Managing Partner I Post Bulgaria
Novak Savich has a Masters degree in accounting and financial control from UNWE Sofia as well as a degree in international economics and commerce) More than 15 years of experience in the field of accounting, tax consulting and financial control, I Post started in 2011 mainly in the field of tax consultancy, accounting optimisation and internal control policies. Since then they have added day to day accounting services including payroll and social security consultations.
Outside of work and family his passion is hiking – what better with more than 30 magical mountains in BG.
What are the different (legal) options for a foreigner to be able to receive an income in Bulgaria?
The legal framework in Bulgaria determines serious differenciation between EU and non EU citizens in that respect.
If you are an EU citizen you have four options – each not so difficult to back up from a legal and tax perspective:
1.Labour contract – the typical form of employment in a BG company is through labour contract. The employer company takes care of social securities and tax. No declaration to the BG tax authorities is required from you. (Important note: if the contract is temporary and less than six months, you could provide A1 certificate from your country of residence and avoid the BG social securities – they will be payable in the country which issued the A1)
2.Civil contract – this option is very flexible - conducted for specific task/tasks for a specific timeframe. It doesn’t require presence in an office of the employer. The employer company again (like with the labour contract) takes care of social securities and tax calculations and payments. Specific here is that if a person will be BG tax subject for a calendar year (meaning if you are in BG for more than half of the specific calendar year) – there is an obligation to submit a personal tax declaration in BG to the NRA by the end of April of the following year.
3.Freelancer – or in BG term – “self employed person” – this is the alternative to setting up your own company in BG. The contractual form here is usually again a civil contract, but in this case you have to declare the fact that you are self employed to your client and to take care of your social securities and tax calculations and payment yourself. A big plus of this form is that you don’t have to keep track of your expenses – the legal framework sets a specific percent of “recognized” expenses according to your specific activity. This % is calculated from your income for the calendar year (for most of the activities this is 25%, although it could go to 40% for specific activities like artists or craftsmen)
4.Own company in BG – this option is the logical one if you expect to spend more than 25% of your income for activity related items (goods or services – especially if rent of space, car or other substantial expenses are expected) and also if the income will be more or less on a continuous basis. The incorporation and maintenance of a company requires legal and accounting assistance and due to the specifics of the BG tax legislation a prior consultation with a tax expert is a good idea. Tip – the EOOD legal form (sole owned limited liability company) is the best option for a startup, due to the possibility of low social security expenses.
What about non EU citizens?
For non EU citizens options are limited by the specific permission to work issued by the BG labour inspection. This permission is required for labour contracts and freelancing (any form of self employment ). This includes also a contract within a company of your own. The administrative procedure for the permission can take up to two months and has a subjective factor from the labour inspection (depending on the field of operation and history of the person). So the only practical solution that I can recommend is the civil contract.
What are annual tax and insurance obligations for individuals working on a freelance or civil contract?
As mentioned above, working on a civil contract transfers the administration of social securities and tax to the employer, whilst freelancing – self employment requires action from the person upon receipt of the income. Please note that in these forms tax event date is the date of the actual payment (not the signing of a contract or protocol for acceptance of the work performed). In BG social securities and personal income tax are declared and paid up to the 25th of any month for the previous one (meaning if you receive an income in January you have to make the payments by 25th February). Also both options require an annual income declaration to be submitted by the end of April for the previous calendar year.
What are the implications of starting your own business in Bulgaria?
The tax implications of a startup are varied. Depending on the type of the core business there are different solutions in terms of financing the activity, employment and expenses recognition for tax purposes. As mentioned above the EOOD legal form is the only one allowing the owner to act as a self-employed person through the company and have lower social security costs. The other forms like OOD (Ltd) require a labour or management contract, which has substantionaly higher costs.
Due to the low corporate income tax rate in BG (the lowest in EU actually at 10% flat tax) there are some restrictions on the company’s expenses – meaning conditions in order to be recognised for tax purposes, or specifics if the expenses are from outside of BG.
How does one become VAT registered, what are the pros & cons ?
VAT registration is mandatory for over 50 K BGN generated for 12 continuous months, or upon any intra EU transaction (meaning if you are going to invoice a client, who is resident in another EU country, or if you receive an invoice from a supplier – EU resident outside of BG).
The VAT rate in BG is 20%.
Besides the mandatory registration you can register voluntarily any time. This is especially effective if you expect that most of your clients are going to be outside of BG, and most of your expenses to be from BG suppliers. In this case you will have 0% VAT on your cross border sales and 20% tax credit on your purchases in BG.
What if you are paying tax in more than one country?
If you are not going to be a BG tax resident (meaning you won’t be in BG 183 days or more per year and your “centre of interests” is not in BG) and you need to pay the tax rate in another country there are two scenarios depending on the case:
- You can avoid paying the BG personal income tax and social securities by providing evidence that you are employed and your tax weight is owed elsewhere (the A1 certificate for EU citizens), or in other cases (like income from property transactions etc.) you can apply a double tax treaty between BG and the other country (Bulgaria has such treaties with many countries in and outside of EU);
- If taxes/social securities are already being paid in BG - you can request a certificate for the taxes paid in BG and later deduct them from the amounts payable abroad.
Any other advice for foreigners or newcomers to Bulgaria who would like to work here?
If you are starting something on your own - research your future activity well – from legal, tax, marketing perspective. Request more than one opinion for the key points of the core business in order to avoid risk.
If you are employed on a labour contract your employer will take care of all your tax deductions and insurance payments. Be aware which country you are tax resident of.
Health insurance is not covered by the employer for foreign nationals from outside the EU.
Accounting & Tax Consultancy
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(+359) 889 237 222
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