Taxation of authors’ fees and licenses in Bulgaria

In Bulgaria, tax legislation precisely defines the taxation of fees received by authors and for exploitation licenses of works protected by copyright, as well as royalty payments. These incomes are primarily regulated by the ITNPA (Income Taxes on Natural Persons Act), the CITA (Corporate Income Tax Act), and the VATA (Value Added Tax Act), each of which has specific provisions for managing taxes related to these rights. 

The CNRA (Copyright and Neighboring Rights Act) at Article 3, Paragraph 1, defines copyright as the legal protection granted to all literary, artistic, and scientific works that arise as a result of creative activity and are manifested in any way or form. This includes a wide spectrum of works, including literary, musical, photographic, performative, cinematographic works, and similar. 

This legal definition emphasizes the breadth and variety of material that can be protected under the copyright umbrella, recognizing the importance of creativity and innovation in a modern and dynamic society.

Fees for the author and for the license

Author’s rights fees include payments received for the use or right to use copyrighted works. These payments may also extend to the use of patents, integrated circuit topologies, trademarks, industrial designs, utility models, plans, secret formulas, or processes, as well as the use of industrial, commercial, or scientific equipment, or information concerning experiments in such fields. This broad scope demonstrates the depth of copyright protection and the various forms of income that can be generated through its application.

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Taxation of income from copyrights and licenses

For individuals, Bulgarian regulations establish that incomes derived from the transfer of copyright are considered incomes from a source in Bulgaria and therefore subject to taxation. According to Article 12 of the ITNPA, the taxable base for such incomes is calculated by deducting legally recognized operational expenses, equal to 40% of the total income, in addition to the insurance contributions paid. This calculation method reflects a balanced approach that recognizes the expenses incurred by creators of works protected by copyright.

For legal entities, Article 195 of the CITA governs the taxation. When remunerations are withheld for payments to foreign legal entities that do not have a commercial establishment in Bulgaria, the tax is considered final and amounts to 10%. However, the rate may be reduced to 5% as established by Article 200a (1) of the CITA if the income beneficiary is a legal entity of another EU member state or if there is a permanent establishment in an EU member state.

VAT regulation on copyright transactions 

The operations carried out by collective rights management organizations are subject to VAT. This tax regulation distinguishes two main performances: the transfer of copyright from authors or holders to the CRMO (Collective Rights Management Organization) and the licensing of such rights to end users by the CRMO. 

Each transaction has its own taxable base and a date of the taxable event occurrence, and the law requires that the invoice be issued within five days of the generating event or, in case of advance payment, from the receipt of payment. This strict time control ensures that all parties comply with tax regulations and facilitates a transparent and orderly management of finances related to copyright.

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Insurance contributions on payments derived from the transfer of copyrights 

Copyrights on works listed in Article 3(1) of the CNRA can be licensed for use in return for compensation. However, the compensation received for artistic activity is not considered income from labor activity and, therefore, is not subject to insurance contributions unless the author has other taxable income. 

In such cases, the final amount of insurance income is equivalent to the minimum income for self-insured individuals. This legal provision offers some flexibility to authors, allowing them to better manage their financial and insurance obligations based on their personal economic situation. 

Conclusions 

The Bulgarian tax system provides a detailed framework for managing the taxation of copyrights and licenses, with specific regulations covering a range of scenarios and situations. This regulatory framework not only ensures the legal protection of creative works but also that authors and rights holders are fairly compensated for the use of their works. This regulatory structure reflects a commitment to supporting innovation and creativity through the protection of copyright, a fundamental pillar for the cultural and economic development of the country.