Taxation of dividends in Bulgaria

The Bulgarian Corporate Income Tax Act, which entered into force on 01.01.2007, implemented the EU Directives on direct taxation regarding the taxation of dividends. Art. 27 lists the accounting receipts that are not recognised for tax purposes - these include receipts resulting from dividends distributed by local legal persons - this is because the dividend is a result of already taxed profits and re-recognition of income would again lead to taxation.

Levying this tax under Bulgarian tax law applies to any allotment to the benefit of a person as a result of that person's share in the capital of another person, bringing about a decrease in the equity of the latter, including:

  • Income from shares;
  • Income from shareholding, including shareholding in unincorporated companies, or from other rights treated as income from shares;
  • Concealed distribution of profit

The dividend is, in fact, that part of the balance-sheet profit that each capital provider expects to receive after the end of the year as agreed or as according to their percentage participation in the share capital of the company.

Art. 194 covers taxation of dividends and liquidation shares, distributed by local legal persons. The final tax withheld at the source in Bulgaria is due on dividends in favor of:

  • Local legal persons that are not traders (incl. municipalities) in relation to the Bulgarian Commerce Act
  • Foundations, associations, organizations according to the Non-Profit Legal Entities Act;
  • Foreign legal persons (except for the cases in which the foreign legal person operates through a permanent business activity establishment within Bulgaria);

Bulgarian tax law excludes taxation of dividends distributed in favor of legal persons resident in a Member State of the EU or a party to the EEA Agreement. This provision implements the Directive on taxation of dividends between subsidiaries and parent companies within the EU.

Next, not subject to a final tax withheld at the source accrued in their favor are dividends of local legal persons - traders, recipients of dividends.

The basis of taxation of income from dividends is the gross amount of the distributed dividends. The tax rate is 5 per cent. In general, the tax is withheld and paid by the payer of the income by the end of the month following the quarter in which the decision to allocate dividends and liquidation proceeds was vetoed.

The declaration is filed with the territorial directorate of the National Revenue Agency either by registration of the payer of the income or by the place in which the payer of the income must have registered. Where the payer of the income is not subject to registration, the declaration is to be filed in the National Revenue Agency - Sofia.

Upon the request of a person concerned, a certificate of a standard form is issued, regarding the tax paid on the income of foreign legal persons, by the territorial directorate of the National Revenue Agency in which the declaration is filed or should be filed.