Bulgaria Flat Tax: how does it work?

One of the main reasons that has put the country on the radar of companies and professionals, is the Bulgaria flat tax rate on personal and corporate income. 

Initially, the idea of a 10% flat tax rate was presented as a way to stimulate taxpayers to fulfill their responsibilities without it being a burden, in time increasing the tax base. It was a way for the state to increase its income, as well as promote investment and development. And so, it came to be. 

Today, it may not be the only reason, but it is a very important one in the scope of those looking to register a Ltd. company in Bulgaria. 

Other advantages for companies looking to register in Bulgaria are: 

• the positive business environment, 
• strong laws for companies, 
• a steady political ambiance, 
• a cheaper and highly skilled, multilingual workforce,
• an overall straightforward tax system. 

We should not forget to mention access to the European Market, as Bulgaria is part of the European Union.

Now, let’s go deeper to Bulgaria Flat Tax in this complete guide by Accountancy Bulgaria, one of the most reliable bookkeeping company in Sofia.

 

Learn all you need to know about Bulgaria company Tax

How much is the Flat Tax in Bulgaria and how does it work?

Bulgaria’s Flat Tax is 10%. But, 10% of what?

For local companies, the tax is 10% of the income generated within Bulgaria and abroad, after deductions. For foreign-owned corporations, the tax is 10% of the income produced from commercial activities within the territory of Bulgaria, after deducting business expenses. 

10% is also the rate of personal income, regardless of the amount. 

Corporate income tax is applied to companies registered under Bulgarian law, but also non-resident companies generating income within the country limits.

The tax year in Bulgaria is equal to the calendar year, with the responsibility of filing taxes by the 31^st of March of the following year.

If corporate income is under BGN 300,000, no prepayments are required. With corporate income above that threshold, corporate tax is deducted in advanced installments.

Newly Bulgaria companies registered do not need to pay taxes on the year of incorporation.

History of Bulgaria Flat Tax

Bulgaria went through a financial crisis during the 90s. During the early years of this decade, Bulgaria transitioned from a closed socialist economy to a democracy, and with it came an open market economy, accompanied by very high taxes that in some cases piled up to more than 50%.

In the last 25 years, Bulgaria underwent a transformation of the whole tax system, going from steep taxation to a flat rate of 10%. And the changes worked. 

It was quickly proven that a lower tax meant a steadier income for the government and less tax evasion. In more recent years, Bulgaria is trying to capitalize on this reputation, promoting an optimistic business environment, creating regulations that attract foreign companies, and keeping the flat tax rate, overall, making Bulgaria an attractive tax haven in Europe.

Read more about Bulgaria Withholding Tax explained

Conclusion

The flat tax rate in Bulgaria is one of the main incentives for foreign investors looking to establish in the country. This is usually the first point to be discussed and it’s what catches the eyes of investors and developers. 

Having a flat taxation system (and a lower-than-average tax) eliminates the need for tax exemptions, cashback, or tax breaks, in consequence removing the incentive for companies to abuse the system or find loopholes. The tax system in Bulgaria is simple and stable, allowing companies to make long-term plans and focus on their growth, which in turn, benefits Bulgaria. 

Engaging the services of a reputable and experienced accountant in Bulgaria is a must in order to take advantage of this system to its fullest. Accountancy Bulgaria can help you and your company every step of the way, from company registration in Bulgaria to bookkeeping, tax reports, audits, payroll, and basically any accountancy needs your company may have.