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The Corporate tax (CIT) » Special Rules » Tax Allowance » Deprecation » Taxes for investments » The Annual Taxable Base » The Employment contract » The Withholding Taxes » The VAT » The News Section

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Direct taxation

Corporate Income Tax (CIT)

Legislative framework Corporate Income Tax Act
Taxpayers All companies and partnership (including non-incorporated partnerships), carrying out business in the country
Tax Income worldwide income for resident taxpayers
Bulgarian-source income for non resident taxpayers
Tax rate 10% standard rate
Determination of profit for tax purposes As of 1 January 2005 all corporate tax payers are obliged to apply International Financial Reporting Standards as a primary accounting basis.

Special Rules

Tax allowance

Depreciation

Straight-line depreciation method is to be applied.

Category of Assets/depreciation are devided into the following grpoups:

I - steady buildings, facilities, communication devices, electricity carriers, communication lines - annual depreciation norm % - 4

II - machinery, manufacturing equipment, apparatus -- annual depreciation norm % - 30

III - transportation vehicles, excluding automobiles; coverage of roads and aeroplane runways - annual depreciation norm % - 10

IV - computers, software and right of using software - annual depreciation norm % - 50

V - automobiles - annual depreciation norm % - 25

VI - all other depreciative assets - annual depreciation norm % - 15

Main tax incentives for investments in depressed regions

Corporate income tax exemption could be enjoyed if the amount of the tax, accounted as reserves, is invested for acquiring assets necessary for the production activity within three years following the year of exemption. The cost of the fixed intangible assets acquired should not exceed 25% of the cost of the fixed assets. At least 25% of the asset acquisition cost has to be financed by the investors own funds, incl. bank credits. The assets acquired should not be disposed of for a period of 5 years, except for in cases of companys merger or restructuring.

If as a result of decreased unemployment, the municipality is excluded from the depressed regions list, but in the next year when the manufacturing starts the region is excluded from the depressed regions list, the company can benefit from the incentive for the next 4 years.

If the value of the exemptions/incentives and other state aids for regional development is over BGN 75 million, a permission from the Commission for Protection of the competition is required. If the amount of the state grants and subsidies (excluding grants provided tax incentives) does not exceed BGN 200 000 in a three year period, the tax incentives can be used under less strict conditions.

Companies in liquidation and bankruptcy or in financial difficulties as well as some industries including automotive industry, shipyards, coal mining, steel industry, manufacturing of synthetic fibers, also agriculture and fish breeding (from the date of EU accession), cannot benefit from regional incentives.

Standard tax exempt income

Annual taxable base

The sum of all taxable incomes received during the calendar year, reduced with:

Taxation of the adjusted annual income
Annual Income Tax
Up to BGN 1440 Non taxable
From BGN 1440 to BGN 1800 12% on the amount exceeding BGN 1440
From BGN 1800 to BGN 3000 BGN 43.20 + 22% on the amount exceeding BGN 1800
From BGN 3000 to BGN 7200 BGN 307.20 + 26% on the amount exceeding BGN 3000
Over BGN 7200 BGN 1399.20 + 29% on the amount exceeding BGN 7200

Incomes under an employment contract
(including fringe benefits)

The following incomes are nontaxable:

Social security system covers retirement, health and unemployment risks and obligations. Side costs to the amount of 32.2% of the gross monthly salary are on the account of the employer.

Type of insurance Employer (%) Employee (%) Total (%)
Health 4.5 1.5 6.0
Social
Pension insurance fund 21.75 7.25 29.00
Sickness insurance fund 2.25 0.75 3.00
Employment insurance fund 0.70 0.00 0.70
Unemployment fund 3.00 1.00 4.00
Total: 32.20 10.50 42.70

The above contributions are calculated on the remuneration and other employment income of the employee for the respective month but on not more than the maximum monthly insurance base fixed annually in the Mandatory National Insurance Budget Act.

Withholding taxes

Types of income subject to 15% withholding tax rate are: Dividends and liquidation proceeds; Interest, including such under finance leases; Royalties; Technical services remuneration; Rentals; Payments under operating leases, franchising and factoring; Capital gains from sale of immovable property, stakes in local companies, securities and financial assets; Remunerations received under management contracts; Remunerations for members of the Board of Directors or controlling bodies of Bulgarian legal entities. Under some double taxation treaties technical service payments fall within the definition of royalty payments are taxed accordingly.

Withholding tax rates under double tax treaty between Kuwait and Bulgaria :

Indirect taxation

Value added tax (VAT)

The Bulgarian VAT legislation in many aspects follows the provisions of the Sixth EU VAT Directive.

Legislative Framework
Value Added Tax Act

Obligatory VAT registration
For any person (legal or physical, resident or non-resident) with a taxable turnover (excluding exports) of at least GN 50,000 during the preceding twelve months

VAT account
A VA T account has to be opened within 14 days from the date of registration under the law. VAT account can be used only for AT payments. The use of VAT accounts is obligatory for payment of VAT above BGN 1000 when customer is VAT registered.

Payment requirements
VAT payments and refunds can only be made in BGN.

VAT credit refund
If for a given month a VAT registered person has more input VAT than output VAT, the tax authorities offset the excess against any other outstanding tax liabilities of the person. If there is any remainder, the person offsets it against the output VAT he charges during a 3-month term following the month, in which the excess of input VAT occurred. If after this term there is still any remainder, the tax authorities set it off against any other outstanding tax liabilities of the person or refund it to him within 45 days as of the submission of the VAT return for the third month.

Exporters (persons with turnover from export supplies exceeding 30% of the value of their supplies in aggregate for proceeding 12 months) are entitled to a VAT credit refund within 45 days as of the date of submitting the VAT declaration for the respective month. VAT credit is also subject to recovery in case of carrying out supplies, which are exempt by virtue of international agreements, to which Bulgaria is a party .

Tax base
The tax base for supplies within Bulgaria includes:

The tax base for imports includes:

Place of supply
Bulgaria has adopted the EU definitions of place of supply of goods and services.

VAT exempted transactions without right to deduct VAT

No VAt is charged on transactions with a place of supply outside Bulgaria, but no VAT deduction could be claimed for such transactions.

Zero% VAT

VAT rates

VAT incentives

Special preferential VAT regime for imports for imports of goods necessary for implementation of an investment project

Special VAT regime applies to those VAT-registered importers that hold a permit issued by the Minister of Finance and import goods (with the exception of excise goods) that are included in the list approved by the Minister of Finance.

The importer exercises his right by:

Where the importer has exercised his right, the customs authorities agree to the release of the goods without effective payment or securing of the VAT. The above special import regime is applicable to the legal person who simultaneously meets the following requirements:

The investment project is approved by the Minister of Finance in compliance with the following requirements:

Such investors are also entitled to refund VAT incurred on local purchases within 10 days after filling the tax return, provided that at least 80% of the monthly VAT charges on purchases are paid through a VAT account.


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