Corporate income tax in Bulgaria is applied to the taxable profits of both domestic and foreign legal entities operating within Bulgaria. For legal entities not registered in Bulgaria or without a physical presence in the country, tax is levied solely on income generated from Bulgarian sources.

Residency for Tax Purposes

A corporation is considered a tax resident of Bulgaria if it is legally established within the country. Regarding Permanent Establishments of foreign entities, such as branches, are treated as distinct entities, similar to Bulgarian residents, for taxation and accounting purposes.

Corporate Tax Scope of Application

Corporation taxes in Bulgaria are applied to:

• Profits generated by legal entities residing in the country;
• Profits generated by resident legal entities that are not engaged in commerce, including religious organizations, from various transactions outlined in Article 1 of the Commerce Act, as well as from renting out movable and immovable property;
• Profits earned by non-resident legal entities through a permanent establishment within Bulgaria;
• Profits generated from games of chance activities.

Taxable Subjects

As per general rule, the following categories are subjected to the Corporate Tax:

• Resident legal entities – commercial corporations;
• Resident legal entities that are not engaged in commerce;
• Resident unincorporated associations and social insurance funds;
• Non-resident legal entities conducting business activities within Bulgaria through a permanent establishment;
• Non-resident unincorporated associations conducting business activities within Bulgaria through a permanent establishment.

Tax Rate and Tax Period

As outlined by the Bulgarian authority, the rate for corporation tax is set at 10%. The corporate tax is calculated based on the tax profit, which serves as the tax base.

Meanwhile, the corporation tax assessment is based on the calendar year. For newly incorporated taxable entities, the tax period starts from their incorporation date and extends until the end of the year.

Reductions, Retentions, and Exemptions from Corporation Tax

Tax Exemption Policies – Subjects than can benefit from corporate tax exemption include collective investment schemes, national investment funds, and special purpose investment companies alongside to higher education institutions, the Bulgarian Academy of Science, the Agricultural Academy. In addition, the Bulgarian Red Cross, and game organizers subjected to stamp duty under the Gambling Act, are exempt from corporation tax.

On the other hand, Bulgaria implements tax incentives when hiring unemployed individuals, awarding scholarships, and employing people with disabilities.

Tax Retention Policies – As per the law, in Bulgaria social and health insurance funds can retain 50% of corporation tax. Taxable entities engaged solely in manufacturing activities in municipalities with unemployment rates 25% higher than the national average may retain up to 100% of corporation tax;

Additionally, agricultural producers registered as taxable entities may retain up to 60% of corporation tax upon receipt of the final identification number of aid from the state aid register of the European Commission.

It is important for corporations, to be aware of the legal and financial procedures of taxes. Our firm can provide support when seeking professional tax consultancy services. Contact us, and we will be able to guide in the subject matter.