Part II

Developments in the Member States

The taxable result is derived from the accounting result, amended for tax purposes. Losses are carried forward for
five years. Initial investment, computers and software as well as mobile phones benefit from a special 50 %
depreciation rate. Moreover, the 50 % depreciation rate is applicable to any type of investment in new assets, if
made to promote energy efficiency. Manufacturing companies are allowed to reduce the tax due of up to 100 % if
the activities are performed entirely in municipalities with very high unemployment rate (35 % or more than the
national average). The same tax reduction applies to specialised companies and cooperatives hiring disabled
individuals. A 60 % reduction is provided to registered agricultural producers, on income generated from
unprocessed agricultural produce. However, certain conditions on the way the amount of unpaid tax should be
spent need to be met. Also, a tax incentive is provided to companies hiring registered elderly, disabled or long-term
unemployed individuals for a minimum period of 12 months.

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Dividends distributed between resident or EEA commercial companies are tax exempt, whereas those paid to nonresidents (other than EEA) in general are subject to a final 5 % withholding tax. Non-dividend income paid to nonresident companies is subject to a 10 % withholding tax. As for interest and royalties the rate was reduced to 5 %
in 2011 and will be applicable till the end of 2014.
VAT and excise duties
The VAT system has been in place in Bulgaria since 1994 and follows the one adopted by the EU Member States.
The standard rate is 20 % and the only reduced rate is 9 %. The latter applies to hotel accommodation and was
increased from 7 % in April 2011.
Excise duty rates have been increased nearly every year mainly due to bringing legislation in line with EU
regulations and reaching EU minima. In 2012 excise duties on kerosene, gasoline and natural gas (used for
transport purposes) have been increased. In June 2012 an excise rate for natural gas (for heating) when used by the
businesses will be introduced.
Wealth and transaction taxes
Gift/inheritance tax is levied at rates set by the municipalities within the limits set by the law. The rates may vary
between 0.4 % and 0.8 % (if received by relatives in the lateral line) and between 3.3 % and 6.6 % (if received by
any other beneficiary). No gift/inheritance tax is levied on property donated to/inheritance received by a spouse or
relatives in the direct line. The first BGN 250 000 ( 127 823) of the value of the inheritance is tax exempt.
A real estate tax applies at rates of 0.01 % to 0.45 % of the value of the immovable property, depending on the
municipality. A 50 % discount is granted if the property is the main residence of the taxpayer.
Social contributions
Contributions are due for the public social insurance funds, covering pension rights (17.8 %), general sickness and
maternity (3.5 %), health (8 %), and unemployment (1 %). The share paid by the employer and employee is 60:40.
The base is the gross employee's income subject to a monthly minimum and a ceiling set in the legislation. The
minimum income is updated on a yearly basis and depends on the economic sector of activity and the job position
of the employee. The monthly maximum is BGN 2 000 ( 1 023). Furthermore, the employer has to pay additional
contributions to the Labour Accident and Professional Disease Fund (0.4 %1.1 %) and to the Guaranteed
Receivables Fund (0.1 %, suspended for 2011 and 2012). The contribution base for the self-employed is
determined by the self-employed themselves, subject to a minimum monthly base ranging from BGN 420 ( 215)
to BGN 550 ( 281) depending on their 2010 income and a maximum of BGN 2 000 ( 1 023).

Taxation trends in the European Union

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