How much is Bulgaria Dividend Tax? All the information you need

When companies issue a payment to their shareholder, the consequence of a distribution of the profits generated by said company in a given period, we are talking about dividends. 

A company has different options when talking about dividends. They can either decide to reinvest the profit generated into the corporation, or it can redistribute this profit among its shareholders, and such payment can be done in cash or in shares. 

When a shareholder receives dividends either in cash or as a non-monetary compensation (like shares), it is considered income, and as such, falls under the personal income tax law in Bulgaria. That’s why dividends are considered taxable. 

Your accountant in Bulgaria will most likely be able to advise you on your responsibilities regarding Bulgaria dividend tax, as well as provide you with all the necessary financial advisory and bookkeeping services, in order to keep your personal and corporate taxes up to date.

If you are looking to engage the services of an accountant in Sofia Bulgaria, your best bet is Accountancy Bulgaria. With years of experience and an excellent reputation, they help you and your company with everything from company registration in Bulgaria to tax advisory, including bookkeeping and yearly reports, payroll, as well as other services. 

Contact us today for a free consultation and trust us with the growth of your business.

Dividend Tax Law in Bulgaria

When a company decides to reinvest the profit generated in a given period into the same business, it’s called retained earnings. In this case, this investment into the same company is not subject to tax. 

When the dividends are paid to the shareholders in the company, they are considered income, and that is why they are subject to tax. 

The Bulgaria dividend tax is a withholding tax, and it comes to a 5% rate when distributed to individuals, non-profit entities, as well as to non-residents, as long as they are not members of EU or EEA.

Let’s talk more about withholding taxes, as it is an interesting topic and especially relevant for tax residents of other EU member states receiving dividends from Bulgarian companies, among other reasons. 

Read also: When and how to ask for Bulgaria tax refund

What is withholding tax?

The idea of withholding tax refers simply to the amount that the employer or company deducts from an employee’s gross salary, and then pays to the government. The most common one is the portion of gross wages kept by the company as personal income tax, but also other earned income resulting from securities they may own, for example, interest and dividends.

Bulgarian companies must withhold tax on payments of dividends, as well as liquidation proceeds, but also interest, royalties, a variety of fees and payments, franchising, etc.

What is withholding tax levied on in Bulgaria?

Withholding tax in Bulgaria is levied on dividends and shares in a liquidation surplus, in favor of:

·       any non-resident legal persons, except if it is a non-resident legal person through a permanent establishment in the country;

·       any resident legal persons who are not merchants, including any municipalities.

There is a variety of income that is also levied as withholding tax in Bulgaria, accruing to any non-resident legal person. Here we find, among others, income from transactions of financial assets, interest payments, royalties, technical assistance fees, payment from managing agriculture, forestry, and hunting, as well as other incomes arising from different sources. 

Something to consider, as it may be part of why Bulgaria is an attractive tax destination, is that withholding tax is not levied in the case of dividends and shares distributed by a company in favor of a resident legal person who participates in the capital of the company as a representative of the State, a common fund, and most importantly, a non-resident legal person who is resident for tax purposes in a Member State of the EU or in another country that has an agreement with Bulgaria (Bulgaria has many double taxation treaties).

Read also: Does Bulgaria tax foreign income?

Conclusion: How much is Bulgaria’s Dividend Tax?

Bulgaria’s Dividend Tax is 5%. This is a withholding tax, which means the company deducts it from the payment and in turn pays it to the government. 

For foreign investors, the interesting part is that Bulgaria has double taxation treaties that prevent dividend tax from being charged twice in case of residents of any of the more than 70 countries with which Bulgaria has this kind of agreements.