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No t e b o o k: Business
Cre at e d : 22/7/2016 17:10
T ag s: Bulgaria, Taxation
URL: http://www.nomoretax.eu/bulgaria-business-attraction-in-the-eu/
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Bulgaria is situated in South Eastern Europe and is bordered by Serbia and Macedonia to
the west, Greece and Turkey to the south, the Black Sea to the east and Romania to the
north. The capital is Sofia, Bulgarian is the official language and Cyrillic is the official script.
Bulgaria has a population of 7.4 million people and the official currency is the lev (BGN),
which is pegged to the euro at the fixed rate of EUR 1 for BGN 1,95583.
An OOD of which the capital is owned by a single natural or legal person is called a single
person limited liability company (EOOD). The legal requirements for the establishment of an
EOOD are similar to those of an OOD.
A joint stock company (AD) is a company of which the capital is divided into shares and
which is liable for its obligations and duties with its assets. Bulgarian legislation requires
insurance companies and banks to be registered as an AD. A joint stock company must
have at least three members in the board of directors, one chairman, one shareholder and
there are no restrictions with regard to their nationality. The minimum registered capital
requirement is EUR 25,560 and a joint stock company is obliged to have its financial
statements audited.
Recent developments
From a tax point of view, European residents face an ambiguous situation in the European
Union. On the one hand, the average corporate income tax rate is going down. On the other
hand, the average personal income tax rate is on the rise (or stagnates in the best-case
scenario). Hence, residents of high-tax countries (and their tax advisors) have to take into
account both the corporate and personal income tax leakage. As certain high-tax countries
are increasing taxes at the personal income tax level, optimizing at the corporate income
tax level alone isnt sufficient anymore. For example, in the case of cross-border dividend
payments originating from a Bulgarian company, non-Bulgarian resident shareholders
(natural persons) suffer a triple tax leakage: (1) Bulgarian corporate income tax, (2)
withholding tax, and (3) personal income tax, with component (3) being the most annoying
one for residents of certain high-tax countries. One of the solutions is to avoid the excessive
personal income taxes in the country of residence in combination with a tax-efficient
corporate structure. The provisions on the fundamental freedoms (free movement of
goods, free movement of workers, freedom of establishment, freedom to provide services,
free movement of capital and payments and the freedom to move and reside within the
European Union), the modern means of transportation and the acceptable distances within
Europe allow for such treaty-shopping solutions. More importantly, Bulgaria is one of the
countries which will play a key role in the coming era of relocation tax planning and
multiple Bulgarian solutions are available
A non-Bulgarian resident can (i) become professionally active in Bulgaria and (ii) receive a
(high) salary from a Bulgarian company as a compensation for these activities. This salary
constitutes a tax deductible cost for the Bulgarian company and the receiving individual pays
10% Bulgarian personal income tax on that income in Bulgaria. Bulgaria has concluded
double tax treaties with other EU member states and hence, the country of residence will
exempt this personal income derived from Bulgarian sources (because taxes were already
paid in Bulgaria). In the case of a Belgian resident for example, this means the individual
pays a 10% flat tax on his/her Bulgarian-sourced income and avoids the annoying Belgian
progressive income tax rates of up to 50% in the highest income tax bracket. In other
words, transforming taxable business income of a Bulgarian company into a deductible cost
(salary) allows a resident of a high-tax country to pay only 10% tax at the corporate and
personal tax level combined. In such a scenario, social security contributions are still to be
paid in the country of residence and other (non-Bulgarian) income derived from within the
country of residence will be taxed according to the normal rules. In most cases, this other
(non-Bulgarian) taxable income is added on top of the Bulgarian-sourced income, meaning
higher income tax rates will apply immediately if the country of residence applies a
progressive personal income tax system (like Belgium does).
Residence permit
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July 14, 2016
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