Bulgaria

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Bulgaria boasts one of the healthiest economies in South East Europe and is considered in a positive and favourable light by the international community. The country has experienced strong economic growth over the last seven years, with an annual GDP increase averaging around 6% and high levels of foreign direct investment. There has been a lot of recent media coverage of the EU’s harsh line in withholding funds because of Bulgaria’s poor housekeeping and lack of transparency in the spending of EU grants.

While the EU’s accusations of corruption and fraud in this area are valid, the country is making great efforts to improve and, to overcome this legacy of Communism, the administration has recently instituted a raft of new monitoring programmes in conjunction with Brussels, which now account for every Euro spent. The EU is playing a significant role in shaping Bulgaria’s political and judicial systems to ensure that the ordinary citizens of the country benefit fully from EU membership and significant progress is being made, albeit at a somewhat slower pace than it should be.

  • Population: 7.20 million
  • Form of government: Unitary parliamentary republic
  • Official & spoken languages: Bulgarian
  • Currency: Lev (BGN)
  • Time zone: EET (UTC+2) summer EEST (UTC+3)
  • GDP (PPP): $35.6 billion
  • GDP (PPP)/per capita: $9,500
  • Average salary: 885 leva (€452)
  • Unemployment: 10.1%
  • Major trading partners: Germany, Romania, Italy, Greece, Turkey, France

Advantages of doing business in Bulgaria

  • A Bulgarian limited liability company can be incorporated within two weeks, with a minimum of one shareholder and one director, who can be of any nationality and place of residence. Conveniently, the minimum paid up share capital is only €1 (clients will not need to travel to complete Bulgaria business setup).
  • Registering a business in Bulgaria Bulgaria`s corporate tax rate is a flat 10% on global profits, the second lowest in the EU.
  • Full corporate tax exemption is available to business setups in high unemployment regions.
  • clients will not pay withholding tax on dividends remitted to corporate and individual shareholders residing within the European Economic Area and 68 other countries including India, Singapore, Uk, USA, Luxemburg, Netherlands and Ireland, which have signed sta treaties with Bulgaria.
  • Withholding tax on interest payments is low at 5% within the European Area and 10% to all other countries unless reduced by a double-tax treaty.
  • Bulgaria boasts VAT refund agreements with 10 countries outside of EU.
  • Tax losses can be carried forward up to 5 years.
  • Licensed real estate investment trusts are fully tax-exempt.
  • Companies incorporated in municipalities with higher level of unemployment can receive up to 100 tax retention.
  • VAT registration is not mandatory under 25 000€ annual turnover of taxable goods.
  • Consequently total tax paid by Bulgaria´s companies only represent 27% of their earnings, to be compared with 41% in OECD countries.
  • Additional government incentives for investment projects in Bulgaria include:
    • R&D-oriented companies registered in Bulgaria industrial zones benefit from a 2-years tax holiday.
    • Foreign investments in Bulgaria have preferential access to EU structural funds, available in Bulgaria and Romania.
    • Under the Renewable and Alternative Energy Sources Act, foreign investment in renewable energy are connected with priority to the electricity grid, otherwise a time-consuming process.
    • Foreigner investing more than 10 million € in Bulgaria will quality to become Class A investors and consequently obtain full 100% reimbursements of labour costs.

Disadvantages of doing business in Bulgaria

  • Domestic market is relatively small, with a declining population of 7,3 million people, according to the world bank.
  • Purchasing power in Bulgaria continues to be the lowest in the EU since the country became a member in 2007.
  • The country suffers from high unemployment levels, recorded at an average 10% in 2015.
  • Bulgaria experienced a bank run in 2014 when the fourth largest bank became insolvent.
  • Clients will face red tape and unpredictable bureaucratic practices in Bulgaria because:
    • Bulgaria is ranked as the second most corrupt country in European Union.
    • Governments have changed two times in the past two years, thus resulting into unpredictable changes to the law and political instability.
    • Bulgaria is highly criticized by the European Union for high corruption and a lack of judicial reforms.
    • Obtaining construction permits is difficult as the country is ranked 21st among 189 by the world Bank’s 2015 doing business report
    • Getting electricity for your business is a bureaucratic nightmare that can delay business operations, as the process can take up to 130 days to complete.
  • A mafia-related, murder spree of entrepreneurs in 2015 further lowers the confidence in the court system and the country’s safety as an investment destination.
  • Organized crime imposes high costs on business. As a result, Bulgaria is ranked 117th out of 144 countries by the world economic Forums Global competitiveness rankings for 2014-2015.
  • Insurance business suffers insurance premium tax calculated on 2% of contract value.
  • Bulgaria’s infrastructure and energy sector are not up to par with EU standards because:
    • Roads in Bulgaria are generally in moderate to poor condition, causing additional operational costs for logistics companies.
    • Railway infrastructure quality in Bulgaria is lower than other European States, according to the World Economic Forum.
    • Power outages, while quickly fixed, are not uncommon in suburban areas. The country has a middling rank on the Infrastructure ND-Gain index for 2013.
    • Ukraine`s crisis is increasing the risks of a second gas crisis in Bulgaria. The 930 km gas pipeline infrastructure project South Stream was suspended indefinitely by the Bulgarian Government in 2014.
    • The period 2013-2015 was marked by deadly flood, due to inadequate maintenance of water reservoirs.

Ease of Doing Business ranking

Overall rank 2016: rank 38th (change in rank: -2)
– Starting a business: rank 52 (average processing time 18 days)
– Dealing with construction permits: rank 51 (change -1) (average processing time 110 days)
– Getting electricity: rank 100 (average installation time 130 days)
– Registering property: rank 63 (no change) (average processing time 11 days)
– Getting credit: rank 28
– Protecting minority investors: rank 14 (change -2)
– Paying taxes: rank 88 (change -6) (average company tax from profits 27%, average time used for taxation 423 hours per year)
– Trading across borders rank 20 (no change)
– Enforcing contract: rank 52 (average 564 days, average cost from standing amount 23,8%)
– Resolving Insolvency: rank 48 (Average time processing bankruptcy: 3.3 years)

New businesses registered in 2014: 42 613


Bulgaria is probably best known for its low property prices but what may be less widely appreciated is that the cost of living here is about a third of that in the most of Western European countries. While some items, such as petrol at around 1.90 BGN (Bulgarian Leva), are more expensive, direct price comparisons of non-imported food, clothing, electrical goods and furniture reflect around 30 to 35% of for example UK costs, with utility bills and municipal tax (council tax) at an even lower level.

The key point to note is that, as a citizen of a country within the European Economic Area (EEA), you are free to work in any other EU or EEA country without a work permit as either a salaried employee or a self-employed individual. You will, of course, be required to pay national insurance contributions, either directly through your business accounts or deducted at source along with your income tax if you are employed.

Freedom of living Index: Bulgaria

Overall rank 2016: 44th (62/100 points)
– Property rights: 30/100 points
– Freedom from taxes: 91/100 points
– Freedom of speech/religion: 88/100 points
– Limited government: 65/100 points
– Gun rights: 70/100 points
– Drug rights: 20/100 points
– Freedom from corruption: 41/100 points
– Freedom from inflation: 80/100 points
– Business freedom: 74/100 points

 

Taxes in Bulgaria

  • Residence: Bulgarian residents include: (i) a legal person incorporated under Bulgarian law; (ii) a company incorporated under Council Regulation (EC) No. 2157/2001 and any cooperative society incorporated under Council Regulation No. 1435/2003 when the registered office of the entity is in Bulgaria and the latter is entered in a Bulgarian register: or (iii) a branch office or permanent establishment (PE) of a foreign company.
  • Basis: Residents are taxed on their worldwide income, nonresidents are taxed only on Bulgarian-source income.
  • Taxable income: Taxable income comprises accounting profits per the profit and loss account, as adjusted for tax purpose.
  • Taxation of dividends: Dividend income received by a Bulgarian company from another Bulgarian company is not subject to taxation in the hands of the recipient, nor is the income taxed in the hands of the payer. Dividends received from an EU/EEA tax resident are excluded from taxable income. Non exempt dividends are taxed as part of overall taxable profits.
  • Losses: Tax losses may be carried forward for five years to be offset against future taxable profits. The carryback of losses is not permitted.
  • Foreign tax credit: A tax credit or exemption may apply under a tax treaty. If not treaty relief is available, Bulgaria grants a unilateral domestic tax credit.
  • Participation exemption: No (except for domestic dividends and dividends received from entities resident in the EU/EEA).
Taxable income: 10%
VAT registration: Is compulsory for persons with taxable turnover exceeding BGN 50 000 with respect to VAT taxable supplies with a place of supply in Bulgaria in any previous 12-month period (except when the VAT must be self-assessed by the recipient). Registration also is triggered by the receipt of services in Bulgaria provided by a taxable person not established in Bulgaria. The other thresholds for compulsory registration are BGN 20 000 for intra community acquisitions and BGN 70 000 for the distance selling of goods with a place of supply in Bulgaria. Registration may be made on a voluntary basis regardless of turnover. A non-resident company making supplies in Bulgaria must register for VAT through an accredited representative (except entities established for VAT purposes in an EU member state).
– VAT Rates: The standard rate is 20%, with reduced rate of 9% applying to hotel accommodation services. Exports and intra community supplies are zero-rated.
Surtax: No
Withholding tax (general):
– From Dividends Dividends and liquidation proceeds payable to a non-resident are subject to a 5% withholding tax, unless a lower rate applies under a tax treaty. Dividends and liquidation proceeds payable to a legal entity that is tax resident in an EU/EEA member state are exempt from withholding tax.
– From Royalties Royalties paid to a non-resident are subject to a 10% withholding tax, unless the rate is reduced under a tax treaty or the EU interest and royalties directive applies. Bulgaria Levies withholding tax on the gross amount of the payment but EU resident entities can claim a refund of a portion of the withholding tax paid on the gross income for the calendar year.
– From Interests Interest paid to a non-resident are subject to a 10% withholding tax, unless the rate is reduced under a tax treaty or the EU interest and royalties directive applies. Bulgaria levies withholding tax on the gross amount of the payment but EU resident entities can claim a refund of a portion of the withholding tax paid on the gross income for the calendar year.
Transfer tax: Transfer tax is imposed on the sale or exchange of immovable property and motor vehicles, at rates ranking from 0.1% to 3% determined by the municipality.
Real property tax: An annual real estate tax is levied on the owner of immovable property at a rate between 0.01% and 0.45 of the tax value of the property.
Social security: The total social security insurance contribution is 30.7%-31.4% (the employers is 17.8%-18.5% and the employees portion is 12.9%). The base for the contribution is total income, capped at BGN 2,600 per month. Minimum thresholds per position and industry also apply.
Anti-avoidance rules:
– Transfer pricing Bulgarian transfer pricing rules generally follow the OECD guidelines. There are no documentation requirements, but the tax authorities are permitted to request transfer pricing documentation during an audit. In the case of transactions involving non-residents, the burden of proof is shifted to the Bulgarian taxpayer to demonstrate the arm’s length nature of the transaction.
– Thin capitalization rule The thin capitalization rules apply in both domestic and cross-border situations where the liabilities of a company exceed three times its equity (i.e a3:1 debt-to-equity ratio)- In such cases, interest expense incurred by a Bulgarian company may not be fully deductible, although non-deductible interest expense may be carried forward for five years. The thin capitalization rules do not apply in certain cases (e.g bank loans).
– Disclosure requirements No, but a company is required to file an annual report on its activities at the time it files its income tax return.

Compliance for corporation:

  • Tax year: Calendar year
  • Consolidated returns: Consolidated returns are not permitted; each company must file a separate return.
  • Filling requirements: The tax return and final payment of tax are due by 31 March of the year following the tax year. Companies must make monthly or quarterly advance payments of tax, based on their taxable results for the previous or current year.
  • Penalties: Interest penalties apply for the late payment of tax, and administrative penalties apply in various circumstances.
  • Rulings: Nonbinding instructions on a particular case can be obtained.
  • Tax authorities: National Revenue Agency



Our Services in Bulgaria

Consulting & Advisory services

Consulting & Advisory services

PLEASE CONTACT US TO SCHEDULE A MEETING WITH THE NOVASIGMA CONSULTANT

Incorporation, Administration & Business services in Bulgaria

Incorporation services in Bulgaria

Company administration in Bulgaria

PLEASE CONTACT US TO SCHEDULE A MEETING WITH THE NOVASIGMA CONSULTANT

Additional business services in Bulgaria (by Novasigma Certified Partners)

Accounting and Bookkeeping services in Bulgaria


Some of the common domestic Accounting and Bookkeeping services we provide in Bulgaria include

  • Bookkeeping and Accounting Package | from 600€/ year + 59€/h
    • Invoicing and payments
    • Annual accounts
    • Monthly Reconciliation
    • Monthly financial statements (including balance sheet and income statement)
    • Payroll services
    • Income and tax return
  • Management accounts | Ask for quotation

Value Added Tax (VAT)

Audit

  • Annual accounts in view of an annual audit and attend accounting audits | Ask for quotation

Legal services for Bulgarian companies and business owners

Legal services in Bulgaria for all Novasigma Clients including companies and their owners and directors

Novasigma has built in Bulgaria a team of lawyers, associates and legal advisers to assist our clients with a business and tax planning, overseas business operations, risk management and other legal matters. Primarily focused on business transactions, Novasigma Accounting & Law corporate attorneys are a great asset to a small and large businesses. With a background on corporate law, our corporate lawyers and legal advisers have an in depth knowledge on the transactions that may put your business at risk of litigation. These include contracts and negotiations, taxation laws, business structuring, buy/sell agreements, and intellectual property, among others.

Send us a Brief for Quotation

Banking, Financial and Insurance services in Bulgaria

Banking services in Bulgaria

Financial services in Bulgaria

Insurance services in Bulgaria

  • Insurances for corporations | Ask for quotation
  • Insurances for business owners and their families
    • Medical insurance for non-EU citizens  | + 99 EUR
    • European Health Insurance Card (EHIC) | + 50 EUR

PLEASE CONTACT US FOR MORE INFORMATION 

Tax Residencies & Immigration services

Bulgarian Tax Residency | From 1.500€

BULGARIAN TAX RESIDENCY – FEES


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Interested in Bulgaria? Please leave us a message and we will come back to you shortly.

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