BULGARIA Law and Practice Contributed by: Todor Banchev Todorov and Victoriya Grishina, Banchev and Grishina Law Firm
2. Territoriality, Residence and Permanent Establishment
occupations, the taxable base may be reduced by a legislatively fixed percentage. 2.4 Taxation of Non-Resident Individuals Non-resident individuals are taxed in Bulgaria only on income sourced within the country, as defined by domestic tax law and limited by applicable double tax treaties. Bulgarian-source income typically includes employment income from labour performed in Bul - garia, income from real estate located in Bulgaria and certain categories of passive income. Passive income paid to non-resident individuals (such as dividends, interest and royalties) is generally subject to withhold - ing tax, unless reduced or exempt under an applicable tax treaty or EU law. In practice, the taxation of non- residents is largely effected through final withholding mechanisms, with limited filing obligations where tax is withheld at source. Relief from double taxation is available through the application of double tax trea - ties. 2.5 Tax Residence of Legal Entities A legal entity is considered a tax resident in Bulgaria if it is incorporated under the Bulgarian law. In cases of dual residence, double tax treaties provide tie-breaker rules in line with the OECD Model Tax Convention. 2.6 Definition of Permanent Establishment Bulgarian domestic tax law defines a permanent establishment (PE) broadly as a fixed place of business through which a non-resident carries out all or part of its business activities in Bulgaria. This includes places such as branches, offices, factories, workshops, or construction sites that exceed a statutory duration threshold, as well as certain forms of dependent- agent activity or continuous activity of signing agree - ments in Bulgaria. Where a double tax treaty applies, the treaty definition of PE prevails over domestic law. Bulgaria’s tax treaties are generally aligned with the OECD Model Tax Convention, including in respect of construction sites and agency PE concepts. 3. Taxation of Cross-Border Income 3.1 Income From Immovable Property Income from immovable property located in Bulgar - ia is taxable in Bulgaria, irrespective of whether the
2.1 General Principle of Territorial Taxation Bulgaria applies a mixed territorial and residence- based principle of taxation. Resident individuals and legal entities are subject to tax on their worldwide income, while non-residents are taxed only on Bul - garian-source income, as defined by domestic law (including the transposed EU directives) and applica - ble tax treaties. Bulgarian tax legislation does not pro - vide for special tax regimes or territorial particularities within the country, as the tax system applies uniformly across the entire territory. Some incentives and tax reliefs are provided for investments in regions with high unemployment. In cross-border situations, the territorial scope of taxation is further limited by double tax treaties and EU law, which may restrict source taxation rights or allocate taxing powers to another jurisdiction. 2.2 Tax Residence of Individuals An individual is considered a tax resident in Bulgaria when they: • have a permanent address in Bulgaria; • stay in the country for more than 183 days in any 12-month period; or • have a centre of vital interests located in Bulgaria. Where an individual qualifies as a tax resident in more than one jurisdiction, double tax treaties provide tie- breaker rules, typically based on permanent home, centre of vital interests, habitual abode and nationality, in line with the OECD Model Tax Convention. 2.3 Taxation of Resident Individuals Individuals who are tax residents in Bulgaria are taxed on their worldwide income, irrespective of the source. Bulgarian personal income tax is generally levied at a flat rate of 10%, with certain categories of income subject to final withholding taxes. The income from dividends is taxed at 5% personal income tax. Spe - cific statutory exemptions and reliefs exist for cer - tain types of income, such as some social benefits and limited categories of capital income, but these are narrowly defined and strictly applied. For income derived from certain specifically listed professions or
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