BULGARIA Law and Practice Contributed by: Todor Banchev Todorov and Victoriya Grishina, Banchev and Grishina Law Firm
recipient is a resident or non-resident. This includes income from rental, leasing or other forms of exploita - tion of real estate. For resident individuals and entities, such income is included in their worldwide taxable income and is taxed under the applicable income tax rules. Non-residents are taxed on Bulgarian-source real estate income, typically through withholding tax or filing obligations, depending on the nature of the income and the applicable tax regime. Double tax treaties generally preserve source-state taxing rights over income from immovable property. 3.2 Business Profits Business profits realised by Bulgarian tax resident entities are subject to corporate income tax at a flat rate of 10% on worldwide income. Profits are deter - mined based on accounting results, adjusted for tax purposes in accordance with the Corporate Income Tax Act. Non-resident entities are taxable in Bulgaria only on Bulgarian-source business profits, typically where such profits are attributable to a permanent establish - ment in Bulgaria. In line with the double tax treaties, business profits are taxable exclusively in the state of residence unless a permanent establishment exists in Bulgaria, in which case profits attributable to that PE are subject to Bulgarian corporate income tax. According to the practice of the Bulgarian tax authori - ties, the income at source of foreign residents that does not fall explicitly within the scope of certain spe - cial treaty provisions is generally treated as business profit. 3.3 Passive Income Passive income (such as dividends, interest and royal - ties) is generally subject to withholding tax under Bul - garian domestic law when paid by a Bulgarian source to non-residents. The standard withholding tax rate is 5% for dividends and 10% for interest and royal - ties, subject to specific statutory exemptions. EU law exemptions apply in certain cases, including under the EU Parent–Subsidiary Directive and the Interest and Royalties Directive, provided the requirements are met. Withholding tax, if not eliminated at the EU level, may be reduced or eliminated under applicable double tax treaties, typically subject to conditions on
beneficial ownership and other treaty requirements. In addition, the above provisions regarding tax reliefs are not applicable in cases of hidden distribution of profit. 3.4 Capital Gains Capital gains of Bulgarian tax resident individuals and entities are generally taxable in Bulgaria as part of their worldwide income. For corporate taxpayers, capital gains are included in taxable profit and are subject to a 10% corporate income tax. Non-residents are taxed on capital gains from the disposal of Bul - garian-source assets, including immovable property located in Bulgaria and shares in Bulgarian compa - nies, subject to limitations under applicable double tax treaties. In practice, treaties often allocate tax - ing rights over gains on immovable property to the source state, while gains on shares may be exempt in Bulgaria unless the value is derived principally from Bulgarian real estate. 3.5 Employment Income Under Bulgarian legislation, employment income is taxable in Bulgaria if the work is performed within the country, irrespective of the employer’s place of residence. For Bulgarian tax residents, such income is included in their worldwide taxable income and is gen - erally taxed at a flat personal income tax rate of 10%, in addition to mandatory social security contributions. For non-resident employees, Bulgarian-source employment income is taxable where the work is physically performed in Bulgaria, subject to short- term assignment exemptions under applicable double tax treaties, typically based on the 183-day rule and conditions relating to the employer and cost-bearing entity. Bulgarian tax legislation does not contain specific rules on remote working. In practice, remote work per - formed from Bulgaria may create tax residence risks for individuals, especially in light of the current OECD interpretation and, in certain cases, permanent estab - lishment or payroll obligations for foreign employers, depending on the factual circumstances and duration of the activity.
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