Income Tax in Bulgaria: Useful Information and Tax Laws (2025)

Bulgaria is among the most tempting countries to start a business in because of the favorable business conditions, the modern ways to make business including the options for opening virtual offices and renting serviced office in Sofia, and of course thanks to the competent young professionals, including accountants, lawyers, property managers, etc.

Foreign investors who wish to start a business in the Bulgarian capital, Sofia, should know that currently both the flat income tax rate for individuals and the standard corporate tax is 10%. Important taxes in Bulgaria include corporate income tax, personal income tax, and value added tax (VAT).

All individuals in Bulgaria are subject to tax on their income as employees or self-employed persons. When a foreign individual is a permanent resident of the country, tax is calculated on both Bulgarian and worldwide income. If a foreign resident is employed in the country, tax is set only on the income earned in Bulgaria. This income tax and the national insurance are deducted monthly by employers from employees’ salaries. Health insurance contributions are part of the mandatory social security contributions.

In addition to the 10% corporate tax, companies engaged in certain industries, such as insurance or gambling, may be subject to special tax rates. The flat 10% tax rate applies to most types of income, including rental and business income.

Company Formation in Bulgaria

The process of starting a business in Bulgaria is straightforward and efficient. Opening a bank account is a key step in company formation and can often be done remotely, facilitating foreign investment.

Companies in Bulgaria can be established in several legal forms, including:

• OOD – A limited liability company with at least one shareholder (individual or company). The director must be appointed. Minimum capital is 5,000 BGN. Liability is limited to the amount of capital.
• EOOD – A single-shareholder limited liability company owned by one individual (can be a foreign resident), who is also the director.
• AD – A joint-stock company with a minimum capital of 50,000 BGN. At least one-fourth must be paid before registration. Managed by a board of directors.
• EAD – A single-shareholder joint-stock company. The owner must submit an annual balance sheet to the tax authorities.

All companies are legal entities under Bulgarian law and subject to specific tax regulations. The type of company determines its registration requirements and tax obligations.

Taxation Information for Investors in Bulgaria

For investors planning to set up a virtual office, use one-day office services, or rent a long-term office in Sofia or elsewhere in Bulgaria, understanding the local tax system is essential.

Capital Gains Tax

Capital gains tax is applicable when individuals sell assets such as real estate or vehicles. This tax is calculated on the difference between the sale price and the market value. Real estate, categorized as immovable property, falls under this rule.

For companies, capital gains are included in regular corporate income and taxed accordingly. However, under Bulgarian law, some income types — such as certain capital gains or inheritance — may be exempt from taxation.

Fiscal Year and Tax Filing Deadlines

• The tax year in Bulgaria ends on December 31.
• Limited companies must submit their annual report by March 31 of the following year.
• Individuals must file their annual tax report by mid-April.

Companies with profits from the previous year are required to make twelve monthly advance payments in the following year. Newly established companies must make four advance payments, one per quarter.

Some types of income are subject to final taxation at the end of the fiscal year.

Employer Responsibilities and Social Security Contributions

If you plan to set up a company and hire employees in Bulgaria, note that the employer is responsible for withholding tax at source from employee salaries. This includes contributions to social security.

• Employer social security rate: approx. 21.4%
• Employee social security rate: approx. 13%

Withholding Taxes on Other Income

Taxes are also withheld at source in the following cases:

• Dividends: 5% withholding tax
• Interest and royalties: 10% withholding tax

These taxes are typically deducted before distribution to the recipient. In cases involving foreign residents, withholding taxes are subject to the applicable Double Taxation Prevention Treaty.

Double Tax Treaties

Bulgaria has agreements in place to avoid double taxation on cross-border income such as dividends, capital gains, and royalties. These treaties provide relief and are especially beneficial for international businesses operating in Bulgaria.

Understanding and leveraging these agreements can help businesses reduce tax liabilities and ensure compliance with both domestic and international tax obligations.

Introduction to Bulgarian Taxes

Bulgaria stands out for its simple and competitive tax system, which is a major draw for both businesses and individuals. The country applies a flat corporate income tax rate of 10% on company profits, making it one of the lowest in the European Union.

Similarly, the personal income tax rate is set at a flat 10%, ensuring predictability and ease of compliance for both Bulgarian tax residents and foreign entities. This flat-rate system simplifies tax planning and reduces administrative burdens.

Key elements of the Bulgarian tax system include:

• Corporate Income Tax
• Withholding Tax on certain payments to non-residents
• Personal Income Tax on individual earnings

Understanding these core taxes is essential for anyone looking to operate or invest in Bulgaria, as they form the foundation of the country’s favorable tax environment and are central to meeting all legal obligations related to Bulgarian taxes.

Overview of Tax in Bulgaria

The tax system in Bulgaria is divided into direct and indirect taxes, each playing a significant role in the country’s fiscal landscape.

Direct Taxes

These are levied directly on income and profits, and include:

• Corporate Income Tax
• Personal Income Tax
• Withholding Tax

Indirect Taxes

These are applied to goods, services, and property, and include:

• Value Added Tax (VAT)
• Local Property and Inheritance Taxes

Bulgarian tax residents are taxed on their worldwide income, while non-residents are taxed only on Bulgarian-source income.

Tax Year and Filing

The tax year aligns with the calendar year. Both individuals and companies must submit their tax returns by April 30th of the following year.

Double Tax Treaties

To avoid double taxation, Bulgaria has signed numerous treaties with other countries. These agreements provide tax relief for foreign individuals and entities to ensure income is not taxed in both jurisdictions.

This comprehensive approach makes the Bulgarian tax system efficient, transparent, and internationally aligned.

Business Structures in Bulgaria

Entrepreneurs in Bulgaria can choose from several business structures, each with distinct legal and tax implications. The right structure is essential for ensuring compliance and optimizing tax efficiency.

Common Business Structures

• Limited Liability Company (OOD) – Offers flexibility and limited liability protection for shareholders. Ideal for small to medium-sized businesses.
• Joint-Stock Company (AD) – Suitable for larger enterprises, especially those seeking to raise capital through public or private investment.
• Sole Proprietorship – Designed for individual entrepreneurs starting small-scale operations, with simpler registration and tax processes.

Legal and Tax Considerations

The choice of business structure directly affects how corporate income tax, withholding tax, and other obligations are applied. Each entity type has different responsibilities and advantages in terms of liability and taxation.

Registration Requirements

All Bulgarian businesses must:

• Register with the Commercial Register
• Obtain a Tax Identification Number (TIN)

These steps are mandatory to operate legally and fulfill tax obligations within Bulgaria.

Choosing the correct legal form not only impacts liability and management structure but also plays a crucial role in the tax efficiency of the business.

Corporate Taxation

Corporate taxation in Bulgaria is designed to be straightforward and business-friendly. All companies are subject to a flat corporate tax rate of 10% on their taxable income, which includes profits from their core business activities.

To ensure timely collection, companies are required to make advance payments of corporate tax throughout the year. The final corporate tax return is due by March 31st of the following year.

Withholding tax is imposed on certain types of income, such as dividends and royalties paid to non-resident entities. However, Bulgaria’s extensive network of double tax treaties may reduce or eliminate these taxes for eligible foreign recipients.

Understanding the rules regarding corporate taxation—including royalty payments and advance tax obligations—is essential for businesses to remain compliant and optimize their tax position in Bulgaria.

Personal Income Tax

Personal income tax in Bulgaria is simple and predictable. A flat tax rate of 10% applies to all taxable income, including:

• Employment income
• Business profits
• Capital gains
• Rental income

Tax residents are taxed on their worldwide income, while non-residents are only taxed on Bulgarian-source income.

Social security contributions are deducted before tax is calculated, meaning only net income is taxed. The tax applies uniformly with few deductions or exemptions available.

Individuals must submit their annual tax return by April 30th of the following year. Advance payments may be required for income types such as rental income.

This flat-rate system ensures straightforward tax compliance for both residents and non-residents earning income in Bulgaria.