Individuals must pay PIT on their gross income less any mandatory social security contributions they make at their own expense. Very few other deductions are possible.
Taxable income from work on the basis of an employment contract includes the following:
- Salary, wages, or any other remuneration for work performed, including for length of service, higher professional qualifications, unhealthy or specific work conditions, as well as any additional compensation (e.g. cost-of-living adjustments, bonuses, premiums, overtime pay).
- All fringe benefits and benefits in kind provided by the employer or for the account of the employer.
- Certain compensations received by the employee on the basis of the Labour Code (in general, for some cases of termination of the employment contract, unutilised paid leave, etc.).
- Income received by managers, controllers, and members of management and supervisory boards, as well as by shareholders of limited liability and joint-stock companies holding more than 5% of the capital.
Employment income is taxed at a 10% flat tax rate.
Business income of individuals registered as sole traders form the taxable base under the provisions of the Corporate Income Tax (CIT) Act (i.e. income minus expenses plus adjustments equals taxable profit). If the turnover exceeds BGN 50,000 in 12 consecutive months, the sole trader is subject to VAT registration. VAT registration may be required regardless of the turnover in certain cases.
Patent activities of sole traders are taxed under the provisions of the Local Taxes and Fees Act.
Sole traders file annual PIT returns.
Capital gains and investment income
Bulgarian tax residents (including expatriates who are considered Bulgarian tax residents) are taxed on capital gains and investment income realised from all sources during their period of residence. Foreign tax residents are taxed only on the capital gains and investment income derived from sources in Bulgaria.
Capital gains are taxed on an annual basis with a 10% flat tax rate if received by Bulgarian tax residents, and with a 10% final withholding tax (WHT) if received by non-residents. Certain exemptions provided in respect of capital gains are discussed under Exempt income below.
The taxable base for income from capital gains is determined as follows:
- The taxable base for income from disposal or exchange of immovable property, including limited property rights, is the positive difference between the sales price and the acquisition price, reduced by 10% statutory deductions.
- The taxable base for income arising from disposal or exchange of vehicles, works of art, antiques etc. is the positive difference between the sales price and the acquisition price.
- The taxable base for income arising from sale or exchange of stocks, shares, compensatory instruments, investment bonds and other financial instruments, and from foreign currency transactions is the total amount of capital gains realised during the year reduced by the total amount of the capital losses incurred during the year.
Note that generally the acquisition price is determined as the 'documentarily supported acquisition price' of the property. There are special rules for determining the acquisition price in case there is no documentary evidence thereof.
Dividends and liquidation proceeds paid by Bulgarian and foreign entities are subject to a 5% final WHT at source. When the dividends/liquidation proceeds are paid by non-resident entities who are not obligated to withhold and remit the Bulgarian taxes, the tax is payable by the recipient themselves on an annual basis. The dividend income paid by non-resident entities should also be reported in the annual tax return.
Interest income from bank accounts in commercial banks and branches of banks is taxable for Bulgarian tax residents at an 8% final tax. The tax is due on the gross interest received.
If the interest is paid from a Bulgarian bank to a Bulgarian tax resident, then the tax should be withheld and remitted by the Bulgarian bank by the end of the month following the month in which the income was received.
If the interest is paid from a foreign bank to a Bulgarian tax resident and it was not taxed at source, the individual has the obligation to report the interest income and pay 8% tax in Bulgaria on an annual basis with the annual tax return. The relevant DTT provisions should also be considered.
If the interest is paid from a Bulgarian bank to a non-Bulgarian tax resident, then the income is taxable at 10% final tax. The respective Bulgarian bank is obligated to withhold, report, and remit the taxes due to the Bulgarian tax authorities by the end of the month following the quarter in which the income was received. The relevant DTT provisions should also be considered.
Income from rent or other rights of use against consideration (except for rent from agricultural land), as well as income from annuities and leases, is subject to quarterly advance PIT at 10% and a final tax on an annual basis at the flat rate of 10%. Advance tax is not due for the fourth quarter unless the individual confirms in writing before the payer of the income one's willingness to apply an advance tax withholding for the fourth quarter.
For tax purposes, a statutory deduction of 10% of the gross income is provided.
Royalties are taxed on an annual basis with a 10% flat tax rate if received by Bulgarian tax residents and a 10% final WHT if received by non-residents.
The following basic types of income are also subject to PIT (the list, however, is not comprehensive).
- Income received by freelancers, individuals supplying personal services, and artisans.
- Income from sale of agricultural products.
- Monetary and in-kind prizes from various competition events.
- Compensations for lost profits and defaults of a similar nature.
- Income from incidental transactions.
Amounts redeemed early from voluntary pension, health, unemployment and/or vocational qualification and life insurance coverage, are subject to 10% final tax.
Some types of non-taxable income are listed below, subject to specific conditions and requirements set in the law:
- Capital gains realised by Bulgarian tax residents and residents of EU/EEA member states on disposal of one residential real estate property per year if it was in the possession of the individual for more than three years and up to two other real estate properties if they were in the possession of the individual for more than five years.
- Capital gains from transactions with securities of public companies on the Bulgarian Stock Exchange or on a regulated securities market in EU/EEA countries.
- Profits distributed in the form of new company shares or increase of the nominal value of existing shares.
- Income under voluntary pension schemes received upon retirement.
- Interest and discounts on bonds.
- Some types of social benefits provided by the employer in kind and taxed at the corporate level.
- Business trip daily allowances, within certain limits.
- Certain payments and benefits provided by the employer in accordance with the Bulgarian labour code.
Property received on the grounds of inheritance, donation, or restitution is not considered income taxable under the Personal Income Tax Act (PITA). However, other taxes and fees may be applicable.