While Bulgaria has much lower tax rates than western Europe (particularly France and the UK), you should obtain expert advice on Bulgarian taxes before deciding to settle there permanently. This will (hopefully) ensure that you take maximum advantage of your current tax status and that you don’t make any mistakes you will regret later.
If you earn an income in Bulgaria, either from employment or from property letting, you must also pay personal income tax.
Bulgarian residents are taxed in Bulgaria on their worldwide income, subject to relevant treaty obligations; non-residents are only taxed on their income in Bulgaria. Personal income tax in Bulgaria is much lower than in western European countries and is roughly comparable to other eastern European countries, including those that joined the European Union (EU) in 2004.
Income tax Liability
Your liability for Bulgarian taxes depends on where you’re ‘domiciled’. Your domicile is normally the country you regard as your permanent home and where you live for most of the year. A foreigner working in Bulgaria for a Bulgarian company who has taken up residence in Bulgaria and has no income tax liability abroad is considered to have his tax domicile in Bulgaria.
A person can be resident in more than one country at any given time, but can be domiciled in only one country. The domicile of a married woman isn’t necessarily the same as her husband’s but is determined using the same criteria as for anyone capable of having an independent domicile.
Under the Bulgarian tax code, your domicile is decided under the 183-day rule. You’re considered to be a Bulgarian resident for taxation purposes if any of the following applies:
- your permanent home, i.e. family or principal residence, is in Bulgaria;
- you spend over 183 days in Bulgaria (i.e. more than half the year) in Bulgaria during any calendar year;
- you carry out paid professional activities or employment in Bulgaria, except when secondary to business activities conducted in another country;
- your centre of economic interest, e.g. investments or business, is in Bulgaria.
If you intend to live in Bulgaria permanently, you should notify the tax authorities in your present country (you will be asked to complete a form, e.g. a P85 in the UK) and you may be entitled to a tax refund if you depart during the tax year. The tax authorities may require evidence that you’re leaving the country, e.g. evidence of forming a limited company in Bulgaria or of having bought or rented a property there.
Double Taxation
Citizens of most countries are exempt from paying taxes in their home country when they spend a minimum period abroad, e.g. a year. Bulgaria has double-taxation treaties with over 50 countries, including the members of the 15-state EU (i.e. excluding the states that joined in 2004), China, India, Japan, Russia and Singapore.
Treaties are designed to ensure that income taxed in one treaty country isn’t taxed again in another treaty country. The treaty establishes a tax credit or exemption on certain kinds of income, either in the country of residence or the country where the income is earned.
Where applicable, a double-taxation treaty prevails over domestic law. Many people living abroad switch their investments to offshore holdings to avoid the often complicated double-taxation agreements, although offshore accounts aren’t always suitable for income. The US is the only country that requires its citizens to file a tax return, even if they aren’t living in the US or, indeed, have never set foot in the country (e.g. a child born to US parents in another country).
Leaving Bulgaria
Before leaving Bulgaria, foreigners must pay any tax due for the previous year and the year of departure. Leaving (as well as moving to) Bulgaria may offer you an opportunity for ‘favourable tax planning’ (i.e. tax avoidance rather than tax evasion). To get the most out of your situation, you should obtain professional advice from a tax adviser familiar with both the Bulgarian tax system and that of your present or future country of residence.
Exemptions
Income from the sale of ‘immovable’ property (i.e. houses and apartments) is tax exempt (but may be subject to capital gains tax). There’s no tax on income earned from bank deposits.
Taxation of Property Income
Income tax is payable in Bulgaria on rental income from a Bulgarian property, even if you live abroad and the money is paid there. All rental income must be declared, irrespective of how long you let a property. Twenty per cent of rental income isn’t taxed; the remainder is taxed at your personal income (or corporation) tax rate. If you receive rent and aren’t resident in Bulgaria for tax purposes, a 15 per cent withholding tax is levied, minus deductions for allowable expenses such as mortgage interest.
If you’ve purchased a property through a limited company, you may be subject to corporation rather than personal income tax.
Calculation
The tax year in Bulgaria runs for the calendar year (i.e. from 1st January to 31st December). The income tax rates for a single person for 2005 income (2006 tax return) are shown below.
| Taxable Income | Tax Rate |
| Up to 2,160 Iev | 0% |
| 2,161 to 3,000 Iev | 20% |
| 3,001 to 7,200 Iev | 22% |
| ºover 7,200 Iev | 24% |
If you’re working and receiving a salary in Bulgaria you must also pay social security contributions of 1 per cent of income and unemployment fund contributions of 0.5 per cent of gross (pre-tax) salary.
Tax Returns
Tax returns must be filed by 15th April for individuals and by 31st March for companies. It’s recommended that you engage an accountant in Bulgaria to complete your tax return. To file a tax return yourself, either as an individual or as a company, you will need a solid grasp of Bulgarian and an understanding of the taxation system.
Most estate agents offer a tax return filing service but the cost varies dramatically (the average charge is around €100, although the fee can be as low as €25 and as high as €300), so it’s worth shopping around and not relying on the agent who sold you your property.
This article is an extract from Buying a Home in Bulgaria
from Survival Books.