Our company formation agents in Bulgaria can provide information about the double taxation agreements signed by Bulgaria with around 70 countries worldwide. We are here to explain to you the tax system if you intend to open a company in Bulgaria. A legal entity must prove that its residency is in a country with which Bulgaria has signed a double tax treaty in order to avoid double taxation. This proof is usually issued by the foreign tax authority.
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How to avoid double taxation in Bulgaria
The treaties stipulate that there are two ways to avoid double taxation: through the method of exemption (the non-resident legal entity is not paying taxes in Bulgaria) or through 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 withholding 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 participants have residences 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.
If the foreign shareholders are from Albania, Cyprus, or Denmark and own at least 25% of the Bulgarian’s company capital, then the withholding 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.
What states signed double tax treaties with Bulgaria?
Bulgaria is among the most active countries regarding the signing of treaties for double tax avoidance. Currently there are treaties signed with the following 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.
How are the provisions of double taxation treaties applied in Bulgaria?
We specify that DDTs signed by Bulgaria with various countries around the world and in this case, provisions of such treaties do not apply automatically. Thus, tax relief is applied according to the Bulgarian Tax and Social Security procedure, Articles 135-142, as follows, in agreement with the National Revenue Agency in Bulgaria:
- The foreign person or entity in discussion is the beneficial owner of the Bulgarian-sourced income.
- The foreign entity is a tax resident in the other contracting state within the meaning of the applicable double tax treaty signed by Bulgaria with the respective country.
- There is no permanent establishment or a fixed base in Bulgaria with which the relevant income is linked.
- To benefit from the provisions of the double taxation agreements signed by Bulgaria, those interested must make an application to be submitted to the National Revenue Agency in Bulgaria, with proof in this regard, such as a certificate of residence of the recipient of the revenues.
- There is also a need for a declaration made by the recipient of the revenue to establish the beneficial owner of the income that should not be received through a Bulgarian permanent establishment or a fixed base in this country.
- If you are represented through a power of attorney, evidence is requested for the representative powers of the individual who signed such a document.
We recommend that you contact one of our local specialists to benefit from all the support regarding double taxation treaties signed by Bulgaria with varied countries worldwide.
What does the simplified procedure entail to benefit from the provisions of Bulgarian DTTs?
Things are much simpler in many circumstances and conditions when it comes to applying the provisions of the double taxation treaties signed by Bulgaria. Starting from this aspect, you should know that there is no need for a formal procedure to be filed in the case of payer charges to a foreign entity income from sources in Bulgaria not exceeding BGN 500,000 per year. Tax reporting is done in this case in March of the following year, using a standard form. If you are looking for accountants in Bulgaria to deal with tax matters, you may contact us at any time.
How to apply tax relief under a double tax treaty after the tax is paid
In the conditions in which the withholding tax is paid respecting the law provisions imposed by the applicable double tax treaty, a refund request is needed, which can be done with the National Revenue Agency. As in the previous case, the documents mentioned above will be requested. We specify in this situation that the refund can be made in a maximum of 30 days after the presentation and acceptance of the documents by the relevant authorities. We suggest you contact a tax advisor in Bulgaria, by getting in touch with our company. That way you will fully understand what the refund process entails and what conditions must be met to receive your money. We also offer support for company formation in Bulgaria.
Bulgarian economy facts
If you want to start a business in Bulgaria, you should first know the economic environment and business conditions. We recommend you read the following information about the evolution of the Bulgarian economy and the estimates provided by specialists:
- Bulgaria recorded an increase in real GDP of approximately 3.4% in 2022.
- Estimates for 2023 show GDP growth somewhere around 1.5 percent, but with a possible increase of 2.4% in 2024.
- The unemployment rate in Bulgaria was 3.8% in February 2023.
If you have planned to open a startup in Bulgaria, our local agents can help you in this endeavor. They can prepare the required documents, as well as register the company for the payment of taxes. First of all, you will need to reserve the name of the business, not before doing a short check, the procedure in which we can help you. Therefore, you have a series of services that you can benefit from if you call our company, therefore, we invite you to discuss more with us.
Foreign investors who want to find out more about the avoidance of double taxation in Bulgaria may contact our company formation agents.