More and more foreign employers are turning their attention to Bulgaria in their search for workers, which is reflected in the increasing outsourcing of services and IT services.

First of all, it should be determined whether the foreign company employs only a person who lives on the territory of Bulgaria and works remotely (e.g. from home), or whether the company will have a separate location - be it an office, workshop or other, meetings with potential and actual customers will be realised, i.e. whether it will realise additional income and expenses, etc. In the first place, the employer employs only the labour of a person residing on the territory of Bulgaria, i.e. the appointed person performs only auxiliary activities. With this option, the foreign employer can register as an insurer with the National Tax Administration by issuing an official number. Thus, each employment contract is registered in the system of the tax authority, changes in the labour process are formed and the required declarations are submitted monthly in the role of an employer.

In the second case, the foreign employer actually expands its activity and carries it out in our country, for which it should necessarily have its own subsidiary or branch in the country.

The lawful development of these cross-border employment relationships requires an answer to the question about which law would be applicable in these cases, which governs not only the amount of remuneration and the terms of payment, but also the payment of social security contributions and registration of the foreign employer in Bulgaria.

I. Applicable law

- Regulation (EC) No 883/2004 on the coordination of social security systems, hereinafter referred to as ‘the Regulation’.

- Regulation (EC) No 987/2009 of the European Parliament and of the Council of 16 September 2009 laying down the procedure for implementing Regulation (EC) No 883/2004 on the coordination of social security systems

The ‘determination of the applicable law’ is one of the basic principles laid down in the coordination regulations. According to this principle, persons to whom the regulations apply are subject to the legislation of a single Member State. The regulations apply directly and take precedence in the event of a conflict with the national law of the Member States.

Bulgarian social security legislation shall be applied in its entirety with all the obligations arising therefrom, as the data shall be transmitted in the manner and procedure set out in Ordinance No. N-13 of 17 December 2019 on the content, conditions, manner and procedure for the transmission and storage of data by employers, insurers for the persons insured with them and by self-insured persons (Ordinance No. 13).

The above also complies with Bulgarian legislation if the company is an insurer within the meaning of Art. 1 of the Social Insurance Code or the insurer within the meaning of § 1, item 15 of the additional provisions of the Health Insurance Act (HIA).

II. Registration at the National Revenue Agency (NRA)

According to the provisions of the Bulgarian Social Security Procedure Code, every employer is obliged to calculate and pay social security contributions in favor of his employees, and this results in his function as an "social security carrier". The NRA keeps registers of obligated persons, the registration therein is made ex officio based on the the data published in the Commercial Register, BULSTAT register and other public registers. Since this hypothetical person is a foreign person who is not registered in these registers, additional documents identifying this person and assigning a service number must be submitted at the NRA. These documents must be submitted by the employer when fulfilling his/her obligations under Art. 62, para. 3 of the Bulgarian Labour Code for submitting a notification to the NRA regarding the conclusion of an employment contract.

The following documents must be submitted:

• current extract from the Commercial Register for the foreign legal entity, issued by the competent authority at the registered office of the company, which extract, except for some exceptions (e.g. for documents of persons resident in Austria), must be accompanied by an apostille and a translation into Bulgarian by a publicly recognised translator. The extract should show
  - Company name and registration number of the legal entity, if any;
  - Representative and representation arrangements;
  - Registered office and business address, etc.
• Certificate of tax registration issued by the tax office at the company's registered office. This must also be notarised with an apostille.
• A certificate of the company's VAT identification number issued by the tax office at the company's registered office. This must also be notarised with an apostille.
• 2 Applications for the issue of a service number

Once these documents have been received by the NRA, they are checked by the officials and the foreign employer is then assigned a service number on the basis of Art. 82 Para. 4 of the Tax and Social Security Procedure Code.

The foreign employer must then conclude the employment contracts with his employees in Bulgaria in accordance with Bulgarian law.

Another specific point to mention here is the actual payment of social security contributions. The easiest way to transfer them is via a bank account opened in the country, as serious problems arise when payments are made from foreign accounts to household accounts. Due to the peculiarities of Bulgarian legislation, it is difficult to enter all the necessary information on the household payment order and there is a possibility that the amounts paid will not be allocated as intended.

III On the application of the tax legislation

Since the person performs the activity on the territory of the country, he/she remains an individual resident in Bulgaria* and the income is derived from a source in Bulgaria, regardless of the fact that the payer is a foreign company. This is because the provision of Article 8(2) of the Income Tax Act states that the income from work performed or services rendered in the territory of the Republic of Bulgaria must be derived from a source in the Republic.

The taxable income and the annual tax base for income from labour are determined in accordance with Section I of Chapter 5 of the Income Tax Act, and this type of income is subject to a tax of 10% of the total annual tax base. The advance tax on income from labour relations pursuant to Art. 42, para. 1 of the Income Tax Act is usually determined by the employer on a monthly basis on the basis of a monthly tax base.