Taxation of other income in Bulgaria
According to the Act, Bulgarian citizens - local natural persons are liable for income tax for any income originating from sources in the country and abroad. In cases where the income has been taxed abroad, the provisions of AADT apply. Foreign natural persons are liable for income tax for any income originating from sources in the country. Art. 4 defines the term 'local person', and Art. 5 - the term 'foreign person'. Regardless of their citizenship, a local natural person is deemed local if their permanent residence is in Bulgaria, or if they have spent more than 183 days within the territory of Bulgaria, or if they reside abroad on assignment of the Bulgarian State, its authorities and/or its organisations, or Bulgarian establishments, and the members of their family. The term “permanent residence” has the same meaning as in the Identification Documents Act.
Income from sources within the Republic of Bulgaria
Income originating either from business activity through a certain establishment inside the territory of the Republic of Bulgaria or from disposal of the property of such an establishment is deemed income from a source within Bulgaria.
Income from a source in Bulgaria is also:
- Income from dividends and liquidation shares.
- Income from the transfer of an establishment of a sole proprietor.
- Awards and remuneration for activity carried out inside the territory of the country by foreign natural persons.
- Pursuant to Art. 8 (6) ITNPA, income from a source within the Republic of Bulgaria are also the following:
a) indemnities and compensations;
b) pecuniary and non-pecuniary awards from games and competitions;
c) remuneration other than the remuneration under employment relationships;
e) income originating from rent or any other granting of the use of movable or immovable property;
f) remuneration under franchising and factoring contracts;
h) remuneration for technical services;
i) remuneration under enterprise management contracts and supervision contracts;
j) study grants in the state and abroad;
k) income from social insurance.
The income tax obligation arises theoretically when the income is received, not when the grounds for taxation have occurred.
Pursuant to Art. 11 (1) ITNPA, the income is deemed as received at the date of:
- payment - where the payment has been made in cash;
- crediting the account of the recipient of the income, or the date of receiving the cheque – in the cases of cashless payment;
- receiving the consideration – in the cases of non-pecuniary income. Under item 1, payment - in cases of cash payment.
Taxable income under the Act is the income originating from all sources received by the taxable person during the year of taxation, with the exception of the income that is non-taxable by virtue of law.
The types of non-taxable income are outlined in Art.13 ITNPA, in addition there are other types of non-taxable income for each category listed in Art.10. Such are:
- income received during the year of taxation from the sale or exchange of:
a) one immovable housing property, provided that more than three years have passed between the date of its acquisition and the date of the sale or exchange;
b) up to two pieces of immovable property, or agricultural property and forest land plots regardless of the number thereof, providing that the time elapsed between the date of acquisition and the date of sale or purchase is more than 5 years;
- Income originating from sale or exchange of movable property, with the exception of those listed in item 2, letters 'a' - 'd', които се третират като облагаеми (item 2);
- Income from the sale of personal property (furniture, household items, paintings etc.)
- Income from the disposition of financial instruments within the meaning of § 1, item 11 от of the supplementary provisions (item 3).
- Income from mandatory insurance in Bulgaria or abroad. Any compensation received as a result of the mandatory insurance under the Social Insurance Code and the Health Insurance Act is not subject to taxation.
- Not subject to taxation is also income from mandatory insurance abroad.
- Non-taxable is also income from investment of the assets of additional pension insurance funds.
* For life insurance, provided that the tax relief was used for the premiums incurred (instalments), the amounts received back (upon expiry or before the expiry of the contract) are subject to a tax of 10 per cent, and upon expiry of a contract of 15 or more years of duration - the tax is 7 per cent - Art. 46 ITNPA.
- interest on receivables established through the courts, these receivables not being subject to taxation, and the adjudged compensation for court costs (item 10);
- the adjudged compensation and other payments in the cases of medium and grievous bodily injury, occupational disease or death. Compensations awarded under tort are non-taxable (item 11);
- compensation for forcible expropriation of property for the needs of the State and the municipalities (item 12);
- compensation for pecuniary and non-pecuniary damages, with the exception of the compensation for loss of profit (item 13);
- insurance indemnities in those cases where an insurance event has occurred(item 14);
- aid and maintenance allowance received, as well as unemployment benefits and compensations;
- scholarships awarded to natural persons;
- pecuniary and non-pecuniary prizes, awarded in хазартни игри.
* However, prizes won in TV games such as "Who wants to be a millionaire", "Deal or no deal" and the like are subject to the same taxation as income originating from other sources.
- the State and national awards granted to authors in the field of culture and sportsmen, the awards granted to winners in competitions under programmes and projects which are either wholly or partially financed by the "Culture" National Fund, as well as the granted state pecuniary awards for special merits for the state and the nation (item 22);
- the amounts received for business travelling and accommodation allowances received under relationships other than employment ones (item 23);
- income received from rent and lease (item 24);
- the income originating from the sale or exchange of property acquired by right of succession or legacy (item 26).
Basis of taxation
The taxable income and the basis of taxation shall be determined separately for each source of income. This is also the case for the annual tax return. The total annual basis of taxation is calculated as the aggregate of the annual bases of taxation for the different sources of income. The formed basis of taxation is reduced by the provided tax reliefs. The tax reliefs are listed in Arts. 18-23 and they need to be certified with the annual tax return with the respective documents attached thereto. Tax reliefs could, for example, be for persons with reduced working ability, personal insurance contributions, donations for certain purposes and objects, for young families regarding mortgages.
Non-taxable income is not declared in the annual tax return.
The tax is annual, however, advance payments are also owed. The year of taxation is the calendar year.
Art. 81 and Art. 82 ITNPA determine the main responsibilities of the employer - payer of the income and the respective penalties for failure to comply with the law, namely:
- Where a person who is a payer of income fails to withhold or contribute the tax in due time, they are punished with a fine or a pecuniary sanction of up to BGN 1,000, unless the person is subject to a more severe punishment (Art. 81).
- In the cases of failure to submit in due time the required information, as well as in the cases of stating false or incomplete data, the person is punished with a fine or a pecuniary sanction of up to BGN 250, unless the person is subject to a more severe punishment. As for those violations which have been committed by more than one natural person, the fine or the pecuniary sanction is imposed on each natural person separately. In case of a repeated violation the fine or the pecuniary sanction shall be at the amount of up to BGN 500.