Bulgaria’s Tax Advantage in the EU

Bulgaria offers the lowest corporate tax rate in the European Union at a flat 10%. Combined with a 5% dividend tax and a 10% personal income tax, the country presents one of the most favorable tax environments in Europe. For foreign entrepreneurs and investors, this translates to significantly higher retained earnings compared to setting up in most other EU member states.

Corporate Income Tax: 10% Flat Rate

The Bulgarian corporate income tax is a straightforward flat rate of 10% applied to the taxable profit of the company. There are no progressive brackets or surcharges.

Key features:

• Flat 10% rate on all corporate profits regardless of amount
• No distinction between small and large companies
• Applies equally to domestic and foreign-owned businesses
• Tax year follows the calendar year (January 1 to December 31)
• Advance tax payments required quarterly for companies with prior-year turnover exceeding BGN 300,000

Comparison with Other EU Countries

Country	Corporate Tax Rate
Bulgaria	10%
Hungary	9% (but with local business tax)
Ireland	12.5%
Romania	16%
Germany	~30% (combined)
France	25%
Italy	24% + regional

Dividend Tax: 5%

When profits are distributed as dividends, a 5% withholding tax applies. This means the total effective tax on corporate profits distributed to the owner is approximately 14.5% (10% corporate tax + 5% on the remaining 90%).

Important considerations:

• Dividends between Bulgarian companies are exempt from withholding tax
• EU Parent-Subsidiary Directive may reduce or eliminate withholding tax on dividends to EU parent companies
• Double taxation treaties may further reduce the rate for non-EU recipients

Personal Income Tax: 10%

Bulgaria also applies a flat 10% personal income tax rate. This applies to:

• Salary income
• Self-employment income
• Rental income
• Capital gains (with some exceptions)

For foreign employees working in Bulgarian companies, this low rate is a significant attraction for talent recruitment.

Social Security Contributions

While not technically a tax, social security contributions are a significant cost for employers in Bulgaria. The total contribution rate is approximately 31-32% of gross salary, shared between employer and employee:

• Employer’s share: approximately 18-19%
• Employee’s share: approximately 13-14%

Contributions cover pension, health insurance, unemployment, and other social funds. There is a maximum insurable income ceiling (BGN 3,750 per month as of 2025), which caps the total contribution amount.

Special Tax Incentives

Municipality Tax Incentives

Companies operating in municipalities with high unemployment (which includes some areas in the Lovech region) may benefit from tax reductions. Companies can deduct the corporate tax due if they:

• Operate in a municipality with unemployment above the national average
• Reinvest the tax savings in the same municipality
• Maintain or increase their staff numbers

R&D Tax Incentives

Companies investing in research and development may qualify for additional deductions, including accelerated depreciation of R&D assets.

Investment Incentives

The Bulgarian Investment Promotion Act provides incentives for significant investments, including:

• Shortened administrative procedures
• Financial support for infrastructure
• Training subsidies for employees
• Preferential treatment in privatization processes

Withholding Taxes

Bulgaria imposes withholding taxes on certain payments to non-residents:

• Dividends: 5% (may be reduced by treaty)
• Interest: 10% (may be reduced by treaty)
• Royalties: 10% (may be reduced by treaty)
• Technical service fees: 10% (may be reduced by treaty)

Bulgaria has an extensive network of double taxation treaties with over 70 countries, which can significantly reduce these rates.

VAT Considerations

The standard VAT rate in Bulgaria is 20%. A reduced rate of 9% applies to accommodation services (hotels, guesthouses), which is relevant for tourism businesses in the Troyan area.

Companies must register for VAT when their taxable turnover exceeds BGN 100,000 within the preceding 12 months. Voluntary registration is also possible.

Tax Compliance

Despite the favorable rates, Bulgaria has strict tax compliance requirements:

• Annual corporate tax returns due by June 30
• Monthly VAT returns for registered companies
• Annual financial statements filed with the Trade Register
• Transfer pricing documentation for related-party transactions

Professional Tax Planning

While Bulgaria’s tax rates are straightforward, proper tax planning can further optimize your fiscal position. Attorney Biser Dimov in Troyan works with qualified accountants and tax advisors to help foreign investors structure their Bulgarian operations for maximum tax efficiency while maintaining full compliance. Contact us for a consultation on how Bulgaria’s tax environment can benefit your business.