Working in Bulgaria: Freelancer vs. Company Registration: Tax Accounting Implications

Independent work is everywhere. Whether you’re writing code, designing brands, or building websites, you’re likely part of the strong wave of people working outside traditional employment. At some point, one question comes up: 

Are you a freelancer — or self-employed?

In this article, Remote unpacks the distinctions between freelancing and self-employment, helps assess which model fits your career and goals, and how you can thrive in either path.

Welcome to Bulgaria! If you’re considering setting up a business here, you’ll need to decide whether to register as a freelancer (self-employed) or establish a company. This article will compare both options, helping you choose the best fit for your situation.

Choosing between registering as a freelancer and forming a formal business entity (like an LLC or LTD) depends on your income, liability risks, and administrative capacity. Freelancing offers quick, cheap setup and simplified taxes, while a company provides asset protection and better scaling.

Freelancer Registration

Freelancer registration is a simpler and faster option, ideal for solopreneurs with limited expenses.

Here’s an overview of what you need to consider when registering as a freelancer:

Benefits:

• Easy Setup: Registration is straightforward and can be completed within a week.
• Lower Costs: Initial registration and ongoing accounting expenses are generally lower than for companies.
• Tax Advantages: You benefit from a flat 10% income tax rate after deducting a fixed 25% for expenses, regardless of your actual spending.
• Flexibility: You have more control over your work schedule and business structure.

Drawbacks:

• Full Liability: You hold full personal liability for your business debts and obligations.
• Limited Access to Financing: Securing loans or investments can be challenging as a freelancer.
• Higher Social Security Contributions: Social security payments are based on a minimum income threshold, which can be higher than your actual earnings.

Freelancing in Bulgaria is generally suitable for solo professionals with limited expenses and lower risk exposure. Company registration is usually more appropriate for higher income levels, business growth, hiring employees, or when limiting personal liability is important. The right choice depends on your specific circumstances.

Company Registration

Company registration offers a more formal structure and may be suitable for businesses with growth potential or those planning to hire employees.

Benefits:

• Limited Liability: Your liability is limited to the company’s capital, protecting your personal assets.
• Access to Financing: Companies have better access to loans and investments.
• Professional Image: A company registration projects a more established and professional image.

Drawbacks:

• Higher Costs: Company registration and ongoing accounting fees are generally more expensive than freelancer registration.
• More Complex Setup: The registration process involves more steps and formalities.
• Double Taxation: Companies pay a 10% corporate tax on profits, and owners may pay additional taxes on dividends.

Choosing the Right Option

The best registration option depends on your specific circumstances. Here are some key considerations:

• Business Size and Growth Potential: If you’re a solopreneur with limited expenses, freelancer registration might be sufficient. However, if you plan to hire employees or experience significant growth, a company structure might be more suitable.
• Liability Protection: If limiting your personal liability is a priority, a company offers that protection.
• Financial Considerations: Weigh the registration and accounting costs associated with each option.
• Tax System: While both options involve social security contributions, the minimum income threshold can lead to higher contributions for freelancers compared to their actual income. Companies have a separate tax structure with corporate tax and potential dividend tax.

Value added tax (VAT)

Value-added tax (VAT) is a key element in Bulgaria’s tax legislation and is essential for foreigners freelancing or running a business in the country. VAT is charged on sales of goods and services, and the standard rate in Bulgaria is 20%. VAT registration becomes compulsory if a person or company’s annual turnover exceeds BGN 166,000. This rule is valid for both nationals and foreigners who carry out economic activity in Bulgaria.

VAT registration

VAT registration may be mandatory or voluntary for foreigners working as freelancers or running a company in Bulgaria, depending on the circumstances. Here are the main points:

1. Compulsory VAT registration
   • VAT registration becomes compulsory when annual turnover exceeds BGN 166,000. This applies to any natural or legal person, whether resident or non-resident. The turnover includes revenue from sales of goods and services provided in Bulgaria and/or the European Union.
2. Voluntary VAT registration
   • If a foreigner plans to do business with customers in the EU or wishes to benefit from the advantages of income and expense taxation through VAT, he may choose to register voluntarily for VAT, even if the turnover is lower than BGN 166,000. This can be advantageous for freelancers who often purchase services or goods with VAT included, as they will be able to deduct VAT from their purchases.

Specifics for foreigners working in Bulgaria (VAT options)

Foreigners registered as freelancers or company managers in Bulgaria must comply with Bulgarian law, even if their clients are located outside the country. Some key points include the following:

1. VAT for international clients
   • If the foreigner provides services to clients outside Bulgaria but within the EU, the tax rate may differ. Services provided to companies outside the EU are usually exempt from VAT, but all procedures must be followed to account for this revenue properly.
2. Self-assessment of VAT on services received from abroad
   • If the freelancer or company receives services from companies outside Bulgaria (e.g. consultancy, software solutions, etc.), it is necessary to self-assess VAT on the services received. This requires keeping correct records and including these amounts in the monthly VAT returns.
3. VAT refunds for foreigners
   • According to Bulgarian legislation, foreigners who have paid VAT on purchases in Bulgaria (e.g. purchases of equipment or office supplies) can apply for a VAT refund. This is done by submitting an application to the National Revenue Agency (NRA) and complying with the conditions set out in the VAT refund for foreigners section of the NRA website.

Core Differences at a Glance

Accounting Outsourcing – Common Reasons

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Our promises & invitation for a partnership

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See you Friends, looking forward to contribute to your business growth & success.