We often receive questions from non-Bulgarian clients regarding their personal tax status (liability) in Bulgaria. Below is our legal analysis on the matter.
Good Day,The name of the client and other data may have been changed for privacy reasons
My name is Steven. Me and my wife are considering moving to Bulgaria and would like to ask few question regarding potential income tax liability. I am a seafarer working for European (EEA) company who spends more than 183 days abroad, I work on vessels on multiple flags both EU and non EU. I would like to check my potential income tax liability in Bulgaria. Would you be able to help me with that?
The Bulgarian law for personal taxation
On first sight, art.4 of the Bulgarian law for personal taxation clearly states who is considered to be tax resident (tax liable) in Bulgaria:
Art. 4. (1) A resident natural person, regardless of its citizenship, is a person:
- having a permanent address in Bulgaria, or
- who resides on the territory of Bulgaria for more than 183 days during each 12-month period, or
- who is sent abroad by the Bulgarian state, by its bodies and / or organizations, by Bulgarian enterprises, and members of its family, or
- whose center of vital interests is located in Bulgaria.
(2) For the purposes of para. 1, item 2 the person shall be considered local for the year during which the stay exceeds 183 days. The day of departure and the day of entry into the country are counted separately for days of residence in the country.
(3) For the purposes of para. 1, item 2 the period of stay in Bulgaria solely for the purpose of study or medical treatment shall not be considered as a stay in Bulgaria.
(4) For the purposes of para. 1, item 4 the center of vital interests is located in Bulgaria when the interests of the person are closely related to the country. In determining them, account may be taken of the family, the property, the place from which the person pursues an employment, professional or economic activity, and the place from which he manages his property.
(5) Not a local natural person is a person who has a permanent address in Bulgaria, but the center of his or her vital interests is not located in the country.
As you can see, the law is quite subjective and its interpretation is often left in the hands of the Bulgarian National Revenue Agency (NRA). This can have devastating consequences and one should be absolutely clear whether he is tax liable in Bulgaria or not. Tax liability will imply the obligation to submit tax declarations and to pay taxes.
The legal analysis
Bulgarian citizenship and taxes – the myths
One of the most common myths among many foreigners willing to relocate to Bulgaria is that taxation is based on nationality. Most people tend to think that the citizenship status of a person defines its tax liabilities towards the country of his citizenship. While in some countries (ie USA and the Philippines) this may well be the case, in Bulgaria (and in the majority of countries worldwide) this is not so.
Art. 4 of the Bulgarian personal tax law is absolutely clear.
One’s citizenship is absolutely irrelevant to whether he is considered as Bulgarian tax resident or not. In other words – it doesn’t matter what your nationality (citizenship) is. Your tax status in Bulgaria is determined only by the different conditions of Art.4 of the tax law, being met or not. It doesn’t depend on your citizenship, being Bulgarian or not.
Permanent vs current address in Bulgaria
The Bulgarian legislation has defined two legal forms of residential addresses in the country – a permanent address and a current address. These are mainly covered in the law for the civil registration and will be explained here only briefly.
In short, permanent address is the address that serves as “primary contact point” of the person. It is used for communication with the state authorities. For instance, court subpoenas or any other official correspondence (tax bills, etc.) will be send to this address. This is also the address, which is mentioned on the Bulgarian’s ID cards.
Current address is the address that one is using for a certain period (ie longer than 3 months) and it differs from his permanent address. Very few Bulgarians have current address, different from their permanent address.
With all that in mind, it is now obvious that a person, who has permanent address in Bulgaria (not merely a current address) is considered to be tax resident straight away (no need to reside 183+ days in the country, etc.). As the majority of all foreigners, registered officially in Bulgaria, do have official permanent address, they are immediately considered to be tax residents in Bulgaria. However (VERY IMPORTANT), the person will be still considered not to be tax resident in the country if “the center of his or her vital interests is not located in Bulgaria” (para 5 of the tax law).
Center of vital interests (IMPORTANT)
Definitely, determining the center of vital interests of the person is the most subjective of all other criteria. At the same time, it is quite important as it determines whether you will be considered as Bulgarian tax resident or not, in case you are living less than 183 days in the country.
In determination of the place of a person’s vital interests, the following main factors will be taken into account:
- Family status; namely where your family is residing. If the family is living outside of Bulgaria, together with you, this will be in favor of deciding that your center of vital interests is outside of Bulgaria and vice-versa;
- Property (ie real estate) location; if the majority of your unmovable assets are located in Bulgaria, this will be a sign that your center of vital interest is located in Bulgaria too. At the same time, if most of your belongings are located abroad, then your center of vital interests is likely to be determined to be as of not in Bulgaria;
- The place from which you perform your business activities is also important. If you are working as an engineer in a foreign country, then your center of vital interests leans towards non-Bulgarian. Please bear in mind however that if you are providing or obtaining professional services from Bulgarian entities, this may be considered as business with place of execution in Bulgaria by the Bulgarian VAT laws. This in turn may be deemed as a sign that your vital interests are in Bulgaria as well;
- The place from where you manage your properties is also an important factor; having a bank account in Bulgaria is a sign that connects you to the country. Having all your accounts abroad however, point to the opposite. Using online banking from abroad is quite different to visiting the bank branch in Bulgaria to order a bank transfer.
The 183-days rule
This rule is well known in many countries and luckily is quite easy to comprehend. If you have been in Bulgaria for more than 183 days (including the days of your arrival and departure) during the last 12 months, you will be considered to be tax resident in the country. Proving whether you have been in or out of Bulgaria can be tricky at times, especially for EU citizens as their travel documents do not get stamped at the border. In such cases, secondary evidences may be used, such as named receipts from banks, hotel bills, etc. For non-EU citizens, a report from the border authorities can be requested, although this is an expensive option and is not always reliable.
Persons sent abroad by the Bulgarian state
This category doesn’t apply in general to foreign individuals. It is meant for those who are sent abroad by the Bulgarian state and although they are physically abroad, they are still considered to be tax residents of Bulgaria.
Based on the Bulgarian personal tax law and other legislative acts, as well as on numerous court decisions on the matter, you will be considered to be tax-resident in Bulgaria, in the following cases:
- If you are living more than 183 days in the country (during the last 12 months period). That’s it, there are no other conditions or exceptions. Living 183+ days in Bulgaria automatically sets your tax status as resident in the country!
- If your center of vital interests is in Bulgaria. No other conditions or exceptions here too. Bulgarian center of vital interests (as per Bulgarian law, no matter how subjective) means you are Bulgarian tax resident.
- If you are sent abroad by the Bulgarian state.
- If you have permanent address in Bulgaria and your center of vital interest is also in Bulgaria. This is somewhat confusing as even if you don’t have permanent address in the country, you will be considered to be tax resident if your center of vital interests is in the country. At the same time, if your center of vital interests is outside of the country, you will be tax non-resident, even if you have permanent address in the country.
The answer to our client’s question
If you spend 183 days abroad (abroad from Bulgaria) your tax residency status will depend entirely on whether your center of vital interests is in Bulgaria or not. Unfortunately, this is the most subjective question of all (please read on for our final advice and recommendations).
If you spend 183 days in Bulgaria, then you will be certainly considered to be Bulgarian resident for tax purposes.
The determination of the (non) Bulgarian tax-residency is complex and extremely subjective. We recommend contacting the Bulgarian tax office through experienced tax lawyer and requesting official preliminary ruling of whether your status will be deemed as tax resident or non-resident in Bulgaria.
The request should be drafted extremely well and with utmost attention and explanations in order to obtain reliable response from the authorities. In general the Bulgarian tax office replies with general statement and excerpts from the laws, not giving any definite answers, so these responses are pretty useless.
You can contact us for professional assistance in case you want to request preliminary ruling for your particular case and situation.