SIGNIFICANT DEVELOPMENTS
There have been no significant tax or regulatory developments in the past year.
TERRITORIALITY AND RESIDENCE
Taxation of individuals’ income in Bulgaria is based on their residence status.
Bulgaria tax residents are taxed on their worldwide income. Nonresidents are taxed on their income from Bulgaria sources.
Irrespective of their citizenship, individuals are considered Bulgaria tax residents if they have permanent domicile in the country (i.e., personal links such as family or permanent home) or reside in the country for more than 183 days in any 365-day period, in which case the individual becomes a Bulgaria tax resident for the calendar year in which the 183rd day has
expired.
If a double taxation treaty is in place, the 183-day residency principle is applicable in accordance with the provisions in the treaty.
A foreign tax resident is any individual who is not a Bulgaria tax resident.
The law defines Bulgaria-source income broadly. Generally, it includes all income received by an individual from business activities performed in the country. Activities performed in the country are considered business activities if the ndividual either has a permanent establishment or a base in the country or assigns or performs services in Bulgaria directly or through a procurator, an agent, or otherwise.
Any income derived as a result of performing work or rendering services in the country is deemed Bulgaria-source income, no matter where and by whom it is paid.
Investment and professional income other than employment income are considered Bulgaria-source income if paid by a resident or by a permanent establishment of a nonresident entity.
GROSS INCOME
Employee gross income/ Taxable income from work on the basis of an employment contract includes the following.
1.Salary, wages, or any other remuneration for work performed, as well as any additional compensation for, for example, years of service, unhealthy work conditions, higher professional qualifications, cost-of-living adjustments, bonuses and premiums, and overtime pay.
2.All fringe benefits/ benefits-in-kind provided by the employer or on the employer’s behalf.
3.Certain compensations received by the employee on the basis of the Labor Code (in general, for some cases of termination of the employment contract,unutilized paid leave, etc.)
The following employee income is not subject to taxation.
1.The value of free preventive food, antidotes, and personal protection devices provided by the employer pursuant to the Labor Code and other
laws.
2.The value of special work clothes, free work clothes, and uniforms provided by the employer pursuant to the Labor Code and other
laws.
3. Business trip allowances and compensation for moving to another workplace, reassignment due to health reasons, noncompletion of work due to force majeure circumstances, and redundancy provided under the Labor Code.
4.The value of any commuting fares provided by the employer free of charge.
5.Social expenses borne by the employer and subject to taxation under the Corporate income Tax Act.
The following amounts are deductible from the taxable base.
1.Compulsory social, health, pension, and other contributions paid by the employee.
2.Voluntary social, pension, and health contributions.
No concessions are granted to foreigners.
Capital gains and investment income/ The concept of income globalization was introduced in Bulgaria as from January 1,1998. Bulgaria tax residents (including expatriates who are considered Bulgaria tax residents) are taxed on capital gains and investment income realized from all sources during their period of residence. Foreign tax residents are taxed only on their Bulgaria-source capital gains and investment income.
Capital gains on the disposal or exchange of immovable and movable property, as well as on the transfer of sole traders’ enterprises, are taxable on an annual basis (see the respective table). An exemption provided in respect to capital gains is discussed under” Tax-exempt income” below.
Income from rent, annuities, and leases (except for rent from agricultural land) s subject to advance personal income tax at 15% and final tax on an annual basis. A statutory deduction of 20% of the gross income for expenses is deductible.
Personal income tax is not levied on dividends and liquidation quotas, which are taxed at 15% at source. The withholding tax is final.
Interest on deposits and accounts in local commercial banks and branch offices of foreign banks, mutual benefit funds, and savings and credit cooperatives; interest and disc
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