Tax law governs the public relationships with regard to the allocation of the national revenue and the proceeds to the national budget. These are relationships of pecuniary nature – the so called real relationships. The so called non-real (organisational) relationships are another type of relationships – they occur as a result of illegal development of tax relationships, which are subject to special supervision regulations and authorities.
The most important taxes in the Republic of Bulgaria are as follows:
Value added tax – the 20% value added tax (VAT) is charged to all supplies of goods and services whose destination is within the territory of the country, except those that are exempted from taxation. VAT is introduced as an indirect tax of consumer type, which charges personal expenses by being levied on end consumption and indirectly charges income as well. From technical taxation perspective, VAT is from the group of non-chargeable taxes where the calculation, collection and payment of tax obligations falls within the direct responsibilities of third parties that make the exchange and that are defined as taxpayers in accordance with the Value Added Tax Act (VATA). Taxpayers are all entities that pursue independent economic activity within the meaning of article 3(2) of VATA but in order to be involved in the tax mechanism, such entities need to be registered for the purposes of VATA. VAT is charged repeatedly to the whole taxable value of taxable items and the tax credit mechanism ensures taxation only of the newly added value at the respective stage of the realisation. The end price comprises tax calculated once.
Corporate income tax – “corporate taxation” means taxation of earnings and income of corporate entities. All legal entities are charged with corporate income tax at rate of 10%, except those that are charged with alternative taxes. As far as taxation items are concerned, these are the earnings of legal entities, including at the place of business of a foreign entity on the territory of the country, income of domestic and foreign legal entities that are expressly set out in the law, originating from the territory of Bulgaria, etc. Income originating from the territory of the country comprises the earnings of foreign entities generated from economic activity, income from transactions with financial assets, income from dividend and liquidation quotas. The corporate tax rate on dividend income and liquidation quotas paid to legal entities is 5%, which is rather lower rate in comparison to the tax schemes of other countries.
Individual income tax – this is income from employment and non-employment remunerations and income of sole proprietors. It is provided for in article 12 of the Individual Income Tax Act (IITA), which introduces the common principle. Article 10 of the Act defines the types of income sources. The Act covers six groups of income – income from employment relationships; income from other economic activity; income from rent or other rights of use or property granted in return of consideration; income from transfer of rights or property; other income that the Act expressly defines as income subject to individual income tax. The tax rate for these categories is 10%, except for the dividend income paid by business companies to natural person, which is in the amount of 5%. Depending on the income origin, the Act determines the entities that have obligations with regard to the tax administration – charging, withholding and payment.
Together with our accountants, we assist our customers on all tax law-related matters and procedures and the obligations that might arise in this regard. Our consultations and legal services in the field of tax law comprise:
- Consultations on VATA;
- Legal assistance under the Corporate Income Tax Act;
- Assistance with regard to the procedures under the Tax Insurance Procedure Code;
- Consultations on tax relief schemes;
- Overall communication with tax authorities with regard to customers’ questions and legal help in terms of tax audits;
- Complex procedural representation in case of legal proceedings before all instances with regard to tax audit proceedings.