Taxation (Corporate, Personal and Indirect)
Core Concepts
Bulgarian tax system includes corporate income tax (CIT), personal income tax (PIT), value added tax (VAT), and withholding taxes. Key points:
- CIT: 10% flat rate; tax base adjusted for tax-exempt income, non-deductible expenses, and tax incentives.
- PIT: 10% flat rate; taxable income includes employment, business, investment, and other income; deductions for social security contributions.
- VAT: standard rate 20%; reduced rates for certain goods (e.g., 9% for hotel accommodation). Registration threshold BGN 100,000 turnover.
- Withholding tax: 10% on dividends, interest, royalties to non-residents (unless treaty relief).
- Tax procedures: filing deadlines, advance payments, penalties.
Common Traps
- Tax depreciation rates may differ from accounting depreciation.
- VAT is not a cost for VAT-registered businesses; it's a cash flow item.
- Dividends distributed to individuals are subject to 5% withholding tax (final tax).
- Tax incentives (e.g., for manufacturing) require meeting specific conditions.
- Transfer pricing rules apply to related-party transactions.
Worked Example
A company has accounting profit of BGN 200,000. Non-deductible expenses: BGN 20,000. Tax-exempt income: BGN 10,000. Taxable profit = 200,000 + 20,000 - 10,000 = BGN 210,000. CIT at 10% = BGN 21,000. Rule of thumb: Always adjust accounting profit for permanent differences (non-deductible/tax-exempt items) and temporary differences (deferred tax).