What is advance tax in Bulgaria and who is obliged to pay it?

The topic of advance tax in Bulgaria concerns a wide range of issues that are of interest to both individuals and various companies. “What is an advance tax and which companies and individuals are required to pay it?” — this question is often asked, as advance taxation plays a key role in the country's tax system and covers a wide range of income, including rental income, as well as income from abroad. According to Bulgarian legislation, the advance tax is mainly regulated in accordance with Art. 43 of the Personal Income Taxes Act and the Corporate Income Tax Act, which specify the obligations of the various categories of persons.

Interest in the topic includes various aspects, such as “What is advance tax?”, what does it mean for rental income and how it applies to income from abroad, as well as how advance contributions for the upcoming 2024 are calculated and declared. Advance tax covers not only domestic income, but also income from foreign sources, while also including requirements for declaration and payment within certain deadlines. In this article we will try to give comprehensive information on all these issues, focusing on the regulatory requirements and specific obligations for each category of persons and companies that are subject to advance taxation in Bulgaria.

What does the term “advance tax” mean in Bulgaria?

The term “advance tax” in Bulgarian tax legislation means a prior obligation to pay part of the taxes due on income or profits before the end of the tax year. The advance tax is used as a way to distribute the tax burden during the year and to ensure constant revenues to the state budget. According to the provisions of the Personal Income Taxes Act (ZDDFL) and the Corporate Income Tax Act (CPA), persons subject to advance taxation are obliged to calculate and remit this tax within certain periods on the basis of estimated income or profits.

According to Art. 43 of the ZDDFL, the advance tax for individuals is applied to income that is not subject to final tax, such as income from self-employed work, income from rent or from the exercise of an activity as a self-employed person. For such income, the advance tax is withheld and paid by the payer of the income, and in cases where the payer is an individual who is not an enterprise or a self-insured person, the responsibility for payment falls on the recipient of the income himself.

On the other hand, the CPA regulates the advance contributions for corporate tax, which are calculated on the basis of the estimated tax profit for the current year. According to Article 83 of the CPA, taxable legal entities are obliged to make monthly or quarterly advance payments depending on their net income. Persons whose sales revenues exceed BGN 3 000 000 for the previous year make monthly advance payments (Article 84 of the CPA), while the rest make quarterly contributions (Article 85 of the CPA). These advance contributions are determined by formulas including the estimated tax profit and the corporate tax rate, with the aim of ensuring an even and adequate payment of the taxes due during the year.

Advance taxation also covers income from abroad, and taxable persons must determine and declare the amounts due for them in advance. Thus, the advance tax creates a mechanism for a more even distribution of tax liabilities and ensures predictability and financial stability in the state's budgetary system.

What are the types of “advance tax” for individuals and freelancers in Bulgaria, when is it paid and how is it paid?

For individuals, the advance tax in Bulgaria is an important element of the tax system, which covers different types of income and requires specific actions to declare and deposit the tax in stages before the end of the annual tax period. The Personal Income Tax Act (ZDDFL) distinguishes several main categories of income subject to advance taxation, introducing different conditions for withholding and remitting the tax depending on the source of income, the status of the payer and insurance requirements.

The first type of advance tax, which is applied to income from employment relationships, is regulated in Art. 42 of the ZDDFL. According to this provision of the law, the advance tax on income from employment relationships is withheld by the employer on a monthly basis. It is calculated on the monthly tax base, which is defined as the taxable income under Article 24, reduced by the withheld compulsory insurance contributions at the expense of the individual under the terms of the Social Insurance Code and the Health Insurance Act. When determining the monthly tax base, tax deductions are also taken into account, if such are applicable — for example, for persons with reduced working capacity (Article 18, paragraph 2 of the ZDDFL) or other benefits under Article 19, paragraph 2, if they are withheld by the employer. The tax due is calculated by multiplying the tax base at a rate of 10%. It is important to note that the employer is obliged to withhold and pay this tax at the time of the final payment of the monthly income, and if there are partial payments during the month, the tax is levied on the amount of these payments, the final equalization is made upon payment of the full amount of remuneration.

The second type of advance tax refers to income from economic activity, which covers income from professional activities such as the exercise of a liberal profession, as well as from activities of self-employed persons. Pursuant to Article 43 of the ZDDFL, persons who acquire income from business activities under Article 29 owe advance tax on the difference between the taxable income and the compulsory insurance contributions that they are obliged to make for the months of the quarter in which the income was acquired. If the person is not self-insured, this difference is determined after deducting the withheld insurance contributions. The amount of advance tax is 10% of this base. In cases where the payer of the income is an enterprise or a self-employed person, the latter is obliged to withhold and contribute the tax when the income is paid, unless the recipient declares that he is self-insured, in which case he assumes the obligation to pay the tax. This type of advance tax is levied on income paid in the first three quarters of the year by the end of the month following the quarter.

Income from rent or other gratuitous granting of rights or property is also subject to advance taxation under Article 44 of the ZDDFL. In this case, the natural person who acquires rental income is obliged to pay advance tax on the difference between the taxable income determined in accordance with Article 31 and the insurance contributions that the person is obliged to make at his own expense. The tax rate for this income is 10%. If the payer of the rental income is an enterprise or a self-insured person, he has the obligation to withhold the tax and to contribute it when paying the income to the landlord. In the case of rental income, when the landlord is a natural person without insurance status, he must only calculate and pay the advance tax in the order provided by law, observing the deadlines for the quarterly declaration and payment.

Another type of advance taxation covers income from other sources defined in Art. 35 of the ZDDFL, which includes cash prizes, benefits for missed benefits, interest and other income that does not fall into the main categories of taxable income. According to Article 44a of the ZDDFL, such income is subject to advance taxation when the payer is an enterprise or a self-insured person. The amount of tax is again 10% and is withheld by the payer of income upon its payment. In the case of pensioners with reduced working capacity of more than 50%, the advance taxation is applied only after the annual taxable income of the person exceeds BGN 7920, which the person can certify to the payer with an expert decision from TELC or NELC.

Contributions of all these types of advance tax should be made within the time limits specified in the ZDFL — most often by the end of the month following the quarter in which the income was acquired. These provisions ensure the timely receipt of taxes to the budget and allow individuals to distribute the tax burden during the year, instead of paying the entire amount of taxes due at the end of the tax period.

What is the advance tax for Bulgarian companies in essence?

The advance tax for Bulgarian companies represents a predetermined obligation to pay part of the corporate tax on the basis of estimated annual profit. It is a form of advance distribution of the tax burden during the tax year and basically aims to ensure a steady flow of revenue to the state budget, as well as a more even distribution of taxes owed to companies, instead of them paying all corporate tax once after the end of the year.

Legal entities are obliged to make advance contributions, determined on the basis of the expected profit for the current year, as stipulated in the Corporate Income Tax Act (Corporate Income Tax Act). The advance tax is divided into monthly or quarterly installments depending on the amount of sales revenue of the company. Monthly contributions are required from companies with revenues above BGN 3,000,000 for the previous year, while quarterly installments apply to companies with lower revenues.

The calculation of each contribution occurs according to a formula that includes the estimated profit and the corporate tax rate, thus determining the estimated tax for the year. In the event that the annual corporate tax significantly exceeds the total amount of the advance contributions, the company is obliged to pay additional interest on this difference.

What are the types of advance tax for legal entities (companies), in what terms and when is it paid?

For legal entities in Bulgaria, advance taxes for corporate tax are regulated by the Corporate Income Tax Act (Corporate Income Tax Act), which are divided into two main types — monthly and quarterly advance contributions. The basis for these contributions is the estimated tax profit of the taxable person for the current year. According to Art. 83 of the CPA, the obligation for advance taxation does not cover all legal persons — exceptions are made for newly incorporated taxable persons in the first and second year after their incorporation, except in cases where the new company is the result of a transformation under the Commercial Act. Also, legal entities with net sales revenue, which for the year before the previous year does not exceed BGN 300,000, are not obliged to make advance contributions. For legal entities falling under the exceptions, but wishing to make quarterly advance payments, the law allows this by choice, and Article 89, regulating interest under certain conditions, does not apply to them.

Legal entities whose net sales revenue exceeds BGN 3,000,000 for the year prior to the previous year are obliged to make monthly advance contributions for corporate tax. The amount of monthly advance payments is determined by a formula that includes the estimated tax profit (PDP) and the corporate tax rate (CS). These contributions shall be paid for the months of January, February and March until 15 April of the current calendar year and, for the months from April to November, until the 15th of the month to which they relate. For December, the monthly advance payment must be paid by December 1 of the current year.

For legal entities that do not meet the requirement for monthly advance payments, the CPA provides for an obligation for quarterly advance payments. The amount of quarterly contributions is also determined based on the estimated tax profit for the current year and the corporate tax rate. Payments for the first and second quarters are made by the 15th of the month following the quarter, and for the third quarter — by December 1 of the current year. For the fourth quarter, no advance payment is required.

According to Article 87a of the CPA, advance contributions must be declared within the period from 1 March to 15 April of the current year with a declaration according to the model. If the legal entity is newly incorporated by conversion, the corresponding advance payments shall be declared when the first instalment is made after the conversion. Legal entities may also file a declaration of changes in advance contributions by November 15 of the relevant year, if they consider that the contributions will differ significantly from the annual tax due.

Under certain conditions relating to an excess of the annual corporate tax by more than 25% in respect of the advance contributions, interest is due on the amount of the excess. Interest is calculated on the basis of the difference between the annual corporate tax payable and the advance contributions according to the formulas specified in Art. 89 of the CPA.