Non-residents are taxed inBulgaria on income arising fromBulgarian sources only. You are considered tax resident inBulgaria if you spend at least 183 days there per year or if your main resident home is located in Bulgaria. You will also be obliged to file a tax return detailing your worldwide income in your home (tax resident) country. Where a double taxation agreement exists betweenBulgaria and your home country, which provides for double taxation relief, then a deduction for tax paid in the foreign country can be offset against tax on the same income in your home country. A double taxation agreement exists betweenBulgaria and Ireland / UK.
Tax on purchase:
A new VAT Act was published in 2007.
Transactions with new buildings remain subject to VAT, while transactions with buildings for which the permission to use (also known as Act 16) has been issued prior to 60 months are exempt, unless the seller opts out to treat them as VATable. Transactions with the underlying plots of the buildings are subject to the same rules. The VAT rate in Bulgaria is 20%.
Ongoing property taxes:BulgarianIncome Tax : For non-resident individuals,the applicable tax on rental income will depend on whether the tenant is an individual or a company. If the tenant is a Bulgarian company, the tenant withholds tax@ 10% from gross rents with no deduction for costs. The tenant pays this tax over to the Bulgarian Authorities, quarterly, on your behalf. If the tenant is an individual, s/he must pay gross rents to the landlord and the landlord must payincome tax @10%, quarterly,to the Bulgarian tax office.
Thetax year runs from 1 January - 31 December.
Bulgarian Corporate Tax
A foreign individual who decides to invest in property in Bulgaria has two options:
1. Invest in property which he purchases as an individual.
2. Incorporates a company in Bulgaria and the entity owns the property.
Option one above is valid only if an apartment or a house is bought without the land. The Bulgarian Constitution does not allow foreign individuals to acquire land until 2012. However, the foreign individual can purchase the land via a Bulgarian registered company.Rents earned in a Bulgarian company are taxed at 10% after deduction for costs including loan interest and building depreciation.An annual return is due by 31 March following the relevant tax year end.
While this may appear more tax efficient than if the property was purchased in an individual's own name, consideration must be given to the treatment of gains in a Bulgarian company and more significant the extraction of any profits or gain from the company which could be taxed in your home country at income tax rates eg 41% (Ireland) rather than capital gains tax at 20% (Ireland). Specific tax planning advice to your circ*mstances should be sought.
Local Property Tax (Rates):are payable quarterly and vary per region / Municipality. It includes a 0.15% Inhabited house duty anda 0.16% Waste Collection duty. Transfertaxes:
Bulgarian Capital Gains Tax :For non-residents, withholding tax of 10% isdeducted from Income derived from the sale or exchange of property – this is determined as 90% of the difference (if positive) between the
Withholding tax isdeducted by the buyer of the property and paid overto the Bulgarian Tax Authorities by the end of the month following the end of the quarter in which the change of ownership took place (the Notary Deed date is to be considered as the date of the transaction).
Income from sale or exchange of property is not taxable in
1) the person who receives the income is ordinary resident for tax purposes in any EU member state; and
2) during the Bulgarian tax year the person sells not more than one residential property regardless of the date of its acquisition;
3) during the Bulgarian tax year the person sells not more than two properties, if they have been owned for more than 5 years.
Worldwide income
If you are resident in Ireland or the UK, you will be obliged to declare and file yourBulgarian income in Ireland/ UK also. There is a double taxation agreement between theBulgaria and Ireland / the UK so relief for certainBulgarian taxes will be given against Irish/ UK taxes payable on yourBulgarian income.
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