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* Companies and partnerships established under Bulgarian law
* Permanent establishments of non-resident entities in Bulgaria
Financial result adjusted for tax purposes.
IFRS or local Bulgarian GAAP (for small and medium-sized enterprises).
E.g., non-business related or not duly documented expenses; interest restricted under the thin capitalization rules; expenses for impairment of assets; dividends received from local or EU based companies.
Tax depreciation rules
Maximum annual tax depreciation rates between 4% and 50%, depending on the type of asset.
If the debt to equity ratio of the company exceeds 3:1 (some of) the interest expenses may not be tax deductible in the current year. However they may become tax deductible in the following five consecutive years under certain conditions.
Tax loss carry forward
Tax losses can be carried forward over the next five consecutive years.
Tax returns and payment
The annual corporate tax return has to be submitted by 31 March of the following year. The tax year is the calendar year.
The corporate tax has to be paid also by 31 March. Quarterly or monthly advance installments are due during the year.
Distribution of dividends
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
* Non-EU / EEA foreign entities
Withholding tax is due on the following types of income when accrued to a non-resident entity:
* Dividends and liquidation quotas
* Interest, royalties, franchising and factoring fees
* Technical (including consultancy) and management services fees
* Income from the use of movable or immovable property
* Capital gains from transfer of real estate
* Capital gains from disposal of financial assets issued by resident entities or the State and municipalities (exemption for capital gains from disposal of shares on a regulated Bulgarian / EU / EEA market)
* Services fees, remuneration for the use of right and penalty or damages payments (except for insurance compensation) accrued to entities tax resident in low tax jurisdictions
Withholding tax rates
* 5% on the gross amount of dividends and liquidation quotas (0% for distributions to EU / EEA entities)
* 5% on interest and royalties accrued to related party legal entities resident in the EU (under certain conditions)
* 10% on the gross amount for all other taxable income
The withholding tax rates may be reduced under an applicable tax treaty.
Entities resident in the EU may declare tax deductible expenses and claim a corresponding refund of the withholding tax paid on a gross basis. The claim is annual and should be filed by 31 December of the following year.
The tax should be withheld by the resident payer and remitted to the budget within:
* Three months following the month of accrual of the income when the recipient is tax resident of a country which has a tax treaty in force with Bulgaria
* One month following the month of accrual in all other cases
In case of capital gains, it is their recipient which should remit the withholding tax due within the terms indicated above.
Tax treaty application
If available, double tax treaty relief may be applied by the income recipient directly if the income accrued for the calendar year does not exceed BGN 500 thousand (approximately EUR 255 thousand).
In all other cases a non-resident can benefit from tax treaty relief if an advance clearance is obtained from the Bulgarian revenue authorities under a specific procedure.
Expenses subject to one-off tax
* “Representative” expenses
* “Social” expenses provided in-kind to the employees (e.g. fringe benefits), except for food vouchers and voluntary insurance contributions (social, health and life insurance ) up to BGN 60 each per employee per month
* Expenses related to the use of vehicles for management purposes
The tax rate is 10% on the accrued expenses. Both the respective expense and the one-off tax applicable to it are deductible for corporate income tax purposes.
The amount of the annual corporate income tax due by entities on their profits from manufacturing, including toll manufacturing, may be partly or fully reduced.
The application of the tax holiday is subject to certain limitations and conditions, including the EU state aid restrictions.
Exemptions from corporate tax
Special purpose investment companies, close-ended licensed investment companies and collective investment schemes authorized for public offering in Bulgaria are not subject to corporate income tax.
Special corporate tax regimes
* Commercial maritime shipping companies
* Gambling businesses
* Some other (e.g., state organs, etc.)
Transfer pricing rules
The Bulgarian transfer pricing rules require that taxpayers apply arm’s length prices in their related party transactions. Arm’s length prices are those which unrelated parties would have agreed in similar circumstances. This requirement is imposed both to cross-border and domestic transactions.
Largely based on the 1995 OECD Guidelines, the Bulgarian transfer pricing rules envisage 5 methods for determining arm’s length prices:
* The Comparable Uncontrolled Price Method
* The Resale Minus Method
* The Cost Plus Method
* The Transactional Net Margin Method
* The Profit Split Method
A taxpayer is obliged to prove the arm’s length character of its related party transactions during a tax audit by applying one of the above methods.
The legislation does not include specific requirements as to the format and contents of transfer pricing documentation which taxpayers can produce as evidence for arm’s length pricing. However, a transfer pricing manual released by the Bulgarian revenue administration in February 2010 mentions the items that would appear appropriate to include in the documentation.
The manual contains a set of other useful guidelines relating to different transfer pricing topics. For instance, with respect to intra-group services, the manual suggest specific profit mark-up ranges that have proved customary for Bulgaria.