Bulgaria, officially the Republic of Bulgaria, is a country in Southeast Europe which is located at the heart of the Balkans and has a strategic logistics hub. Bulgaria is Europe’s 16th-largest country and the capital and largest city is Sofia.
Bulgaria has an open, upper middle-income range market economy where the private sector accounts for more than 70% of GDP. From a largely agricultural country with a predominantly rural population, Bulgaria had transformed into an industrial economy with scientific and technological research. Its market economy is part of the European Single Market and mostly relies on services, followed by industry, especially machine building and mining, and agriculture.
The official language is Bulgarian, and the official currency is the Bulgarian Lev (BGN) which is pegged to the euro.
It has the 2nd-lowest government debt in the EU and one of the lowest budget deficits, making Bulgaria one of the most stable countries in which to do business.
Although Bulgaria isn’t part of the Eurozone, Bulgaria is a member of the European Union, NATO, and the Council of Europe. The country is a founding state of the Organization for Security and Co-operation in Europe (OSCE) and has taken a seat on the UN Security Council three times.
Ease of doing business in Bulgaria
Bulgaria is ranked 59th among 190 economies in the ease of doing business, according to the latest edition of the World Bank Group’s Doing Business 2019: Training for reform report.
*Bulgaria’s performance in the latest Doing Business report.
Bulgaria occupies top positions, respectively – 21st place under the criteria “Trading across borders” and 33rd place – according to the criteria “Protecting minority investors”.
According to Eurostat, Bulgaria ranks 3rd in the European Union in terms of the lowest government debt with 19.8% of GDP and macroeconomic indicators. The Government of the Republic of Bulgaria maintains strict financial discipline, placing it in the top three of the European Union.
Bulgarian Payroll– Basic Facts
Companies must have a legal entity before processing payroll.
The general provisions regarding the Bulgarian payroll system are settled in accordance with the Bulgarian Labor Code and Bulgarian Social Insurance Code.
Employers in Bulgaria are required to withhold income tax and social tax payments from employee’s paychecks in addition to upholding labor law standards for compensation and benefits. Foreign workers in Bulgaria are subject to the same tax regulations as Bulgarian workers.
Income tax is payable regardless whether the employee is a local or a foreigner. As residents are considered any individuals who have been present in Bulgaria for 183 days or more in any 12-month period or if their center of vital interest is in Bulgaria. Individuals who have a permanent address in Bulgaria but do not have their center of vital interest within the country are not considered tax residents.
Resident individuals are taxed on their worldwide income. Nonresident individuals are taxed only on their Bulgaria-sourced income.
When setting up operations in Bulgaria, multinationals should consider that it is not mandatory for the employer to have an in-country bank account. However, it is mandatory that employees are paid from an account held by the employer.
The tax year in Bulgaria is from January 1st to December 31st. Taxes must be submitted by the 25th date of the month for the previous month. Late submission can result in a penalty of €250.00 – €500.00 and interest on the amount owed.
Tax and Social Security Considerations
In Bulgaria there is a 10% flat corporate tax rate. The government offers reduced corporate tax for investors that are investing in backward regions (less industrialized) or regions that have high unemployment.
The entities liable to pay corporate tax are:
- The local legal entities –trade companies
- The local legal entities that are not traders
- The local unincorporated entities and the insurance funds established
- The foreign legal entities that carry out economic activity in Bulgaria from a permanent establishment;
- The foreign unincorporated entities that carry out economic activity in Bulgaria from a permanent establishment.
The returns must be submitted and paid (if there are no advance returns) by 31st March of the next calendar year.
Individual Income Tax
All income earned in Bulgaria is taxed a flat rate of 10%.
VAT – 20% standard rate.
- Dividends – 5%
- Interest – 10%
- Royalties – 10%
- Branch remittance tax – No
- Technical service fees – 10%
Social insurance is administered by the National Social Security Institute (NSSI) in Bulgaria. The social insurance system covers pensions, sickness, disability, maternity, funeral benefits, unemployment and a childcare benefit.
Employers are also required to contribute to public health insurance, which is managed by the National Health Insurance Fund (NHIF). Social security contributions and health insurance contributions are collected by the NRA.
The total social security insurance contribution ranges from 32.7% to 33.4%.
- employer’s portion – ranges from 18.92% to 29.62%
- employee’s portion – 13.78%
The base for the contribution is total income, capped at BGN 3.000 per month. Minimum thresholds per position and industry also apply.
- Capital duty – No
- Payroll tax –No
- Real property tax –The owner of real property is subject to a real property tax ranging from 0.01% to 0.45% of the higher of the gross book value or the tax value of nonresident property, and from 0.01% to 0.45% of the tax value of residential property. The actual rate is determined annually by the municipality.
- Transfer tax – Transfer tax is imposed on the sale or exchange of immovable property and motor vehicles, at rates ranging from 0.1% to 3%, determined by the municipality.
- Other – Insurance contracts covering risks in Bulgaria are subject to a 2% tax on the insurance premiums.
Compensation and Benefits
Minimum wage: Bulgaria has a government-mandated minimum wage which is BGN 560 per month (286 EUR per month) for 2019. Annually the amount is 3436 EUR per year.
Wage payment: Salaries are paid on monthly basis and the payday is agreed between the employer and employee.
Hours of work: The standard working time in Bulgaria is 8 hours per day over a 40-hour (five-day) week.
Overtime: Overtime cannot exceed:
- 150 hours annually
- 30 hours monthly (or 20-night hours)
- 6 hours daily (or 4-night hours)
Overtime pay is paid at:
- 150% on working days
- 175% on holidays
- 200% on public holidays
Holidays: Public holidays are not included in the calculation of annual paid leave. There are 16 official public holidays in Bulgaria. See the full list with holidays in Bulgaria in 2019.
- Paid annual leave: Before being entitled to annual paid leave, the employee must work for a minimum of eight months. According to the Bulgarian Labor Code, all employees are entitled to at least 20 working days of paid annual leave. If there is an additional agreement between the employer and the employee, this period can be longer but not shorter. If the employment contract is terminated and the employee has unused days off, these days should be paid by the employer as compensation.
- Sick leave: The employee must have at least 6 months’ work experience recognized for social security purposes to be eligible for the sick leave payments.
This period of experience is not required if the pay is related to:
- A labour accident or a professional illness
- Employees under the age of 18
The employer must cover 70% of the employee’s wages for the first 3 days of the sick leave. The National Social Security Institute must cover the rest of the sick leave, after the employee provides necessary documentations.
Sick leave or injury indemnity payments amount to either:
- 80% of an employee’s average daily gross wage, where the maximum social security base is capped at 3000 BGN.
- 90% of an employee’s average daily gross wage in the case of a labour accident or professional illness, where the maximum social security base is currently capped at 3000 BGN.
The maximum allowed sick leave on an uninterrupted basis is 18 months (this applies for serious disease).
- Maternity leave: Mothers are entitled to up to 410 days of paid maternity leave at 90% of the mother’s salary, 45 days of which must be taken prior to the birth of the child.
- Paternity leave: Fathers are entitled to 15 days leave paid at 90% rate.
- Parental leave: Until a child is 2 years of age, mothers are entitled to take leave at minimum salary. Both fathers and grandparents are eligible to take this leave in place of mother if necessary.
- Marriage leave: Employers must give employees 3 days of paid leave in the event of their marriage.
- Bereavement leave: Employers must give employees 2 days of leave to attend the funeral of a family member.
Bonuses and special benefits: Bulgaria does not mandate employers to provide bonus payments to employees.
Termination of employment: Employer must provide employee with a month written notice regarding the termination. Notice period can be up to 3 months if stated in contractual agreement. Workers on indefinite contracts must provide at least 1 months notice, but can be as much as 3 months by contractual agreement. Workers on fixed term contracts must provide 3 months notice.
Employees are entitled to a severance pay of their one month’s average salary.
Workers’ compensation: Workers’ compensation is covered by social taxes.
Record keeping: Tax records generally must be kept for a minimum of 10 years. All payroll-related documents should be stored for 50 years, and all other documents should be stored for 3 years.
Foreign workers in Bulgaria
Visas: EU nationals, Schengen members, citizens of European Economic Area (EEA) member states and Swiss citizens may enter Bulgaria with a valid ID or passport and reside freely within the country for up to 3 months.
All other individuals must obtain a work permit from the Employment Agency through the intended employer. The work permit is valid for 1 year and can be extended for 2 consecutive years.
EU, EEA or Swiss individuals may be issued temporary residence certificates for a term of up to 5 years. After these 5 years, they can apply for a permanent residence certificate if they have resided legally in Bulgaria for more than 5 years.
Non-EU individuals who have entered Bulgaria with a Type D visa may be issued a residence permit valid for up to 1 year.
Taxes: Foreign workers are taxed on their Bulgarian-source income at 10% flat rate. Foreigners also contribute the same social security rate as Bulgarian citizens.
Bulgarian residents in the US: Bulgarian citizens working in the United States must comply with the appropriate visa requirements, labour and tax laws. For tax purposes, Bulgarians are subject to the US taxation on income earned in the US, unless they can claim an exemption under certain tax treaty provisions, or they work under specific visa types that exempt earnings from taxes. State and local taxation also can apply.
Bulgaria has entered into more than 70 income tax treaties, including an income tax treaty with the United States. Learn more here.
Bulgaria has the most favorable tax regime in Europe and a low cost of doing business across the board, however navigating the local corporate environment can be difficult without having professional help on board.
Whether you want to set up in Bulgaria or just want to streamline your Bulgarian operations, talk to us to learn more about Payslip’s global payroll services and how we can help your multinational organization.
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- Wikipedia – “Bulgaria”
- The World Bank Group’s Doing Business 2019: Training for reform report
- Doing Business 2019 report: Bulgaria
- Investment destination Plovdiv – Doing Business in Bulgaria
- List with holidays in Bulgaria 2019
- Deloitte – International Tax, Bulgaria Highlights 2019
- Social Security in Bulgaria
- The National Social Security Institute (NSSI)
- National Health Insurance Fund (NHIF)
- Trading Economics – Bulgaria Social Security Rate
- European Commission – Bulgaria – Maternity and paternity
- Payroll in Bulgaria
- TMF Group – Top challenges of doing business in Bulgaria