When it comes to personal income in Bulgaria, questions often arise such as: “Which income is taxable?”, “How is tax calculated?” and “Is there a tax-free minimum for income in 2023?” All these issues are of paramount importance for anyone who wants to understand their obligations to the state and avoid sanctions. According to Personal Income Taxes Act (ZDDFL), taxable income covers most sources of income, but there are also those that remain tax-free. This includes income from the sale of certain types of property, social benefits and some benefits. Many ask themselves: “What is taxable income and how exactly is it calculated?” or “Are there any online calculators to help with the calculation of the tax due?”
In addition, we are often asked: “What exactly does a tax-free minimum mean and how do I know if my income falls into this category?” or “How much percent is total income tax?” For individuals in Bulgaria who receive income from work, the taxable income may vary, depending on the type of income received. Clients are also interested in how to declare various types of income, such as cash on delivery, and whether such payments fall under the scope of taxation. For example, the declaration of income related to the trading of goods online is a question that is often asked, especially when it comes to e-commerce.
Elan Consulting provides clear answers and expert advice to all these questions, helping its clients in Sofia, Burgas, Pomorie, Karnobat, Nessebar and other cities in Bulgaria understand their obligations. Many people are also interested in how personal income tax is calculated, looking for easy and reliable calculators online. For those who are not sure whether they need to file a tax return, our consultants can help with accurate information based on the latest amendments to the legislation.
The terms “taxable income” and “non-taxable income” are of key importance in the Bulgarian tax system, as they determine whether an individual must pay tax on the income he or she receives.
Taxable income is that which is taxable according to Personal Income Taxes Act (ZDDFL). According to Art. 12 (1) of the Act, this includes all income acquired by an individual during the tax year, unless it is explicitly stated as non-taxable. For example, income from employment relationships, rent, disposal of property, as well as income from economic activities are considered taxable and subject to tax on the general annual tax base. When calculating taxable income, some expenses may be deducted, if this is provided for by law.
On the other hand, non-taxable income constitutes categories of income that are not subject to taxation. These incomes are explicitly listed in Article 13 of the Personal Income Taxes Act. For example, income from the sale of real estate under certain conditions is tax-free if more than three years have passed between the purchase and sale of the property. Also, the sale of up to two real estate and agricultural land, provided that more than five years have passed between the acquisition and the sale, is also not subject to tax.
Other examples of tax-free income include social benefits and benefits, including unemployment benefits and physical disability benefits. For example, according to Art. 13, para. 1, item 15, social assistance benefits and supplements under the Law on Persons with Disabilities, as well as under other regulatory acts, are exempt from taxation. Interest on deposits in banks in Member States of the European Union is also not considered taxable income (Art. 13, para. 1, para. 8).
In addition, there are also special rules for certain income. For example, income from the disposal of financial instruments, according to the additional provisions of the law (§ 1, item 11), is also considered non-taxable. Some insurance income, as well as prizes, also fall into the category of non-taxable income if it is provided by a licensed gambling operator (Art. 13, para. 1, para. 20).
It is important to note that non-taxable income may also include specific social or financial benefits, such as income from rent or lease of agricultural land (art. 13, para. 1, item 24), as well as the income of members of diplomatic missions and their families (art. 13, para. 1, item 24). 25).
Non-taxable income that individuals can receive in Bulgaria is explicitly specified in the Personal Income Taxes Act (ZDDFL). Such income is not subject to tax, which exempts persons from the obligation to pay taxes thereon.
Among the most important non-taxable income are those related to the sale of property. For example, income received from the sale or exchange of one immovable residential property, provided that more than three years have passed between the date of acquisition and the date of sale, is tax-free. The same applies to the sale of up to two immovable properties and agricultural or forest land, when more than five years have passed between the acquisition and the sale (according to Art. 13, para. 1, item 1, letters “a” and “b” of the Personal Income Taxes Act).
Another example of non-taxable income is the sale of movable property, unless this is related to trade in road, air or water vehicles, when the period between acquisition and sale is less than one year (art. 13, para. 1, item 2). 2). In this case, sales of movable property such as works of art, collectibles and shares are also not taxed if they are not traded at short notice.
According to the law, income from the disposal of financial instruments is also exempt from taxation, if it is not a commercial activity. This includes shares, shares and other financial assets that are not subject to taxation (Art. 13, para. 1, item 1, para. 3).
In addition, income derived from compulsory and voluntary insurance in Bulgaria or abroad is also tax-free. This applies to both pensions and other benefits received in connection with insurance (Art. 13, para. 1, item 6 et seq. 7). Interest on deposits in banks in countries of the European Union or countries of the European Economic Area is also not subject to taxation (Art. 13, para. 1, para. 8).
Some social benefits, benefits and other cash are also considered non-taxable income. For example, social assistance benefits, unemployment benefits and cash disability benefits are excluded from taxation (Art. 13, para. 1, para. 15). Compensation for forced alienation of property for state needs, as well as insurance benefits in the event of an insured event, are also not subject to taxation (Art. 13, para. 1, item 12 et seq. 14).
Other examples of non-taxable income are monetary and material gains obtained from participation in gambling games organized with a license (Art. 13, para. 1, item 20), as well as scholarships for training in the country and abroad (Art. 13, para. 1, item 1, item 20). 18). Prizes granted by the state to artists and athletes also have a special status, which are also tax-free (Art. 13, para. 1, para. 22).
With regard to income from rent and lease of agricultural land, such income is also not subject to taxation, pursuant to Art. 13, para. 1, item. 24. Persons receiving such income are exempt from the obligation to pay tax on them, which is a significant preference for farmers.
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The term “non-taxable minimum” in Bulgaria refers to that part of the income of individuals that is not subject to tax. That is, if a person's income does not exceed a certain threshold, they are exempt from taxation. In many countries, this threshold is clearly defined and refers to the lowest level of non-taxable income in order to provide social protection for low-income people.
However, in Bulgaria, the existence of a “non-taxable minimum” as such is not directly provided for in the Personal Income Taxes Act (ZDDFL). In the past, there was a real existence of a non-taxable minimum, but in the present it does not apply to all categories of income. Currently, all income, including the minimum wage, is subject to tax on the general annual tax base. The basic tax rate is 10%, which applies to most taxable income of individuals.
However, despite the absence of a general non-taxable minimum for labor income, the law provides for some cases in which there is the possibility of reducing the tax base. Such cases include special tax deductions that can reduce taxable income. For example, persons with more than 50% reduced working capacity may reduce their annual tax base by an amount of up to BGN 7920 (according to Art. 18, para. 1 of the Personal Income Taxes Act). This effectively creates a form of non-taxable income for those persons, since their taxable income is reduced by that amount.
In addition, there are other types of tax deductions that can be considered as part of the concept of a non-taxable minimum. Personal contributions for additional voluntary insurance and health insurance, as well as life insurance premiums, can reduce the annual tax base by up to 10% of the total amount of income (according to Art. 19, para. 1). This is also a kind of protection of certain income that is not taxed.
There are also specific tax breaks for young families and for children, which further reduce the taxable base. The possibility of reducing the taxable amount constitutes, in practice, a form of non-taxable minimum for these persons, since, through these reliefs, their tax debt is reduced.
