Real estate investment in Bulgaria ( tax detail ) by:- omega invest bulgaria

Bulgarian taxes at a glanceRatio of the contributions between employee and
Corporate income taxemployer
10%In 2007 the ratio remains 65% for the employer and
Personal income taxup to 24%135% for the employee.
Social security and health insuranceThe contributions to the Occupational Accident and
36.4%2 of an insurance base between BGN 160 andProfessional Disease Fundand the Guarantee Fund for
BGN 1,400.Employees’ Receivables are fully for the account
VAT ratesofthe employer.
20% (0% for exports; 7% effective rate for certainInsurance base
tourist services).The gross remuneration less statutory expenses in
Withholding taxsome cases.
7% on:The minimum insurance base varies between BGN
• dividends or liquidation quotas distributable to180 and BGN 851 per monthdepending on the
non-residents3,4,resident individuals or non-profiteconomic activity of the employer and the profession
entities;and gradeof the employee.
10% on:The maximum insurance base is capped to BGN 1,400
• interest, royalties, technical and managementper month.
service fees and some otherincomes payable toSocial security and health insurance
non-residents3.Social security treaties
One-off taxes on certain expensesUnder existing bilateral treaties foreign employees
• 10% on representation expenses, somemay be exempt from socialsecurity contributions in
expenses related to usage ofv ehicles forBulgaria or contributions made in Bulgaria may ber
management purposes, as well as on socialecognised in their home country, if particular
expensesprovided in-kind.conditions are met.
Bulgarian taxes at a glanceAs of 1 January 2007 the provisions of the EEC
Local taxes and feesRegulation 1408/71 on socialsecurity are applicable to
Relate mainly to real estates, vehicles, donations,Bulgaria. The Regulation provides that the
inheritance, and garbagecollection.individualshould be insured only in one Member State
Excise duties– in principle this should be thecountry where the
Apply to alcohol, tobacco, some fuels and others.individual physically works. In case of a temporary a
Customs dutiesssignment/posting abroad (in another EU –
Due on the customs value upon importation ofcountry) for up to five years the individual
goods.maycontinue to contribute to his /her home country
Environmental feessocial security system and beexempted from host
Include product fees on waste from packaging andcountry social security contributions provided he/she
fees on heavy fuel oil.obtainsan E101 form from his/her home country social
Specific corporate income tax regimessecurity authorities.
Apply to collective investment schemes, licensedValue added tax (VAT)
investment companies, specia lpurpose investmentNew VAT Act and Regulations for its application are
companies, gambling businesses, and some others.in force as of 1 January 2007following Bulgaria’s
Taxation of corporate profitsaccession to the EU.
Corporate income tax rateRates
10% on the taxable profit.• 20% standard rate – applies to domestic
Taxable profittaxable supplies carried out againstconsideration,
Statutory accounting profit/loss adjusted for taxintra-community acquisitions of goods and importation
purposes.ofgoods from non-EU Member States;
Statutory accounting• 7% reduced rate – applicable only to
Maintained in BGN on accrual basis. IFRS are graduallyaccommodation provided by a hotelieras part of a
introduced as a basisfor preparation of the financialtourist package tour.
statements of the companies6.Exemptions
Adjustments for tax purposes• With credit (= 0% VAT rate) – including but
Expenses not related to the business activities or notnot limited to: export supplies;international transport
duly documented, expensesrelated to impairment ofof goods and passengers including certain s
assets, provisions for liabilities, revaluation reserveuppliesrelated to international transport;
incertain cases, and others.intra-community supplies of goods; salesof duty-free
Tax residencygoods in duty-free shops, where such sale is
Companies are deemed to be tax resident in Bulgariaconsidered exportas per the Duty Free Trade Act;
if they are registered insupplies of gold (except investment gold)to Central
Bulgaria.Banks of EU Member States; certain transactions
Permanent establishments of non-resident entities inrelated toi nternational trade, and specific supplies
Bulgaria are taxed likeresident companies.under international treaties;
Tax allowed depreciation• Without credit – including but not limited to:
4% to 50%, depending on the type of the assettransfer of land and limitedproperty rights over land
under the straight-linedepreciatio n method.(excluding building land and attached land plotsto new
Thin capitalisationbuildings), the rental of land and transfer of old
Interest expenses may not be fully deductible if thebuildings or partsthereof, the rental of buildings or
debt/equity ratio of thecompany exceeds 3:1.parts thereof for residential purposes toindividuals
Taxation of corporate profitsother than sole trader (an option to tax is available
Carry forward of tax lossesfor theset ransactions); financial and insurance
Tax losses can be carried forward over the followingservices; certain educational andcultural services;
five consecutive years.health services and some other specific supplies.
Foreign source losses may be offset only againstThere are also specific exemptions from import VAT
taxable profit from the samesource. Relief isand VAT on Intra-communityacquisitions of goods.
introduced with respect to EU source losses, whichTransactions with place of supply outside Bulgaria
may be offsetagainst other source profits in certainthat would be treated ast axable if performed on the
circumstances.territory of Bulgaria as well as provision of financial
Returnsorinsurance services to non-EU residents are entitled
To be submitted annually by 31 March of theto VAT credit (related input VATis recoverable).
following year (the tax year is thecalendar year).Value added tax (VAT)
PaymentReverse charge mechanism
The tax under the annual tax return is due by 31The range of supplies where the reverse charge
March of the following year.mechanism applies is extendedunder the current
Advance payments are due on a basis determinedBulgarian VAT legislation.
by the law.Some examples of supplies and services where the
Taxation of dividends and liquidation quotasreverse charge mechanismapplies where the supplier
Subject to 7% withholding tax when distributed tois neither registered for VAT purposes nor
resident individuals, residentnon-profit entities andestablishedin Bulgaria and the liability to pay tax is
non-residents (there is an exception relating toshifted to the customer which is VATregistered in
dividendsdistributed in the form of additional shares orthe country are:
increase of the nominal value of thecurrent shares).• supplies of the so called “intellectual
Dividends distributed by a Bulgarian resident companyservices” under Article 22 (3) of the VAT
to a tax resident entity in aAct (e.g. supply of licences, patents, know-how,
EU Member state shall not be subject to Bulgarianintellectual property rights,advertising services,
withholding tax, under certainconditions.consultancy services, provision and processing
Profits distributed by a Bulgarian branch to its parentofinformation, etc.)12;
company abroad shall notbe subject to Bulgarian• supply of intra-Community transport of goods,
withholding taxation.as well as services, related tointra-Community
Generally, dividends distributed to resident companiestransport of goods by a supplier established in
are not considered astaxable income (except foranother EU
dividends distributed by special purposeMember State;
investmentcompanies).• in case of a triangular transaction where the
Withholding taxes – non-residentsthird party (acquirer) isr egistered for VAT purposes
Taxable incomein Bulgaria and the conditions regardingt riangular
• dividends and liquidation quotas (please also seetransactions are met;
section Taxation onc orporate profits);• supplies of goods with assembly/ installation,
• interest, royalties, franchising and factoring;provided by an EU residentsupplier without a fixed
• technical and management services fees;establishment in Bulgaria;
• income from usage of movable and immovable• supplies of natural gas or of electricity.
property;Triangular transactions
• capital gains from transfer of local real estates;Triangular transaction is defined as a supply of goods
• capital gains from transfer of financial assetsbetween three personsr egistered for VAT purposes
issued by the State, am unicipality or a localin three different EU Member States A, B and
company7.C,where the following conditions are simultaneously
Withholding tax ratemet:
10% on the taxable income (7% on dividends and• a registered person in Member State A
liquidation quotas, andexemption in certain cases). The(transferor) supplies goods to aperson registered for
withholding tax rate may be reduced underVAT purposes in Member State B (intermediary)
anapplicable double tax treaty.whosubsequently supplies these goods to a person
Dividends distributed by a Bulgarian resident companyregistered for VAT purposesin Member State C
to an entity – tax residentin a EU Member state(acquirer);
shall not be subject to Bulgarian withholding tax,Value added tax (VAT)
underc ertain conditions (including holding of more• the goods are transported directly from A to C;
than 15% of the shares in the• the intermediary is not registered for VAT
B ulgarian companies for at least 2 years).purposes in Member States Aand C;
Payment• the acquirer charges VAT as a recipient of the
When the payer is a Bulgarian resident entity or asupply.
sole trader or a permanentestablishment of aThe intermediary in the transaction is released from
non-resident, the tax should be remitted to thethe obligation to registerfor VAT purposes in the EU
budget withinthree months after the month ofMember State of the acquirer and is not requiredto
accrual of the income by the payer (or the monthofcharge VAT as the liability to charge VAT is shifted
the decision for distribution of dividends and liquidationto the acquirer.
quotas).VAT registration
If the payer is neither of the above, as well as inThe mandatory VAT registration threshold is BGN
case of capital gains from transferof local real50,000 of taxable suppliesc arried out in the last 12
estates and financial assets, the tax should be paidmonths. There are no rules on group VAT
by the beneficiarywithin three months after theregistration.
month of receiving the income8.The threshold for registration based on
Withholding taxes – non-residentsintra-community acquisitions is BGN
Application of double tax treaties20,000 in a calendar year.
A non-resident may benefit from a double tax treatyThe registration threshold for distance sales is BGN
relief provided that ana dvance clearance certificate is70,000 for distance saleswith place of supply in
obtained from the Bulgarian tax authoritiesf ollowing aBulgaria carried out during the current calendar yearor
specific procedure.in the preceding calendar year. A taxable person
Bulgaria has more than 60 double tax treaties inperforming distance salesof goods may choose to
force, including with mostregister before reaching the above threshold.
E uropean countries, which generally follow the OECDPersons established in other EU Member States and
Model. The Double Taxsupplying goods witha ssembly/installation in Bulgaria
Treaty with the USA is signed and is expected toto customers non-registered for VAT purposesin the
enter into force, as ofcountry are obliged to register irrespective of their
1 January 2008.taxable turnover.
Taxation of expensesEach person that carries out independent economic
10% one-off tax is due on:activity can apply forv oluntary VAT registration
• “social” expenses provided in kind tobefore an obligation for registration on the
the employees (e.g. fringe b enefitsp rovided toabovegrounds arises (i.e. irrespective of thresholds).
employees), except for food vouchers up to BGN 40However, a voluntarily
pere mployee monthly and voluntary insuranceVAT-r egistered person may not deregister earlier
contributions (pension, health,unemployment and/orthan 24 months startingfrom the year following the
professional qualification, life insurance and lifeiyear in which the VAT registration has taken place.
nsurance related to an investment fund) up to BGNFiscal representation
60 per employeemonthly;The appointment of a local fiscal representative is
• representative and entertainment expenses;mandatory for foreign persons
• some expenses related to use of vehicles for(including EU residents), except for those having a
management purposes.local branch.
Generally, the above expenses and the tax on themValue added tax (VAT)
are tax deductible for thecompanies.VAT returns and payments of VAT
Corporate tax incentivesVAT is due monthly, by the 14th day of the
Reduction of the corporate income taxfollowing month. As of 2007 no a nnual
The corporate income tax due may be reduced:VAT return shall be filed. Corrections of the VAT
• by 10% of certain acquired fixed assetsrecovery coefficientfor a r espective year are made
(applicable for companies operatingwithin regions ofin the VAT return for December.
high unemployment);VIES declarations are due (by the 14th day of the
• with the mandatory social security contributionsfollowing month) only in casesof effected
paid by the employer withregard to the hired newintra-community supplies of goods and/or supplies of
employees within regions of high unemployment;certain servicesduring the respective month.
• by 60% - applicable for agricultural productionInput VAT recovery
entities;VAT can be claimed in VAT returns and is
• by 50% - applicable for social security and healthrecoverable within:
insurance fundsestablished by law, state schools and• 30 days for persons who have effected zero
universities;rated supplies within the last
• in other cases.12 months exceeding 30% of the total value of all
Full granting back of the corporate income taxtaxable supplies theyhave made in the same period,
The corporate income tax due is fully granted backas well as by large investors that meetcertain
for investments andproduction activities in highconditions;
unemployment regions, and in other specific• 3 months (for offsets) and 45 days (for
casesdetermined by law.effective refund) – in all other cases.
Restrictions for application of the incentivesVAT refund to non-resident businesses
The application of the incentives listed above may beForeign entities with no legal presence in Bulgaria are
subject to additionalconditions, including state aidentitled to VAT refund
admissibility restrictions.(according to Ordinances ? H-10 and ? H-11 of 24
Specific corporate income tax regimesAugust 2006). The scopeof goods and/or services on
Scopewhich VAT is refundable has been
Applicable for:considerablyextended compared to the former rules.
• special purpose investment companies;VAT incentive for large projects
• collective investment schemes;Investors authorised to apply the VAT incentive for
• licensed investment companies;big investment projects canaccount for VAT upon
• persons engaged in marine commercial shipping;importation in the monthly VAT return (without
• gambling businesses;effectivepayment of VAT).
• and some others.Intrastat
Exemption from corporate income taxAn Act for the statistics of the intra-community
Special purpose investment companies, licensedtrade in goods entered into forceon 1 September
investment companiesof c lo s e-en d type and2006.
collective investment schemes, authorised for publicoNew administrative requirements related to periodic
ffering in Bulgaria, are not subject to corporatefiling of the so-called Intrastatreturns were
income tax.introduced. The physical movement of goods as a
There are also some other exemptions determinedresult of thes o-called “dispatches” and
by law.“arrivals” should be reported for Intrastat p
Personal income taxationurposes
Rate(i.e. movements and supplies of goods from/to the
The maximum marginal tax rate is 24%, applicable toterritory of Bulgaria,r espectively to/from EU Member
annual taxable incomeexceeding BGN 7,200.States).
ScopeThe filing of Intrastat returns is obligatory only for
Generally, taxable income includes received monetarypersons that are VAT registeredin Bulgaria and
income, “social expenses”provided in cashexceed the reporting thresholds for arrivals and
and benefits in-kind.dispatches.
Bulgarian tax residents are taxed on their worldwideThe filing deadline is the 10th day of the month
income, while non-residentsare taxed on theirfollowing the month in which thearrivals or dispatches
Bulgarian source income only.occur. The only exception is when the threshold is
Tax residencyexceededduring the current year. In this case the
In general, tax residency is determined on the basisdeadline is 20th of the month following thefirst period
of permanent domicile, morethan 183-day stay infor which an Intrastat return is due.
Bulgaria in any 365-day period and centre of vitalThe thresholds for 2007 are BGN 100,000 for arrivals
interest inand BGN 150,000 ford ispatches per annum.
Bulgaria. The centre of vital interest is determinedThe thresholds are reviewed annually.
with regard to the individual’spersonal andExcise duties
economic ties to Bulgaria and a number of factorsScope
are c onsideredin this respect, such as the family,Excise duties are applicable to certain products listed
possession of property, the place wherethe i ndividualin the Excise Duties and Tax
performs his employment, professional or economicWarehouses Act (e.g. beer and spirits, tobacco
activity etc.products, petrol and diesel fuel,heavy oil, coffee,
H owever, if the individual has a permanent addresscertain types of cars, and electricity).
in Bulgaria, but his centreof vital interest is outsideRate
Bulgaria, he may not be considered a BulgarianExcise duties are charged as a flat amount in BGN
taxresident.per unit or as combination offlat rate and ad valorem
Reliefcomponent.
Certain types of income are tax exempt, includingTax warehouses and deferred payment of excise
incomes from specifico perations on the capitalduties
market, incomes from transfer of real estateThe productions of some excise goods (tobacco
undercertain conditions, interest gained on deposits inproducts, alcohol and energyproducts, with small
local banks and branch officesof foreign banks,exceptions) should be carried out only in tax
profits from gambling, payments received under thewarehouses.
mandatorysocial security system, some benefitsExcise goods may be imported, processed and
in-kind which are taxed at employer level,and others.stored in tax warehouses,as well as transported,
Personal income taxationunder a deferred payment regime.
Some deductions apply to different types of income,Customs duties
e.g. mandatory nationalinsurance contributions madeAs from 1 January 2007, Bulgaria is applying the EU
at the expense of individuals, statutory deductionsatcustoms legislation directly.
certain rates (e.g. for free lancers, for rental income),The applicable rates are percentages of the customs
and others.value (the transaction valueincreased by certain
Some minor child allowances are deductible from thecosts). Reduced rates apply on imports of goods
annual taxable basefromc ountries to which EU gives preferential tariff
(BGN 420 for one child, BGN 840 for two children,treatment.
BGN 1,260 for three or morec hildren).Goods can be imported into Bulgaria under customs
Donations to the Child Healthcare Fund are deductibleregimes with an economicimpact (e.g. bonded
up to 50% of the taxableincome less other allowablewarehouses, inward processing, processing under
deductions and mandatory payments. Donationsrcustomscontrol).
elated to culture are deductible up to 15% of theProcedures for post-clearance control aimed at
yearly income. Donations toother specific groups offacilitating the application ofsimplified customs
individuals and entities/charities are deductible up toprocedures remain in place.
5%of the taxable income less other allowableEnvironmental fees
deductions and mandatory payments.Product fees on the waste from packaging
Certain taxes levied abroad, may be credited inCompanies releasing on the market packed goods
Bulgaria. There may be also relieffor certain types ofare obliged to utilise or burnin waste-to-energy plants
income under existing double tax treaties.at least 38% of the weight of packaging waste.
Patent taxationTheminimum part will gradually reach 60% by 2014.
Lump-sum taxation is applicable to certain smallCertain quantities of the waste from packaging
businesses run by individualsshould be recycled (the q uantitiesare based on the
(with annual income below BGN 50,000).type of packaging material). If the above
One-off taxesrequirements are notmet, product fees based on the
7% one-off tax is due on:type of material and the weight of packagingshould
• dividends and liquidation quotas paid to abe paid.
resident and non-residenti ndividual from a BulgarianThe Companies may fulfil their waste management
resident company.obligations by participatingin organisations for
• dividends and liquidation quotas paid to acollective waste management.
Bulgarian resident froma n on-resident company.Waste from electrical and electronic equipment
• incomes from voluntary Life insurance schemes(WEEE)
received after thet ermination of the Life insuranceOrdinance for the requirements for release for
policy that has been contracted for 15 yearsor more.circulation of electrical ande lectronic equipment (EEE),
Personal income taxationtreatment and transportation of waste EEE
10% one-off tax is due on incomes receivable by(WEEE)implements EC Directive 2002/96/EC (also
non-Bulgarian tax residentsfrom:known as “The WEEE Directive”)in the
• management fees and fees for technicalBulgarian legislation.
services;The Ordinance prohibits the release for circulation of
• interest, royalties, franchising, factoring,EEE not meeting the explicitrequirements for
scholarships;contents of harmful substances. Producers and
• rentals and disposal of real estate;importers of
• incomes from disposal of shares, bonds andEEE are obliged to reach certain targets for separate
other financial instruments.collection, recycling, reuseand disposal of WEEE. This
There are some exemptions from the above finalobligation could be fulfilled individually or throughc
tax for EU/EEA residents.ollective schemes. In case the producers and
15% one-off tax is due on:importers fail to meet the targetsthey will be obliged
• incomes from early redemption of voluntaryto pay product fees, calculated on the basis of the
Life, health and private pensioninsurance schemes.weightand the type of the EEE released for
Personal income tax returnscirculation by them.
Submitted annually, by 30 April of the following yearLocal taxes and fees
(the tax year is the calendaryear). A 5% reduction ofReal estate tax
the outstanding tax is applicable when the return is0.15% on the tax value of the real estate annually.
filedbefore 10 February of the following year or isTransfer tax
submitted electronically by 30 Aprilof the following2% on the value of the transferred real estate or
year.motor vehicles (subject tocertain exemptions, e.g.
Individuals who have received only employmentcontributions in kind and acquisitions under the Lawon
income from Bulgarian employersor income subject top rivatisation and Post-privatisation control).
one-off taxation are not obliged to submit annual taxVehicle tax
returns.Depends on the type of vehicle (e.g. passenger car,
Paymentbus, cargo truck, constructionvehicle, ship, aircraft).
The final payment of tax is due within the terms forThe vehicle should be registered in Bulgaria. For
submission of the tax return,i.e. 10 February or 30example,the tax is BGN 112 annually for a passenger
April of the following year.car not older than 5 years with enginepower of 100
Certain advance payments are due during the yearh.p.
depending on the type ofthe income and the statusDonation tax
of the payer (e.g. on rental income, on5% of the value of the donation or on a written-off
managementincome, service fees).liability (lower rates area pplicable for donations to
Social security and health insurancerelatives; donations made to relatives of direct lineand
Contribution to the social security fundsto a spouse, as well as common presents are
Generally, 36.4%9 in aggregate – for theexempt).
employer and the employee. Thisincludes:Inheritance tax
• 18% – Pensions FundThe tax is levied on property exceeding BGN 250
• 5% – Additional Universal Pensions Fund10thousand (EUR 128 thousand)and amounts to 0.7%
• 3.5% – General Illness and Maternity Fundfor property inherited by brothers, sisters and their
• 3% – Unemployment Fundchildren,and 5% – for other heirs. Property
• 0.5% – Guarantee Fund for Employees’inherited by a spouse or heirs of direct line isexempt.
ReceivablesLocal fees
• 0.4% – Occupational Accident andThe fees for certain municipal services (e.g. garbage
Professional Disease Fundcollection) are determinedseparately by each
• 6% – Health Insurance Fundmunicipality and may vary.