Income tax in Bulgaria
Taxation Researcher | March 25, 2020
Residents are liable to pay tax on their worldwide income. Joint taxation is not allowed and married couples are taxed separately.
There are six types of income depending on the source: (1) income from employment; (2) income from sole proprietors; (3) income from business and other professional activities (including agriculture, forestry and fishery, as well as other activities under non-employment relationships); (4) capital gains on movable and immovable property; (5) income from rents or any other vesting of rights or property for consideration; and (6) other income.
Income and capital gains from all sources, excluding income of sole proprietors, is taxed at a flat rate of 10%.
There are no general allowances or child allowances.
Resident individuals are entitled to the following tax allowances:
- Voluntary contributions for pension and unemployment insurance, up to 10% of annual tax base
- Voluntary health and life insurance contributions, up to 10% of annual tax base
- Donations to certain qualified beneficiary organizations
- Interest on mortgages, under certain conditions
Resident´s rental income is taxed at the standard 10% income tax rate. When computing for taxable income, a fixed deduction of 10% of the gross rent is allowed for income-generating expenses.
Capital gains are taxed at the standard 10% income tax rate. The taxable capital gains is computed by deducting the inflation-adjusted acquisition price or the taxable value of the property for the purpose of real estate tax, whichever is higher, and incidental expenses (maximum of 10% of the selling price or fair market value of the property).
The following capital gains are exempt from taxation:
- Disposal of one residential property, provided that the property was held for more than three years before it was sold
- Disposal of a maximum of two real estate properties, provided that the property was held for more than five years before it was sold
Capital gains derived from the sale of properties acquired by inheritance are not subject to tax. Capital gains derived from the sale of properties received as gifts are taxed on the gross receipts because the acquisition price of the donation is deemed to be zero.
VALUE ADDED TAX (VAT)
Land transactions and leasing residential properties are exempted from VAT.
Real Estate Tax
Owners are liable to pay real estate tax on their Bulgarian property. The tax base is the assessed value of the property as calculated by the local tax authorities. The tax rates are set by the municipalities where the property is located and may vary between 0.1% and 0.45%.
A 50% discount is granted if the property is the main residence of the taxpayer.
Income and capital gains by corporations are taxed at a flat rate of 10%. Income-generating expenses are deductible in computing taxable income. Corporate income tax must be remitted on or before 31 March of the succeeding year.