Tax Residency

A person is liable for taxes in Bulgaria if they fulfil one or more of the following criteria:

• have a permanent address in Bulgaria
• spend more than 183 days in Bulgaria within any 365 day period ending in the tax year in question
• have been assigned abroad by a Bulgarian company or the Bulgarian state
• have their "centre of vital interests" in Bulgaria (that is, their personal and economic ties are closer to Bulgaria than any other country)

Residents of Bulgaria are subject to taxes in Bulgaria on their worldwide income and gains. Non-residents of Bulgarian are taxed on income and gains derived from Bulgarian sources only.

The tax year in Bulgaria is the calendar year (1 January to 31 December).

Income Tax

Income is taxed on an arising basis; that is, taxable in the year of receipt, no matter when it was earned. There are no personal allowances available to set against income for tax purposes.

Personal income is taxed at a flat tax rate of 10 percent, with some variations:

• Self-employed income is taxed at a flat rate of 15 percent on net income
• Dividend income is taxed at five percent, and if paid by a Bulgarian company, this is withheld at source

Bank interest from an EU or EEA bank account is tax-exempt income in Bulgaria.

Real Estate Tax

Owners of real estate in Bulgaria are liable to pay an annual tax on the value of the real estate. The rate varies depending on whether the real estate is used for residential or commercial purposes. The rate for both residential and commercial property is fixed by the local authorities, but is within the 0.15% to 0.30% range. The tax is payable at the beginning of each year. These taxes are usually up to the equivalent of €150 per year, and are lower in rural areas.

Transfer fees are between two and four percent.

VAT (Value Added Tax)

VAT is chargeable on the sale of real estate in Bulgaria at a rate of 20 percent. This is usually included in the purchase price of the property.

The standard VAT rate is 20 percent. There is also a reduced rate of 7 percent.

Capital Gains Tax

The rate of tax on capital gains in Bulgaria is a flat rate of 10 percent.

Capital gains are usually taxed as income; however the following assets are exempt:

• Any one residential property per year, regardless of when acquired or if used as the main home or not
• Two properties which have not been the taxpayer's main residence, if owned for more than five years
• Any number of agricultural and forest estates provided they have been owned for at least five years
• Cars and other road vehicles, aircrafts and vessels owned for at least one year
• Assets received by inheritance or gift
• Certain types of movable property, including shares in a Bulgarian quoted company

UK residents of Bulgaria

For a UK resident disposing of property there may be no tax liability in Bulgaria, but UK capital gains tax will be due on the gain (calculated under UK rules) at a flat rate of 18%.

In Bulgaria, it is not uncommon for the lower valuation of the property used to calculate the local taxes to be put on the title deeds. This is often significantly lower than the purchase price and means that any eventual gain for UK purposes will be higher because a lower price was used on this title deed. Thus, individuals often end up paying tax they don't need to pay.

Inheritance and Gifts Tax

Residents of Bulgaria are liable to inheritance tax on property situated in both Bulgaria and overseas. Non-residents of Bulgaria are liable to inheritance tax on property situated in Bulgaria. It is the recipient who pays the tax. Inheritances received by the surviving spouse and direct relatives are exempt.

Brothers, sisters, nieces and nephews who inherit will pay inheritance tax of 0.7 percent on amounts received above BGN 250,000. All other beneficiaries pay inheritance tax at rates of up to 20 percent.

Gifts tax is payable at fixed rates depending on the relationship between the donor and the donee. Spouses and direct line inheritors are exempt. Gifts between brothers and sisters are taxable at 0.7 percent and 5 percent for all other beneficiaries.

Wealth Tax

There is no wealth tax in Bulgaria.

Administration

Individual tax returns must be filed, unless the sole source of income is employment income from a Bulgarian company. The due date for submission of tax returns is 30 April following the end of the tax year.

Payment of tax is due by 30 April following the tax year. Payment of tax quarterly during the relevant year is required for certain income, with the balance being due by 30 April following the end of the tax year.

Double tax credit relief

Aside from any tax credits granted under the terms of any double tax treaty, Bulgaria gives unilateral tax relief for taxes paid abroad on income which is also taxable in Bulgaria.

The amount of credit available is the lower of the foreign tax paid on the income, or the Bulgarian tax due on that income.

Social security and healthcare contributions

Employees are liable to pay social security contributions at a rate of 13 percent per year. Contributions are payable monthly and are calculated on employment income only, up to a limit of BGN 2,000 per month.

Employer contributions are generally around 20.4 percent to 21.10 percent.