Bulgaria is among the most active countries regarding the signing of treaties for double tax avoidance. Currently there are treaties signed with 68 countries: : Albania, Algeria, Armenia, Austria, Azerbaijan, Bahrain, Belarus, Belgium, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Jordon, Kazakhstan, Kuwait, Lebanon, Luxembourg, Latvia, Lithuania, Macedonia, Malta, Morocco, Qatar, Moldova, Mongolia, Netherlands, Norway, North Korea, Poland, Portugal, Romania, Russian Federation, Serbia, Spain, Singapore, Slovakia, Slovenia, South Africa, South Korea, Sweden, Switzerland, Syria, Thailand, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States of America, Uzbekistan, Vietnam, Zimbabwe.
A legal entity must prove that his residency is in a country with which Bulgaria has signed a double tax treaty. This proof is usually issued by the foreign tax authority.
The treaties stipulate that there are two ways to avoid the double taxation: through the method of exemption (the non-resident legal entity is not paying taxes in Bulgaria) or though credit (taxes are paid in Bulgaria, but the foreign country is covering it).
In the treaties, the withholding taxes on dividends, interest and royalties are also regulated. Usually, the withhold tax on interests, royalties and dividends is 10%.
The interests are exempt from taxes, if they are paid to a public body. This applies to the Bulgarian companies where the foreign participation has residence in Albania, Armenia, Belarus, Belgium, China, Georgia, Hungary, India and Indonesia.
The withholding tax is also depending on the foreign participation in a Bulgarian company.
For example, there is a withholding tax of 5% for the Bulgarian companies where the Armenian shareholders are the owners of at least 40,000 USD from that company’s capital. In the rest of the cases, the rate is 15%.
If the foreign shareholders are from Albania, Cyprus or Denmark and own at least 25% of the Bulgarian’s company capital, then the withhold tax on dividends is 5%. For the rest of the cases, the withholding tax on dividends is 15% for Albania and Denmark and 10% for Cyprus.
To avoid the tax fraud and tax avoidance, Bulgaria has signed agreements regarding the exchange of information. Year after year, countries make exchange of lists with the taxpayers.
The legal entities are firstly checked to see if taxes are paid in the partner countries and only after that, tax relieves may be granted.