The taxation of corporate income and profits is governed by the Corporate Income Tax Act (“CITA”). In addition to the corporate income tax which is charged on the corporate profits, CITA also imposes and regulates certain other taxes, such as:
Taxable persons are:
Corporate Income Tax
The corporate income tax rate in Bulgaria is a flat 10%.
Profits Subject to Tax
Bulgarian resident companies are subject to Bulgarian tax on their world-wide profits.
Companies that are non-residents in Bulgaria are liable for taxes on all profits gained through a permanent establishment in the Republic of Bulgaria and on the income specified in the CITA accruing from a source inside the Republic of Bulgaria.
A company is resident in Bulgaria if it is registered pursuant to Bulgarian legislation. Most of the taxation rules, including the major rules relating to tax incentives, apply equally to resident and non-resident companies conducting activities through a Bulgarian permanent establishment.
Determination of Profits for Tax Purposes
Profits are determined in accordance with the generally accepted accounting principles (provided for in the respective accounting standards), subject to adjustments for tax purposes.
There is a statutory requirement for banks, insurance companies, other financial institutions and public companies to apply IFRS as a primary accounting basis. Legal entities that qualify for small and medium size enterprises (SME) may choose whether to apply the IFRS or the Bulgarian Generally Accepted Accounting Principles (BGAAP).
Accounts are to be prepared in Bulgarian currency (BGN), regardless of the functional currency of the respective company. The taxable profit, called “tax financial result”, is determined in accordance with the accounting financial result adjusted for tax purposes with any permanent tax differences, temporary tax differences and specific amounts provided in the CITA.
Valuation of Depreciable Assets for Tax Purposes.
Depreciation and Amortization
Tax depreciable assets are
Goodwill generated as a result of a business combination is not a tax depreciable asset. Any loss from impairment and upon write-off of goodwill shall not be recognized for tax purposes.
Maximum annual tax depreciation rates are between 4% and 50% depending on the type of asset.
If the debt to equity ratio of the company exceeds 3:1 part of the interest expenses may not be tax deductible in the current year. However such interest expenses may become tax deductible in the following five consecutive years if certain conditions apply.
Utilization of Losses
A tax loss can be carried forward for five consecutive years to offset the taxable profit reported in those years. Losses cannot be carried back.
Group Taxation. Transactions Between Related Parties
There is no group taxation in Bulgaria. Each entity is taxed as a separate taxpayer.
Bulgaria has tax rules regulating the tax deductions and the taxable revenue from transactions between related parties (“the transfer pricing rules”). The transfer pricing rules are broadly similar to the generally accepted OECD standards applicable in other EU and OECD countries.
Tax Returns and Tax Payments
In Bulgaria the tax year coincides with the calendar year. The taxable persons must file an annual tax return showing the tax financial result and the annual corporate tax due by the 31 st of March of the following year. The corporate income tax is paid through making quarterly/ monthly provisional tax payments.
Distribution of Dividends
Dividends are subject to 5% withholding tax when distributed to individuals, resident non-profit entities and non-residents (except for EU/EEA entities).
Dividends distributed to resident companies are not included in their taxable income except for dividends distributed by Special purpose investment companies or Non-EU/EEA foreign entities.