What is the tax regime for seafarers in Bulgaria?

When it comes to taxation of seafarers in Bulgaria, questions often arise such as: “How is the income of seafarers working under a foreign flag declared?”, “What insurance do seafarers owe when working for companies from the European Union or outside it?” and “What are the minimum insurance thresholds for self-insured seafarers?”. These questions show how complex and specific the taxation and insurance regime can be for this sector, bringing together both national and international legal requirements.

Very often, clients are also interested in what expenses they have to incur for insurance as a self-insured person and how health and social insurance are calculated in a hospital. For example, for seafarers working under a foreign flag, the question often arises: “What does it mean to be insured under a foreign flag and how are social and health insurance issues settled in Bulgaria?” These and similar topics are especially relevant for seafarers, since their work usually covers international companies, which gives rise to different insurance regimes depending on the country under whose flag the ships fly.

Other questions that often arise are related to the declaration of income received from countries outside the European Union, as well as what happens when a seafarer has not paid insurance as a self-employed person. The issues of health insurance in sick leave are also relevant, especially for seafarers, who often work in different conditions and in different countries. Many are also interested in what are the minimum insurance thresholds for self-insured persons, especially for 2024.

Elan Consulting helps its clients in cities such as Sofia, Burgas, Nessebar and Sozopol, as well as in other regions of Bulgaria, offering specialized advice on taxation and insurance of seafarers.

What is the term “seafarer” under Bulgarian law and why is it key for taxation?

The term “seafarer” in Bulgarian legislation is precisely defined in § 1, item 54 of the additional provisions of the Personal Income Taxes Act (ZDDFL). This is a natural person who holds an employment position as a member of the crew of a seagoing vessel entered in the ship register of a Member State of the European Union. In order to be qualified as a seafarer, a person must have a certificate of legal capacity and additional or special training acquired under the order of the Ordinance under Article 87, paragraph 1 of the Code of Commercial Navigation.

This definition is key to taxation, as seafarers' income is subject to a specific tax regime depending on who their employer is and under which flag the ship operates. It is important to note that when a seafarer is employed by a foreign employer who does not meet the requirements of § 1, item 27 of the GDPR, the person's income is not subject to advance taxation. In this case, taxation is carried out by filing an annual tax return, using a 10% rate on the annual tax base.

If the seafarer's employer is a domestic or foreign person within the meaning of the law and is considered an “obligated person”, then an advance and annual taxation of income from employment relationships applies. This tax regime ensures that income is treated in accordance with the relevant tax regulations of the country in which the ship is registered. In order to avoid double taxation, Bulgaria applies methods such as tax credit or progressive exemption when seafarers receive income from countries with which it has signed agreements.

It is also important that seafarers sailing under the flag of a country outside the EU are not treated as seafarers within the meaning of Bulgarian law. This makes their taxation and insurance different, which must be taken into account in tax planning and income declaration.

What taxes are imposed on seafarers in Bulgaria who meet the definition of “seafarer” and with what taxes - those who sail under the flag of a country outside the EU?

Seafarers who meet the definition of “seafarer” under Bulgarian legislation are subject to a specific tax regime. We reiterate that according to § 1, item 54 of the Supplementary Provisions of the Personal Income Tax Act (ZDDFL), 'seafarer' means a person who is employed on a ship registered in the register of a Member State of the European Union and holds the relevant certificates of competency and special training. The income of these persons is taxed under certain conditions, which depend on their employer and the place of registration of the ship.

Where a seafarer is employed by a foreign employer who does not meet the definition of employer under § 1, item 27 of the ZDDFL, the income of that individual is not subject to advance taxation under the general rules.

For greater clarity, in the sense of the law, “Employer” means any resident, foreign person carrying out an activity through a place of business or a specific base in the territory of the country, as well as a commercial representation under the Investment Promotion Act, which employs natural persons under employment relations or is a party to a contract for the provision of personnel by a foreign person and any diplomatic representation of another country that is elected to determine, withhold and remit tax on income from legal relationships under item 26 concluded with resident natural persons in connection with the activities carried out by it functions in the Republic of Bulgaria; the election shall be exercised by notifying the competent territorial directorate of the National Revenue Agency by 31 December of the previous year that it wishes to withhold and pay tax under the procedure of this Act for local staff; the election shall apply for an indefinite number of tax years without interruption and may be terminated if within the time limit by 30 November of the previous year, the diplomatic mission shall notify the competent territorial directorate of the National Revenue Agency thereof in writing.

In this case, the taxation of income occurs by filing an annual tax return. The tax base is determined in accordance with Article 25, paragraph 1, and the rate is 10% on the annual basis, and the tax is paid until April 30 of the year following the year of acquisition of the income. If the payer of income is a resident or a foreign person with a certain tax liability, the advance and annual taxation of income occurs according to the standard rules.

Seafarers sailing under the flag of a country outside the European Union are not treated as “seafarers” within the meaning of Bulgarian legislation. This means that their income is not taxed under the special tax regime provided for seafarers. In this case, they fall under the general taxation regime, in which a 10% rate is applied to the taxable income, as provided for in Article 12, paragraph 1 of the ZDDFL. Taxation is carried out in advance if the employer is a local or foreign person registered in Bulgaria, or by annual declaration, if the employer is not obliged under Bulgarian law.

In order to avoid double taxation, Bulgaria applies international agreements that regulate the tax status of income earned by seafarers working abroad. In the presence of an agreement on Avoidance of double taxation(SIDDO), methods such as tax credit or exemption with progression may be applied. These methods ensure that seafarers' income will not be taxed twice — once in Bulgaria and once in the country under whose flag the ship operates.

When is a seafarer considered a tax resident in Bulgaria (resident for tax purposes)?

A seafarer is considered a tax resident in Bulgaria (resident for tax purposes) in cases where he meets certain criteria provided for in the Personal Income Taxes Act (ZDDFL). The main principle for determining tax residence is related to the place of habitual residence and the duration of stay in the country.

A person is considered a resident for tax purposes if he resides in Bulgaria for more than 183 days within a tax year. These days can be consecutive or inconsistent, but if the total number of days in the country exceeds 183, the seafarer is considered a tax resident. This means that regardless of whether the person works on board a ship, if he spends enough time on the territory of Bulgaria, he will be considered a resident for tax purposes.

In addition, a person can also be considered a local if the center of his vital interests is in Bulgaria. This means that if the seafarer's main economic, social and family ties are concentrated in Bulgaria — for example, family, property or basic income — he can also be treated as a resident for tax purposes, even if he does not reside in the country for more than 183 days a year.

It is important to note that if a seafarer is considered a tax resident of more than one country, the double taxation avoidance treaties apply, where the criterion “centre of vital interests” often plays a decisive role in determining resident status. If the center of vital interests cannot be determined with accuracy, the criterion of the duration of residence can be decisive.