Guide 2025 to Asset Depreciation in Bulgaria: Rules, Methods and Tax Implications

To start a business in Bulgaria, one requires careful financial planning, particularly in how fixed assets are managed from an accounting and tax standpoint.One of the key elements in this area is asset depreciation, which allows companies to spread the cost of tangible and intangible assets over their useful life. Understanding how depreciation works is essential not only for compliance with Bulgarian tax regulations, but also for improving financial efficiency. This guide outlines the applicable rules, standard methods, and current rates for the year 2025, along with practical guidance for calculating and managing depreciation effectively.

Understanding Depreciation and Its Role

Depreciation is an accounting method that allocates the cost of an asset across the period it is expected to be used in business operations. Rather than deducting the entire cost in the year of purchase, the value is gradually written off over time, lowering taxable income each year. In this way, depreciation contributes to more stable cash flow and a structured approach to long-term financial planning.

What Types of Assets Are Depreciable?

In Bulgaria, businesses can depreciate assets that are used in the course of their operations. These include both tangible and intangible items. Tangible assets may consist of machinery, equipment, company vehicles, office furniture, and buildings—though land is excluded, as it does not lose value over time. Intangible assets eligible for depreciation typically include software licenses, trademarks, patents, and business permits.

Read also: How to Open a Branch Office in Bulgaria: Complete Guide

Method of Calculation and Applicable Rates for 2025

Under Bulgarian tax law, the most commonly used approach is the straight-line depreciation method. This method divides the asset’s depreciable amount into equal annual portions over the asset’s estimated useful life. The formula is straightforward: the residual value is subtracted from the original cost, and the result is divided by the number of years the asset is expected to be used.

For the 2025 tax year, different asset categories have standard useful lives and corresponding annual depreciation rates. Machinery is generally depreciated over five years, applying a 20% rate per year. Company vehicles are depreciated over four years at a 25% rate. Office furnishings usually have a useful life of seven years, with an annual rate of 14%. Buildings have longer depreciation periods, often around twenty years, with a 5% rate. Intangible assets like software are typically depreciated over just two years, using a 50% rate to reflect their rapid technological obsolescence.

Although companies often assume a residual value equal to 10% of the original cost, this is not mandated by law. Depending on internal policies and expected resale value, assets may even be depreciated to zero.

Calculating and Recording Depreciation

To calculate depreciation correctly, a company must first determine the full acquisition cost of the asset, which includes not only the purchase price, but also additional costs such as transportation and installation. The residual value is then subtracted, and the result is evenly divided by the asset’s estimated useful life.

For example, if a company acquires a machine for BGN 50,000 and estimates a residual value of BGN 5,000, the annual depreciation expense will be BGN 9,000—calculated by spreading the remaining BGN 45,000 over five years.

From an accounting perspective, this annual amount is recorded as an operating expense in the income statement. Simultaneously, the accumulated depreciation is reflected in the balance sheet to reduce the book value of the asset over time.

Read also: Accounting in Bulgaria: A Practical Guide to Tax Management for Businesses

Tax Treatment When Disposing of Assets

When an asset is sold or otherwise disposed of, it is necessary to determine its net book value by subtracting the accumulated depreciation from the original purchase cost. The difference between this net value and the selling price will determine whether the company realizes a taxable gain or a deductible loss.

For instance, if an asset with a book value of BGN 10,000 is sold for BGN 12,000, the resulting BGN 2,000 is considered a taxable gain. Conversely, if the sale price is BGN 8,000, the company records a deductible loss of BGN 2,000.

Best Practices for Depreciation Management

Effective depreciation management in 2025 involves more than simply following the rules. Maintaining accurate records of asset acquisitions, annual depreciation, and disposal events is essential for compliance and audit readiness. Businesses should periodically review the estimated useful lives of their assets to ensure they still reflect actual usage patterns. Planning ahead for asset disposals can also help minimize tax liabilities.

Adopting accounting software that automates depreciation calculations can significantly reduce the risk of human error. Most importantly, working with experts in accounting in Bulgaria—like Accountancy Bulgaria—ensures that all processes are aligned with Bulgarian tax regulations while maximizing potential savings.