BULGARIA Law and Practice Contributed by: Marin Sarafov, Petya Norova, Iva Georgieva and Eduard Milchev, G&P Law
Withholding Tax Taxes on dividends and liquidation shares distributed by local entities to foreign companies could be with - held in the territory of Bulgaria. The tax rate is 5% of the gross amount of the dividends and liquidation shares. These taxes do not, however, apply to com - panies which are local entities in another EU or EEA member state. Minimum Top-Up Tax Bulgaria has introduced the qualified domestic mini - mum top-up tax on large multinational companies in its Corporate Income Tax Act, as implementation of the OECD Pillar Two Safe Harbours. However, this does not provide a blanket “guaranteed safe harbour” to corporate taxpayers under the OECD framework. 5.3 Available Tax Credits/Incentives In Bulgaria, VAT must be declared and paid to the NRA by the seller of goods or services who is reg - istered for VAT purposes. Almost any seller who is registered for VAT purposes is entitled to VAT credit. This means that sellers are entitled to deduct the VAT they were charged for supplies to them from the VAT they declare, and pay the difference to the NRA. Certain exceptions to this rule are listed in the VAT Act, for example, entities which perform intra-community acquisitions or which are voluntarily registered for VAT purposes, etc, will not benefit from VAT credit. VAT credit should also not be used for certain transac - tions, for example, VAT-exempt supplies, acquisitions or imports of motorcycles and lightweight cars, as well as the supply of any goods or provision of services for maintenance, repair, improvement and operation of motorcycles and cars. The Bulgarian Corporate Income Tax Act provides for several tax incentives to encourage specific economic activities, for example: • tax relief for conducting manufacturing activities in municipalities with unemployment rates higher than the national average; • tax relief as a state aid to farmers – this could be applied via income tax credit of up to 60% on the taxable income of the farmer;
Social securities contributions are usually divided between employees and employers in a certain ratio. Employers pay all social charges for work-related accidents and professional illnesses. Health insurance charges amount to 8% of the insur - ance income and they are divided 60:40 between employers and employees. 5.2 Taxes Applicable to Businesses Companies doing business in Bulgaria could be liable for the following taxes if they qualify as local entities: • corporate income tax; • value added tax; • withholding tax on dividends and liquidation shares; • taxes on interests for some foreign companies; and • qualified domestic minimum top-up tax on large multinational companies. Corporate Income Tax The corporate income tax rate is 10% of the annu - al profits of a company. The income of a company according to its accounts is transformed by the appli - cation of different components, eg, permanent tax differences, temporary tax differences, etc, to define company profits. Local entities and foreign entities that have branches and places of economic activity in the territory of Bulgaria will be liable for corporate income act on the income of those branches/places of economic activity. Value Added Tax The standard VAT rate is 20% of the price of trans - actions or services provided. It is applicable for any taxable supply, import of goods, and some intra-com - munity acquisitions in Bulgaria, including new vehi - cles and excise tax goods. Certain supplies could be charged a zero rate, eg, export of goods, international transport services, etc. Any company performing independent economic activities in the territory of Bulgaria, having turnover amounting to more than EUR51,130 for the previous 12 months is obliged to register for VAT purposes. The registration could also be voluntary prior to reaching a turnover of EUR51,130. Registered companies are entitled to tax credit.
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