Withholding Tax in Bulgaria
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 hiring out 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);
- Service fees and remuneration for the use of rights (unless actually received); 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 31st 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; and
- 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.