Tax in Bulgaria: Complete Guide on Bulgarian Tax Rates

Tax in Bulgaria: Complete Guide on Bulgarian Tax Rates

Bulgaria’s tax framework stands as one of Europe’s most competitive systems, marked by straightforward rates and efficient administration. Through daily work with international businesses and local tax authorities, I’ll share practical insights beyond the standard tax rates you’ll find in basic guides.

Corporate Income Tax Essentials

The cornerstone of Bulgaria’s business-friendly environment remains its 10% corporate tax rate. This flat rate applies to all taxable profits of Bulgarian companies and permanent establishments of foreign entities. However, the real expertise lies in understanding what constitutes taxable profit and how various deductions affect your effective tax rate.

For 2025, companies must navigate several key changes in corporate taxation. Advance payments follow a revised structure – businesses with net sales under BGN 3,000,000 no longer make monthly or quarterly installments. This seemingly simple change requires careful cash flow planning, as the annual tax payment now falls due in a single installment by March 31st following the tax year.

Deductible expenses present numerous opportunities that many tax advisors overlook. Entertainment costs, for instance, remain 100% deductible when properly documented and directly related to business activities. Vehicle expenses, often partially disallowed in other jurisdictions, maintain full deductibility in Bulgaria when business usage is properly evidenced through detailed logbooks.

Personal Income Tax Structure

Bulgaria applies a 10% flat tax rate on personal income, yet the system holds more complexity than this simple percentage suggests. Employment income, freelance earnings, rental income, and capital gains each carry specific rules for deductions and reporting requirements.

Social security contributions interact significantly with personal taxation. For 2025, the maximum monthly social security base stands at BGN 3,750, affecting both employer and employee contributions. The total social security burden typically reaches 13.78% for employees and 19.62% for employers, varying slightly based on industry risk categories and specific employment conditions.

Rental income deserves special attention, as proper structuring can significantly reduce the effective tax rate. While the headline rate remains 10%, taxpayers can claim a 10% statutory deduction without supporting documentation. Additionally, all actual expenses can be deducted when properly evidenced, often resulting in substantially lower taxable income.

Value Added Tax Framework

While Bulgaria’s standard 20% VAT rate aligns with EU norms, specific sectors enjoy reduced rates. Tourism accommodation services benefit from a 9% rate, while certain medical supplies and equipment qualify for 0% under specific conditions. Understanding these distinctions proves crucial for businesses operating across multiple sectors.

VAT registration requirements changed significantly in 2025. The mandatory registration threshold now stands at BGN 100,000 in turnover over any 12 consecutive months. However, voluntary registration remains available for businesses below this threshold, often providing advantages through input VAT recovery.

Intra-Community transactions demand particular attention. Bulgarian VAT law imposes strict documentation requirements for zero-rating exports and intra-Community supplies. Missing or incomplete evidence regularly leads to VAT assessments, even when transactions genuinely occurred across borders.

Industry-Specific Tax Considerations

Manufacturing companies operating in high-unemployment regions can access significant tax advantages. The state aid scheme allows for effective tax rates below the standard 10% when specific employment and investment criteria are met. However, these benefits require careful planning and ongoing compliance monitoring.

The IT sector enjoys special consideration within Bulgaria’s tax framework. Software developers and certain IT services can qualify for reduced social security bases for their employees, significantly lowering employment costs while maintaining full benefits for staff.

Construction industry taxation presents unique challenges and opportunities. The reverse-charge VAT mechanism applies to specific construction services, while advance payments follow special VAT rules. Additionally, construction companies can optimize their tax position through careful timing of project completion and invoice issuance.

Specialized Tax Regimes

Small enterprises with annual turnover below BGN 300,000 can opt for simplified taxation under the Small Business Act. This regime offers reduced administrative burdens but requires careful analysis, as it may result in higher effective taxation for some business models.

Sole traders face unique opportunities within Bulgaria’s tax system. They can choose between progressive taxation of their business income or a flat patent tax for certain activities. The patent tax often results in lower overall taxation but comes with strict revenue limitations and activity restrictions.

Real Estate Taxation

Property transactions trigger various tax obligations beyond simple income tax. Transfer tax rates vary by municipality, typically ranging from 0.1% to 3% of the higher of the purchase price or tax valuation. However, careful structuring of real estate holdings can optimize both transfer taxes and ongoing property taxation.

Annual property taxes depend on multiple factors, including property location, use type, and tax valuation. Commercial properties often face higher rates than residential ones, while certain property improvements can trigger reassessment of tax values.

Withholding Tax Mechanics

Bulgaria applies withholding tax on various payments to non-residents. Dividend payments to non-EU companies face a 5% withholding tax, while interest and royalty payments generally attract 10%. However, these rates often reduce under tax treaties or EU directives.

The mechanics of claiming treaty benefits require specific documentation and procedures. Annual tax residence certificates must be obtained before applying reduced rates, while certain payments require advance clearance from Bulgarian tax authorities.

Local Tax Considerations

Municipal taxes add another layer to Bulgaria’s tax system. Vehicle taxes vary based on engine power and age, while waste collection fees depend on property type and location. These local taxes often get overlooked in tax planning but can significantly impact overall tax burden.

Garbage collection fees, particularly for commercial properties, often exceed property taxes themselves. However, businesses can optimize these charges by declaring actual waste volumes and arranging private collection services.

Tax Administration and Compliance

The National Revenue Agency continues modernizing its approach to tax administration. Electronic filing becomes mandatory for most tax returns and declarations in 2025, while tax audits increasingly rely on data analytics to identify discrepancies.

Payment deadlines require careful attention. Corporate tax payments, VAT submissions, and personal income tax all follow different schedules. Missing deadlines triggers not only penalties but also late payment interest at rates significantly above market borrowing costs.

International Tax Aspects

Bulgaria’s extensive tax treaty network provides planning opportunities for international businesses. Most treaties follow the OECD model, but specific provisions vary significantly between countries. Understanding these differences proves crucial for structuring international operations effectively.

Transfer pricing requirements continue evolving. Contemporary transfer pricing documentation must be prepared annually for significant related-party transactions, while advance pricing agreements become increasingly popular for complex international structures.