Worldwide Individual Taxes Summaries——Bulgaria（2001-2002）
Worldwide Individual Taxes Summaries——Bulgaria（2001-2002）
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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
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.
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 discounts on state and municipal securities; moratorium interest on bonds relations; and interest on court-established receivables are exempt from taxation. Other interest income is taxable on an annual basis at 20% on the excess over BGL 100.
(approximately US$48). This is final tax.
Royalties are taxed on an annual basis at the rates for taxation of nonemployment income (shown below)
Tax-exempt income/ The most important kinds of tax-exempt income , in addition to the kinds of income already mentioned, are listed below.
1.Capital gains on the sale or exchange of an apartment, house, or villa, including the land near the building, if it has been the principal residence of the seller for at least three years before the sale or the exchange.
2.Capital gains on the sale or exchange of up to two real estate properties that are not the principal residence of the seller, as well as agricultural and forest estates (no limit on number), if the period between the acquisition and the sale is more than five years.
3.Capital gains on vehicles acquired by the seller not less than one year before the sale.
4.Any other capital gains except those realized from the sale of shares and share participation in companies, partnerships, and other forms of joint ventures.
5.Amounts received as a result of making compulsory pension, health, and soCIAl security contributions.
6.Compensation and other similar payments for physical injuries, death, and occupational disease; property insurance; alienation of rights; and losses;life insurance compensations and compensations from other personal insurance made in the country.
7.Income in cash or in kind received in accordance with the law as a soCIAl aid, and compensation for unemployment.
8.Aid received from soCIAl funds and organizations.
9.Stipends granted to Bulgarian tax residents for education at home and abroad.
10.Profits distributed in the form of new shares and company stock or in the form of an increase of the nominal value of already-issued shares or stock.
11.Profits used for the increase of the share capital of a company.
12.Inheritances and donations.
Business income of individuals who perform certain business activities listed in the law and have a turnover for the previous year of not more than BGL75,000 (approximately US$37,500) is also exempt from personal income taxation (see “Business tax ” below).
Tax regulations on specific types of income/ The following basic types of income are also subject to personal income taxation (the list, however, is not comprehensive).
1.Income received by sole traders.
2.Income received by freelancers, individuals supplying personal services, and craftsmen.
3.Income of managers, controllers, and members of management and supervisory boards.
5.Premiums and prizes from sporting events.
6.Compensation for lost profits and similar liquidation damages.
7.Bonuses payable to managers or directors of companies in proportion to realized post-taxable profit, income or turnover.
8.Income from incidental transactions and other types of income not explicitly mentioned as nontaxable.
Certain types of income, such as monetary and in-kind prizes from various competition events, compensation for lost profits and damages, and income from incidental transactions are taxed at a reduced rate of 20% on the amount in excess of BGL 100 (approximately US$48).
Business deductions/ Individuals earning income other than employment deduct pre-estimated expenses (not differentiated into business and other expenses) in calculation standard taxable income. For example, freelancers and civil contractors may deduct 35% of their respective income before taxation, and managers and members of management bodies may deduct 25% of their income realized from management and supervisory ctivities. Sole traders determine their taxable base in accordance with the corporate profit tax regulations. Notary officers and privately working physiCIAns and dentists can choose to determine their taxable base either by deduction of
35% or in accordance with the corporate profit tax regulations, that is business expenses will be recognized if supported by relevant documents.
Nonbusiness expenses/ Compulsory and voluntary soCIAl, health, pension, and other related contributions borne by individuals are deductible in full.
Personal income taxpayers, except for employees, may also deduct up to 5% of their taxable income for donations to various nonprofit organizations.
Personal allowances/There are no tax deductions for personal allowances for a spouse or dependents. However, there are standard allowances for children paid from the state budget; these are not subject to personal income taxation.
Bilateral tax relief is granted in accordance with the provisions of double taxation treaties in force. Where no treaty protection is available, unilateral ordinary tax credit is granted, with the credit amount calculated separately for each source country (“per-country limitation”.)
Business tax / Individuals and legal entities who carry out certain commerCIAl activities and have total annual income of less than BGL75,000 (approximately US$37,500) are liable for the so-called final license tax.
The tax amount does not depend on realize income but is a lump sum determined by law for each activity for different regions.
Social security contributions/ The general rate of soCIAl security contributions is 32.7%, of which 26.3% is payable by the employer and 6.4% by the employee. Unemployment fund contributions are imposed at the rate of 4%, of which 3.2% is payable by the employer and 0.8% by the employee.
The general rate of health insurance contributions is 6%, of which 4.8% is payable by the employer and 1.2% by the employee.
The above compulsory contributions are based on the employee’s gross monthly remuneration, including benefits-in-kind. The maximum base,however, cannot exceed 10 times the statutory minimum monthly salary. The latter amounts to BGL79 at present. As from April 1,2001, the statutory minimum salary will be BGL85 per month.
Local taxes on income/There are no local taxes on income.
Returns/ Employees who work on the basis of an employment contract are not obliged to submit tax returns if all their income is from employment only.
Other taxpayers submit annual tax returns. For tax purposes, spouses are treated as separate taxpayers. No income splitting is allowed. The taxable year is, without exception, the calendar year.
The deadline for submission of tax returns is April 15, and the tax must be paid not later than 30 days as from the date of submission of the tax return.
Payment of tax/Personal income tax for employees is withheld by the employer from the gross remuneration on a monthly basis. The employer acts as an agent of the revenue authorities and transfers the tax due to the budget. Certain taxpayers who are not employees, such as sole traders, freelancers, managers, and controllers, must pay advance tax, either regularly (monthly/quarterly) or whenever income is received; where the
income is paid by a Bulgarian entity, the advance tax must be withheld from the remuneration by the payer.
Employment income/ The following tax rates, effective from January 1,2001,apply to the monthly tax on employment income.
Monthly income tax on Percentage
Over Not over Column 1 on excess
0 BGL 100 - -
BGL 100 135 - 20
135 400 BGL 7.00 26
400 1,400 75.90 32
1,400 395.90 38
Nonemployment income/ The following tax rates, effective from January 1,2001, apply to the annual tax on income.
Over Not over Column 1 on excess
0 BGL 1,200 - -
BGL 1,200 1,620 - 20
1,620 4,800 BGL 26