Bulgarian Citizenship by Investment, Business Opportunities and Taxation
Fast-track EU citizenship, business opportunities, setting up a company and taxes in Bulgaria
Bulgaria is a country with just over 7 million inhabitants. It is located in southeastern Europe, bordering Romania to the north, Serbia, and Macedonia to the west, Greece and Turkey to the south and with coastline on the Black Sea to its east. Throughout the ages, it has hosted Romans, Byzantines, Ottomans and a communist regime for half a century. Today, Bulgaria is a full EU member, and an emerging market with a modestly growing economy and the lowest tax burden of the Union.
Instant permanent residence and Bulgarian citizenship by investment, ample business opportunities, low taxes, low costs of living and just a 2-hour flight to most European financial and cultural capitals, mean that Bulgaria may be an attractive option to consider for many. Whether you are seeking a second passport; looking to set up a company with EU market access, tax residency and a residency base camp for digital nomads; or for those looking to broaden their business in developing markets and even for those willing to invest in a foreign real estate – Bulgaria has plenty of potential.
Citizenship, Residency, and Visas in Bulgaria
Fast Track Bulgarian Citizenship by Investment
Bulgaria has one of the most compelling citizenship by investment programs worldwide. Investing EUR 430,000 in 2 residential units in the capital Sofia can allow applicants to attain full EU citizenship in as little as 18 months. Alternatively, a ‘walk-away’ non-recourse financing option brings the costs down even further, to a one-off payment of EUR 290,000 including fees.
Furthermore, we also provide a supplemental offering that allows a spouse to apply for fast track citizenship simultaneously with the main applicant.
Let’s dissect the process:
The first step – Obtaining a permanent residence permit
A permanent residence permit can be granted to applicants within 6 months if they choose one of the following options:
- Finance a ‘walk-away’ non-recourse loan of EUR 190,000 (including professional, due diligence and government fees).
- Invest EUR 288,000 in a condo unit in the capital Sofia (including professional, due diligence and government fees). The condo unit (3 bedrooms, 113 sq. m, fully furnished) can then be sold back to the service provider after 6 years (at cost), or alternatively be retained and sold on the open market. Whether to keep the buy-back option or retain ownership needs to be decided at the time of investment.
Once permanent residency is acquired, applicants have the option to wait for 5 years until they are eligible for citizenship. This is the ‘standard’ option. However, there is also a fast-track option, described below.
Second step – Obtaining fast-track citizenship
Once either of the above options have been chosen for obtaining permanent residency, applicants can decide to fast-track their path to citizenship. This is made possible through once again choosing one of the following options (applicants can choose a different option to what they opted for in the first step):
- Finance a ‘walk-away’ non-recourse loan of EUR 160,000 (including professional, due diligence and government fees).
- Invest in a second condo unit for EUR 278,000 (including professional, due diligence and government fees).
Bulgarian citizenship is generationally transferable. What this means is that when an applicant receives citizenship, his or her children and grandchildren will also become immediately eligible for citizenship. However, a spouse will need to wait five years in order to become eligible. That being said, a spouse will be eligible for permanent residency in Bulgaria, or any other EU / Schengen country that the main applicant with citizenship wants to move to.
However, these benefits notwithstanding, there is also the possibility for a spouse to opt for a supplemental offering that can confer citizenship immediately, after the main applicant has obtained citizenship. These are:
- Financing a ‘walk-away’ non-recourse loan with EUR 95,000
- Invest in another condo unit for EUR 215,000
Step 1: It takes 4-6 months to process a permanent residence application after the initial investment is made. Applicants with permanent residency can then wait 5 years to become eligible for citizenship.
Step 2: If applicants opt for fast-track citizenship, it takes 12 months to become eligible for citizenship after permanent residency has been acquired, plus 2-4 months to process the fast-track citizenship application.
Total time for Fast Track Citizenship is 18-22 months.
In summary, it is possible to receive EU / Bulgarian Citizenship for as little EUR 190,000 for a single applicant applying for permanent residency with a 5 year waiting period to citizenship eligibility, or EUR 288,000 with a returnable investment amount of EUR 215,000.
If applicants want to opt for Fast Track citizenship, attainable in 18 months from the start of the process, they must make a second investment or loan financing payment. Applicants can also choose to ‘mix and match’ their investment options, so it is possible to choose financing for the first step, and real estate for the second step, or vice versa.
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.
It should also be pointed out that obtaining Bulgarian residency by investment or Bulgarian citizenship by investment does not imply any kind of tax liability, as long as a permanent resident/citizen does not stay in the country for more than 183 days or does not have their vital interests in Bulgaria. That being said, income tax is a flat rate of 10% and Bulgaria has tax treaties with more than 60 countries, so planting a tax residency flag may be an option to consider. Find out more about the specific programs available here.
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 you are not able to apply for Bulgarian fast track citizenship by investment, there are other, more affordable ways to eventually attain citizenship.
Residence permit in Bulgaria for EU citizens
EU citizens may apply for a long-term residency certificate provided that:
- They work in Bulgaria as an employee, freelance or in their own business; or
- Have medical insurance and sufficient financial resources.
After 5 years of residence, EU citizens can request a certificate of permanent residence.
Residence permit in Bulgaria for non-EU citizens
First, a foreigner must apply for a multi-entry long-stay visa (Category D Visa) at any Bulgarian consulate or embassy abroad. The visa holder is normally allowed to stay in Bulgaria for 180 days, or in certain cases, up to 1 year. Once in Bulgaria, he or she must apply for an extended residence permit. After 5 years, they can apply for a long-term or permanent residence permit.
- Bulgarian Extended Residence Permit: up to 1 year, renewable. The foreigner may request one if, among other cases, they:
- Have a job contract, after obtaining a work permit from the authorities
- Work as a freelancer, after obtaining a permit from the authorities
- Participate in commercial activities and have created at least 10 jobs. They must be maintained for the entire period of residence.
- Are a representative of a non-resident commercial company.
- Are entitled to a pension in the state of origin or another state and have the means to subsist in Bulgaria.
- Have invested at least BGN 600,000 (USD 325,000) in the acquisition of real estate.
- Own more than 50% of capital (minimum BGN 600,000) of a Bulgarian trading company, and as a result of this investment, the company has acquired real estate for that amount.
- Have invested in economically disadvantaged areas in accordance with the Investment Promotion Act, by contributing at least 50% of the capital and 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 have 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. These may be requested by a foreigner who have legally resided in Bulgaria for a period of at least 5 years. Holder family members may apply for an extended residence permit.
- Permanent Residence Permit: In addition to the aforementioned investment, an alien may apply for a permanent residence permit if they have been legally and continuously resident in Bulgaria for 5 years and have not been absent for a cumulative period of more than 30 months. Spouse and dependents are allowed to apply too.
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.
Fast Track Permanent Residency
Finally, there is also an option to obtain permanent residency immediately in Bulgaria, through one of our standard financing or real estate investment products, listed above as the first steps in the Bulgaria CBI program.
Moving to Bulgaria and obtaining a residence permit is an option that should not be overlooked by Digital Nomads. An amazing country with low cost of living and low taxes, it makes a perfect environment for setting up a base camp for those living the permanent traveler lifestyle. There are initiatives like Coworking Bansko’s Nomad Residency that may be of your interest. For any more information, don’t hesitate to email us at [email protected].
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 visa can 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 can 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 in the Visa Restrictions Index.
In addition to all Europe (except Russia and Belarus), Bulgarians can travel visa-free or visa on arrival or with an eVisa to Latin America, Oceania, Southeast Asia, UAE, Japan, South Korea, Iran, and India, among others. It is a considerably valuable passport.
Bulgarian Citizens Visa Free Map
Living in Bulgaria
Bulgaria is a sparsely populated country; with about 64 people per square km, it has 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 visiting, 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. It’s 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 city. In addition, it is only one to two hours air travel to the financial and cultural centers of the continent.
Plovdiv, the second most populous city in the country, and maybe the most acclaimed by tourists, 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 anything 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, there are also 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 its weather, it largely depends on the area, but in general, the summers are hot and dry, and the winters are very cold, though milder in the coastal areas. In Sofia, which is in the country’s 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, Bulgaria is known for its abundant salads, soups, grilled meat, and yogurt. In addition it has plenty of local wines, and spirits like rakia.
In Sofia, the public transport network covers the entire city. It’s composed of 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. The city’s traffic grid is quite well organized and is significantly better than in many 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.
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, at just 1.42% of the population, and is mostly Russian and to a lesser extent Turkish, Greek, Romanian, Ukrainian, British and Spanish. But most of the youth speak 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, and it is possible to find one-bedroom apartments for USD 60-80 monthly.
The utilities are also considerably cheap too – the total expense per month may be less than USD 60. A 50 Mbps fiber optic internet connection may set you back the extortionate price of USD 6-7.
In supermarkets, most local products can be bought at half the price that they would be 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, enjoyed while 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, USD 20 may be enough.
Regarding public transport, a ride usually costs no more than USD 0.50 and a monthly pass is around USD 20. Taxiing is also considerably affordable, at 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 for a private average school, all the way 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 household income of around USD 3,000, a three-person family could live comfortably and without economic worries.
Invest in Bulgaria
Bulgaria’s 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 shocks of the global financial crisis in 2008-2009. After halting the financial crisis bleeding in 2014, with a growth of 1.6% of GDP, in 2015 and 2016 the Bulgarian economy has reach a growth rate of 3.1% per annum, which is in the mid range of its European Union peers. This growth is mainly by the real estate sector, energy, outsourcing, IT, tourism, and industrial production, buoyed by the current low oil prices and exports increase.
The latest European Commission forecasts indicate that in 2017 the economy grew by 3.8% and 3.1% in 2018. The rebound in construction and the increase in private consumption, due to the positive economic situation and increase in wages, will drive growth for the coming years.
In terms of inflation, Bulgaria has demonstrated rates of between 3 and 3.8% over the course of 2019, which is expected to be maintained.
Although it was foreseen that Bulgaria would join the Eurozone in 2013, the generally bad economic situation and the bloc’s 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 make 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 dropped from 11.8% in 2013 to 7.2% today.
Foreign Direct Investment to the country took a dip in 2014, down to around 2% of its GDP, but has since been hovering between the 3% and 4% mark. Real Estate has traditionally been the sector that has received the most FDI, but outsourcing and IT are gaining ground.
As a negative point, Bulgarian demographics are a focus of uncertainty, and may be an obstacle to economic growth. Over the last 30 years the Bulgarian population has dropped by about 20%, and 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 43.5 years. The labor market is already suffering from this and 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 from a foreign-investor standpoint. The country is an emerging market with a privileged geographical position and direct links to Central and Eastern Europe, as well as further east into Central Asia. It has good infrastructure, unlimited foreign participation in all forms of business, unrestricted transfer of profits abroad, a low tax burden, affordable labor, business consolidation reduced costs and government incentives for investment.
Bulgaria is a member of the European Union, and is thus a gateway to a market of more than 500 million people, and a participant of the commercial agreements signed by the European body. In addition, EU funding and grant opportunities are also possible for companies established in Bulgaria, especially for projects involved in areas such as technological modernization, energy-saving measures, support for the introduction of new products, innovative processes or services, research, and development, among others.
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 a priority project. To qualify for this program, minimum investment amounts of between BGN 1.5m (USD 800,000) and BGN 10m (USD 5.4m) in industrial or service sectors are required. In disadvantaged regions and in high technology activities, the required amounts can be lower. The benefits of this program include the right to purchase public real estate, financing the construction of technical infrastructure, financing vocational training, and partial reimbursement of social contributions, among others.
The sectors that have been attracting more foreign investment in recent years are outsourcing and industrial services, IT sectors and the real estate market, although the latter has been struggling to recover from a contraction in 2015.
Other attractive sectors for investing in Bulgaria are: tourism and the development of its infrastructure and services, the modernization of industrial processes, energy, transport, development and maintenance of public infrastructure, 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 trading, among others.
With regard to labor costs, wage levels in the country are significantly lower than those in Western Europe, making it highly attractive for labor-intensive investments. Currently, the average gross monthly salary is BGN 1,250 (USD 547), with an annual growth of around 12% since 2018.
Real Estate in Bulgaria
There are no restrictions on EEA citizens investing in Real Estate in Bulgaria, whether in the purchase of buildings or land. Non-EEA citizens can buy residential buildings, but there may be some restrictions on 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 to be carrying out any commercial activity.
With regards the market situation, since 2016, low-interest rates on bank deposits and mortgages have encouraged a boost in demand for real estate. The price of housing grew around 7.5% last year, with 7.2% for new homes and 7.7% for existing ones. Much of this growth was driven by its capital, Sofia, where prices increased by more than 8.3% from 2017-2018. Currently, the average price of sqm. in Sofia is around EUR 1,200.
The rental yields are also growing, and at around 6%, are 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 2019. This is especially the case in urban areas, where there is a growing demand from foreign capital and limited supply due to lower levels of new construction.
Capital gains from the sale of real estate are subject to personal income tax (10%). An exception is made 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 of 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 and the property has a value of more than BGN 50,000 (USD 27,000), the purchasing company must be registered for VAT, but will be eligible for a 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 these types of operations. E-mail us and we can recommend you a qualified attorney in Bulgaria.
Bulgarian Capital Market
SOFIX is the regulated capital market of Bulgaria. It is comprised of a total of 169 instruments, mainly 57 bonds, 15 Special Purpose Vehicles, and 90 equities. The market’s performance began to do very well after 2016, but since the beginning of 2019 it has witnessed a gradual drop, in line with many others across the region.
As shall be outlined 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.
Setting up a Company in Bulgaria
There are no restrictions on foreigners incorporating in Bulgaria. The most common foreign-owned company forms are:
- Druzhestvo s ogranichena otgovornost (OOD): Equivalent to an LLC, a minimum number of partners who may be natural or legal persons is not required. 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 responsible for the number 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 raise capital on 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 for remotely registering a company in Bulgaria by granting power to a Bulgarian law firm. Through incorporations.IO you can set up a consultation if you are considering 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 considered.
Banking in Bulgaria
The Bulgarian banking sector is not so large. Its ratio of consolidated banking assets to GDP is 105.56%. The country’s banking industry and credit rating was upgraded in 2017 to BBB- by Standard & Poor’s, and its outlook has been labeled as positive and stable.
As of 2018, there were 25 commercial banks, including 5 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, which is tremendously useful for the inhabitants of the most remote areas.
The system is considered 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 also allow accounts in USD and GBP.
Although opening 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, there is a new national mobile infrastructure being developed for electronic payments and a series of new services that facilitate payment processes, 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 is subject to Corporate Income Tax.
The tax base for calculating corporation tax is the tax benefit. This is 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. These include 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 a 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%. This is one of the lowest among EU countries, after Hungary (9%), and ahead of Ireland and Cyprus (12.5%).
There is an alternative tax rate of 15% for 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 of 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 the EU-based related company are exempted if a parent company holds at least 25% of Bulgarian entity for at least two years, 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. It can be deductible in the following 5 years if certain conditions are met.
Controlled Foreign Companies
As of 1 January 2019, Bulgaria introduced new rules on Controlled Foreign Corporations (CFCs). These include undistributed profits of low-taxed foreign subsidiaries (and PEs) being included in the tax base of the Bulgarian controlling entity, subject to 10% Bulgarian CIT. Certain exemptions apply, among them that profits of CFCs with substantive economic activity will not be subject to Bulgarian tax.
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 personal income 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 a 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 are subject to a withholding tax of 5%. In case of dividends received from foreign entities that are not taxed on a source, a 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% for freelancers, 40% on 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 tax in Bulgaria is 20%. A 0% rate applies to the intra-Community supply of goods, exports outside the EU, international passenger and cargo transport, and supply of non-Community goods subject to a special customs regime. A 9% rate is applied to 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 properties for residential use, the rate can be reduced by up to 50%.
Transport Vehicles Tax
This applies to motor vehicles, boats, and aircraft, and depends on the type of vehicle, maximum weight, capacity, engine, etc.
Gift and inheritance taxes
This does not apply to gifts and inheritance between relatives. It ranges between 3.3-6.6% for donations/inheritances between unrelated persons, and 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.
The common European Union customs duties policy is applied. Goods of free circulation in the EU, between Bulgaria and other member states, are exempt from customs formalities and customs duties obligations.
Obtaining Bulgarian citizenship by investment can be extremely attractive. A European Union passport is possible through a minimum risk investment, where you can recover the principal in 5 years. This is a big difference from 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-yields and fees to be paid may be a peak, though this is still much lower than similar EU economic citizenship programs, such as those offered by Malta or Cyprus.
Furthermore, at Flag Theory | Passports.IO, we offer a financing option to obtain Bulgarian Citizenship for a total cost of €350,000. Check our Products guide for further details.
In addition, Bulgaria is the EU country with one of the lowest tax burdens, making it a great option to consider for digital nomads who want to set up their base camp, set up a company and plant a tax residency flag. Personal Income tax rates of 10%, dividends received taxed at 5% and more than 50 tax treaties available make it highly attractive, 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 taking a dip in the Black Sea and enjoying its high summer temperatures is possible. Bulgaria is near all European cultural and financial centers and the cost of living is incredibly cheap.
For those seeking to broaden 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 you want 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 with the best opportunities and options and develop an action plan for your personal, finance and business internationalization. Find out how we can help you.
How can I obtain Bulgarian citizenship by investment?
First, you must obtain an immediate residency permit, by investing EUR 512,000. We offer a range of options for you to achieve this amount by using a smaller amount of money, and with the option for a guaranteed buy-back on your investment.
How long does the Bulgarian citizenship by investment program take to complete?
Between 18-24 months.
Is there any residency requirement to obtain Bulgarian citizenship by investment?
No, for both the permanent residence permit and citizenship, there is not a minimum stay required, nor knowledge of the Bulgarian language.
Can my family members apply for Bulgarian citizenship?
Once you obtain 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 citizenship he or she will have to wait 5 years.
How much do I need for living in Bulgaria?
Compared to western European countries, Bulgaria is very cheap. A family with a household income of EUR 3,000 per month may have a considerably comfortable quality of life.
What is the economic situation in Bulgaria?
Bulgaria’s economy is considered stable and growing, with its GDP increasing at a 3% annual rate. Forecasts indicate a positive outlook.
What are some of the investment opportunities in Bulgaria?
Outsourcing of business and industrial services, IT sectors, tourism, energy, transport, public infrastructure, real estate, management and treatment of water and urban waste, electrical engineering, consulting, electronics and telecommunications and consumer goods trade, among others.
How is the Bulgarian Stock Market performing?
In 2019, SOFIX has overall decreased in value, in line with broader global trends, though it is stable.
How is the Real Estate Market in Bulgaria perfoming?
Demand is growing and supply is limited, which represents a good opportunity for foreign investors. In 2018, the price of housing has grown 7.5%. In Sofia, prices have increased by more than 9%, and its current sq. m average price is EUR 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 an LLC. No minimum partners are required, and the minimum capital required is almost nonexistent (USD 1).
Can I open a bank account in Bulgaria without being a resident?
Bulgarian residence is not usually required. And usually, banks allow for opening 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%, which is one of the lowest in 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.