Taxation of income from employment relationships
According to the Bulgarian Income Taxes on Natural Persons Act (ITNPA), taxable income is income received by natural persons (local and foreign) and sole proprietors. Pursuant to Art. 24 (1) ITNPA, the taxable income originating from employment relationships is the labour remuneration and all other payments in cash and/or in kind made by the employer or at the expense of the employer.
An employer is any local or foreign person who performs activities using a place of business activity or establishment within the country, or a commercial representative office as referred to in the Investment Promotion Act if the said person employs natural persons under employment relationships or who is a party to a contract for the provision of personnel by a foreign person.
All income received from persons working under employment relationships are taxable in the month of receiving the remuneration, regardless of the period it relates to.
Employment relationships under ITNPA are exhausted in §1, item 26 of the Act. These are:
- legal relationships with employees under the Labour Code;
- legal relationships with civil servants, as well as legal relationships between the Minister of Defence and the Minister of Interior or officials authorised by the respective Minister - of the one part, and the employees in the respective Ministry - of the other part;
- legal relationships with persons receiving income originating from elective offices, and others.
Non-taxable income received from employment relationships by natural persons is outlined in Art. 24 (2) ITNPA. Examples include:
- free food and/or food additives provided in kind under Art. 285 of the Labour Code and other statutes;
- the value of the special work clothes and the personal means of protection provided in kind and in accordance with the conditions and procedure set forth in a statutory instrument;
- travelling and accommodation allowances for a business trip, the amount thereof being evidenced by way of documents in accordance with the operative legislation;
- daily allowances for a business trip, not exceeding the double amount specified in a statutory instrument, and others.
Other non-taxable income under the Labour code are compensations awarded based on:
- work-related accidents and illnesses;
- termination of employment due to illness or the right to retirement;
- termination of employment of a worker or employee not through his fault or upon his request by notice, and others.
In addition to the listed non-taxable income, there are other types regulated by statutory provisions contained in the Republic of Bulgaria Defence and Armed Forces Act, Ministry of Interior Act, State Agency for National Security Act, and others.
Monthly basis of taxation and withholding of tax
The amount of the tax due is determined by the monthly basis of taxation multiplied by a tax rate of 10 per cent.
The monthly basis of taxation determined by the taxable income for the respective month is reduced by the amounts under mandatory insurance contributions withheld by the employer, paid at the expense of the natural person under the Social Insurance Code and the Health Insurance Act as well as the mandatory insurance contributions made abroad. The tax is withheld by the employer upon final payment of the taxable income (salary) for the respective month. The tax is paid by the employer to by the 25th day of the month following the month in which the tax was levied.
Persons receiving income from contracts for management and supervision are subject to the same tax regime for the income received from employment relationships.
Annual tax on income originating from employment relationships
By 31 January of the subsequent year of taxation the employer must calculate the annual basis of taxation for income originating from employment relationships, decreased by the annual amount of tax relief, and must determine the annual amount ot tax on condition that as at 31 December of the year of taxation they are the employer under the basic employment relationship with the worker or employee in question.
The annual basis of taxation under Art. 25 (1) and (3) ITNPA is reduced by the annual amount of tax relief for:
- Personal voluntary insurance contributions;
- Any donations made during the year;
- Persons with reduced working capability;
- Personal insurance contributions for pensions upon retirement;
When the set annual taxable amount is higher than the taxable amount withheld from the worker/employee during the year of taxation, the difference is deducted from the person by 31 of the following year. And when the set taxable amount than the taxable amount withheld in advance, the employer refunds the difference to the person in question by 31 January of the following year.
Employers periodically provide the National Revenue Agency with information on the income paid by them under an employment relationship and the tax withheld on such income. The Minister of Finance issues an ordinance on the terms, content, manner and procedure for the presentation and storage of the data.