Bulgaria: changes to withholding tax for non-residents

From 1 January 2010, companies that are tax resident in another EU member state can opt to pay withholding tax on their net Bulgarian-source income .

The aim is to allow non-resident companies the option of being taxed on their Bulgarian-source income after deduction of any related expenses, in the same way as resident companies and permanent establishments of non-resident companies.

To be able to do this, they must file an annual tax return in Bulgaria covering all Bulgarian-source tax adjustments to the financial results

If the adjusted amount of withholding tax is less than that paid on their gross income and capital gains, the non-resident company can receive a refund up to the amount which is non-deductible in the country where it is tax resident.

Withholding tax in Bulgaria is (subject to any applicable double tax treaty) levied at 10% of the gross aggregate of:

• income from financial assets (including shares) and capital gains from transactions in financial assets (unless made on a regulated EU stock market)
• interest, royalties and lease payments
• consultancy, management or marketing fees
• franchising and factoring fees
• income from immovable property in Bulgaria, and capital gains from transactions in such immovable property

A similar option was also introduced from 1 January 2010 for individuals who are tax resident in another EU member state to pay withholding tax only on their net Bulgarian-source income. They have the option of applying to deduct any expenses available to Bulgarian residents from the gross amount of their income.

If the adjusted amount of withholding tax is less than that paid on their gross income and capital gains, the non-resident individual can receive a refund up to the amount which is non-deductible in the country where they are tax resident.

These changes are the result of infringement proceedings brought against Bulgaria by the European Commission.

Law: amendments to the Corporate Income Tax Act and the Personal Income Tax Act