Deductible Expenses in Bulgaria: What Are They?

In the context of tax planning, understanding deductible expenses is essential for optimizing the financial management of a business. This is especially true for those looking to start a company in Bulgaria, where the tax system offers several deduction opportunities but also requires strict adherence to documentation and regulatory compliance.

The deductibility of expenses allows businesses to reduce their taxable income, improve cash flow, and fully comply with the fiscal obligations outlined in Bulgarian law. However, to properly benefit from these advantages, it is important to understand the eligible categories, the legal limits, and the conditions required for each type of expense.

This guide outlines the key elements needed to understand which expenses can be deducted from taxes in Bulgaria and which no, which tools to use for effective management, with a particular focus on VAT-related aspects and the required documentation.

Read also: Issuing Invoices in Bulgaria: Mistakes to Avoid

Deductible Expense Categories in Bulgaria and Key Tax Aspects

According to Bulgarian tax legislation, all expenses that are directly and necessarily incurred in the course of business activities are deductible. The main eligible categories include:

• Rent and utilities: Rent for offices or operational premises, as well as expenses for electricity, water, heating, and internet connection, are deductible provided they are used exclusively for business purposes.
  
• Salaries and contributions: Wages, variable compensation, performance bonuses, health insurance, and mandatory social security contributions paid by the company are considered deductible costs.
  
• Travel expenses: This includes business travel expenses (transportation, meals, accommodation), as long as they are justified by business needs and supported by appropriate documentation.
  
• Advertising and promotional costs: Deductible expenses include digital marketing activities, printed advertising, event promotion, and sponsorships linked to the company’s operations.
  
• Depreciation of assets: Tangible assets (machinery, equipment, vehicles) and intangible assets (software, licenses) can be deducted gradually in accordance with the applicable depreciation rates.
  
• Training and professional development: Participation in courses, workshops, or other training activities is deductible if aimed at improving employee skills.
  
• IT services and software: Expenses related to management software, IT systems, and cloud services are deductible if used in the course of business operations.
  
• Professional services: Fees paid to accountants, lawyers, auditors, and business consultants are tax-deductible if relevant and properly documented.
  
• Business insurance policies: Insurance against operational risks, damage to company property, liability coverage, and similar policies can be included among deductible costs.
  

In addition to these categories, it is important to consider Bulgaria VAT regulations. In Bulgaria, VAT paid on goods and services can be reclaimed only if the purchase is related to taxable business activities. Some expenses, such as entertainment or client hospitality, may be deductible from income but do not allow for VAT recovery.

Representation expenses are also subject to a separate 10% tax calculated on the gross amount. This tax is non-deductible and must be paid separately. Typical examples include gifts to clients, business dinners, company events, and similar activities.

For every type of expense, it is crucial to maintain proper documentation: detailed invoices, receipts, contracts, travel logs, and any other evidence that demonstrates the link to the business activity.

Read also: Tax in Bulgaria: Complete Guide on BG Tax Rates [2025]

Non-Deductible Expenses in Bulgaria: What Do They Include?

Alongside the many deductible categories, there are certain expenses that, although incurred by the company, cannot be deducted from taxable income. Knowing these limitations is essential to avoid errors during tax filing and to maintain fiscal compliance.

The main non-deductible expenses in Bulgaria include:

• Personal expenses: Any costs not strictly related to business activity—such as private trips, personal purchases, or luxury items—are excluded from deduction.
  
• Unjustified cash withdrawals: The use of cash must be documented and justified by business needs. Otherwise, such transactions may be considered undeclared profit distributions.
  
• Fines and administrative penalties: Penalties for tax violations, traffic offenses, or other infringements are never deductible.
  
• Donations: Contributions to organizations, associations, or individuals are not deductible, except in rare cases where the beneficiary is specifically authorized under Bulgarian tax law.
  
• Excessive or disproportionate costs: Even if theoretically deductible, an expense may be disallowed if deemed unreasonable in relation to the size and nature of the business. For instance, a luxury car purchased by a micro-enterprise could be challenged by authorities.
  
• Expenses with incomplete documentation: Even if an expense aligns with business activity, the absence of a valid invoice, signed contract, or receipt will prevent it from being deductible.
  

Mismanagement or superficial handling of non-deductible expenses can lead to tax adjustments, financial penalties, and losses for the business.

To avoid issues related to these costs, it is advisable to carry out regular checks, use up-to-date accounting software, and consult with experienced professionals. For personalized and professional assistance with tax management and accounting compliance, you can turn to Accountancy Bulgaria, your tax advisor in Bulgaria.