Tax system in Bulgaria

The past corporate taxation rate in Bulgaria was relatively high at 19.5% but since 2005 the country has dropped their corporate tax rate to 15% and in depressed areas the rate is at 0%.

There is also an individual income tax rate for which all citizens are personally responsible. It is based on a sliding scale that varies between 15% and 29%.

Capital gains are paid on the sale of real estate or work vehicles such as planes or cars on the difference between the sale price or the market price and the cost of purchase linked to the index. Capital gains tax for companies is added to their regular income.

If a person buys property and it is considered a permanent establishment then the taxes on the property are as follows for rental income:

• gross income less tax deductible property related expenses and depreciation
• municipal tax rate of 10% of profits is due; this is deducted when calculating taxable profits, which are taxed at a flat rate of 25%

If the property is not considered a permanent establishment then a person is liable for only 15% withholding tax on rentals and capital gains; unless an even lower rate is applicable under a double tax treaty.

Depreciation is not calculated on land, which does not depreciate, but any property on the land used for business purposes and is booked as a fixed asset is depreciated at 4% per year.

Any property that is bought as a resale investment and is considered non-depreciable is subject to an annual re-evaluation to adjust for market value. Aside from corporate tax there are no other direct taxes on real estate. There are transfer costs – mainly due to notary and municipal fees.

Tax losses can be carried forward for five years or can be off-set against profits from previous years.

Property taxes are calculated at 0.15% of the property’s book value while residential properties are exempt from value added taxes.

In all, taxes are relatively low in Bulgaria when compared to other parts of Europe and even some places in the West.

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