Worldwide Tax Summaries--BULGARIA（1999-2000）(part2)
Worldwide Tax Summaries--BULGARIA（1999-2000）(part2)
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TERRITORIALITY AND RESIDENCE
Taxation of individuals' income in Bulgaria is based on their residence status. Bulgarian tax residents are taxed on their worldwide income.
Nonresidents are taxed on their income from Bulgarian sources.
Irrespective of their citizenship, individuals are considered Bulgarian 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 Bulgarian tax resident upon the expiration of the 183-day period in the respective calendar year.
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 Bulgarian tax resident.
The law gives a broad definition of what is considered Bulgarian-source income.
Generally, income from a Bulgarian source is all income received by an individual as a result of business activities performed in the country.
Activities performed in the country are considered business activities if the individual 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 Bulgarian-source income, no matter where and by whom it is paid.
Investment income and professional income other than employment income are considered Bulgarian-source income if paid by a resident a Bulgarian permanent establishment of a nonresident entity.
To be allowed to work in the country, expatriates need a work permit, which necessitates following a time-consuming procedure and submission of over 12 documents to the labor authorities. Work permits are also required for expatriates who are registered with Bulgarian courts as directors,managers or controllers of Bulgarian companies.
Employees must pay personal income tax in accordance with the level of 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, e.g., 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 account of the employer.
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 employees' 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, non-completion 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, 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.
3. The loss carry forward facility is not applicable for individuals.
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. Bulgarian tax residents (including expatriates who are considered Bulgarian 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 the capital gains and investment income derived from sources
Capital gains on the disposal or exchange of immovable 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.
The taxable bade in the case of disposal or exchange of immovable property and means of transportation is the difference between the sale price and the higher of the actual and the adjusted purchase price of the property.
For immovable property, the adjusted price is equal to the evaluation made for tax purposes; for means of transportation, the adjusted price is the insurance value; for shares and share participation in the capital of Bulgarian companies, the adjusted price is the actual price increased by the inflationary index for a certain period.
The taxable base in all other cases of disposal or exchange of movable property is the difference between the sale and the reevaluated purchase price. The procedure for determining the reevaluated price is subject to regulation by the Council of Ministers.
The taxable base in transfers of sole traders' enterprises is the difference between the sale price specified in the purchase agreement and the balance-sheet value of the assets.
Income from rent, annuities and leases is subject to advance personal income tax at 15% and final tax on an annual basis. In certain cases,statutory deductions of 20% for expenses are recognized.
Personal income tax is not levied on dividends and liquidation quotas,which are taxed at 15% at source. The withholding tax is the final tax.
Interest on deposits and accounts in the state savings bank, 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 .interest income is taxable on an annual basis at 20% on the excess over BGL60,000(approximately US＄36).This is a 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 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 right; 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 million (approximately US$ 45,000) 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.
4. Rental income.
5. Premiums and prizes from sport 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.
Certain types of income, such as monetary and in-kind prizes from various competition events, compensation for lost profits, liquidation damages and income from incidental transactions are taxed at a reduced rate of 20% on the amount in excess of BGL60,000 (approximately US$36).
Business deductions/Except in the case of sole traders, notary officers and privately working physiCIAns and dentists, personal income taxpayers deduct pre-estimated expenses (not differentiated into business and other expenses) in calculating 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 activities. Sole traders determine their taxable bade and are taxed in accordance with the corporate profit tax regulations. Notary officers and privately working physiCIAns and dentists can choose to determine their taxable base in
accordance with the corporate profit tax regulations, i.e., business expenses will be recognized if supported by relevant documents.
Nonbusiness expenses/Compulsory and voluntary soCIAl, health, pension, and other 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 standard personal allowances for self , spouse or dependents.
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 million (approximately US$45,000) are liable for the so-called "final license tax". The tax amount does not depend on realized 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 35.7% of the employee's gross monthly remuneration, of which 34.7% is payable by the employer and 1% by the employee.
Unemployment fund contributions are imposed at the rate of 4% of the employee's gross monthly remuneration, of which 3.5% is payable by the employer and 0.5% by the employee. Subject to certain conditions, the rate applicable to expatriates working in Bulgaria may be reduced to 22% payable by the Bulgarian employer.
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 annul tax returns. Fox 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 15 April 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 for sole traders) or whenever income is
received; where the income is paid by a Bulgarian