Avoidance of international double taxation

Each country can, by virtue of its sovereignty, determine the spatial effect of its tax laws, so as not to limit them solely within the territory of the country that adopts these laws. On the one hand, the principle of taxing worldwide income applies (i.e. the universal principle), covering all income taxation for persons who are local, regardless of where it is received. On the other hand - the territorial principle, taxed is only the income from a source in the respective state or property situated therein. For this reason, often for a natural person or legal entity similar tax liability arises in connection with the same object of taxation for the same period but in different countries. This is the so-called double taxation which can be overcome in two ways:

  • provisions of national law or international agreements (i.e. agreements for the avoidance of double taxation - AADT);
  • ITNPA and CITA contain provisions for the avoidance of double taxation in the absence of AADT with the respective state. These include Art. 13 and Art. 14 CITA and Art. 76 and Art. 6 ITNPA.


Method of tax credit under CITA

When the provisions of the international agreement do not apply, taxable persons are entitled to a tax credit under CITA for each tax such as the corporate or the tax levied in lieu of the same, paid abroad, as well as the tax levied abroad on the gross income from dividends, interest, royalties, fees for technical services and rentals, originating from foreign sources. Sources of income entitled to a tax credit are: all taxes on dividends, interest, royalties, fees for technical services and rent paid from sources abroad.

The amount of tax credit is determined separately for each country and is limited to the Bulgarian tax on those profits and incomes. Using the method of tax credit, the income from abroad is collected with the income from Bulgaria. The sum, which forms the basis of taxation, is used to calculate the amount of tax under Bulgarian legislation and then it is deducted by the tax paid abroad. The state, where a local entity is subject to taxation, deducts the taxes paid abroad, but the tax deduction cannot be larger than the amount of the Bulgarian tax which would be chargeable on such income if such income was taxed as a source within the country.

Taxable persons, enjoying tax credit under CITA or AADT, need to provide a certificate of the tax which they deposited abroad, issued by the competent authorities of the country concerned.

When AADT or any other international agreement that has entered into force, ratified by Bulgaria, published in the "State Gazette", contains provisions different from the provisions of CITA, the provisions of relevant international agreement take precedence.


Method of tax credit under ITNPA

In terms of natural persons under ITNPA, it is possible to avoid double taxation of savings income paid to a local person by a person carrying out business activity within the Kingdom of Belgium, the Republic of Austria and the Grand Duchy of Luxembourg. According to § 1, item 49 "savings income" denotes the following:

  • income originating from any type of receivables for a debt, regardless of whether the debt is secured by way of a mortgage or by way of a clause providing for participation in the debtor's profit, including the interest on bank deposits, the interest on and the discount from bonds and debentures, etc.;
  • income originating from sale, reimbursement or reverse buyout of stocks and shares in the entities referred to in item 49 under the conditions provided by law.

According to Art. 78 ITNPA, tax withheld in the Kingdom of Belgium, the Republic of Austria and the Grand Duchy of Luxembourg on savings income is deducted from the tax payable on the total annual basis of taxation of the person determined in the annual tax return.


Methods for avoidance of double taxation provided for in AADT

The second method of avoiding double taxation is the conclusion of agreements for the avoidance of double taxation - AADTs. These are international agreements within the meaning of Art. 5 (4) of the CRB, whereby the provisions of the Vienna Convention on the Law of Treaties also apply. In terms of content, these agreements follow two models - Model Organization for Economic Co-operation and Development and Model United Nations. The difference between the two models is mainly in the content of the so-called distributive provisions, such that the UN model often provides the right of taxation in the source State.

In general, taxation powers are conferred on the country where the recipient of the income is resident. For the State source of income remain several options: to also tax this income, to provide for a reduced tax rate compared with that under domestic law. The last hypothesis is to exempt or exclude the income from taxation.

The first two scenarios lead to double taxation, and the state, where the recipient is resident, will apply the appropriate method of avoidance in their national legislation. In view of the foregoing, whether the income will be taxed in both or only one of the countries, different means of expression are used. When said that the income may be taxed in one of the countries, it does not preclude taxation in other countries. When taxation is granted to one country only, it shall be expressly stated.


Verification of grounds for application of the AADT

After incurring a liability on income from a source within the country, if the person wants to implement the AADT, they must submit a request in a standard form. Written evidence also needs to be enclosed, concerning the nature, grounds for realization and amount of income concerned. The request and the documents attached thereto shall be submitted at the territorial directorate where the payer of the income is registered or the directorate where he must have been registered, and where the payer is not subject to registration - Territorial Directorate - Sofia.

In order to invoke the procedure, the person should:

  • be a local entity of the other State within the meaning of the AADT;
  • be the owner of the income from a source within the Republic of Bulgaria;
  • not have a permanent business establishment or a permanent base in the Republic of Bulgaria with which the income in question is actually related;

- the special provisions for the implementation of the AADT need to apply.

If changes occur in these circumstances, the foreign person shall notify the territorial directorate of any change of circumstances within 30 days of its occurrence.


Actions of revenue authorities

Revenue authorities exercise control over the implementation of AADT by carrying out an inspection or audit. The deadline for delivering an opinion by the revenue authorities of the presence or lack of grounds for AADT application is 60 days from the submission of the request. Failing to do so within 60 days is considered an opinion for the existence of grounds for AADT application.

Opinion for lack of grounds for AADT application is subject to appeal, together with the audit act or the act of offsetting or return. The latter may be appealed by the recipient of the income or by the payer. The appeal follows the appellate procedure for audit acts, such that the complaint is filed with the territorial directorate where the request has been made.


Special cases which do not seek permission from the NRA

The amount of the accrued income by a foreign entity from a domestic source, for which no authorization needs to be sought, nor a request - submitted, is BGN 500 000 per year. The payer of the income of foreign natural persons or legal entities, who is required to withhold and pay final tax under ITNPA or CITA, needs to declare the amount of income paid and the tax reliefs provided by 31 March of the following year. The declaration is made by filing a tax return in a standard form approved by the Executive Director of the NRA.

Bulgaria has concluded 70 AADT with the following countries:

  1. Japan - 20.09.2004
  2. The Federal Republic of Yugoslavia -17.12.2005
  3. The Kingdom of Sweden - 17.12.2005
  4. Swiss Confederation - 17.12.2005
  5. Czech Republic - 17.12.2005
  6. The Republic of Croatia - 17.12.2005
  7. The Netherlands - 17.12.2005
  8. The Republic of France - 17.12.2005
  9. The Republic of Finland - 17.12.2005
  10. The Republic of Hungary - 17.12.2005
  11. Ukraine - 17.12.2005
  12. The Republic of Turkey - 17.12.2005
  13. The Kingdom of Thailand - 17.12.2005
  14. The Republic of Slovakia - 17.12.2005
  15. The Republic of Slovenia - 17.10.2005
  16. The Syrian Arab Republic - 17.02.2005
  17. The Republic of Singapore - 14.02.2005
  18. Romania - 14.02.2005
  19. Russian Federation - 14.02.2005
  20. Portugal - 14.02.2005
  21. The Republic of Poland - 20.02.2005
  22. The Kingdom of Norway - 20.02.2005
  23. Mongolia - 20.02.2005
  24. The Republic of Moldova - 18.02.2005
  25. The Kingdom of Morocco - 22.02.2005
  26. The Republic of Malta - 22.02.2005
  27. The Republic of Macedonia - 22.02.2005
  28. The Grand Duchy of Luxembourg - 22.02.2005
  29. The Republic of Lebanon - 22.02.2005
  30. The Republic of Korea - 22.02.2005
  31. Kuwait - 22.02.2005
  32. Democratic People's Republic of Korea - 22.02.2005
  33. The People's Republic of China - 22.02.2005
  34. The Republic of Cyprus - 22.02.2005
  35. Canada - 22.02.2005
  36. The Republic of Kazakhstan - 22.02.2005
  37. The Republic of Italy - 22.02.2005
  38. The Kingdom of Spain - 22.02.2005
  39. Ireland - 22.02.2005
  40. The Republic of Indonesia - 22.02.2005
  41. The Republic of India - 22.02.2005
  42. Israel - 22.02.2005
  43. The Republic of Zimbabwe - 22.02.2005
  44. The Arab Republic of Egypt - 22.02.2005
  45. The Kingdom of Denmark - 22.02.2005
  46. ​​ Greece - 22.02.2005
  47. Georgia - 22.02.2005
  48. The Federal Republic of Germany - 26.01.2011
  49. The Socialist Republic of Vietnam - 22.02.2005
  50. The United Kingdom - 22.02.2005
  51. The Kingdom of Belgium - 22.02.2005
  52. The Republic of Belarus - 22.02.2005
  53. The Republic of Armenia - 26.01.2011
  54. The Republic of Albania - 22.02.2005
  55. The Republic of Austria - 19.01.2012
  56. The Republic of Uzbekistan - 10.08.2007
  57. South Africa - 10.08.2007
  58. The Republic of Lithuania - 10.08.2007
  59. The Republic of Latvia - 10.08.2007
  60. The Islamic Republic of Iran - 10.08.2007
  61. People's Democratic Republic of Algeria - 10.08.2007
  62. The United Arab Emirates - 31.03.2009
  63. The United States of America - 31.03.2009
  64. The Republic of Azerbaydzhan - 31.03.2009
  65. The Republic of Estonia - 31.03.2009
  66. Jordan - 31.03.2009
  67. Qatar - 26.01.2011
  68. The Kingdom of Bahrain - 26.01.2011