Withholding tax

Withholding tax deducted pursuant to the Corporate Income Tax Act (CITA)

Withholding tax is levied on:

Dividends and liquidation shares, distributed by resident legal persons in favour of:

• non-resident legal persons (legal entities), except for the cases when dividends are realized by the non-resident legal person by means of a permanent establishment in Bulgaria;
• resident legal persons who are not traders.

Withholding tax is not levied on dividends and liquidation shares when they are distributed to:

• a local legal person participating in the company’s capital as a representative of the State;
• a contractual fund;
• a non-resident legal person that is resident for tax purposes of a Member State of the European Union or a State party to the Agreement on the European Economic Area.

Withholding tax is also levied on the following types of income of non-resident legal persons, when these types of income have not been realized by means of a permanent establishment in Bulgaria:

1. Income from financial assets and from transactions with financial assets, issued by resident legal persons, the State, and the municipalities.
2. Interest, including interest, which is part of the payments under financial leasing.
3. Income from rent or other granting of movable property for usage.
4. Royalties.
5. Remuneration for technical services.
6. Remuneration under franchise and factoring contracts.
7. Remuneration for management or control of a Bulgarian legal person.
8. Income from rent or other granting of immovable property, located in Bulgaria, for usage.
9. Income from disposal of immovable property, located in Bulgaria.
10. Penalties and compensations of any kind, charged to the benefit of non-resident legal persons established in jurisdictions with preferential tax regime, except for the compensations under insurance contracts.

Withholding tax is not levied on income from disposal of financial assets pursuant to § 1, Item 21 of CITA’s additional provisions.

Tax base for the withholding tax:

1. The tax base for assessment of the tax on income from dividends shall be the gross amount of the distributed dividends.
2. The tax base for assessment of the tax on income from liquidation shares shall be the difference between the market price of the shares to be received by the respective shareholder or partner, and the documentarily evidenced acquisition price of his shares or stock.
3. The tax base for assessment of the withholding tax, which is deducted from the income from interest under financial leasing contracts in the cases when the contracts do not specify the interest rate, shall be the market rate.
4. The tax base for assessment of the withholding tax, which is deducted from the income of non-resident persons from disposal of financial assets, shall be the positive difference between their sale price and their documentarily evidenced acquisition price.
5. The tax base for assessment of the withholding tax, which is deducted from the income of non-resident persons from disposal with immovable property, shall be the positive difference between the sale price and the documentarily evidenced acquisition price of the said property.
6. The tax base for the withholding tax, which is deducted from the income of non-resident persons in all other cases, shall be the gross amount of the income.

Tax rates:

1. The tax rate for the tax on income as per Art.194 of the CITA (dividends and liquidation shares) shall be 5 per cent.
2. The tax rate for the tax on income from rent, interest and royalties shall be 5 per cent, when the following conditions have been fulfilled simultaneously:

• the owner of the income is a non-resident legal person from a Member State of the European Union, or a permanent establishment in a Member State of the European Union, of a non-resident legal person from a Member State of the European Union;
• the resident legal person paying the income, or the person whose permanent establishment in the Republic of Bulgaria is paying the income, is a person connected to the non-resident legal person – owner of the income, or to the person whose permanent establishment is owner of the income.

       3. The tax rate for the tax on all other types of income as per Art.195 of the CITA shall be 10 per cent.

Declaring the tax:

The persons liable to deduct and pay withholding tax under Art. 194 and 195 shall declare the tax due for the quarter by means of a tax return as per template, by the end of the month following the quarter. The return shall be submitted to the Territorial Directorate of the National Revenue Agency (NRA) where the income payer is registered or should be registered.  

When the income payer is not subject to registration, the tax return shall be submitted to the Sofia Territorial Directorate of the National Revenue Agency.  

In the cases when the income payer is a person not liable to deduct and pay tax, the tax return shall be submitted by the income recipient.  

At the request of the person concerned, for the tax paid pursuant to this Act for the income of non-resident legal persons a certificate as per template shall be issued. The certificate shall be issued by the Territorial Directorate of the National Revenue Agency where the tax return is submitted or should be submitted.

Tax return for downloading:

Tax return as per template under Art. 55, Para. 1 of the Personal Income Tax Act (PITA) and Art. 201, Para. 1 of the Corporate Income tax Act (CITA) for taxes due.

Deadlines for tax payment

The income payers deducting withholding tax pursuant to Art. 194 are obliged to pay the taxes due by the end of the month following the quarter when the decision to distribute dividends or liquidation shares was taken.

The income payers deducting withholding tax pursuant to Art. 195 are obliged to pay the taxes due by the end of the month following the quarter when the income was charged.

The tax due shall be paid to the respective Territorial Directorate of the National Revenue Agency where the income payer is registered or where he is subject to registration.  

When the income payer (for income pursuant to Art. 195 of the CITA) is not a taxable person and for income pursuant to Art. 12 Para 3 and Art. 8 Item 2 of the same Act the tax shall be paid by the income recipient within the abovementioned deadline, and the income shall be considered as charged from the date of its receipt by the non-resident legal person.

The tax due shall be paid to the respective Territorial Directorate of the National Revenue Agency where the income payer is registered or where he is subject to registration. When the income payer is not subject to registration, the tax shall be paid to the Sofia Territorial Directorate of the National Revenue Agency.  

Adjustment of withholding tax (Art. 202а of the CITA)

A non-resident legal person, who is resident for tax purposes of a Member State of the European Union, or another State party to the Agreement on the European Economic Area, is entitled to choosing to adjust the withholding tax for income pursuant to Art. 12, Para. 2, 3, 5 and 8. When the non-resident legal person chooses to adjust the withholding tax, the adjustment shall be made for all the income the person has realized pursuant to Art. 12, Para. 2, 3, 5 and 8 during the year.

When the non-resident person chooses to adjust the withholding tax for the income he has realized the adjusted tax shall be equal to the corporate tax which would be due for this income if the said income was realized by a resident legal person. When the non-resident legal person has realized expenses related to the income laid down in the first sentence for which tax would be due on the expenses if they were realized by a resident legal person then this tax would be added to the amount of the adjusted tax.

When the amount of the paid withholding tax pursuant to Art. 195, Para. 1 exceeds the amount of the adjusted tax, the difference is subject to refunding up to the amount of the withholding tax pursuant to Art. 195, Para. 1 which the non-resident person cannot deduct from the tax due in the country where he resident for tax purposes.

The choice to adjust the withholding tax shall be exercised by means of submitting the annual tax return as per template. The tax return shall be submitted by the non-resident person to the Sofia Territorial Directorate of the National Revenue Agency by 31 December of the year following the year of charging the income. 

Tax return for downloading:

Template of Annual Tax Return as per Art.202a of the CITA (BG).

The tax refunding is carried out as per the procedure of the Tax and Social Security Procedure Code by NRA’s Sofia Territorial Directorate.

The procedure for adjustment of the withholding tax shall not apply for non-resident legal persons who are residents for tax purposes of a State party to the Agreement on the European Economic Area, which is not a member State of the European Union, and with which the Republic of Bulgaria:

1. 1. does not have a valid tax treaty (tax treaty on the avoidance of double taxation), or
2. 2. has a valid tax treaty, which has no provisions for:

• information exchange, or
• cooperation in tax collection.