Taxation of the Foreign Natural Persons According to the Bulgarian Tax Legislation

From 1st of January 2008 the taxation of the natural persons has been amended in accordance with the EU regulations and the tax rate for the incomes was fixed to 10%.

The tax legislation in Bulgaria recognizes two types of Taxable Persons-local natural persons and foreign natural persons.

By law a foreign natural person is any person who has no permanent residence in Bulgaria and whose centre of vital interests is not situated in Bulgaria as well as a person who is not present within the territory of Bulgaria for a period exceeding 183 days in any twelve-month period.

Any foreign natural person shall be liable to pay tax in respect of any income acquired from sources inside the Republic of Bulgaria, including any income from rent or other provision for use of movable or immovable property.

However, there are some categories of income which are not subject to taxation. These are explicitly listed in the Income Taxes on Natural Persons Act. For example, taxation shall not apply to any income acquired during the tax year from the sale or exchange of:

• one residential immovable property, regardless of the date of acquisition of the said property;

• up to two immovable properties, as well as any number of agricultural and forest properties, provided that more than five years have elapsed between the date of acquisition and the date of sale or exchange

So, if a foreign natural person sales one immovable property during one financial year, the foreign natural person shall not be liable to pay tax for the received income regardless of the date of acquisition of the said property.

In relation to the above the taxation shall apply to the income which is not included in the list of Non-Taxable Incomes. The taxable incomes are for example the incomes from rent and from the sale or exchange of immovable property. For the purpose of determination of the annual amount of tax, first the received annual income from rent shall be reduced with 10 % fixed amount of expenses and the rest of the amount shall be multiplied with 10 % tax rate. The taxable income acquired from the sale or exchange of immovable 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 as the rest of the amount shall be multiplied with 10 % tax rate.

The non-resident natural persons (foreign persons) shall submit an annual tax return, completed in a standard form in respect of the income subject to levy of tax on the aggregate annual taxable amount.
The annual tax return shall be submitted on or before the 30th day of April of the year next succeeding the year of acquisition of the income.

When the income subject to levy of tax originates from rent and is paid by the management company, then the annual tax return shall be submitted by the management company not by the foreign person. Respectively, when the income from rent is paid by local natural person, then the foreign person who has received the income shall be liable to submit the annual tax return.

After the new amendments in the tax legislation the rate of final tax for the income of the natural persons and of the legal entities is 10 %.

However, the advantage of establishing of legal entity is that the expenses which have been made during the financial year are deducted from the annual income and the received amount is treated as a taxable profit. For example, if a foreign person is renting hisher property through a local company then all the expenses, which have been made for utilities, staff, etc. shall be deducted from the received income and the difference shall be taxed with 10 % rate.

When a foreign person receives an income as a natural person, then all the expenses which have been paid for utilities, staff, etc. shall not be deducted from the received income.

Having said the above, we hope that this article will be in assistance for any foreign person, who intends to invest in Bulgaria.