Bulgaria uses tax incentives aiming to promote economic growth, attract foreign investment, and increase competitiveness. With one of the EU’s most attractive corporation tax rates, it stimulates company development. These incentives are oriented at high-tech industries, research, and small and medium-sized businesses, promoting innovation and technical progress. This article analyses Bulgaria’s tax exemptions policy and how they potentially strengthen its economic climate.

Corporate Tax Incentive in Bulgaria

In specific situations, tax incentives allow for lower corporate income tax to a certain amount for agricultural operations, offering extra deductions for employing long-term unemployed, disabled, or elderly individuals, and potentially allowing a full refund of the corporate income tax for investments in regions with high unemployment.

Individual Tax Incentive in Bulgaria

• Personal Deductions

Bulgaria offers a wide range of tax deductions that address various financial and personal conditions. These include deductions for approved charitable donations, where the total donated amount must not exceed 65% of an individual’s yearly taxable income. Furthermore, full deductions can be claimed for mandatory social security contributions made within Bulgaria or other EU/EEA nations, as long as necessary documentation is provided.

In addition, voluntary contributions directed towards pension and unemployment funds, as well as specific health and life insurance payments, are eligible for deductions, but there are restrictions that apply. Married couples, including those from other EU/EEA states, who are young, can deduct mortgage interest expenses on loans up to the first BGN 100,000.

Tax deductions for children significantly reduce the yearly tax bill for parents or guardians, and the amount of deduction increases as the number of children grows. Furthermore, there are special advantages for children with disabilities that provide even more tax relief. These advantages can be used in advance during particular months of the year, minimising the monthly taxable amount. However, procedures are in place to prevent separate parties from making repeated claims for the same kid, and any benefits that are mistakenly claimed must be refunded.

• Tax Relief for Individuals Who Use Non-Cash Methods for Payment of Their Expenses

Individuals in Bulgaria who make payments using non-cash payment methods may be eligible for tax reduction under certain conditions. To qualify, people must obtain all taxable income via bank transfers throughout the tax year and spend at least 80% of their money in non-cash methods. Furthermore, there should be no unpaid public liabilities while completing the yearly tax return. The tax relief offered is equivalent to 1% of the entire tax due for the year, with a maximum limit of BGN 500. This relief, like other tax deductions, is conditional on the individual having no unpaid public obligations at the time of submitting their tax return.

• Tax Relief for Improvements and/or Repairs of Real Estate Property in Bulgaria

Bulgaria offers tax exemption to local and EU/EEA residents for real estate upgrade or renovation, reducing the yearly tax base to BGN 2,000, subject to certain application requirements.

Business Deductions

In Bulgaria, individuals with income from various professions and activities, are allowed to deduct allowed pre-estimated statutory expenses from their taxable income. Freelancers, civil contractors, notary officers, physicians, dentists, and other private practitioners can choose to deduct 25% of their gross income, although they might be required to register for VAT if their income exceed certain thresholds.

Furthermore, royalties, rental income, and income from agricultural activities, including tobacco production, qualify for statutory deductions at rates of 40%, 10%, and 60%, respectively.

Foreign Tax Relief

Bulgaria provides Double Taxation Treaties to prevent the double taxation of income earned abroad. In the absence of a treaty, Bulgarian tax residents can still get unilateral tax credits for the taxes paid on income from other countries. The unilateral credit is calculated individually for each source country following a ‘per-country limitation’ policy.

Thinking about investing in or relocating to Bulgaria? 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 Bulgaria. Please feel free to contact us.