Direct Tax: Individuals
General rules / Territoriality and residence

Under Personal Income Tax Act (PITA) tax liable persons are individuals residents and non-residents, and corporates explicitly enumerated therein.

Residents, irrespective of their citizenship, are considered those persons:
    * Who have their permanent domicile in Bulgaria
    * Who reside in the country for more than 183 days in a 365-day period.
Non-residents are considered those individuals who do not fit the above criteria for residents.

Non-residents are liable only for their income derived from Bulgarian sources. Foreign experts are taxed only on their Bulgarian-source income irrespective of the duration of their stay in the country.


Bulgarian source incomes

 Any income derived by an individual from the conduct of business on the territory of Bulgaria is considered to be from a Bulgarian source. A person is considered to have carried out business on the territory of the country where:
    * Has a permanent establishment or a fixed base in Bulgaria
    * Has assigned or performed an assignment on the territory of the country, whether in person or through a procurator, agent or in some other way.
Any income under an employment contract or derived from rendering services is considered to have been derived from a Bulgarian source where labour has been extended or services have been delivered on the territory of the country, regardless of the source of payment for the labour extended or services rendered.

Incomes derived from the use of real estate and capital gains from the sale of real estate located in the country is also income from a Bulgarian source.


Tax Exempt income

 Tax exempt are considered:
    * incomes derived from the sale or exchange of certain types of immovable property (flats, houses or villas) or means of transport, subject to certain conditions
    * rentals from agricultural land
Incomes, not specified by PITA as tax exempt, are considered taxable.


Annual scale

 In principle, the total annual income, after the respective adjustments are made, is taxed in accordance with an annual progressive scale.

The annual scale in force as from 1 January 2003 is given below.

annual income

tax

up to

BGN 1560

 

 

non-taxable

from

BGN 1560

to

BGN 1800

10% on excess over BGN 1560

from

BGN 1800

to

BGN 3000

BGN 24 + 20% on excess over BGN 1800

from

BGN 3000

to

BGN 7200

BGN 264 + 22% on excess over BGN 3000

over

BGN 7200

 

 

BGN 1188 + 24% on excess over BGN 7200


The employment income

Capital Gains: The tax base in case of sale or exchange of immovable and certain movable property is the difference between the selling price and the higher price between the factual and updated price paid for the acquisition of such property.
Rental Income Received: Personal income tax is due on an annual basis. 20% of the income is tax deductible. If the real estate is owned by more than one person, the income is divided in proportion to the participation in the ownership. If the rent is payable to a non-Bulgarian tax resident, a 15% withholding tax is levied.

Royalty payments and technical services fees, when paid to non-Bulgarian tax residents, are subject to a 15% withholding tax at the source (the paying company or partnership). No additional tax is levied. Fees for management services are not considered technical services fees and are not subject to withholding tax.

Payments under lease, factoring and franchising contracts are subject to personal income tax under the annual progressive scale


Tax credits

Tax credits may be granted on the basis of double taxation treaties in force. If there is no double tax treaty in place PITA provides for unilateral tax credit to be granted.


Tax administration

Returns: Persons who during the tax year have received income only from rentals from agricultural land are not obliged to submit tax returns. Other tax payers submit annual tax returns by 15 April of the year following the respective tax year. For tax purposes, spouses are treated as separate taxpayers. No income splitting is allowed.
The standard form of the tax returns is promulgated in the State Gazette and is available on Internet.


List of countries, which concluded double taxation treatment with Bulgarian Government

Albania, Armenia, Austria, Belarus, Belgium, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Finland, France, Georgia, Germany, Greece, Hungary, India, Indonesia, Ireland, Italy, Israel, Japan, Kazakhstan, Korea, North Korea, South, Kuwait, Lebanon, Luxembourg, Macedonia, Malta, Moldova, Mongolia, Morocco, Netherlands, Poland, Norway, Portugal, Romania, Russia, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland, Syria, Thailand, Turkey, Ukraine, United Kingdom, Vietnam, Yugoslavia, Zimbabwe.


Summary:


Local taxes and rates

The owner of a building or a plot is obliged to pay a real property tax. Where a building is built on a State or municipal plot, the value of the plot will also be included in the tax base. The tax is equal to 0.15% of the book value of the property. Arable land is exempt from local taxes. In addition to the real property tax, owners also pay waste-collection fees.


Rental income

The basis of the taxable income of a company, investing in property is the gross income derived from the property less tax-deductible, property-related expenses and depreciation. Such expenses include repairs, maintenance, renovation and similar costs and interest on loans used for the acquisition of the property. A Municipal Tax at a rate of 10% of profits is due. This is then deductible in calculating taxable profits which are subject to a flat corporate tax rate of 25%.

The basis of the taxable income of a person investing in property will be 15% withholding tax on the rentals and capital gains, unless an even lower rate is applied under a double tax treaty.

For further information please visit the websites of the United Nations in Public Administration: http://unpan1.un.org/intradoc/groups/public/documents/UNTC/UNPAN016438.pdf

and

Finance and Doing Business Organization:
http://www.doingbusiness.org/ExploreTopics/PayingTaxes/Details.aspx?economyid=30