In Bulgaria, withholding tax applies to income distributed by domestic legal entities to foreign persons. If the income recipient is a foreign person, the withholding tax is paid by the payer of the income. An important prerequisite for the tax deduction is that the foreign person does not have a permanent establishment in the country (in the Republic of Bulgaria).

Income subject to withholding tax:

• Dividends and liquidation shares distributed by Bulgarian legal entities to foreign persons and to domestic legal entities that are not merchants;
• Interest payments;
• royalties and licence fees;
• Remuneration for technical services under the Bulgarian Corporate Income Tax Act; technical services are payments from a source located in the Republic of Bulgaria for the assembly or installation of assets, as well as consulting services of all kinds and market research provided by a foreign person;
• Remuneration for franchise and factoring agreements;
• Remuneration for the management and supervision of a Bulgarian legal entity;
• Income from rents and property management;
• Contractual penalties and damages (excluding insurance sums);
• Income of foreign legal entities from low-tax areas (so-called offshore financial centres).

Income exempt from withholding tax:

• Management of financial instruments;
• Dividends and liquidation shares distributed to a domestic legal entity with state participation;
• Investment funds;
• Interest income from bonds issued by a domestic entity and traded on a regulated market;
• Interest income from loans received by the state and local authorities.

The basis for assessing withholding tax

• for dividend income is the gross amount of the dividends distributed.
• For income from liquidation shares, the difference between the market price of the share to be received by the shareholder or partner concerned and the proven purchase price of the shares or business shares is used.
• For interest income from finance lease agreements, the market interest rate serves as the basis for assessment, provided that the interest is not regulated in the agreement.
• For income of foreign persons from asset management, the positive difference between the market price and the proven purchase price is used.
• For income of foreign persons from property management, the positive difference between the market price and the proven purchase price of the property is used.
• In all other cases, the gross amount of income is used for income earned by foreign persons.

Tax rate

According to the Corporation Tax Act, the withholding tax rate is:

• 5% for income from dividends and liquidation shares (Art. 194 CITA);
• 10% for all other income (Art. 195 CITA).

Tax registration and payment

Tax must be declared and paid on a quarterly basis – by the end of the month following the quarter in which the tax was paid (Art. 201 CITA): Example: If a decision to distribute dividends was made on 1 February 2025, the tax amount must be declared and paid by 30 April 2025. Those liable for withholding tax pay the withholding tax in accordance with Art. 194 and 195 and declare the tax using a standard tax return form. The return must be submitted to the district office of the National Revenue Agency (the Bulgarian tax office) in accordance with the registered address of the payer of the income. If the payer of the income is not required to register, the tax return must be submitted to the district office of the NRA in Sofia. If the payer of the income is a person who is not obliged to deduct and pay withholding tax, the return must be submitted by the recipient of the income. The tax return must be submitted electronically (with an electronic signature). Those affected are entitled to request a certificate from the NRA for the withholding tax reported and paid on their behalf. The certificate is issued by the tax office where the tax return was submitted.

The deadline for paying the tax is the end of the month following the quarter in which the income was earned. The tax must be paid to the tax office according to the address of the payer of the income. If the payer of the income is not a taxpayer , the tax must be paid by the recipient of the income, with the date of payment of the income to the foreign person being considered the taxable event. In this case, the tax must be paid to the Sofia Tax Office.

If withholding tax has been deducted incorrectly, the person from whom it was deducted is entitled to a refund from the tax office. The refund procedure is regulated in the Tax and Insurance Procedure Code.

International agreements for the avoidance of double taxation (DTA)

The Republic of Bulgaria has concluded more than 70 agreements for the avoidance of double taxation (DTA). The purpose of these agreements is to establish rules for the taxation of individual income when distributing income and profits between persons from the countries concerned. Depending on the agreement on individual income, the withholding tax rates in the respective country may be lower or the taxation of certain income may even be waived. International DTAs take precedence over national law. For income up to BGN 500,000, taxpayers automatically apply the DTA without requiring permission from the tax authority. For income above BGN 500,000, the taxpayer must apply to the tax authority for the application of the DTA. The tax authority must initiate a review of the application of the agreement and issue an opinion on the legality of its application within two months of receiving the documents relating to the transaction. If the tax authority does not issue an opinion within the statutory period, tacit consent to the application of the DTA is assumed.