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Bulgaria is situated on the Balkans and is bordering Romania to the North, the Republic of Serbia and North Macedonia to the West, Greece and Turkey to the South and the Black Sea to the East. The strategic location combined with developed transportation infrastructure leads to close economic ties with other countries. Bulgaria also benefits from a favourable credit risk score resulting from a healthy fiscal balance and a very low Debt to GDP ratio. In addition, the combination of the lowest market labor costs and one of the lowest flat corporate tax rates in the EU (10%) increase the attractiveness for foreign investors. Bulgaria has made a considerable progress in the last 25 years, reforming its economy in line with the political changes happening in the country.
The rate of the profit tax in Bulgaria is 10%. In addition, Bulgaria has signed agreements for avoidance of double taxation with countries such as the United Kingdom, Turkey or Russia, meaning that a company that has operating both in Bulgaria and in another signatory state will pay taxes only in the country where that income is derived from.
Bulgaria has many advantages that recommend it as a location for setting up a business, among which
Bulgaria is one of the east European countries that has managed to record notable advancements in many industries. Examples include the IT industry and the tourism industry. Both of these sectors and others attract foreign direct investments and entrepreneurs find that not only the country has favorable regimes for foreign company ownership but also lower business and employment costs compared to other European countries. The state offers promotions if initial investments are made in industry sectors such as:
Excise duties are charged on: Alcoholic beverages, Tobacco products, Electricity and energy product. The list of items taxable within the three categories above tends to increase over the years. The amount subject to excise duty is calculated based on the specifics of the products.
The supplier of goods and/or services charges and collects VAT on the supplies to the recipients. This rule applies regardless of whether the supplier is a local or foreign entity or an individual. The supplier should start charging VAT after registering for VAT purposes in Bulgaria. The supplier can also register for VAT voluntarily before starting operations. The mandatory VAT registration threshold is the taxable turnover of BGN 50,000 in any 12 consecutive months.
Bulgaria is part of the European customs territory and applies the Union Customs Code tariff classification, tariffs and anti-dumping duties applicable to all EU Member States.
Bulgarian resident companies are subject to corporate income tax on their worldwide income. Non-residents are taxed only on Bulgarian-source income, i.e., income derived from activities conducted through a permanent establishment in the country and on income from Bulgarian sources.
Capital gains from shares issued by Bulgarian legal entities, the state or municipalities realized by a non-resident entity are subject to a 10% Bulgarian withholding tax, unless the rate is reduced under a tax treaty. Certain other exemptions apply, such as for capital gains from sale of shares on the Bulgarian stock exchange. Other types of income realized by non-resident entities/individuals are subject to 10% Bulgarian WHT, unless the rate is reduced under a tax treaty.
There are two types of permanent establishments distinguished on the basis of registration requirements, i.e., a branch and a permanent establishment.
The branch is a permanent establishment of a foreign company in Bulgaria that is a registered with the Bulgarian Commercial Register.
A foreign company may also conduct business in Bulgaria through a permanent establishment within the meaning of the tax legislation.
Foreign companies may open a trade representative office in Bulgaria. The trade representative office is not a legal person and is not permitted to carry out business activities.
OOD and especially the sole ownership OOD is usually used for small or medium sized enterprises. The required minimum capital is 2 BGN (approximately €1). It may be formed by one or more persons, who are liable for the company’s liabilities with their contribution to the company’s capital.
The minimum amount of the registered share capital for AD is BGN 50,000 (approximately €25,000). The management of AD requires a more complex structure: one-tier system with a Board of Directors or a two-tier system with a Managing Board and a Supervisory Board. Each of these bodies should consist of at least three persons – natural persons or legal entities, local or foreign. They make decisions by majority of 50% plus one unless otherwise provided by the company’s articles of association.
Lying on the northern outskirts of the European continent and avoiding the characteristics of a geographic crossroads, Norway (the “northern way”) has maintained a great homogeneity among its peoples and their way of life. Life expectancy rates in Norway are among the highest in the world. The Norwegian economy is dependent largely on the fortunes of its important petroleum industry.
Author: Chandrawat & Partners
Topic: Doing Business in Bulgaria
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