Key tax factors for efficient cross-border business and investment involving Bulgaria.
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Limited liability company (“OOD”, in Bulgarian: дружество с ограничена отговорност - OOД),
Joint-stock company (“AD”, in Bulgarian: акционерно дружество – “AД”).
Limited liability company (OOD) - BGN 2,
Joint-stock company (AD) - BGN 50,000.
A higher statutory minimum is required for credit and financial institutions, investment intermediary companies, special investment purpose entities, insurance and health insurance companies.
A company is a tax resident in Bulgaria if it is incorporated under Bulgarian law. Resident companies are taxed on their worldwide income. Non-resident companies are taxed only on their Bulgarian source income.
The fiscal year coincides with the calendar year. The annual corporate income tax return has to be filed and the annual corporate income tax liability has to be paid by March 31 of the following year.
The standard corporate income tax rate is 10 percent.
A 5 percent rate is levied on dividends and liquidation proceeds distributed to non-EU tax resident entities. Exemptions apply for dividends and liquidation proceeds paid by domestic companies to EU/EEA parent companies (no minimum participation or holding period requirements).
A 10 percent rate applies to interest paid to a foreign entity. As of January 1, 2015 exemptions apply for interest payments to EU affiliated companies under the EU Interest and Royalties Directive (subject to conditions).
A 10 percent rate applies to royalties paid to a foreign entity. As of January 1, 2015 exemptions apply for royalty payments to EU affiliated companies under the EU Interest and Royalties Directive (subject to conditions).
Yes, a 10 percent rate applies.
A 10 percent WHT is levied on income from:
Exemptions (100 percent) apply for dividends received from Bulgarian and EU/EEA subsidiaries as of January 1, 2009 (no minimum participation or holding period requirements), unless the distributed amount decreases the tax result of the subsidiary (either as tax deductible expenses, or as another type of downward adjustment to the tax base), irrespective of the applicable accounting treatment.
An exemption (100 percent) applies to capital gains from disposal of shares traded on the Bulgarian and EU stock exchanges (no minimum participation or holding period requirements).
Tax losses can be carried forward for 5 years. There are no provisions regarding tax loss carry-back.
Registration fees vary according to the entity to be registered, from a minimum of EUR 56 to a maximum of EUR 665.
Transfer tax in the range of 0.1 percent – 3 percent is levied on the value of transferred real estate property (land and buildings). The tax rate is determined annually by the relevant municipality.
Annual real estate tax in the range of 0.01 percent - 0.45 percent on the tax valuation of the property is determined annually by municipalities. Annual garbage collection fees on the tax valuation of the properties are also collected by municipalities.
Arm’s length principles apply.
Supporting documentation is required.
Thin capitalization rules apply if the average debt-to-equity ratio exceeds 3:1. The amount of non-deductible interest is calculated as total interest income plus 75 percent of the profit before all interest income, interest expenses, and taxes. Thin capitalization rules do not apply to (i) interest expenses on finance leases and bank loans, unless they are concluded between, guaranteed or secured by, or granted to the order of a related party; (ii) penalty interest; (iii) capitalized interest; and (iv) interest expenses not recognized for tax purposes under other provisions in Bulgarian law. Interest expenses disallowed under thin capitalization rules represent a temporary tax difference that may be reversed in the subsequent 5 years.
Opinions issued by the tax authorities are not binding.
R&D costs deductible if incurred under certain conditions. Otherwise, development cost of depreciable asset.
Tax resident companies in Bulgaria are entitled to use certain corporate tax incentives subject to conditions. Available incentives include:
- a corporate tax exemption of up to 100 percent for manufacturing companies investing in municipalities with high unemployment levels (a decision by the EU Commission is required for large investment projects that have received state aid from all available sources exceeding the equivalent of EUR 37.5 million in local currency, or EUR 18.75 million in local currency for investments in the southwestern region of the country);
- a job creation tax incentive;
- a corporate tax exemption for licensed real estate investment trusts.
The standard rate is 20 percent, and the reduced rates are 9 and 0 percent.
Hidden distribution of profits ("HDP"):
Amounts accrued, paid, or distributed in any form by Bulgarian tax resident companies to shareholders, partners, or related parties, not related to the business activity of the taxpayer or exceeding the market levels, as well as certain interest expenses, are treated as a HDP and are therefore not recognized for corporate income tax purposes. A penalty of 20 percent of the amounts qualifying as HDP may also be imposed (unless the HDP is reported in the annual corporate income tax return). In addition, a HDP is treated as a deemed dividend and hence subject to a 5 percent withholding tax if accrued, paid, or distributed to a foreign tax resident entity with no option for exemption if the beneficiary is an EU/EEA tax resident.
KPMG in Bulgaria
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