Bulgaria is not only known for its low cost of living and beautiful nature – the tax system in Bulgaria is also considered one of the most attractive in the European Union. Whether you are a private individual or entrepreneur: if you generate income in Bulgaria, you should be familiar with the main types of taxes, their rates, and their specific rules. In this article, we provide a structured overview of Bulgarian taxes.
What Types of Taxes Exist in Bulgaria?
In general, the Bulgarian tax system distinguishes between direct and indirect taxes. The most important types of taxes include:
- Value Added Tax (VAT)
- Personal Income Tax (for individuals)
- Corporate Income Tax (for legal entities)
- Withholding Tax (on dividends)
- Inheritance Tax
In addition, there are other levies such as municipal tax, vehicle tax, property tax, and customs duties, which we may cover in a separate article.
Value Added Tax in Bulgaria (VAT)
Value Added Tax is comparable to the VAT systems of other EU countries. It applies to the sale of goods and services.
Rates and Thresholds
- Standard VAT rate: 20%
- Reduced VAT rate: 9% – applies to hotel stays, books, baby food, restaurant visits, and food delivery
- Small Business Threshold: Companies with an annual turnover of more than 100,000 BGN (approx. 51,000 EUR) must register for VAT. In the past, this threshold was temporarily increased.
VAT Deduction and Refund
Companies entitled to deduct VAT can offset the VAT they paid with the VAT they collected. If there is an overpayment, a VAT refund can even be requested.
Personal Income Tax in Bulgaria
Personal income tax in Bulgaria applies to individuals – employees and freelancers. It is simple and highly attractive.
Flat Tax vs. Progressive Model
A flat tax rate of 10% applies in Bulgaria – regardless of income level. Whether someone earns 1,000 BGN or 1,000,000 BGN: the tax rate remains 10%. This stands in stark contrast to the progressive tax system in Germany.
Benefits for the Self-Employed
Some self-employed individuals benefit from even lower contribution rates – sometimes as low as 6% to 7.5%. However, special rules apply here, which we will explain in a separate blog post.
Corporate Tax in Bulgaria
Corporate income tax applies to legal entities such as limited liability companies (EOOD, OOD) and joint stock companies (AD) in Bulgaria.
Tax rate: 10% on profits
This makes Bulgaria one of the countries with the lowest corporate tax rates in the EU.
Example Calculation – Corporate Tax:
A company with:
- 300,000 EUR in revenue
- 200,000 EUR in expenses
- = 100,000 EUR profit
would pay only 10,000 EUR in corporate tax and retain 90,000 EUR in the company.
Withholding Tax on Dividends
If a company distributes its profit to shareholders, a withholding tax on these dividends applies.
Tax rate: 5%
Example Calculation – Withholding Tax:
From the 90,000 EUR profit in the above example, 4,500 EUR would go to the tax office. Shareholders would receive a net amount of 85,500 EUR.
Low Total Tax Burden
The combination of a 10% corporate tax and a 5% withholding tax results in a total tax burden of just 15% – a significant advantage compared to countries like Germany, where capital gains alone are taxed at 25%, and the total burden can approach 50%.
Inheritance Tax in Bulgaria
An especially interesting aspect is the inheritance tax – or rather, its near absence.
Who Pays Inheritance Tax and Who Doesn’t?
- Spouses, parents, and children: pay no inheritance tax, even on multi-million estates
- Siblings, nieces, and nephews: pay small rates between 0.4% and 0.8%, depending on the municipality – but only on inheritances above 250,000 BGN.
- Distant relatives or third parties: pay between 3.3% and 6.6% – again, only on amounts exceeding 250,000 BGN.
The tax is levied by municipalities, which can lead to regional differences.
Bulgarian Taxes Are Simple and Attractive
The Bulgarian tax system is particularly attractive for entrepreneurs, digital nomads, and expats. The combination of low flat rates and a simple structure makes Bulgaria one of the most tax-friendly countries in the EU.
If you want to start a business or settle in Bulgaria as a private individual, you’ll benefit from:
- Flat tax of 10% for personal income
- 10% corporate tax for businesses
- 5% withholding tax on dividends
- No inheritance tax for immediate family
Next Steps
Want to learn more about starting a business, taxes, and life in Bulgaria? Then subscribe to our newsletter or get our e-book “Start in Bulgaria” to find out how to start your own business in Bulgaria.
