How to get a fast-track EU citizenship, business opportunities, set up a company and taxes in Bulgaria
Bulgaria is a country with just over 7 million inhabitants. Located in southeastern Europe, bordering Romania to the north, Serbia and Macedonia to the west, Greece and Turkey to the south and bathed by the Black Sea in the east. Inheritor of Romans, Byzantines, Ottomans and a half century of communist regime. Today, Bulgaria is an EU full member, an emerging market with the second fastest growing economy and the lowest tax burden of the Union. Instant permanent residence and Bulgarian citizenship by investment, business opportunities, low taxes, low cost of living and an only 2-hour flight to the European financial and cultural capitals. Bulgaria may be an option to consider, whether for those seeking a second passport; set up a company, tax residency and residency camp base for digital nomads; for those looking broad their business in developing markets and even for those willing to invest in foreign real estate. Keep reading.
Citizenship, Residency and Visas in Bulgaria
Fast Track Bulgarian Citizenship by Investment
The Foreigners in the Republic of Bulgaria Act and the Citizenship Act allows the acquisition of Bulgarian citizenship by investment to a foreigner in a total period of no more than two years. No residency requirements, nor knowledge of Bulgarian language. Neither is required the renunciation of the applicant nationality. Check the list of countries that recognizes dual citizenship and those that don’t.
Getting a second passport in Bulgaria may be a very attractive option. Free mobility to visit, live and work in the EU and right to buy and own a property in any EU other country. In addition to access to 153 countries visa-free/visa on arrival and the planned entrance of the country in the Schengen area.
The process consists of 2 stages. First, it is must to obtain an immediate residency permit, fulfilling certain investment requirements. The procedure takes 3 to 5 months. A year after obtaining the residence, citizenship may be requested by doubling the investment or investing in a priority investment project certified as per the Investment Promotion Act. Citizenship application may be carried out in a maximum period of 6 months. So in total in about 24 months you could get your Bulgarian passport. Let’s detail each stage.
Stage 1 – Permanent Residency by Investment
As I said, under the Foreigners Act of Bulgaria, a foreign citizen can obtain immediate permanent residence permit by investment.
First, it is must to visit the country and open a bank account and make the required investment. After, apply for a category D Investor visa at any embassy or consulate. Once the visa is issued, he/she should apply for a permanent residence permit. The entire process usually lasts 3 to 5 months. The investment may be in any of the following ways:
- Investment of at least BGN 1,000,000 (≈ USD 540,000) in:
- Shares in Bulgarian commercial companies, traded on a regulated Bulgarian market, or
- Shares and treasury bonds and derivative instruments issued by the State or by municipalities, or
- Ownership rights over an isolated part of the property of a Bulgarian commercial company with more than 50 percent state or municipal participation in the capital under the Act of Privatization and Post-Privatization Control, or
- Shares or stocks owned by the state or municipalities in a Bulgarian commercial company in compliance with the Act of Privatization and Post-Privatization Control, or
- Bulgarian intellectual property – objects of copyright and related to its rights, patent protected Inventions, utility models, trademarks, service marks and industrial design, or
- Rights under concession contracts on the territory of the Republic of Bulgaria.
- Investment of at least BGN 6,000,000 (≈ USD 3,243,000) in the capital of a Bulgarian company whose shares are not traded on the Bulgarian stock market.
Investments in bonds or any public entities debt instruments will not generate yield.
Once the residence permit is obtained, the spouse and the direct descendants will be eligible get it too. Although the foreigner and his immediate family members do not remain physically in Bulgaria, they will not lose their permanent resident status.
Permanent residence can also be obtained by investing BGN 1,000,000 (≈ USD 540,000) in a credit institution licensed in Bulgaria under a trust agreement for a period of at least five years. Provided the deposit is not used to obtain other cash loans in Bulgaria. If permanent residence is obtained through this way, the foreigner would be not qualified to apply for Bulgarian citizenship by investment, he/she could apply for citizenship after 5 years, through the ordinary process. So, not suitable for those looking for a fast second passport.
Stage 2 – Bulgarian Citizenship by Investment
After one year of obtaining the Bulgarian permanent residence permit by investment, a foreign-citizen may apply for Bulgarian citizenship by investment. Provided that he maintains the investments made and has also made an additional one in any of the following ways:
- Double the investment in 5 years’ government bonds up to a total of BGN 2,000,000 (≈ USD 1,080,000). In case of being previously alienated, the granting of citizenship could be revoked.
- Invest at least BGN 1,000,000 (≈ USD 540,000) in the capital of a Bulgarian company that is carrying out a priority investment project certified under the Investment Promotion Act. Maintained for a period of two years. In case of being previously alienated, the granting of citizenship may be revoked.
The process usually lasts about 5-6 months, after which the President of Bulgaria will issue a decree approving the application for citizenship.
After six months, according to the Citizenship Act, spouse and direct descendants (children) will have the right to obtain citizenship.
The best way to get Bulgarian passport is by investing in government bonds. You invest EUR 1,012,000, you acquire citizenship in 18 months, and in 5 years you recover the principal. Flag Theory | Passports.IO can finance your bonds or equity investment for a total outlay of EUR 270,000. A very popular option because, although there is no capital return, the cash outlay is considerably smaller.
Investing in a Bulgarian priority investment project may be a high-risk option. Bonds investment is low risk. Belonging to the European Union, a short-term default is unlikely. In addition, although it carry some associated costs, the opportunity cost and loss of interest, plus fees, it is much cheaper than other European citizenship by investment options such as Malta or Cyprus.
In addition, we offer several attractive investment options that may lead you to Bulgarian Citizenship, including shares and life insurance. Check our Bulgarian Citizenship by Investment Products guide for further information.
The Bulgarian passport can be of great value for any non-European citizen, considering the following benefits:
- Acquiring Bulgarian citizenship implies acquiring full EU citizenship and enjoying access to the European market and freedom of movement.
- Bulgaria is qualified to be a member of the Schengen Area.
- The Bulgarian passport allows visa-free travel or visa on arrival to 153 countries.
- The right to set and do business in any EU / EEA country or in Switzerland.
- The right to buy land in Bulgaria and other EU countries.
- Access to the educational system in Bulgaria and other EU member states.
- The right to obtain medical care in Bulgaria and in any country in the EU.
In addition, to get Bulgarian citizenship by investment, minimum stay and language knowledge are not required. It allows dual citizenship and includes direct descendants. Great.
I want to point out that obtaining the Bulgaria residency by investment or the Bulgarian citizenship by investment does not imply any kind of tax liability. As long as permanent resident/citizen does not stay in the country more than 183 days or does not have its vital interests in Bulgaria. Anyway, income tax is a flat rate of 10% and Bulgaria has tax treaties with more than 50 countries, so plant a tax residency flag may be an option to consider . Later, I will talk about it.
You can apply now at passports.io/bulgaria and get started acquiring your Bulgarian residency and second passport.
Residence Permit in Bulgaria
If you want to reside in Bulgaria, work, retire or establish your business and there is no hurry or no interest to acquire citizenship or not able to get Bulgaria citizenship by investment, there are other ways:
Residence permit in Bulgaria for EU citizens
EU citizens may apply for a long-term residency certificate provided that:
- Work in Bulgaria as employee, freelance or in an own business; or
- Have medical insurance and sufficient financial resources.
After 5 years of residence, EU citizens should request the certificate of permanent residence.
Residence permit in Bulgaria for non-EU citizens
First, foreigner must apply for a multi-entry long-stay visa (Category D Visa) at any Bulgarian consulate or embassy abroad. Visa holder is normally allowed to stay in Bulgaria for 180 days. In certain cases, up to 1 year. Once in Bulgaria, he or she must apply for an extended residence permit. After 5 years, he must apply for a long-term or permanent residence permit.
- Bulgarian Extended Residence Permit: up to 1 year, renewable. The foreigner may request it if, among other cases:
- Has a job contract, after obtaining a work permit from the authorities
- Works as a freelancer, after obtaining a permit from the authorities
- Participates in commercial activities and have created at least 10 jobs. They must be maintained for the entire period of residence.
- He is a representative of a non-resident commercial company.
- He is entitled to a pension in the state of origin or another state and has the means to subsist in Bulgaria.
- Has invested at least BGN 600,000 (USD 325,000) in the acquisition of real estate.
- Owns more than 50% of capital (minimum BGN 600,000) of a Bulgarian trading company, and as a result of its investment the company has acquired real estate for that amount.
- Has invested in economically disadvantaged areas in accordance with the Investment Promotion Act, by contributing at least 50% of the capital to at least BGN 250,000 (USD 135,000). As a result of the investment the company must have acquired tangible or intangible assets for that amount and has maintained at least 5 jobs for Bulgarians.
Holder dependents may apply for an extended residence permit too.
- Bulgarian Long-term Residence Permit: at least 5 years in duration, renewable. It may be requested by a foreigner who has legally resided in Bulgaria for a period of at least 5 years. Holder family members may apply for a extended residence permit.
- Permanent Residence Permit: In addition to the aforementioned investment. An alien may apply for a permanent residence permit if he has been legally and continuously resident in Bulgaria for 5 years and has not been absent for a cumulative period of more than 30 months. Spouse and dependents are allowed to apply too.
Move to Bulgaria and get residency permit is an option that should not be overlook by Digital Nomads. An amazing country with low cost of living and low taxes, as we’ll see below, makes it a perfect environment for set the camp base of those living the permanent traveler lifestyle. There are initiatives like Coworking Bansko’s Nomad Residency that may be of your interest. Any doubt, don’t hesitate to email us at [email protected].
Bulgarian Citizenship by naturalization
Foreigners who have maintained a long-term or permanent residence permit for at least 5 years may apply for Bulgarian citizenship.
Travel to Bulgaria: Tourist Visa requirements
The Republic of Bulgaria applies the common European Union / Schengen visa policy. All EEA and Switzerland citizens have the right to travel with their ID card, and reside in any of their member countries. Although Bulgaria does not yet issue Schengen visas, any individual who holds a Schengen one could enter the country
In addition to nationals of the EEA and Switzerland, nationals of the following countries may visit Bulgaria and the entire Schengen area visa-free, for 90 days in a period of 180 days:
Albania, Andorra, Antigua and Barbuda, Argentina, Australia, Bahamas, Barbados, Bosnia and Herzegovina, Brazil, British overseas territories, Brunei, Canada, Chile, Colombia, Costa Rica, Dominica, El Salvador, Grenada, Guatemala, Honduras, Hong Kong, Israel, Japan, Kiribati, Macau, Macedonia, Malaysia, Marshall Islands, Mauritius, Mexico, Micronesia, Moldova, Monaco, Montenegro, New Zealand, Nicaragua, Palau, Panama, Paraguay, Peru, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Samoa, San Marino, Serbia, Seychelles, Singapore, Solomon Islands, South Korea, Taiwan, Timor Lest, Tonga, Trinidad and Tobago, Tuvalu, United Arab Emirates, United States of America, Uruguay, Vanuatu, Vatican City, Venezuela.
Nationals of other countries must apply for a Bulgarian or Schengen visa. For now, holders of a Schengen visa could visit Bulgaria, but Bulgarian visa holders cannot enter Schengen countries.
Visa requirements for Bulgarian Citizens
Despite being the second most restrictive passport in the European Union, Bulgarian citizens can travel visa free or visa on arrival to 153 countries. It ranks 21st of the Visa Restrictions Index.
In addition to all Europe (except Russia and Belarus), Bulgarians can travel visa-free or visa on arrival or eVisa to Latin America, Oceania, Southeast Asia, UAE, Japan, South Korea, Iran and India, among others. A considerably valuable passport.
Bulgarian Citizens Visa Free Map
Living in Bulgaria
Bulgaria is a sparsely populated country, 64 people per square km, one of the lowest ratios in Europe. In addition, much of its population is concentrated in cities, so there are extensive undeveloped natural areas worth seeing. Where you can enjoy the best European ski resorts in winter, and its thermal water springs or its almost 200 km of beaches in summer.
The capital, Sofia, like many cities in Eastern Europe has a post-communist feel. The most populous city in the country, with about one and a half million inhabitants and also the most popular among expatriates. Cheap and convenient, you can find the same facilities and amenities as in any other European. In addition, only one to two hours of travel from the financial and cultural centers of the continent.
Ploydiv, the second most populous city in the country, and may be the most acclaimed by tourists. It is the oldest inhabited city in Europe, and the eighth in the world. Its old town is a UNESCO World Heritage Site, where you can find from Renaissance architectural works to Roman ruins.
In addition to other tourist attractions such as the Valley of the Roses, where more than 80% of the world’s rose oil is produced, the ski resorts of Borovets and Bansko, the Spareva Banya hot springs, the Rila Monastery and Seven Rila Lakes natural park, Varna and Buga beaches, or monolithic communist monuments in Buzludzha, Stara Zargora or Vama.
Regarding the weather, it depends on the area, but in general, the summers are hot and dry, and the winters very cold, being milder in the coastal areas. In Sofia, continental area, temperatures range from -15ºC in winter to more than 35ºC in summer.
The gastronomy is another of the main attractions of the country. Influenced by Turkish, Greek and Balkan cuisine. It is known for its abundant salads, soups, grilled meat and yogurt. In addition to its local wines, and spirits like rakia.
In Sofia, the public transport network covers the entire city. It is formed by old-fashioned buses and trolleybuses and three relatively modern subway lines. The State railway network links Sofia with all the country’s attractions and populated cities. Regarding traffic, it is quite well organized and is quite better than in other Eastern Europe countries.
Regarding the health system, despite its poor public sector facilities and resources, professionals are well trained and medical care is quality. In clinics and other private centers the facilities are more modern but the personal attention is not necessarily better than in the public sector.
The Bulgarians are hospitable people, familiar, sociable and detailed, with a great sense of community. They love nightlife, which is reflected in the great range of clubs in Sofia.
Bulgarian society has a great religious sense, mainly Orthodox Christian, and is considerably superstitious. Immigration is almost anecdotal, 1.42% of the population, mostly Russian and to a lesser extent Turkish, Greek, Romanian, Ukrainian, British and Spanish. But most of the youth speaks English and several languages.
Cost of living in Bulgaria
For Western standards, Bulgaria is a tremendously affordable country. A condominium of 80 sq. M in the center of Sofia can cost less than USD 400 per month. In the suburbs, the prices are even lower, being able to find one-bedroom apartments for USD 60-80 monthly.
The utilities are also considerably cheap too, the total expense may be less than USD 60. The 50 Mbps fiber optic internet connection may cost the extortionate price of USD 6-7.
In the supermarket, you will find the local products at half price that in any Western Europe capital. If you are going to eat out, do not expect to spend more than USD 10-15 on a three-course meal in an average restaurant. In cheaper restaurants, the food can cost you less than USD 5. A beer in a pub, having fun with your Bulgarian friends, will not cost you more than USD 1.5. You can go to the movies or the theater for less than USD 5, and if you fancy going out to a club at night, with USD 20 you may have enough.
Regarding to public transport, a ride usually costs no more than USD 0.50 and the monthly pass is around USD 20. Taxiing is also considerably affordable, less than USD 0.50 per km.
Public education is free, with an acceptable educational level. If you choose an international school for your children, prices can range from USD 2,200 a year to a private average school up to more than USD 20,000 a year in the most elite schools. University fees vary between the institutions and the subjects studied, they oscillate between USD 2,500 and USD 8,000 per year.
To conclude, considering that the average salary of a Bulgarian is around USD 500, with a monthly USD 3,000 household income, a three-people family could live comfortably and without economic worries.
Invest in Bulgaria
Bulgaria Economic Situation
Bulgaria is an emerging market, with 80% of its GDP in the hands of the private sector. It enjoys a stable economic situation, recovering from the undermining of the global financial crisis. After halting the financial crisis bleeding in 2014, with a growth of 1.6% of GDP, in 2015 and 2016 the Bulgarian economy has grown to 3.1% per annum. Becoming the second fastest growing European economy. Driven mainly by the real estate sector, energy, outsourcing, IT, tourism, industrial production together with the oil price fall and the exports increase.
The latest European Commission forecasts indicate that in 2017 the economy will grow by 2.9% and 2.8% by 2018. The rebound in construction and the increase in private consumption, due to the good economic situation and the increase in wages, will drive growth for the coming years.
In terms of inflation, Bulgaria has had three consecutive years of deflation (-1.4%, -0.9%, -0.7%). Forecasts from the IMF indicate that inflation will begin to rise gradually this year to rates of 0.7%.
Although it was foreseen that Bulgaria would join the Eurozone in 2013. The bad economic situation and the instability, postponed it. There is no fixed schedule for incorporation. However, the Bulgarian lev (BGN) is pegged to the Euro at an exchange rate of 1 EUR = BGN 1.95, with minimum variations.
The favorable economic situation and positive outlook makes Bulgaria an optimistic business climate. According to data from the Bulgarian Chamber of Commerce, in 2016 more than 50% of companies increased their employee base. Unemployment has gone from 11.8% in 2013 to 7.2% today.
But foreign direct investment, despite in 2015 it increased 22%, last year slowed down. Real Estate has been traditionally the sector that has received more FDI, but outsourcing and IT are gaining ground.
As a negative point, the Bulgarian demographics are a focus of uncertainty. It may be an obstacle to economic growth. In almost 30 years the Bulgarian population has been cut by 20%, being 2% in the last 5 years. With the lowest life expectancy and birth rate and the highest death rate in the European Union, currently the average age in Bulgaria is 43.2 years. The labor market is already suffering from this, and is that the lack of young qualified personnel is the first reason for concern in the latest business surveys.
Investment Opportunities in Bulgaria
Bulgaria may be an attractive country for a foreign investor. An emerging market with privileged geographical position and direct connection to Central and Eastern Europe. Good infrastructures, unlimited foreign participation in all forms of business, unrestricted transfer of profits abroad, low tax burden, affordable labor, business consolidation reduced costs and government incentives for investment.
Bulgaria as member of the European Union is the gateway to a market of more than 500 million people and participant of the commercial agreements signed by the European body. In addition to being available EU funding and grant opportunities for companies established in Bulgaria. In projects such as technological modernization, energy saving measures, support for the introduction of new products, innovative processes or services, research and development, among others.
In addition, under the Investment Promotion Act, the Government has launched a state aid program to encourage both local and foreign investment. Investors may request a special certificate from the Invest Bulgaria Agency, which may be class A, class B or priority project. To qualify for this program, it will be required minimum investment amounts of between BGN 1.5m (USD 800,000) and BGN 10m (USD 5.4m) in industrial or service sectors. In disadvantaged regions and in high technology activities the required amounts could be lower. The benefits of this program include the right to purchase public real estate, financing the construction of technical infrastructure, financing vocational training, partial reimbursement of social contributions, among others.
The sectors that have attracted more foreign investment in recent years have been outsourcing and industrial services, IT sectors and the real estate market, although the latter has suffered a contraction last year.
Other attractive sectors to invest in Bulgaria are: tourism and the development of their infrastructure and services, the modernization of industrial processes, energy, transport, development and maintenance of public infrastructures, construction and promotion of residential and commercial real estate, management and treatment of water and urban waste, electrical engineering consulting, electronics and telecommunications and consumer goods trade, among others.
With regard to labor costs, wage levels in the country are significantly lower than those in Western Europe. Highly attractive for labor-intensive investments. Currently, the average gross monthly salary is BGN 1,012 (USD 547), with an annual growth of 8% last two years.
Real Estate in Bulgaria
There is no is no restriction on EEA citizens to invest in Real Estate in Bulgaria, whether in the purchase of buildings or lands. Non-EEA citizens could buy residential buildings, but there may be some restriction in the purchase of land, on the basis of what is established in Bulgarian international treaties. However, if there are restrictions, these do not apply in a 100% foreign-ownership company. The most common company form used by foreigners to buy land is the EOOD (One-man LLC), which does not require minimum capital or carry on any commercial activity.
On the market situation, in 2016 the low interest rates on bank deposits and mortgages have encouraged the demand for real estate. The price of housing grew 8.82% last year, being 7.9% for new homes and 9.3% for existing ones. Driven by its capital, Sofia, where prices have increased by more than 14%. Currently the average price of sq m. in Sofia is around USD 1,200.
The rental yields are also growing, currently being around 6%, one of the highest in Europe. There is no law that regulates rent prices and conditions, so these can be freely negotiated between parties.
All forecasts indicate that the market will continue to rise in 2017. Especially in urban areas, with a growing demand and limited supply due to the low levels of new construction.
Capital gains from the sale of real estate are subject to personal income tax (10%). Except for the provision of a residential property that has been maintained for more than 3 years or the provision of a maximum of two residential properties which have been maintained for more than 5 years.
Real estate transfers are subject to a tax between 0.1% and 3%. There is also a property tax of between 0.01 and 0.45%.
Regarding VAT. If the seller is an individual, it does not apply. If the seller is a registered company for VAT purposes, the property has a value of more than BGN 50,000 (USD 27,000), the purchasing company must be registered for VAT. Being able to get the tax refund. The problem arises if the property is later sold at a lower price, since the company will have to pay the previous VAT refund in full. Legal advice is recommended for this type of operations. E-mail us and we could recommend you a qualified attorney in Bulgaria.
Bulgarian Capital Market
SOFIX is the regulated capital market of Bulgaria. Comprising a total of 169 instruments, comprised mainly of 57 bonds, 15 Special Purpose Vehicles, and 90 equities. The behavior of the market this past 2016 has been very positive with an increase of more than 30% of its overall valuation. In addition, as we will see in the tax chapter, capital gains from trading in regulated market shares are exempt from taxation. You can check this link to know how to invest in the SOFIX.
Set up a Company in Bulgaria
There are no restrictions on foreigners to incorporate in Bulgaria. The most common foreign-own company forms are
- Druzhestvo s ogranichena otgovornost (OOD): Equivalent to an LLC, a minimum number of partners is not required, who may be natural or legal persons. Liability of these is limited to the capital contributed and the minimum capital required is almost nonexistent, BGN 2 (USD 1). Most foreign-owned companies operate under this business form.
- Aktsionerno druzhestvo (AD): Equivalent to a Join-stock Company. The capital is divided into shares. Shareholders can be individuals or legal entities and only respond for the amount of their shares. The minimum required capital is BGN 50,000 (USD 27,000), which must be fully subscribed and paid up to 25% for the registration of the company. It is the preferred form of business by foreign investors who need to rise capital of public capital markets.
The procedure for registering an OOD usually takes about a month and the costs associated with the registration may be BGN 400 (USD 215). The Bulgarian Company Law allows to remotely register a company in Bulgaria by granting power to a Bulgarian law firm. Through incorporations.IO you can set up a consultation if you are thinking to incorporate in Bulgaria or startup your Bulgarian company immediately.
The so-called Offshores Companies Act sets a maximum threshold of participation in restricted local companies (insurance, banking, pension funds, telecommunications, energy, among others) by foreign companies established in jurisdictions with preferential tax regimes. If the sectoral legislation does not specify a maximum participation percentage, this will be 10%. The legislation does not apply to companies that are merely related parties. It applies only if the company itself is registered or is controlled by a company registered in a jurisdiction considered a tax haven, although certain exceptions are contemplated.
Banking in Bulgaria
The Bulgarian banking sector is not so large. Its ratio of consolidated banking assets to GDP is 101.70%. It scored 7 in the last Banking Industry Country Risk (BRICA) performed by Standard & Poor’s, where 1 has the lowest risk, and 10 the highest.
There are 29 commercial banks, including 6 foreign banks branches, with a high degree of concentration and high participation of foreign capital. The Post Bank has 30 regional branches and more than 2,300 counters, tremendously useful for the inhabitants of the most remote areas.
The system is considerably liberal. Bulgarian residence is not required to open a bank account and can be made through a legal representative. The procedures are free. However, some banks may require a minimum deposit. The amount usually varies from bank to bank.
In most banks, you can open an account in both BGN and EUR. Some banks allow accounts in USD and GBP.
Although open a bank account in Bulgaria is usually free, all services usually have an associated fee.
Regarding the interest on bank deposits, they are currently very low, around 0.30%.
Online banking services, debit card services and various forms of electronic payment are available. In addition to developing a new national mobile infrastructure for electronic payments and a series of new services that facilitate the payment process such as electronic invoice, electronic signature and others.
Bulgaria has signed a FATCA agreement with the IRS. Banks in Bulgaria are required to identify U.S. taxpayers by January 1, 2017 and to report the information for 2017 and the subsequent years. Bulgaria has signed the OECD’s Automatic Exchange of Information (AEOI), coming into force last January 1.
Taxes in Bulgaria
Corporate Income Tax
Resident companies worldwide income, and non-resident companies’ Bulgarian-source income, are subject to Corporate Income Tax.
The tax base for calculating corporation tax is the tax benefit. Determined in accordance with the financial result adjusted for tax purposes with any differences in permanent taxes, temporary differences and specific amounts.
Permanent tax differences are accounting income or expenses that are not recognized for tax purposes. As expenses not related to the business or without documents; Any expenditure on fines or penalties; The interest charged for delay in the payment of public or municipal debts; Expenses considered to be hidden distribution of dividends, etc.
Temporary fiscal differences affect the financial result for more than one accounting period. Examples are restricted interests under capitalization rules, asset impairment charges, etc.
Corporate income is taxed at a rate of 10%. One of the lowest among EU countries. After Hungary (9%), and ahead of Ireland and Cyprus (12.5%).
There are is an alternative tax rate of 15% that tax activities such as gambling.
Dividends received from a Bulgarian resident entity or an EU/EEA company are not taxable. Dividends received from a non-EU/EEA resident are included as taxable income. A tax credit or exemption may apply under a tax treaty or a domestic tax credit if there is no tax treaty available.
Capital Gains Income
Capital Gains are considered ordinary income and therefore subject to CIT. However, capital gains from the disposal of shares listed in the Bulgaria Stock Exchange or in any EU Stock Exchange are fully exempted.
General withholding tax rates at 10 % to the income transferred to non-residents. Unless double taxation treaties establish lower rates. Check DTA treaties here.
Dividends distributed to EU/EEA entities are not subject to withholding tax. Distributions of dividends to non-EU/EEA are subject to a withholding tax of 5%.
Payments on interests are subject to a withholding tax of 10%. Interests paid to EU-based related company are exempted if parent company holds at least 25% of Bulgarian entity for at least two year or interests are from bonds and other debt securities emitted by a local tax resident and admitted to a regulated EU/EEA stock market.
Royalty payments to non-residents are also taxed at a 10% withholding tax. Those paid to an associated EU-based related company are exempted.
The capital gains on the transactions of shares of public companies in the Bulgarian regulated stock market are not subject to withholding tax.
Depreciation and Amortization
Tax depreciable assets are tangible fixed assets, intangible fixed assets, investment property (other than land) and subsequent expenses associated with an asset canceled from the tax depreciation plan
The goodwill generated as a result of a business combination is not considered depreciable.
The maximum annual rates of tax depreciation are between 4% and 50% depending on the type of asset.
Lump Sum Tax
A flat rate of 10% is applied for certain expenses. The tax is paid annually and can be deducted from corporation tax.
The taxable expenses are those related to business activity, in-kind benefits to company personnel, voluntary contributions to workers, subsistence allowances and expenses related to the maintenance, repair and operation of vehicles used for the management activity of the company.
A tax loss can be re-exported for five consecutive years.
If the debt / equity ratio of the company exceeds 3: 1, part of the interest expense cannot be deductible in the same year. Can be deductible in the following 5 years if certain conditions are met.
Controlled Foreign Companies
Bulgaria does not have CFC rules.
100% capital gains and / or tax losses resulting from the disposal of eligible financial instruments carried out on the Bulgarian stock exchange or on a stock exchange in an EU / EEA Member State.
Exemption up to 60% for companies that are engaged in agriculture. Until 2020, if certain requirements are met.
100% exemption from production companies that invest in municipalities with an unemployment rate that is 25% higher than the average unemployment rate. Until 2020 if certain requirements are met.
50% retention of the corporate income tax of social security and health insurance funds, established by law, for their business activity which is directly related to their main activity, provided that the retained tax is invested in the main activity by the end of the following year.
Personal Income Tax
Worldwide income of resident natural persons and Bulgarian-source income of nonresidents are subject to the tax.
Any individual who resides for more than 183 days in Bulgarian territory, or who has a permanent address in Bulgaria, or whose center of vital interests is predominantly Bulgaria, is considered a tax resident. The criterion of center of vital interests prevails for the one of permanent address. That is, someone who has a permanent address in Bulgaria, but whose vital interest center is in another country, may not be considered a resident for tax purposes. Foreigners residency criteria may vary according to tax treaties.
Flat rate of 10%. The lowest in Europe. Dividends are taxed at One-off tax of 5%.
Dividends is subject to a withholding tax at 5%. In case of dividends received from foreign entities that are not taxed on source, tax should be paid by Bulgarian Resident individual.
Company income as a sole trader, farmer or tobacco grower is taxed at a rate of 15%.
Income received from long-term life insurance contracts (15 years or more) is taxed at 7%.
- Certain payments or revenue may be deducted from the tax base, in some cases limited to certain maximum thresholds:
- Compulsory medical insurance, contributions to social security (local as foreigners), voluntary pension contributions … etc.
- Non-employment income, e.g. 25% freelances, 40% royalties, inventions, science and art products, 10% rental income, 10% for capital gains from the sale of real estate … etc.
- Certain donations to certain entities.
- Other deductions for young families with mortgages, child tax allowance, people with disabilities.
These deductions are not allowed for non-residents.
The overall rate of value added in Bulgaria is 20%. A 0% rate applies to the intra-Community supply of goods, exports outside the EU, international passenger and cargo transport, supply of non-Community goods subject to a special customs regime. A 9% rate is applied on accommodation in hotels, sheltered housing and other places of accommodation. Goods and services such as social security, education, sports, physical education, culture, religions, non-profit activities, certain transfers of property, insurance, financial services, gambling, etc. are exempt from VAT.
Social Security Contributions
Employers and employees pay Social Security contributions at rates of 13.10-13.70% and 9.70%, respectively. The contributions paid to Health Insurance are 4.80% and 3.20% respectively.
Between 0.1% and 3% of the value of property in the transfer of real estate and vehicles.
Between 0.01 and 0.45% of the value of the property, depending on the area. For the properties for residential use can be reduced up to 50%.
Transport Vehicles Tax
It applies to motor vehicles, boats and aircrafts. Depending on the type of vehicle, maximum weight, capacity, engine … etc.
Gift and inheritance taxes
Does not apply to gifts and inheritances between relatives. Between 3.3-6.6% for donations / inheritances between unrelated persons. Between 0.4-0.8% for donations / inheritances of properties between unrelated persons.
Between BGN 0,20 – BGN 3,00 (USD 0.10-1.60) per tourist / night, depending on the municipality.
It is applied the common European Union customs duties policy. Goods of free circulation in the EU, between Bulgaria and other member state, are exempt from customs formalities and customs duties obligations.
Getting Bulgarian citizenship by investment could be extremely interesting. An European Union passport through a minimum risk investment, where you recover the principal in 5 years. Unlike other economic citizenship programs, where you must invest in a risky sector, buy real estate or directly make a donation. Despite the opportunity cost, non-yield and fees to be paid may be a peak, this is still much lower than similar EU economic citizenship such as Malta or Cyprus.
Furthermore, Flag Theory | Passports.IO, we offer financing to obtain Bulgarian Citizenship for a total cost of €270,000. We also have available several products that will lead you to Bulgarian citizenship investing in company shares or life insurance. Check our Products guide for further details.
In addition, Bulgaria is the EU country with the lowest tax burden. An option to consider for digital nomads to set their camp base, set up a company and plant a tax residency flag. Personal Income tax rates at 10%, Dividends received taxed at 5% and more than 50 tax treaties available. Although living there in winter may not be encouraging for those looking for cheerful warm climates. Bulgaria has amazing mountains, landscapes and natural parks, historical towns, modern cities and yes, it also has nice beaches where take a dip into the Dead Sea and enjoy its summer high temperatures. Bulgaria is near all European cultural and financial centers and is cheap, very cheap.
For those seeking for to broad their business, Bulgaria may be a good country to incorporate, being an emerging market and a growing economy, with a considerably positive business climate and attractive business development opportunities, low labor costs and low corporate taxes.
Whether to plant a flag in Bulgaria, or in any other jurisdiction, contact us. Through a thorough analysis of your situation and your priorities, we will provide you the best opportunities and options and an action plan for your personal, finance and business internationalization. Check how we can help you.
How can I obtain Bulgarian citizenship by investment?
First you must obtain an immediate residency permit, investing USD 540,000. There are several investment options, being the lowest risk and most common the Government Bonds. After one year, you can apply for the citizenship investing another USD 540,000 in 5 years Government Bonds, or just wait 5 years.
How long takes the Bulgarian citizenship by investment?
Is there any residency requirement to get the Bulgarian citizenship by investment?
No, for both permanent residence permit and citizenship, there is not a minimum stay required. Nor knowledge of Bulgarian language requirement.
Can my family members apply for Bulgarian citizenship?
Once you get the citizenship, your descendants may apply for citizenship, if they are under 21 years old and not married. Although your spouse may be included in the residency by investment program, to get the citizenship he or she will have to wait 5 years.
How much do I need for live in Bulgaria?
Comparing to European western countries, Bulgaria is so cheap. A family with a household income of USD 3,000 per month may have a considerable pace of life.
What is the economic situation in Bulgaria?
Bulgaria is the second EU fastest growing economy. It’s GDP is increasing at a 3% annual rate. Forecasts indicates a positive outlook.
What are the investment opportunities in Bulgaria?
Outsourcing of business and industrial services, IT sectors, tourism, energy, transport, public infrastructures, real estate, management and treatment of water and urban waste, electrical engineering consulting, electronics and telecommunications and consumer goods trade, among others.
How is performing Bulgarian Stock Market?
In 2016, SOFIX has increased more than 30% of its overall valuation.
How is performing Real Estate Market in Bulgaria?
Demand is growing and supply is limited. Which represents a good opportunity for foreign investors. In 2016, the price of housing has grown 8.82%. In Sofia, prices have increased by more than 14%, and its currently sq. m average price is USD 1,200.
Can foreigners buy real estate in Bulgaria?
EEE citizens do not have any restriction on buying property. Some non EEA nationals may have some restrictions in buying land. However, restrictions do not apply to 100% foreign-owned companies.
Can a foreigner own a company in Bulgaria?
Foreigners have the same rights as citizens to set up a company in Bulgaria. 100% foreign ownership is allowed.
What is the most common company form in Bulgaria?
The most common form is an OOD, equivalent to a LLC. No minimum partners required, and the minimum capital required is almost nonexistent (USD 1).
Can I open a bank account in Bulgaria without being resident?
Bulgarian residence is not usually required. And usually banks allow to open a bank account through a legal representative.
Is Bulgaria a high tax burden country?
Definitely not. Both corporate income and personal Income are taxed at a flat rate of 10%. One of the lowest of the region.
More questions? Want to find your most suitable internationalization options? Set up a consultation call here.
This article should not be construed as legal, tax or investment advice. Flag Theory has access to a global network of qualified attorneys and accountants who can give you the proper advice for your particular circumstances. Contact us for further information.