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Corporate Income Tax Act
Promulgated, State Gazette No. 105/22.12.2006, effective 1.01.2007

   The Act regulates taxation of the profits and income accruing from all sources inside and outside the Republic of Bulgaria stemmed from any legal persons incorporated under Bulgarian Law and any companies or partnerships, where the registered office is situated in the country and they are entered into a Bulgarian register; from the profits of resident legal persons which are not merchants, including the organizations of the religious denominations, as well as from letting movable and immovable property. Any non-resident legal persons are also liable to taxes under this Act in respect of the profits realized through a permanent establishment in the Republic of Bulgaria and of the income as specified in this Act accruing from a source inside the Republic of Bulgaria. Unincorporated associations and contribution payment centres are treated as equivalent to legal persons as well.

   The types of taxes covered by the Act are a corporation tax on the profits, a tax on the income of any resident and non-resident legal persons, and a tax alternative to corporation tax. The taxes due shall be credited to an account of the National Revenue Agency territorial directorate exercising competence over the place of registration of the taxable persons or over the place where the taxable persons are registrable.Taxation of company expenses includes entertainment expenses, in-kind fringe benefits, and maintenance, repair and exploitation of vehicles for management activities, all at a rate of 10%. Property tax on immovables applies to individuals at a rate of 0.15% on the tax value of the property and to legal entities at a rate of 0.15% on the book value of the property.

   A foreign individual who decides to invest in property in Bulgaria has two options. First, he can invest in property which he purchases as an individual only if, for example, an apartment or a house is bought without the land. However, the foreign individual can purchase the land via a Bulgarian registered company. Second, he can incorporate a company in Bulgaria and the entity owns the property. In other words, all rental income from the property located in Bulgaria will be considered trading income of the company and will be taxed with corporation tax of 10% after deduction of all expenses related to the property. This can substantially decrease the taxable profit. If the property is owned by the foreign individual, the rental income will be taxed in his own country as a personal income. The capital gains from the sale of the property in Bulgaria are included in the corporate income and taxed at the corporation tax rate of 10% only (after deducting the acquisition cost of the property). As a comparison, if the individual owns the property he will be liable to capital gains tax in his own country. The capital gains tax in most of the European countries varies between 25-50%.

   Profit repatriation is easier and more beneficial when distributed as a company dividend. Dividends may be distributed by local entities to Bulgarian resident companies, by local entities to EU resident companies, and by Bulgarian resident individuals and foreign shareholders. The maximum tax payable on profit distribution to the foreign shareholders of Bulgarian companies is 7%. In a situation where an agreement for avoidance of double taxation between Bulgaria and the country of residence of the recipient exists, the rate may also be reduced as per the applicable provisions. The use of Bulgarian companies as investment vehicles may have additional tax benefits for the investors which, however, depend on their personal circumstances. Tax deductions under the Act may be obtained due to tax depreciation, operation expenses, payroll costs, interest on loans subject to the thin capitalization rules, losses under particular circumstances, and others.

Here You can download the whole version of the Corporate Income Tax Act by clicking the links. The file is in RTF (rich text) format.

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Corporate Income Tax Act

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