Withholding Tax

We advise on all aspects of withholding tax matters in Bulgaria, including tax minimization strategies and policies.

Withholding tax is levied on the following sources of income:

Dividends and liquidation quotas distributed by local legal entities in favor of:

• foreign legal entities, with the exception when the dividends are realized by foreign legal entity through a permanent establishment (PE) in Bulgaria
• local legal entities that are not considered to be commercial undertakings

Withholding tax is not levied on dividends and liquidation quotas in case the latter are distributed in favor of:

• local legal entity that participates in the capital of a company as representing the State
• mutual fund
• foreign legal entity that is resident for tax purposes of a EU Member State or is a resident of another state which is a party to the Agreement on the European Economic Area

Subject to withholding tax in Bulgaria is the following income of foreign legal entities when it has not been realized through PE in Bulgaria:

• income from deals with financial instruments issued by local companies or municipalities
• interests, including interests from finance lease
• rental income or from leasing movable assets
• copyright and licensing contracts
• fees for technical services
• remuneration under franchising and factoring agreements
• wages under contract for management of a registered Bulgarian company

The Bulgarian Corporate Income Tax Act stipulates also a number of cases when withholding tax shall not be levied. For example, it shall not be levied on income from debt securities issued by local legal entity that have been admitted for trading on a regulated market in the country or in other EU member state.