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Double Taxation in Bulgaria

Find out what double taxation is in Bulgaria, see the list of countries with which Bulgaria has concluded an agreement for the avoidance of double taxation and everything important!

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Double taxation is a complex issue that can affect anyone who has income or business interests in more than one state. We often get questions such as: “What does double taxation mean in Bulgaria and how can I avoid it?”, “What are the countries with which Bulgaria has agreements to avoid double taxation?” or “How are the Treaties for the avoidance of double taxation (DTAA) applied in relations between Bulgaria and Germany, the United Kingdom and other countries?”. In “Elan Consulting” in Sofia, Burgas, Pomorie, Karnobat, Sunny Beach, Aytos, Nessebar, Sozopol, Primorsko and other cities, we offer consultations on issues related to the implementation of SIDO, we provide a table with all countries with which Bulgaria has concluded agreements for the avoidance of double taxation and how to understand the rules for avoiding double taxation and how to understand the rules for avoiding double taxation. Our clients also often ask “Do I have to declare income from abroad?” and “What is a resident for tax purposes and how can I get a certificate of resident online?”. The answer to these questions depends on a number of factors, including the jurisdiction of the resident and the type of income paid to a foreign individual. Our experts can help with clarifications regarding the declaration of employment income from abroad and clarifying whether income from abroad is subject to easier declaration, as well as with questions such as “What do you need to get a tax number in Bulgaria?” or “How do I pay my taxes in Bulgaria if I am a seafarer or a long-term resident?”.

At Elan Consulting, we are available to answer all these questions and provide clear, precise and professional guidance at every stage of tax and financial planning, including with regard to international aspects such as jurisdiction of a resident for tax purposes and certification of income from foreign sources.

Table with Double Taxation Avoidance Agreements, concluded by Bulgaria

Country with which Bulgaria has concluded an agreement to avoid double taxation Date of signing Date of entry into force Link to the text of the agreement
Albania 09-12-1998 01-07-1999 Agreement
Algeria 25-10-1998 11-04-2005 Agreement
Armenia 10-04-1995 01-12-1995 Agreement
Austria 20-07-2010 03-02-2011 Agreement
Synthesized text of the agreement
Azerbaijan 12-11-2007 25-11-2008 Agreement
Bahrain 26-06-2009 06-10-2010 Agreement
Belarus 09-12-1996 17-02-1998 Agreement
Belgium 25-10-1988 28-11-1991 Agreement
Canada 03-03-1999 25-10-2001 Agreement
China 06-11-1989 24-05-1990 Agreement
Croatia 15-07-1997 30-07-1998 Agreement
Czech Republic 09-04-1998 02-07-1999 Agreement
Denmark 02-12-1988 23-03-1989 Agreement
Egypt 05-06-2003 11-05-2004 Agreement
Estonia 13-10-2008 30-12-2008 Agreement
Finland 25-04-1985 21-04-1986 Agreement
France 14-03-1987 01-06-1988 Agreement
Georgia 26-11-1998 01-07-1999 Agreement
Germany 25-01-2010 21-12-2010 Agreement
Protocol for amendment
Greece 15-02-1991 22-01-2002 Agreement
Hungary 08-06-1994 07-09-1995 Agreement
India 26-05-1994 23-06-1995 Agreement
Indonesia 11-01-1991 25-05-1992 Agreement
Iran 28-04-2004 29-06-2006 Agreement
Ireland 05-10-2000 05-01-2001 Agreement
Israel 18-01-2000 31-12-2002 Agreement
Synthesized text of the agreement
Italy 21-09-1988 10-06-1991 Agreement
Japan 07-03-1991 09-08-1991 Agreement
Jordan 09-11-2006 14-02-2008 Agreement
Kazakhstan 13-11-1997 24-07-1998 Agreement
Kuwait 29-10-2002 23-02-2004 Agreement
Latvia 04-12-2003 18-08-2004 Agreement
Lebanon 01-06-1999 10-11-2001 Agreement
Lithuania 09-05-2006 27-12-2006 Agreement
Luxembourg 27-01-1992 15-03-1994 Agreement
Synthesized text of the agreement
Malta 23-07-1986 01-01-1988 Agreement
Morocco 22-05-1996 06-12-1999 Agreement
Moldova 15-09-1998 24-03-1999 Agreement
Mongolia 28-02-2000 17-02-2003 Agreement
Netherlands 14-09-2020 31-07-2021 Agreement
North Korea 16-06-1999 07-01-2000 Agreement
Norway 22-07-2014 30-07-2015 Agreement
Pakistan 21-05-2019 20-02-2020 Agreement
Poland 11-04-1994 10-05-1995 Agreement
Synthesized text of the agreement
Portugal 15-06-1995 18-07-1996 Agreement
Republic of Korea 11-03-1994 22-06-1995 Agreement
Romania 24-04-2015 29-03-2016 Agreement
Russia 08-06-1993 08-12-1995 Agreement
Saudi Arabia 29-11-2017 01-10-2018 Agreement
Serbia 14-12-1998 10-01-2000 Agreement
Synthesized text of the agreement
Singapore 13-12-1996 26-12-1997 Agreement
Slovakia 12-11-1999 02-05-2001 Agreement
Slovenia 20-10-2003 04-05-2004 Agreement
Synthesized text of the agreement
South Africa 29-04-2004 27-10-2004 Agreement
Synthesized text of the agreement
Spain 06-03-1990 14-06-1991 Agreement
Sweden 21-06-1988 28-12-1988 Agreement
Switzerland 19-09-2012 18-10-2013 Agreement
Syria 20-03-2001 04-10-2001 Agreement
Thailand 16-06-2000 13-02-2001 Agreement
Turkey 07-07-1994 17-09-1997 Agreement
Ukraine 20-11-1995 03-10-1997 Agreement
United Arab Emirates 26-06-2007 16-11-2008 Agreement
United Kingdom 26-03-2015 15-12-2015 Agreement
United States 23-02-2007 15-12-2008 Agreement
Uzbekistan 24-11-2003 29-10-2004 Agreement
Vietnam 24-05-1996 04-10-1996 Agreement
Zimbabwe 12-10-1988 29-01-1990 Agreement

What does the term “double taxation” mean in Bulgaria?

The term “double taxation avoidance” refers to the legal mechanism by which the same income or property is not taxed equally in two or more countries. This is achieved through the conclusion of international agreements between States that regulate the specific rules for the taxation of income and property of persons who are local to one of the Contracting Parties, but who earn income or own property in the other country.Agreements for the avoidance of double taxation that Bulgaria has concluded with different countries, aim to avoid double taxation of income and property and to prevent tax evasion.

The main methods of avoiding double taxation are the “exemption method” and the “tax credit method”. According to the Corporate Income Tax Act, for example, the tax credit method allows individuals to deduct the tax paid abroad from the tax due in Bulgaria on the same income (Art. 92, para. 5 of the CPA).

The agreements also set out the criteria for determining “resident for tax purposes” and the procedure for issuing resident certificates, which are necessary for the application of those agreements. For example, in order for a person to be considered a resident for tax purposes in Bulgaria, he must meet certain conditions specified in Article 4 of the relevant agreement that Bulgaria has signed with another country.

In addition, where income is taxable in both countries, the Treaties also regulate the arrangements for tax treatment, such as the exemption of certain types of income from taxation in one of the States or the application of reduced tax rates (Article 10, paragraph 2, of the Convention).

This means that treaties may provide for a different tax regime depending on the type of income, such as dividends, interest or royalties, and establish mechanisms for the resolution of tax disputes between countries.

In addition, “double taxation avoidance” is also aimed at preventing abuse of tax treaties, such as establishing rules to prevent tax evasion, for example by transferring income or property to jurisdictions with lower tax rates or by using other forms of aggressive tax planning (cf. Article 7, paragraph 2, of the Convention).

What it is The multilateral convention on the application of measures relating to tax treaties to prevent the reduction of the taxable base and the transfer of profits?

The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (also known as the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting or BEPS) aims to introduce coordinated and effective measures against aggressive tax planning. This planning results in an artificial transfer of profits to low- or zero-tax jurisdictions, reducing the total tax base of states and causing corporate tax losses. The Convention aims to ensure that profits are taxed where essential economic activities are carried out and where value is created, by introducing rules to prevent abuse of tax treaties and improving mechanisms for resolving tax disputes.

The Convention amends existing conventions for the avoidance of double taxation by adding measures to address certain hybrid discrepancies, prevent abuse of tax treaties and artificial avoidance of establishment status. It also introduces mechanisms to ensure rapid and coordinated implementation of these measures in an international context, without the need to renegotiate each agreement separately (Article 1, paragraph 1, of the Convention).

The main measures imposed by the Convention include preventing abuse of tax treaties by using the “Principal Purpose Test”, which precludes the granting of tax benefits where the principal or one of the primary purposes of a transaction or structure is to obtain those benefits. In addition, the Convention introduces a Simplified Limitation on Benefits provision, which limits tax benefits to persons who do not meet certain criteria (Article 7 (1) of the Convention).

The Convention also imposes rules to extend the minimum holding period necessary for the application of reduced rates or exemption from tax on dividends, as well as measures to prevent abuse of the rights of parties to tax treaties (Articles 8 (1) and 9 (1) of the Convention). Those measures shall ensure that the arrangements are used correctly and in accordance with the main objective of preventing double taxation.

The Convention also includes mechanisms to improve the resolution of tax disputes between States by strengthening mutual agreement procedures and encouraging arbitration where necessary. This ensures that tax disputes that arise as a result of different interpretations or application of tax treaties will be resolved in a fair and effective manner. According to Article 16 of the Convention, States undertake to work together to resolve any difficulties or doubts concerning the interpretation or application of double taxation treaties.

Another important measure in the Convention is the introduction of rules to deal with artificial avoidance of establishment status. This includes revising existing definitions and criteria relating to the concept of 'place of business' in order to prevent practices such as fragmentation of activities in order to avoid taxation in the country where the essential economic activities take place. Under Articles 12 and 13 of the Convention, States are required to apply rules to ensure that the place of business is determined correctly and taxed in accordance with economic realities.

The Convention provides an opportunity for States to make reservations concerning the application of certain of its provisions, depending on their national interests and existing tax policies. However, any reservation must be clearly stated and justified before the Depositary of the Convention. States may choose different options for applying the rules for the avoidance of double taxation, with the possibility of maintaining their existing agreements or amending them in accordance with the new requirements (Article 28 of the Convention).

The aim of the Multilateral Convention is to create a unified and effective global approach to combating tax avoidance by improving transparency, strengthening trust between countries and protecting the fiscal sovereignty of each country. The Convention is an important tool in international efforts to tackle aggressive tax planning and to ensure fair and transparent taxation on a global scale.

List of countries with which Bulgaria has concluded agreements for the avoidance of double taxation.

Bulgaria has concluded treaties for the avoidance of double taxation with a number of countries, which regulate the rules for the taxation of personal income and property in order to avoid double taxation. The agreements are in accordance with the Corporate Income Tax Act, which regulates the taxation of profits of domestic and foreign legal entities.

Among the countries with which Bulgaria has concluded such agreements are countries such as Austria, Armenia, Azerbaijan, Bahrain, Belgium, Canada, Cyprus, China, Denmark, Egypt, Estonia, France, Germany, Greece, India, Indonesia, Ireland, Italy, Luxembourg, Northern Macedonia, Poland, Portugal, Romania, Russia, Saudi Arabia, Singapore, Slovakia, South Africa, Spain, Sweden, Switzerland, United Kingdom (UK), United States of America (USA), Turkey, Ukraine, Vietnam and Zimbabwe.

These agreements aim to avoid double taxation of income by providing mechanisms for the exemption or deduction of taxes paid in one country from taxes payable in another. For example, under Article 23 (1) of many of these treaties, income that is taxed in one of the Contracting States may be exempt from tax in the other State or be subject to a reduced tax rate.

The agreements also lay down the conditions under which persons may be considered local for tax purposes and provide for the issuance of resident certificates which are necessary for the application of those agreements. According to Art. 4 of the Corporate Income Tax Act, individuals must meet certain conditions in order to qualify as residents for tax purposes in Bulgaria.

In addition, these agreements also contain provisions that apply where a person or company is considered to be resident in more than one country. In such a case, various criteria, such as the place of management and control of the enterprise, are used to determine which country has the right to tax the income.

These international arrangements are crucial for avoiding double taxation and for ensuring fair taxation of cross-border income. They provide Bulgarian taxpayers with clarity and certainty regarding their tax obligations, while protecting their financial interests in an international context.

What are the procedures for resolving disputes on the implementation of SIDS between two EU Member States?

Procedures for the settlement of disputes concerning the application of double taxation treaties between Member States of the European Union are established in order to ensure clarity and legal protection for persons affected by differences in the interpretation and application of those conventions or other international treaties of a similar nature. These procedures are regulated in detail in the Corporate Income Tax Act (CPA) and aim to facilitate the resolution of such disputes in a fair and effective manner.

Pursuant to Article 134a (1) of the CPA, any person who is resident for tax purposes in Bulgaria or another EU Member State and whose taxation is directly affected by a dispute has the right to lodge a complaint with the competent authority — the Minister of Finance or an official authorised by him (Article 134b, para. 3).

The complaint must be lodged within three years of receipt of the first notification of the action giving rise to the dispute, regardless of whether the person has availed himself of other remedies under the national law of Bulgaria or of another Member State concerned (Article 134c, para. 1).

After lodging the complaint, the competent authority shall acknowledge receipt of the complaint within two months and inform the competent authorities of the other Member States concerned of the complaint and of the language it will use during the proceedings (Article 134c, para. 2).

The complaint must contain the name of the applicant, a description of the relevant facts and circumstances, information about the tax periods to which the dispute relates, as well as copies of all supporting documents related to the matter (Art. 134g, para. 1). If the complaint is accepted for examination, the competent authorities of the Member States concerned shall endeavour to resolve the matter in dispute through a mutual agreement procedure within two years of the last notification by the Member State concerned of its decision to accept the complaint (Article 134f, para. 1).

This period may be extended by one year upon a reasoned written request from a competent authority of the Member State concerned (Article 134f, para. 2). If an agreement is reached within that period, the competent authority shall issue a decision on the basis thereof and shall immediately inform the person concerned (Article 134f, para. 3). If no agreement is reached, the person concerned has the right to request the establishment of an advisory committee comprising independent experts and representatives of the competent authorities of the Member States concerned (Article 134g, para. 1). The commission must be formed within 120 days of receipt of the request for its composition (Art. 134g, para. 4).

The Advisory Commission aims to deliver an opinion on the disputed issue within six months of the date of its establishment, which may be extended by another three months if necessary (Art. 134p, para. 1).

The opinion of the advisory commission is binding on the competent authorities if they do not agree on the resolution of the disputed issue within six months after its receipt (Art. 134r, para. 2). If the opinion of the commission is accepted by the person concerned and all the conditions for its implementation are met, it is enforceable and not subject to appeal (Art. 134r, paras. 4 and 5).

In addition, the competent authorities of the Member States concerned may agree on the establishment of an Alternative Dispute Resolution Commission, which may propose other procedures and means for binding resolution of the disputed issue, such as arbitration (Article 134l (1) and (4)).

The aim of these procedures is to ensure a fair and effective resolution of tax disputes related to double taxation, protecting the rights of taxpayers and supporting cooperation between tax administrations of EU Member States. This creates legal certainty and facilitates the resolution of disputes in an international tax context.

How do double taxation treaties apply to non-residents?

Agreements for the avoidance of double taxation (SIDDO) in relation to foreign persons are applied according to a certain procedure described in the Tax and Insurance Procedure Code. The main purpose of these agreements is to prevent double taxation of income and property by granting tax benefits to non-residents in accordance with the provisions of the relevant treaties.

The procedure for applying the tax deductions for foreign persons provided for in the SIDDO is regulated in Article 135, paragraph 1 of the Tax and Insurance Procedure Code. According to this provision, agreements are applied only after the foreign person has certified the grounds for doing so to the revenue authorities. The grounds to be certified are set out in Article 136 and include evidence that the person is resident for tax purposes of the other country within the meaning of the relevant SIDO, that he is the holder of the income from a source in Bulgaria, that he does not have a place of business in Bulgaria, and that all the special requirements for the application of the SIDO have been met (Article 136)., t. 1-4).

In order to be recognized as the holder of the income, the foreign person must meet certain conditions specified in Art. 136a. It must have the right to dispose of the income and assume the risk of the activity from which the income is generated and must not act as an income directing company. An income management company is one that is controlled by persons who would not be entitled to tax benefits if the income were realized directly by them, and does not carry on business activities outside the possession or administration of the rights or assets from which the income is realized (art. 136a, para. 2).

The process of certifying the grounds for applying the SIDO involves submitting a request according to a template approved by the Executive Director of the National Revenue Agency (Art. 137, para. 1). This request must be accompanied by written evidence of the type, basis and amount of the corresponding income. Documents that can be presented as evidence include written contracts, resolutions of general meetings on dividends paid, documents on the transfer of shares or bonds, certificates of ownership and other documents certifying ownership and the amount of income (Art. 138, para. 2).

The application and accompanying documents are submitted to the territorial directorate of the National Revenue Agency for the registration of the payer of income or to the directorate where he is subject to registration. If the payer is not subject to registration, the documents are submitted to the Territorial Directorate in Sofia (art. 139, para. 1-2).

When income is realized on the basis of contracts with a long term or by the same person on the same basis, the claim is filed once, except when it concerns income from dividends that are not considered to be long-term income (art. 140, para. 1-2).

In cases where the total amount of income from a source in Bulgaria paid to a foreign person does not exceed BGN 500,000 per year, the grounds for application of SIDO can be certified directly to the payer of the income, without submitting a request to the revenue authorities (Art. 142, para. 1). If the income exceeds this threshold, the general rules of certification under Art. 137-139.

Following the submission of the request, the revenue authorities shall carry out an inspection or audit to determine whether there are grounds for applying the SIDS. An opinion on the existence or absence of grounds for the application of the SIDS shall be issued within 60 days of the submission of the request, and failure to pronounce within this period shall be considered a positive opinion on the application of the SIDS (Article 141, paragraphs 1 and 3). If the foreign person does not comply with the requirements or does not correct the deficiencies within 15 days, the revenue authorities may issue an opinion on the absence of grounds for the application of SIDS, which is subject to appeal (Article 141, paragraphs 2 and 4).

This procedure ensures legal certainty and protection of the rights of foreign persons, ensuring the correct application of international tax treaties and preventing double taxation.
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