For defining the place of taxation the Bulgarian legislation distinguishes two main types of people-residents and foreigners. The main difference lays in the fact that in Bulgaria only the income of foreigners earned in the country (according to the regulations of the tax source) and the income of the residents from the entire world (income earned in the country or abroad) are taxed, that means that if an income of the foreigner originates from the country, he will be subject to taxation in the country and also in the state, in which he is legitimated as a resident. In order for the taxation to be optimized and a double taxation to be avoided, states sign conventions concerning the avoidance of double taxation. One of the main aspects of these conventions is the definition of the place where people are obliged for taxation of their income.

In this article the requirements and the procedure for legitimation of a person as a resident are described according to the Income-Tax Act, which is applicable for people, and the Corporate-Tax Act, which concerns companies.

I. Income-Tax Act

According to Article 4 of the Income-Tax Act a resident is considered someone who ,irrespective of citizenship :

• Has his/her permanent residence in Bulgaria
• Has stayed in Bulgaria for at least 183 days within a 12-month time period
• His/her life-focus is located in Bulgaria
• Has been sent by the Bulgarian state or its organs abroad, as well as member of his family..

The most important requirement is the permanent residence of the person. For the purposes of the Income-Tax Act such a residence is the address in a place in the sovereign territory of the Republic of Bulgaria, on which the citizen has registered in the Resident Registry. This address is registered in every ID document (ID card, passport, residence permit for citizens of European member states, etc.). The complete list of the documents is stated in the Articles 13 and 14 of the Bulgarian Act regarding the ID documents.

In case a person does not have a permanent residence address in Bulgaria, the second requirement is clarified concerning the the centre of vital interests. There is no specific definition of the term "center of vital interests" in the Act. It relates to the family, the property, the place from which the person carries out his employment, profession or business, or the place from which he manages his property. If the person has his centre of vital interests in both countries, the criterion of 'habitual residence' is examined.

An inland person, regardless of the citizenship, is a person who has stayed in Bulgaria for at least 183 days within a time period of 12 months including the entry and departure days. It is important to have in mind that a stay for educational purposes or for medical treatment is not taken into account when the stay in Bulgaria is calculated (Art.3 par. 4 of the Income-Tax Act). In the act specific certification of the duration of the stay is not established. For this purpose statements of the person or all documents, on which the competent authorities in the country have recorded the entry and departure data, can serve as a proof. Practically during the procedure for issuing the certificate for tax residents for specific time periods officials in the National Revenue Agency often require the plane tickets and the boarding cards for the entry and departure in Bulgaria as an additional proof for the stay of the applicant. It is of particular importance whether the certificate for tax residents for a person from an EU member state was issued before a time period longer than 183 days. It is possible that additional evidence is required concerning property right for real estate, rent contracts, respectively such evidence concerning internet-, television- contracts, with or without wireless providers. If the person habitually resides in both countries, his or her citizenship is considered. If he is a citizen of both countries, they must come to a mutual agreement.

These four requirements are taken into account by these conventions for avoidance of the double taxation, which are based on the model for organization for the economic cooperation and development. They do not apply for conventions in this scope of application, which are excluded from this model. Such are the conventions which Bulgaria has signed with France, Italy, Spain, Great Britain and Malta. The main requirement for these conventions is the citizenship.

II. Corporate-Tax Act

According to Art.3 of this act the following companies are considered to be tax residents:

• The ones which are considered companies according to the Bulgarian legislation
• Companies and cooperatives which are established according to the Regulations of the Council of the European Union, whose address is located in Bulgaria and have registered in the Bulgarian register.

Such a register is the Bulstat-register. This is the main register, which serves for the uniform identification of all companies and other objects which practice economic activities in the country.

III. Procedure for attainment of the certificate for tax residents

From the 15th of August 2016 essential changes in the procedure for attainment of the certificate for tax residents are put into force. Before the changes certificates were issued exclusively by the Central Office in the National Revenue agency. From August last year this will be carried out by the competent territorial office of the Agency according to the registered address of the applicant.

For the purpose of conventions for avoidance of the double taxation an application has to be sent to the competent territorial office of the Agency in order for anyone to obtain the certificate for tax residents. In addition to the changes in the procedure from August 2016 the required documents have also been changed. Currently the application consists of two parts:

• General data for the specific person
• Statement concerning the time period of the stay abroad as well as a questionnaire, which concerns property for real estate in Bulgaria or abroad, main residence in Bulgaria or abroad, carried out activity in Bulgaria/abroad etc. Before the changes these two extracts were separated into two applications.

It is important to specify in the request for which country and for which year it is issued, as separate Resident Certificate Requests are completed for different years and/or countries.

A Certificate of Residency may be requested for the current year (it is recommended that this occurs in the second half of the year) or for a previous year. If necessary, the NRA may also certify a foreign form to another country.

The documents can be submitted personally, by post, or by an authorized person, in which case a copy of the notary-certified power of attorney must be attached to the documents.

The time period for issuing such a certificate is as follows:

• When the documents are submitted in the local competent office of the National Revenue Agency- 7 days
• When the documents are submitted in an office, which is not the competent one- 14 days.

In the process of examining the documents the Agency retains the right to require additional information-respectively to require documents in order to establish the residence. In case the certificate is not issued by the Agency within the established time period, this means that such a certificate will not be issued and the applicant has been given a tacit rejection. The certificate for tax residents is issued for every calendar year and it is valid only for this year.

The verification shall be completed by issuing:

• A certificate of residence within the meaning of the Convention
• Certificate of resident within the meaning of the FATL
• Refusal to issue a resident certificate

With each passing year, the NRA increases its control over the issuance of certificates of residence.  An example from our practice of the last few years is the refusal to issue a certificate of resident within the meaning of the DTT to a person who was not insured on the territory of Bulgaria but paid social security contributions in another Member State. The person fulfils all the conditions for a resident under the Convention (citizenship, permanent address in Bulgaria, residence and centre of vital interests), but the NRA only issues a certificate of residence under local law.

In addition to the standard evidence for the issuance of a certificate of residence, the NRA is increasingly requesting official de-registration certificates from foreign municipalities, as well as official certificates for crossing the border crossing points of the Republic of Bulgaria from the Migration Directorate of the Ministry of Interior. In certain more complex cases, even counter-checks of the persons' landlords are required.