Low taxation, but compliance is essential
Bulgaria is known for its low corporate tax rates, offering businesses a competitive 10% flat tax. This favorable tax environment has made Bulgaria a popular choice for foreign investors looking to open a company and run their operations efficiently within the EU.
Unrealistic expectations
Many foreign clients come to Bulgaria assuming that tax compliance is simple and inexpensive. In reality, full compliance under the Bulgarian tax system requires careful attention. Companies must complete a range of accounting tasks, maintain proper documentation, and submit multiple declarations. Ensuring everything is handled professionally requires time, expertise, and the right resources.
The minimalistic approach
Some clients choose to minimize costs by opting for a basic level of tax compliance and accounting services. While this approach can reduce monthly expenses, it typically covers only the minimum statutory requirements. In Bulgaria, maintaining even this baseline level of compliance still involves essential bookkeeping, reporting, and timely submission of required declarations.
Full fiscal and legal compliance
To keep a Bulgarian company fully compliant, businesses must go beyond basic VAT returns and annual filings with the National Revenue Agency (NRA). Full compliance under Bulgarian tax and accounting regulations often includes additional obligations, such as statistical declarations to the Bulgarian National Bank and other administrative reporting requirements, depending on the nature of the business.
Special word on interim dividends
Many of our clients require quick access to their profits and therefore choose to distribute interim dividends. These are dividends paid from profits generated during the current financial year, rather than from retained earnings of previous years. While interim dividend distribution may be permitted in Bulgaria, it requires careful handling. Proper documentation, accurate accounting, and correctly submitted tax declarations are essential to justify the availability of profits and the legal basis for distribution. If not structured correctly, interim dividends may be challenged by the tax authorities and reclassified as “hidden dividends” or disguised salary payments, potentially leading to additional taxes and penalties.
For more information
If you need assistance with compliance in Bulgaria or have any questions, do not hesitate to get in touch. You can also explore the VD&A website to learn more about their comprehensive compliance and accounting services.