Bulgaria Withholding Tax explained

Bulgaria has been on the radar for a while as a country with a lower income and corporate tax within the European Market, and with an optimistic and encouraging business environment, with a cheaper, educated, and often multilingual workforce, and many other advantages for companies and professionals considering moving to Bulgaria or opening a company in Bulgaria.

There is no doubt that Bulgaria has made a considerable effort to attract foreign investors and companies, allowing them to manage a business with reduced costs and expenses. This especially concerns the cost of workers, for which it is important to know the concept of Bulgaria withholding tax.

When talking about taxes, there are two categories we need to discuss:

–       Direct taxes,

–       Indirect taxes.

In the first group, we find corporate tax on annual profit, income tax on the revenue generated by individuals, and withholding tax, which is the one we are going to concentrate on today.

In the second group, we find Value Added Tax, or VAT, and excise duties. 

What is Bulgarian withholding tax?

When talking about taxes, the term withholding refers to the amount of money that the employer deducts from the worker’s gross pay and sends to the government directly. Most employees are subject to withholding taxes in countries like the United States.

But why is this money being held and sent to the government? Basically, it is credited toward their income taxes that are paid yearly. In Bulgaria, withholding taxes taken by the employee’s company is a 10% flat rate. 

Read more about Bulgaria US tax Treaty: the details

Different types of Bulgaria withholding tax rate

In Bulgaria, companies are required to withhold tax in certain situations:

–       Payment of dividends and liquidations,

–       Interest,

–       Royalties,

–       Fees for technical services,

–       Payment for the use of property,

–       Payments made under the agreement of leasing, franchising, etc,

–       Management fees to non-residents

As mentioned, generally the Bulgarian withholding tax rate is 10%, but in some cases it can be lower. For dividends and liquidation quotas issued to non-European Economic Area companies or to natural persons, for example, the withholding tax is 5%. Dividends or liquidation quotas paid to legal entities in the EEA are exempt. 

The withholding tax on dividends issued by non-profits is also 5%. For interest and royalties, the withholding tax is again 5%. The same is valid for the tax on income from rent, interest, and royalties, that shall be 5%.

Who is subject to withholding tax?

If a Bulgarian resident issues dividends or liquidation quotas in favor of a non-resident legal person or a resident person who is not a trader, then the withholding tax is levied.

Withholding tax is not levied on dividends and liquidation shares when distributed by a resident of Bulgaria in favor of a local legal person with a role in the company’s capital as a representative of the State, a contractual fund, or a non-resident legal person that has residency in another state of the European Union party of the European Economic Area.

Read also: Bulgaria Self Employed tax Calculator: Why you need an Accountant

How can an accountant help with Withholding Tax?

If you’re looking into moving your company to Bulgaria, becoming a freelancer, or a tax-paying citizen, the first step is to engage the services of an accountant in Bulgaria.

Having the right accountancy services in Bulgaria will guarantee your business less hassle and more chances to focus on its growth and success. Not only can your accountant in Bulgaria help with the daily bookkeeping but can also act as a financial advisor and Tax advisor, making sure you choose the best possible strategy for your business. 

Choosing a reputable company like Accountancy Bulgaria, with more than 30 years of experience in the financial world, and experts that are available to help where needed, either with tax reports or audits, company registration, or administrative services.

Make sure to schedule a free consultation to discuss your business needs.