A Practical Guide to Corporate Income Tax in Bulgaria

Bulgaria is known for having one of the most favourable corporate tax regimes in the European Union. The headline rate is a flat 10% on taxable profit, with no surcharges or progressive bands. This guide explains the key rules that companies operating in Bulgaria need to know.

Who is liable for corporate income tax?

All companies registered in Bulgaria are considered tax residents and must pay corporate income tax on their worldwide profits. This includes all types of commercial entities, such as limited liability companies (OOD), joint-stock companies (AD), and branches of foreign companies. Non-resident companies are taxed only on income earned from Bulgarian sources, such as profits from a permanent establishment, dividends from Bulgarian companies, or certain service fees.

What counts as taxable income?

Taxable income is generally the accounting profit adjusted for tax purposes. You start with the profit shown in the annual financial statements, then add back non-deductible expenses and subtract tax-exempt income. Common adjustments include:

• Entertainment and social expenses, which are only partially deductible
• Penalties and fines, which are not deductible
• Dividends received from Bulgarian or EU subsidiaries, which are often exempt
• Depreciation calculated under tax rules, which may differ from accounting depreciation

Allowable deductions

Businesses can deduct all expenses that are related to their activity and are documented. This includes salaries and social security contributions, rent, utilities, marketing costs, and interest on business loans. There are special rules for certain items, such as a limit on deductible interest for thin capitalisation and restrictions on company cars with high emissions.

Tax rate and payment

The corporate income tax rate is 10%. Companies must make monthly or quarterly advance payments based on their expected annual profit. The final annual tax return is due by 31 March of the following year, and any remaining tax must be paid by that date. Late payments incur interest.

Tax incentives and relief

Bulgaria offers several incentives to encourage investment, particularly in regions with high unemployment. These include a reduction of up to 100% of corporate tax for investments in certain municipalities, a 10% tax credit for investments in new machinery, and a special regime for companies that hire unemployed people. Additionally, profits from agricultural activities may benefit from a reduced rate in some cases.

Double taxation treaties

Bulgaria has signed double taxation treaties with over 70 countries, which prevent income from being taxed twice. These treaties usually reduce or eliminate withholding taxes on dividends, interest, and royalties paid to foreign companies. To benefit from a treaty, the foreign company must provide a certificate of tax residence.

Reporting and compliance

Companies must keep proper accounting records in accordance with Bulgarian accounting standards or IFRS. The annual corporate tax return is filed electronically together with the annual financial statements. The National Revenue Agency may audit returns within five years, so keeping supporting documents is essential.

Understanding corporate income tax is crucial for anyone doing business in Bulgaria. While the rate is low, compliance requires attention to detail, and many businesses choose to work with a local accountant or tax advisor.