Bulgaria’s personal income tax system is known for its simplicity and convenience, based on a flat taxation policy applied to different income sources. Bulgarian Tax Authority, known as National Revenue Agency ensures to provide tax transparency and accountability for the taxpayers. This article offers a comprehensive overview of personal tax in Bulgaria.
Personal Income Tax Rates
Bulgaria has a standard flat tax rate of 10%, which is applied to all types of income. The tax is regulated by the means of the Personal Income Tax Act (PITA). According to the Act, individuals pay personal income tax on their gross income minus any mandatory social security contributions they make at their own expense.
The tax is imposed to both residents and non-residents. You can read more on the residence criteria in Bulgaria here. While residents are taxed on their worldwide income, non-residents are taxed only on the income earned from Bulgarian sources.
Types of Income Taxable
In Bulgaria, the Personal Income Tax Act specifies the taxation of various types of income, each taxed on their gross income less any mandatory social security contributions they make at their own expense. Main types of income include:
- Income from Employment
- Income from Business Activities.
- Income from Rent or Other Remunerative Provision for the Use of Rights or Property
- Income from the Transfer of Rights or Property
Tax Deductions
Individual taxpayers can benefit from various deductions and allowances to reduce their personal income tax base. Among the deduction policies, we can notably mention the possibility of individuals to deduct the interest paid on mortgage loans for the first BGN 100,000 of the loan, following certain conditions. As well, another deduction is applied for children or disabled children where parents can benefit from a reduction of the total annual tax base in the following categories: (i) BGN 6,000 in case of one child; (ii) BGN 12,000 in case of two children, and (iii) BGN 18,000 in case of three and more children. In addition, tax incentives in the amount of BGN 12,000 per a disabled child are available under certain specific conditions.
Another deduction policy includes reduction for the payments made during the year for work done for the improvements and/or repair of a real estate up to BGN 2,000.
For the income deriving from business activities, the rules provision a 60% deduction on farmers’ income who produce unprocessed agricultural products. A 40% deduction applies to income form agricultural products, forestry, hunting, fishing products, etc.
Finally, a 25% deduction is applied to income from practicing a free profession, except for those related to law.
Foreign Tax Relief
If a Double Tax Treaty (DTT) is in place between Bulgaria and another country, the taxpayers are eligible for a tax credit for taxes paid on income earned outside their respective territories. The amount of this tax credit is limited to the amount of tax that would be due if the same income were earned within the respective entity.
It is important to understand the specifics of the country’s taxation policy and become familiar with Bulgaria’s tax system to ensure a smooth tax experience. Our firm specializes in international taxation, and our team is ready to assist with any related matters. If needed, we can connect you with top professionals to support your business activities in Bosnia and Herzegovina. Please feel free to contact us.
