treatment of the different types of equity compensation. Thus, currently the practice in the area is centered on the interpretation of the general provisions on acquisition of income and receipt of non-monetary fringe benefits.
Following these principles, the table summarizes the general treatment of equity compensation. The particulars of each specific plan should be considered on a case-by-case basis:
|Non-resident||N||N||Y - if individual worked in Bulgaria between grant and vest|
|Other (if applicable)||N/A||N/A||N/A
Foreign exchange gains and losses
The Bulgarian personal income tax legislation specifies that income paid in foreign currency for tax purposes should be converted into local currency based on the exchange rate of the Bulgarian National Bank at the day when the income was received.
Furthermore, the legislation specifies that currency trading is taxable in Bulgaria. Although it is not explicitly provided for in the law, the general interpretations is that it applies to regular and purposeful trading for the purpose of generating gains and not to accidental transactions.
It should be pointed out that if the assignee generated exchange rate losses and these are covered by the employer, the amount of the compensation received for the purpose would be treated as a taxable benefit.
Principal residence gains and losses
As discussed above, the capital gains realized from the sale of up to one residential property per year, will be treated as tax-exempt provided that between its acquisition and sale more than 3 years have passed . There are no additional provisions applying particularly to gains from sale of the principal residence.
Capital losses are generally not deductible and may not be carried forward. However, there is one exception concerning the gains realized from the sale of financial assets. If losses are realized from such transactions, they may be offset against the gains realized from the sale of other financial assets in the same calendar year.
Personal use items
Non-monetary benefits are taxable based on their monetary value as at the date of their acquisition. However, the law does not further elaborate as to how this monetary value is to be determined especially if the asset is acquired for the long-term use by the employee. In view of this, the authorities allow discretion by individuals and entities with respect to the different calculation methods applied.
Property received in the form of donation or inheritance is not treated as income under the Bulgarian personal income tax legislation and therefore falls outside its scope. The gains realized from the sale of inherited property are exempt for tax purposes. However, this does not apply to donated property.
Are there additional capital gains tax (CGT) issues in Bulgaria? If so, please discuss? Are there capital gains tax exceptions in Bulgaria? If so, please discuss?
The sale of shares in public entities traded on the Bulgarian/EU/EEA stock exchange is a tax-exempt transaction. However, such transactions with shares traded on foreign (third country) exchanges continue to be treated as taxable.
The following may be treated as deductions for personal income tax purposes.
Generally, there are three reimbursement methods available in Bulgaria.
The second and third methods may also be used with respect to the reimbursement of the withholding tax paid on interest in Belgium, Austria, and Luxembourg.
How are estimates/prepayments/withholding of tax handled in Bulgaria? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.
As mentioned earlier, for employment income the advance tax is paid monthly simultaneously with the payment of the remuneration to the employees but not later than the 25th of the month following the month to which it refers.
The advance tax for other types of income may be handled differently depending on the type of income and the payer.
Is there any Relief for Foreign Taxes in Bulgaria? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?
The Bulgarian tax legislation specifies that in the case of foreign-source income (where no double tax treaty exists) the tax credit method is to be applied.
Where there is a tax treaty in force, the provisions of the tax treaty regarding the avoidance of double taxation should be implemented. The treaties concluded by Bulgaria mainly provide for the exemption with progression and tax credit method depending on the type of income generated.
Tax credit on the foreign tax paid on the income may be granted but not exceeding the amount of the Bulgarian tax due on that foreign-source income.
This calculation assumes a married taxpayer resident in Bulgaria with two children whose three-year assignment begins 1 January 2013 and ends 31 December 2015. The taxpayer’s base salary is USD100,000 and the calculation covers three years.3
|Moving expense reimbursement||20,000||0||20,000|
|Interest income from non-local sources||6,000||6,000||6,000|
Exchange rate used for calculation: USD1.00 = BGN1.50.
Calculation of taxable income
|Days in Bulgaria during year||365||365||365|
|Earned income subject to income tax|
|Net housing allowance (as it is net, it should be grossed up)||20,000||20,000||20,000|
|Moving expense reimbursement|
|Education allowance (assumed to be in cash)||4,500||4,500||4,500|
|Total earned income||228,500||236,000||228,500|
|Other income(interest income)||9,000||9,000||9,000|
|Deductions: (approximate social security contributions, not enough information)||3,406||3,715||4,025|
|Relief for underage children||400||400||400|
|Total taxable base||233,694||240,885||233,075|
* The Bulgarian personal income tax legislation does not provide guidance as to how the car benefit should be calculated. In view of this, companies usually follow their internal policies for the purpose. In this calculation, KPMG in Bulgaria assumes that the amount of the benefit indicated in the table is the one calculated as per the internal policy.
** Moving expense reimbursement is not included in the calculation, since as per the particular scenario it is a tax exempt income according to the Bulgarian labor code.
Calculation of tax liability
|Taxable income as above||233,694||240,885||233,075|
|Bulgarian tax thereon||23,369||24,089||23,308|
|Domestic tax rebates (dependent spouse rebate)||0||0||0|
|Foreign tax credits**||900||900||900|
|Total Bulgarian tax||22,469||23,189||22,408|
** The figures calculated represent the amount of the maximum tax credit that could be utilized on the income from foreign sources (in the particular case the interest income). If the amount of the foreign tax paid is smaller, it would be this smaller amount that would be deductible for tax purposes.
1Certain tax authorities adopt an "economic employer" approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee's salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.
2For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the economic employer approach.
3Sample calculation generated by KPMG Bulgaria OOD, the Bulgarian member firm of KPMG International, based on the Bulgarian Personal Income Tax Act.
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