Receiving dividends in Bulgaria by a Greek tax resident
There is so much common history between Bulgaria and Greece, dating back to the 7th century AD. Nowadays Bulgarians are visiting the Greek beaches more than their own and Northern Greece’s tourist industry is now mainly dependent on Bulgarian tourist’s money. At the same time, the extremely favorable tax rates in Bulgaria are attracting more and more Greek businesses, seeking fiscal relief from the hot Greek taxes. Today we will discuss the implementation of the double tax treaty between Greece and Bulgaria. More specifically we will discuss the scenario when a Greek tax resident is receiving dividends from Bulgarian company.
What taxes are due for a Greek tax resident from his dividends in Bulgaria
In our scenario, we will discuss the situation of a private individual, legally residing and paying taxes in Greece. Please note that whether the person is a Greek citizen or not, is irrelevant for the purposes of this article. The person has a Bulgarian company, from which he receives dividend payments. So what taxes are due in Bulgaria and/or in Greece?
When there is an income tax, the just man will pay more and the unjust less on the same amount of income.Plato
In order to answer this question, we will discuss the three main legal acts, mainly the:
- Bulgarian tax code;
- Greek tax code;
- Double taxation treaty between Bulgaria and Greece.
So let’s get started.
The Bulgarian tax code for personal taxation
According to art. 38, par. 1 of the Bulgarian personal tax law, dividends in Bulgaria are taxed the same for both residents and non-residents. According to art. 46, par. 3, the applicable tax is flat 5% on the amount of the dividends distributed. The dividend tax is paid by the company distributing the dividend until the end of the month, following the quarter of the fiscal year. In other words, for example, the tax for a dividend that is distributed in March, must be paid until April 30th. The tax for a dividend, paid in December, will need to be paid to the tax office until January 31st on the following year.
The Greek taxation on dividends
The Greek taxation on dividends is much more complicated than the one in Bulgaria. There are different options, for instance the Tax Reform L. 4646/2019. As this is precisely the fiscal arrangement that many of our clients are exploring, we will describe this legal option in our article.
In short, in order to qualify for L. 4646/2019, the person should be a new tax resident in Greece. This means that he should not have been Greek tax resident for at least 7 years out of the 8 past years. Additionally, a minimum investment of 500 000 EUR must be made in Greek real estate or business activities in the country. If these and other conditions are met, the Greek tax resident will be paying 5% on its Bulgarian source dividends.
Bulgarian – Greek double tax treaty
The tax treaty between Greece and Bulgaria doesn’t provide great relief to Greek tax residents. According to Art. 10, p. 1 f the treaty, the dividends paid out in Bulgaria to a Greek tax resident may be also taxed in Greece. According to p. 2 (b) however, the tax rate in Bulgaria should not exceed 10%. Bearing in mind the current 5% tax rate in Bulgaria, the double tax treaty is basically useless.
Paying dividends in Bulgaria to a Greek tax resident will be taxed in Bulgaria at a flat 5% rate. Depending on the fiscal status of the Greek tax resident in Greece, if foreign dividends are taxed at more than 5%, then the difference between the Greek tax rate and the 5% Bulgarian rate must be paid to the Greek authorities. The double tax treaty between Bulgaria and Greece is irrelevant, bearing in mind the low 5% Bulgarian rate.