4. Income Taxation of Individuals
4.1. Taxable Persons
Taxable persons are resident and non-resident natural persons, who earn income from sources in Bulgaria and resident and non-resident persons, who are obligated to withhold and remit taxes.
“Resident natural person,” whatever the nationality, is any person:
• who has a permanent address in Bulgaria, or
• who is present within the territory of Bulgaria for a period exceeding 183 days in any twelve-month period, or
• who is sent abroad by the Bulgarian State, by bodies and/or organizations thereof, by Bulgarian enterprises, and the members of the family of any such person, or
• whose centre of vital interests is situated in Bulgaria.
Any person, who has a permanent address in Bulgaria but whose centre of vital interests is not situated in the country, is not a resident natural person. Where a Double Tax Treaty applies, the residency status could be impacted by the provisions of the Treaty.
Resident natural persons are liable to taxes in respect of any income acquired thereby from sources inside and outside the Republic of Bulgaria while non-resident natural persons are liable to taxes in respect of any income acquired thereby from sources inside the Republic of Bulgaria.
Bulgarian law contains detailed rules on when an activity or investment is sufficiently related to Bulgaria to give rise to Bulgarian taxation.
4.2. Taxable Income
The annual taxable income is defined as an aggregate of the total income received by the individual during the calendar year with the exception of the income which is non-taxable by virtue of a law and the income specifically excluded from the annual income which is taxed separately under specific rules.
The taxable income and the taxable amount shall be determined for each source of income separately under specific procedures, provided in the law. The aggregate annual taxable amount is the sum total of the annual taxable amounts determined for each type of income, depending on the sources, net of the tax relieves provided for by law.
The sum total of the annual taxable amounts is debited with:
• personal voluntary social insurance contributions made during the year to an aggregate amount not exceeding 10 per cent of the sum total of the annual taxable amounts, as well as with any personal voluntary health insurance contributions and premiums/payments paid during the year under contracts of life assurance to an aggregate amount not exceeding 10 per cent of the sum total of the annual taxable amounts;
• donations made during the year up to certain limits and under certain conditions etc
4.3. Tax Rate
A significant amendment in income taxation of individuals is that the progressive tax rate which depended on the amount of the annual taxable income and was within the range of 20 % to 24 % is replaced with a flat rate of 10 % regardless of the amount of taxable income. Thus, in general the amount of tax on the aggregate annual taxable amount is determined by multiplying the aggregate annual taxable amount by a tax rate of 10 per cent.
Certain items of income of residents or non-residents are not included in the taxable annual income and are subject to special rules of taxation with respect to the rates and the basis for tax. Some tax rates, applicable thereto, are decreased since 1 January 2008. Thus, dividends are subject to tax of 5 % instead of 7 %; income from supplementary voluntary social insurance, from voluntary health insurance and life assurances 7 % and income acquired by the person upon the sale or exchange of movable property under certain conditions is levied with tax of 10 % instead of 15 %
Taxability does not apply to:
• income acquired during the tax year from the sale or exchange of:
(a) one residential immovable property if acquired more than 3 years before the sale;
(b) up to two immovable properties, as well as any number of agricultural and forest properties, provided that more than five years have elapsed between the date of acquisition and the date of sale or exchange;
• income accruing from the sale or exchange of movable property, with the exception of:
(a) means of transport by road, air and water, provided that the period from the date of acquisition to the date of sale or exchange is less than one year;
(b) works of art, collectors’ items and antiques;
(c) shares, interests, compensation instruments, investment vouchers and other financial assets, as well as the income accruing from trade in foreign exchange;
(d) movable property delivered to persons who have the right to carry out collection, transport, recovery or disposal of waste in accordance with the Waste Management Act;
• interest paid on accounts and deposits with any domestic commercial bank, branch of a foreign bank and with domestic mutual aid funds, established in the EU Member State;
• interest paid and discounts made on Bulgarian government, municipal and corporate bonds etc.
4.5. Wage Withholding Taxes
Salaries and other payments due for employment are included in the annual taxable income and are subject to personal income tax. The employer is required to withhold provisional tax from the wages of the employees on a monthly basis. The law provides specific rules for determining the taxable amount for tax on income from labor relationships. The wage withholding tax is charged with the flat tax rate of 10 %.
When during the respective year the employee received only employment income, he/she is not liable to file a tax return. Where the wage withholding tax exceeds the annual tax liability (for reasons of being employed for part of the year, etc.), the refund is determined and provided through the employer.
4.6. Final Taxes
Taxation of non-resident persons’ income.
Certain items of income are not included in the annual taxable income but are taxed separately with a final tax. This treatment applies to the following items of income:
(a) compensations for lost profit and damages of such nature;
(b) scholarships for study in Bulgaria and abroad;
(c) interest payments, including interest within payments under a lease contract etc.
The provisions determining the income which is not subject to tax do not apply to the items herein. However, no final tax shall be levied on such items exempted from taxation under the mentioned provisions and charged/paid in favor of non-resident natural persons established for tax purposes in a Member State of the European Union, as well as in another Member State of the European Economic Area.
The tax rate is 10%.
• Income of resident and non-resident natural persons.
Unlike the tax legislation prior to January 1st 2007 the income deriving from dividends and from shares in liquidation surplus of resident and non-resident natural persons is not taxed with withholding tax which had to be withheld by the legal entity, distributing the dividend/share of liquidation surplus. Pursuant to the present Income taxes on natural persons act the income from dividends and from shares in any liquidation surplus in favor of resident or non-resident natural person, where accruing thereto from a source inside Bulgaria and resident natural person, where accruing thereto from a source outside Bulgaria attract a final tax.
The tax rate is 5%.
• Under certain conditions a final tax shall be levied on the gross amount of the taxable income from supplementary voluntary social insurance, from voluntary health insurance and life assurances. The tax rate is 7%.
• A final tax shall be levied on the gross amount of the income acquired by the person upon the sale or exchange of movable property.
The tax rate is 10%.
4.7. Tax Returns and Payment of Taxes
Natural person should file an annual tax return. The obligation to submit an annual tax return does not apply to persons who have received solely:
• income from employment relationships,
• non-taxable income;
• income on which a final tax is leviable;
• income accruing to non-resident persons, on which a final tax has been levied.
The return should be filed before the 30th day of April of the year next succeeding the year of acquisition of the income.
The tax should be remitted on or before the 30th day of April of the year next succeeding the year of acquisition of the income. Certain items of income are also subject to provisional tax payable through the year on monthly or quarterly basis