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Taxation of the foreign individuals in Bulgaria

   

Accountacy services Bulgaria

NOMINAL LTD - Accountancy & Taxation

Nominal Ltd - Bulgaria, Burgas is an accounting company, specialized in outsource services in the field of accounting and tax consulting. Nominal Ltd provides bookkeeping, payroll processing, VAT services, accounts preparation, completion of tax returns, company secretarial and company registration services.We offer high quality express accountancy services for individuals and companies from all over the world in every district in Bulgaria.

TAXATION OF FOREIGN INDIVIDUALS IN BULGARIA:

General provisions.
The foreign persons are tax liable for income derived from sources in Bulgaria, and the type of taxation depends on the nature of the income. The income is allocated depending on whether the taxation is effected according to a tax return or with final tax. Where an international treaty, which has been ratified by the Republic of Bulgaria, has been promulgated and has entered into force, contains any provisions different from the provisions of the CITA, the provisions of the relevant international credit shall prevail.

Taxation by the types of income.
Any income, which has its source inside the country referred to in Art. 12, paragraph 2, 3, 5 and 8 herein, accruing to any non-resident individual, were not accruing through a permanent establishment in the Republic of Bulgaria and incomes from sources in the country referred to in Art. 12, paragraph 9 of the CITA of foreign legal persons established in jurisdictions with a preferential tax regime when they are not realized through a permanent establishment in the country, shall be subject to levy of a tax withheld at source which shall be final. The tax shall be withheld by the resident legal persons, the sole traders or the permanent establishments in the country which charge the income to the non-resident legal persons (Art. 195, paragraph 1 and 2 of the CITA). The taxable amount for assessment of the corporation tax shall be the tax profit. The rate of corporation tax shall be 10 per cent (Art. 19 - 20 of the CITA). Any person, who has acquired income from business activity, under Art. 29 of the Income Taxes on individuals Act shall due in advance a tax on the difference between the taxable income and the contributions which the self-insured person is obliged to pay at his own expense for the months of the quarter during which the taxable income was gained, and if the person is not self-insured - between the taxable income and the compulsory social insurance contributions withheld by the employer. The amount of the tax due shall be calculated as the difference under Art. 43, paragraph 1 of the ITNPA shall be multiplied by 10 per cent tax rate - Art. 43, paragraph 1 and 3 of the ITNPA. The income tax of these persons shall be fixed and paid by the companies, which have charged and paid it. The advance income tax from leases, rents and payment is determined and paid up by the recipients of this income for each quarter (by the 15-th of the month following the end of the respective quarter) on the account of the Territorial Directorate of the National Revenue Agency (NRA) per permanent address of the person, who has received the lease, leasehold or rent. Taxability shall not apply to any income derived from ground rent, rent charge or from other onerous provision for use of agricultural land (Art. 13, paragraph 1, item 24 of the ITNPA).
The annual taxable amount for the income from other sources, indicated in Art. 35, items 1 - 6 of the ITNPA shall be determined by debiting the taxable income, as acquired during the tax year, with the contributions which the person is obligated to make for the tax year for his or her own account according to the procedure established by the Health Insurance Act - Art. 36 of the ITNPA. A final tax shall be levied on the income from sources in the Republic of Bulgaria, charged by foreign legal persons and sole proprietors through a permanent establishment or fixed base in the country in favour of foreign individuals resident in jurisdictions with a preferential tax regime:
- Remuneration for services or rights, except where the services or the rights are actually granted;
- Penalties and damages of any kind, except for benefits accrued under insurance contracts - Art. 37, paragraph 1 in relation to Art. 8, paragraph 11 of the ITNPA.

Issuance of a certificate for declared tax profit or tax loss.
As a Result of Economic Activity to any Non-resident Person within the Territory of Bulgaria. The certificate shall be issued on purpose submission to a foreign tax administration. The document shall be issued to foreign legal persons, who would like to obtain a certificate for declared profit or loss as a result of economic activity to a foreigner in the Republic of Bulgaria, as well as for the amount of the tax paid. The foreign legal person shall submit a request for issuance of a document after a pattern, which shall be address to the TD of National Revenue Agency. Competent authority for issuance of the document is the Territorial Directorate of the National Revenue Agency (TD of NRA) where the foreign legal person is registered or where the taxable person is liable to registration. Services, within the meaning given by Chapter Twelve, shall be provided by means of issuance of documents relevant to the recognition, exercise or extinguishment of rights or obligations - Art. 80, paragraph 1 of the Tax and Social Insurance Procedure Code (TSIPC). A revenue authority shall conduct a check of the data, indicated in the application, as well as of the declared profits and losses of economic activity of the foreign person in the Republic of Bulgaria. The document referred to in Art. 88, paragraph 1 shall be issued within seven days after receipt of the request, unless a shorter time limit is provided for. Where the request is submitted care of another territorial directorate, the document shall be issued within fourteen days after the submission thereof - Art. 90, paragraph 1 of the TSIPC. The certificate shall be issued in the Territorial Directorate where the application was submitted. Two copies of the certificate shall be handed to the foreign person. Pursuant to Art. 3, paragraph 3 of the National Revenue Agency Act (NRAA) the Agency shall not collect fees for issuing and certifying documents and certificates.

Issuance of a certificate for final tax, paid by a foreign individual.
Person’s incomes from Sources in the Country under Art. 37 and Art. 38 of the Income Taxes on individuals Act (ITNPA)
A certificate on tax remitted according to the procedure established by the ITNPA by a non-resident individual shall be issued in a standard form at the request of any such person. Any such request (for issuance of a document after a pattern) shall be submitted to the National Revenue Agency territorial directorate whereto the tax return referred to in Art. 50 or in Art. 55 of the ITNPA herein have been submitted or should be submitted. At the request of the foreign person certificate for paid tax on the total annual tax base and/or paid tax on the annual tax basis under Art. 28 shall be issued separately for the different types of income under Art. 8 except in cases where the income is realized through a fixed base - Art. 58 of the Income Taxes on individuals Act (ITNPA).
The document serves for submission to a foreign tax administration and attests the amount of the realised income by a foreign individual, liable to taxation with a final tax, as well as the amount of the final tax paid. The document shall be issued by the Territorial Directorate of the NRA where the declaration was submitted under Art. 55 of the Income Taxes on individuals Act - over the place of registration of the payer of the income. When the payer of the income is not obliged to withhold and remit the tax, the competent authority is the National Revenue Agency territorial directorate exercising competence over the permanent address of the attorney-in-fact or the Sofia Territorial Directorate of the National Revenue Agency where the place of submission of the tax cannot be ascertained - arg. of Art. 57 of the ITNPA. The certificate shall be issued within seven days after receipt of the request, unless a shorter time limit is provided for. Where the request is submitted care of another territorial
directorate, the document shall be issued within fourteen days after the submission thereof - Art.90, paragraph 1 of the TSIPC. The certificate shall be issued in the Territorial Directorate where the application was submitted. Two copies of the certificate shall be handed to the foreign person.

1. Taxation of foreign and local individual on labour.
The obligation for taxation of income from labour relations is assigned to the very persons, recipients of the income, the obligation for calculation, deduction and payment of the tax however is delegated to the employer, who acts as a revenue authority. Pursuant to Art. 18 of the TSIPC any person liable by law to withhold and pay in tax or mandatory social insurance contributions, who fails to withhold such tax or contributions, shall together with the holder of the obligation, be jointly liable the for the tax or social insurance contributions that have not been withheld and paid. In cases where the person has withheld the tax or mandatory social insurance contributions but has failed to pay them, such person shall owe the tax or social insurance contributions not paid in, while liability of the holder of the respective obligation shall be discharged.

2. Taxation of a foreign individual on incomes or expenses from interests. The aspect of taxation of interests as a form of income or expense is treated in three tax acts - ITNPA, VATA and CITA.
A) Under the Income Taxes on individuals Act (ITNPA)
The income from interests of the individuals and sole proprietors is taxable under ITNPA. The taxation of paid-up interests by a local person to a foreign individual is regulated in Art. 8, paragraph 6, item 4, Art. 13, paragraph 1, item 8 - 10, Art. 35, item 3, Art. 37, paragraph 1, item 3 of ITNPA.
B) Under the Value Added Tax Act
The negotiation, the granting and the management of credit for a consideration (interest) by the person granting it, including the granting, negotiation and management of credit upon supply of goods pursuant to a lease contract shall be exempt from Value Added Tax.
C) Under the Corporate Income Taxation Act
The tax rate the tax on the income from interest, any copyright and licence royalties is 5 percent where the following conditions are simultaneously fulfilled:
- an actual possessor of the income is a foreign legal person from a state - member of the European Union, or place of business in a country - member of the European Union, of foreign legal person from a state - member of the European Union;
- local legal person - payer of income, or the person whose place of business in the Republic of Bulgaria is a payer of income is a person connected with the foreign legal person - holder of income or a person whose place of business is the beneficial owner.
When the income, taxable to the tax is levied at a higher rate, the income recipient is entitled to be reimbursed the tax. Reimbursement shall be effected under the terms and procedure of the Administrative Procedure Code, but not later than one year of filing the request for reimbursement - Art. 200a of the CITA.

3. Taxation of foreign persons - partners in companies
The income accruing to any non-resident legal persons which are shareholders or members of resident transferring or acquired companies from acquisition of shares or interests as a result of transformation shall be taxed or shall be exempted from tax withheld at source according to the standard procedure established by the CITA at the date of transformation.

4. Income from rendered technical services
The income calculated by the tax liable persons, specified in Art. 12, paragraph 5 of CITA, to foreign persons and companies, provided, they have not been realized at the place of economic activity, shall be imposed with a final fee at the source. Pursuant to § 1, item 9 of the CITA "Technical assistance fees" shall be the payments from a source inside the Republic of Bulgaria for erection or installation of tangible assets, as well as any services of a consulting nature and marketing research as provided by any non-resident person. The expenses on training and vocational training according to the procedure and under the terms established by Chapter Eleven of the Labour Code shall not be treated as technical assistance fees.

5. Taxation of foreign persons for income from rents
The taxable amount for assessment of the tax withheld at source on any income accruing to any non-resident legal persons from disposition of immovable property shall be the positive difference between the selling price and the documented cost of acquisition of the immovable property - Art. 199, paragraph 4 of the CITA. Any income from rent, which has its source inside the country, accruing to any non-resident individual, were not accruing through a permanent establishment, shall be subject to levy of a tax withheld at source which shall be final (Art. 195, paragraph 1 of the CITA). The amount of tax shall be determined by multiplying the taxable amount by the rate of tax (Art. 6 of the CITA). Where the tax referred to in Art. 194 and Art. 195 herein has not been withheld and remitted according to the relevant procedure, the said tax shall be due in solidarity by the persons which incur tax liability for the relevant income - Art. 203 of the CITA. Any payers of income withholding the tax at source under Art. 194 herein shall be obligated to remit the taxes due as follows:

1. within three months after the beginning of the month succeeding the month during which a decision was made on distribution of dividends or shares in a liquidation surplus: in the cases where the owner of the income is a resident of a State wherewith the Republic of Bulgaria has an effective convention for the avoidance of double taxation;

2. not later than at the end of the month succeeding the month during which a decision was made on distribution of dividends or shares in a liquidation surplus: in all other cases.

Any payers of income withholding the tax at source under Art. 195 herein shall be obligated to remit the taxes due as follows:

1. within three months after the beginning of the month succeeding the month of charging of the income: in the cases where the owner of the income is a resident of a State wherewith the Republic of Bulgaria has an effective convention for the avoidance of double taxation;

2. not later than at the end of the month succeeding the month of charging of the income: in all other cases.

The tax due shall be remitted to the relevant National Revenue Agency territorial directorate exercising competence over the place of registration or over the place where the payer of the income is registered (Art. 202, paragraph 1, 2 and 3 of the CITA). Interest according to the Interest on Taxes, Fees and Other State Receivables Act shall be due on any taxes which are not remitted when due, including any tax prepayments - Art. 9 of the CITA.6.

Taxation upon transfer of real estates
Any income derived from use, sale, exchange or other transfer of immovable property, including any such transfer of an undivided interest in or a limited right in rem to any such property situated within the territory of the country, shall have its source inside the country - Art.8, paragraph 10 of the ITNPA. The taxable income accruing from the sale or exchange of immovable property, including of limited rights in rem to any such property, shall be determined by debiting the positive difference between the selling price and the cost of acquisition of any such property with 10 per cent expenses (Art. 33, paragraph 1 of the ITNPA). A final tax shall be levied on the following income from a source inside Bulgaria, charged/paid in favour of any non-resident individual any income from sale, exchange or other onerous transfer of immovable property (Art. 37, paragraph 1, item 10 of the ITNPA). The income of local legal persons from such deals is included in their gross profit, which is subject to taxation under CITA. The taxable amount for assessment of the tax withheld at source on any income accruing to any non-resident legal persons from disposition of immovable property shall be the positive difference between the selling price and the documented cost of acquisition of the immovable property - Art. 199, paragraph 4 of the CITA.

7. Taxation of dividends and liquidation shares of foreign persons
Following Art. 194, paragraph 1, 2 and 3 of CITA, a tax withheld at source shall be levied on any dividends and shares in a liquidation surplus, as distributed (apportioned) by any resident legal person in favour of:
1. any non-resident legal persons, with the exception of the cases where the dividends accrue to a non-resident legal person through a permanent establishment in the country;
2. any resident legal persons which are not merchants, including any municipalities.
The tax shall be final and shall be withheld by the resident legal persons distributing dividends or shares in a liquidation surplus.
7.1. Income from dividends
The legal person, which has calculated dividends to the partners is obliged to deduct an income tax, at the rate of 5 % and it is final (Art. 200 of CITA). "Dividend" in the meaning of § 1, item 4 of CITA shall be the distribution in favour of a person, arising from the holding that such person has in the capital of another person, resulting in a reduction of the owners' equity of the latter, including:
a) income from shares;
b) income from participating interests, even in unincorporated associations, and from other corporate rights, where treated as income from shares;
c) hidden profit distribution.
Any distribution which, according to accounting legislation, has been accounted for at the distributing person as an expense shall not be a dividend, with the exception of the cases of hidden profit distribution.
7.2. Income from share participation
The taxable amount for assessment of the tax withheld at source on any income accruing to any non-resident legal persons from acts of disposition of financial assets shall be the positive difference between the selling price of the said assets and the documented cost of acquisition thereof - Art. 199, paragraph 3 of the CITA.
The non-resident legal persons which carry out economic activity in the Republic of Bulgaria through location of economic activity, shall deal with property in such place of business activity or which receive income from a source inside the Republic of Bulgaria are taxable persons under CITA (Art. 2, paragraph 1, item 2 of the CITA).
Any income which has its source inside the country, referred to in Art. 12, paragraph 2, 3, 5 and 8 herein, accruing to any non-resident individual, were not accruing through a permanent establishment, shall be subject to levy of a tax withheld at source which shall be final - Art. 195, paragraph 1 of the CITA. In the event the person who has to deduct tax under CITA does not perform economic activities in Bulgaria, inclusive from place of economic activity, the same is not taxable person under CITA and there are no grounds for taxation under CITA of the realized by the seller positive difference between the selling price or the fair market value of the valuable consideration, as the case may be, and the documented cost of acquisition thereof.
7.3. Liquidation shares
A tax withheld at source shall be levied on any dividends and shares in a liquidation surplus, as distributed (apportioned) by any resident legal person in favour of:
1. any non-resident legal persons, with the exception of the cases where the dividends accrue to a non-resident legal person through a permanent establishment in the country;
2. any resident legal persons which are not merchants, including any municipalities.
The tax shall be final and shall be withheld by the resident legal persons distributing dividends or shares in a liquidation surplus - Art. 194, paragraph 1 and paragraph 2 of the CITA.
The taxable amount for assessment of the tax withheld at source on any income accruing from shares in a liquidation surplus shall be the difference between the market price of the claim by the relevant shareholder or member and the documented cost of acquisition of the shares or interests thereof (Art. 198 of the CITA).

Any payers of income withholding the tax at source under Art. 194 herein shall be obligated to remit the taxes due as follows:
1. within three months after the beginning of the month succeeding the month during which a decision was made on distribution of dividends or shares in a liquidation surplus: in the cases where the owner of the income is a resident of a State wherewith the Republic of Bulgaria has an effective convention for the avoidance of double taxation;
2. not later than at the end of the month succeeding the month during which a decision was made on distribution of dividends or shares in a liquidation surplus: in all other cases - Art. 202, paragraph 1 of the CITA.

8. Franchising
"Franchising" shall be a totality of industrial or intellectual property rights relating to trademarks, trade names, logotypes, utility models, designs, copyright, know-how or patents, granted in return for a royalty, to be used for sale of goods and/or provision of services - § 1, item 10 of the CITA. Any payments received under franchising agreements, charged by resident legal persons, resident sole traders or non-resident legal persons and sole traders through a permanent established or a fixed base in the country or paid by resident individuals or by non-resident individuals who have a fixed base in the country in favour of non-resident legal persons, shall have its source inside the country - Art. 12, paragraph 5, item 5 of the CITA.

9. Factoring
"Factoring" shall be a transaction whereby single or periodic monetary claims arising from a supply of goods or a provision of services are transferred, regardless of whether the person who has acquired the claims (the factor) assumes the risk of collection of the said claims in consideration of the payment of a reward - § 1, item 11 of the CITA. Any payments received under factoring contracts, charged by resident legal persons, resident sole traders or non-resident legal persons and sole traders through a permanent established or a fixed base in the country or paid by resident individuals or by non-resident
individuals who have a fixed base in the country in favour of non-resident legal persons, shall have its source inside the country - Art. 12, paragraph 5, item 5 of the CITA.

Terms for Payment of Due Taxes

1. For income taxable under ITNPA
The tax referred to in Art. 46 herein on the income referred to in Art. 37, paragraph 1, items 1 to 9 and Art. 38, paragraphs 10 and 11 herein shall be withheld and remitted by the enterprise or the self-insured person which or who is a payer of the income not later than at the end of the month succeeding the month in which the income was charged by the enterprise or in which the income was paid by the self-insured person. The tax referred to in Art. 46 herein on the income referred to in Art. 38, paragraph 2 herein shall be withheld and remitted by the enterprise which is a payer of the income not later than at the end of the month next succeeding the month during which the decision on the distribution of dividend was made. The tax referred to in Art. 46 herein on the income referred to in Art. 38, paragraph 3 herein shall be withheld and remitted by the enterprise which is a payer of the income not later than at the end of the month during which the expenses were charged. The tax referred to in Art. 46 herein on the income referred to in Art. 38, paragraph 4 herein shall be withheld and remitted by the enterprise which is a payer of the income not later than at the end of the month during which the share in any liquidation surplus was charged. The tax referred to in Art. 46 on the income referred to in Art. 8, paragraph 11 the shall be deducted and paid by the payer of the income not later than at the end of the month succeeding the month in which the income was charged from the place of economic activity or the fixed base in the country - Art. 65, paragraph 10 the ITNPA. The tax which the payer of the income is obligated to withhold under Art. 42, Art. 43, Art. 44 and Art. 49, paragraph 2 and 5 herein shall be remitted on or before the 10th day of the month succeeding the month during which the tax was withheld (Art. 65, paragraph 1 - 4 and paragraph 11 of the ITNPA).
Where the payer of the income is not obligated to withhold and remit the tax, the tax referred to in Art. 43, 44 and 46 herein shall be remitted by the person who has acquired the income, on or before the 15th day of the month succeeding the quarter of acquisition of the income - Art. 67, paragraph 1 of the ITNPA.
The final annual (licence) tax shall be remitted in four equal payments, as follows:
1. for the first quarter: on or before the 31st day of January;
2. for the second quarter: on or before the 31st day of April;
3. for the third quarter: on or before the 31st day of July;
4. for the fourth quarter: on or before the 31st day of October - Art. 69, paragraph 1 of the ITNPA.

2. For incomes taxable under CITA (taxes from the source)
The taxes due under the VATA shall be remitted by the taxable persons in revenue to the executive budget. The taxes due shall be credited to an account of the National Revenue Agency territorial directorate exercising competence over the place of registration of the taxable persons or over the place where the taxable persons are registered - Art. 8, paragraph 1 and 2 of the CITA.
Monthly tax prepayments shall be remitted on or before the 15th day of the month to which the above mentioned prepayments apply. Quarterly tax prepayments shall be remitted on or before the 15th day of the month succeeding the quarter to which the above mentioned prepayments apply. No quarterly tax prepayment shall be made for the fourth quarter - Art. 90 of the CITA.
Any taxable person shall remit the corporation tax for the relevant year on or before the 31st day of March of the succeeding year after deduction of the tax prepayments remitted for the relevant year - Art. 93 of CITA.
In the event the prescribed terms for payment of the tax have not been observed, it is collected together with the interest for the elapsed period of delay, specified under the Interests on Taxes, Fees and Other Government Collections Act. In the event a tax return has not been filed and with the auditing statement is determined higher tax than the one paid currently or in advance, the interest is due as of the day following the day, on which the tax should have been paid at latest.

 

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