Bulgaria offers you to become a fiscal resident by only paying 10% in taxes, it does not matter whether you are an EU-citizen or not. Becoming a resident of Bulgaria you can also enjoy the interesting Bulgarian freelancer regime. It has the list of easiest options for setting your company in the European Union for registering as an importer (EORI) and to sell your products there, with all this you can easily get a European VAT number in Bulgaria.
Substance Over Legal Form
A doctrine or ‘substance over legal form’ of an arrangement to check the details initially about every aspect. The main aim of this is to put a stop to artificial structures from being used for avoidance of tax. It is for the companies to enjoy the beneficial tax regime of its jurisdiction, it is necessary to abide by the substance requirements of the local tax authorities. If we analyze it they are all about the economic substance and the substance comply with the structure and substance to the transactions it enters generally. There are many factors for forming the structure to make the company or the transaction real and to prove the physical presence like office, directors, and employees. It is also important to give several answers to questions like why was the transaction made? How did the parties benefit from it? Was the transaction unnecessarily complicated?
What are Tax Substance and Tax Substance Solutions
In double tax treaties, the term tax substance does not make any use officially but is an important element for any international tax planning procedures.
Term substance is the tests that numerous tax authorities in the world are using to check the initials of a foreign company and its tax treaty benefits. The treaty parties own the income benefits and thus the Double Tax Treaties are valid and applicable by them only, and the persons that are tax residents also come under these treaty parties. Tax residents generally mean that the company is taxed in a treaty party based on tax rules of the party. One more important term is “beneficial owner” which means that the company which is receiving the income is the real owner of the income, and it is not received on behalf of any other party and transferred to any other party.
Therefore, the examination for the substance is the examination for the foreign tax authority and they use it to regulate the company receiving the interest income is the beneficial owner of the income. The test or examination is the real check to find that the company created is just a shelf company opened for avoiding the taxes or it is a company created to take the risk of providing loans, and it is following all the procedures in place for checking the reality and honesty of the company, it also has employees who are experienced in their fields, with this it has the power to take the important decisions regarding the granting of loans and lastly it has the resources to provide a loan and to be involved in such an activity.
If the above does not exist then the foreign tax authorities will consider that the company in any country receiving income from the country is not the beneficial owner of the earned income and hence tax treaty is not applicable on it. This does not mean the foreign tax authorities will check each and every transaction, nevertheless, in tax investigation, the foreign company need to prove the business reasons behind the transaction and sometimes, the business substance of the counter party.
Consequently, a company without substance is not considered that it is a tax resident of the treaty party or that it is the beneficial owner of the income. Therefore the source will contradict giving the treaty benefits which will result in a huge cost. Every country has its own substance requirements and anyone related to this should be aware of those requirements before explaining appropriate tax substance solutions.
The factors determining appropriate tax substance solutions:
- The company should have suitable functions and undertaking business risks.
- The company consists of employees.
- The company should have a managing director with decision-making powers.
- The company should comprise real premises and assets.
Living in Bulgaria
As discussed before, a flat 10% tax rate is applicable in Bulgaria, it is applicable on every class of income whether it is 50000 euro or 1000000 euro. The residents have to pay tax on their global income, then the income is whether from abroad or from inside the country. There is also a tax-free allowance there, in this case, €4050 per year.
The social security contributions make up 18% to 22.3% of your salary or revenues. You also have the option to use the international agreements to take into account what you paid in case you return to your country of origin one day. In Bulgaria, taking out the private health insurance includes coverage for the whole of Europe which costs around €100 per month for the citizens of about 40 years old. If your age is less than this and you want coverage for Bulgaria, you will save your €300 per year. The private health insurance facility for children costs around €750 per year (€62 per month).
If you think to live in Bulgaria, then it must be a benefit for you that there are no CFC rules or any restriction on managing of offshore or foreign companies, so it will become quite easy for you to set up your companies anywhere and run them from Bulgaria. You do not need to pay social security in Bulgaria if your company is settled in another country while living in Bulgaria.
For becoming a tax resident of Bulgaria, you need to have a permanent house in the country and it must be necessary to spend at least 183 days a year in the country. Subsequently, there are various other options available if you are not able to spend this much time in Bulgaria.
If you are an EU-citizen, you need an employment contract for obtaining a long time residence in Bulgaria, else you can also become a partner in or manager of a Bulgarian company (EOOD/OOD).
It is also necessary to put a European Health Insurance Card with you, (or your private medical insurance) and proof that you have enough money in a Bulgarian Bank account to last the whole year (around €2000 is enough).
If you want a permanent residency in Bulgaria, you need to live at least 5 years in Bulgaria with a long term residency, after that you are applicable for becoming a permanent resident of Bulgaria.
If you do not want any type of problems in getting your residency, you need to visit once every three months in your first year. If any time you want to stop fiscal resident in Bulgaria you simply need to stop extending your residency permit once you have stopped being seen as a resident in your country of origin.
If you do not want to become a fiscal resident, you need to watch out for laws of different countries that you visit, and especially you need to avoid spending more time there, thus you do not have to follow the 183-day rule of living in the country.
Living in Bulgaria for non-EU nationals
There is no compulsion of having a European passport to obtain the residency permit in Bulgaria, there are different other ways to do this which are:
- Do register your foreign company and then go to Bulgaria as a representative of it.
- You need to employ at least 10 Bulgarian nationals for a minimum of 6 months registering a new Bulgarian company.
- You have to invest in a property with a minimum value of €312000
- You can also opt it as a pensioner with lots of assets and housing in Bulgaria.
- Family reunification in Bulgaria.
Features and advantages of business in Bulgaria
Bulgaria offers various options for tax optimization and asset protection. You can use various joint-stock companies to protect your records in Bulgaria. You have many options like, to trade, (EQRI and VIES), as a holding company, to deduct your car expenses, for physical businesses (low costs), as a collection subsidiary for your offshore company.
If you are living in a country who has laws of putting a high tax on residents then a Bulgarian company can be particularly helpful for you even if you do not have high revenue.
Let’s understand it deeply:
The VAT tax rate in Bulgaria is 20%, but you have an option to cohere to the small business regime up to a maximum amount of €25600, by doing so you choose not to charge or process VAT on your invoices up to the amount.
It is quite easy to obtain an intra-community VAT number and an EORI for exporters in Bulgaria, the best benefit of living in Bulgaria is you do not need to have physical premises in order to obtain these numbers.
For dividends, if you live in Bulgaria, you will have to pay tax at the rate of 5% and if you are living in any other country in EU, there will be no deductions (likewise, you will have to pay taxes on your dividends in that country, although as a resident in some countries there is no tax). If you are living outside of the EU, usually 5% will be taken from your dividends (you usually reclaim this money when paying taxes in your country of residence).
Types of companies in Bulgaria
The common types of companies in Bulgaria are limited companies (EOOD/OOD), joint-stock companies (AD), subsidiaries and representative offices.
In Bulgaria, there are many options available to choose types of companies, You can opt for the choice of your companies determining the available capital, the number of business partners or the business area in which they want to operate.
A Commercial Law in Bulgaria focuses on the following types of companies which are available for incorporation, with no restrictions for foreign investors:
- The limited liability company
- The joint stock company (public limited liability company)
- Sole trader
- Joint venture
- Branch of a foreign company:
- Representative office.
The most suitable form of business is the limited liability company because of its lower incorporation and maintenance costs and less reporting requirements compared to the joint stock.
Corporations in Bulgaria
For small and medium-sized businesses the private limited liability company is recommended because the risks of the members are only limited to the amount of capital invested in the company. The OOC’s registered must be at least BGN 2.
For large businesses The joint stock company is suitable and the main thing which is approached with them is much larger minimum share capital as compared to the private limited. It is must be fully subscription upon incorporation. This type of companies is more listed on the Stock Exchange.
The Bulgarian Commercial Register give grants to these two types of companies. One of our lawyers in Bulgaria can help you submitting the company’s articles of association and other documents needed for the registration.
Partnerships in Bulgaria
For corporations in Bulgaria, there is a partnership facility of different types like The general partnership, the limited partnership and the partnership limited by shares. The difference between these three partnership forms depends mainly on the investor’s liability.
No minimum share capital is required for this business form. The debts and obligations of the business are the liabilities of the general partner and the other or silent partner is not liable for having any responsibility for the business. The simplest business form which is needed to be incorporated by a single individual is the Sole Proprietorship, in which he is liable for all the debts and obligations of the business.
To start business operations in Bulgaria the best way is to open a subsidiary company, it will be easier for the foreign companies to start their business on Bulgarian soil by registering a subsidiary company.
There is no such obligation for the subsidiary company to work under the parent company, it will comprise with own level of independence from its parent companies. It must have separate accounting and must process the annual review separately. The parent company is considered to be the owner of the assets and liabilities of the subsidiary company. The foreign parent company will become liable to pay the corporation tax, but only until the subsidiary is earning profits in Bulgaria.
How to start a business in Bulgaria (costs and procedures)
If you want a registered company in Bulgaria you do not need to go there, and by doing it from your own country you will get quicker results and it will be quite easy for you to skip some of the steps in the process. For doing a proper business you can opt two options, you can establish a new company there or purchase an already set company.
The next process is to open a bank account, for this, you have to go personally to the bank for detailed inquiry and follow-ups, the Bulgarian Partners will help you seeking your formalities. The first step regarding the start of the Bulgarian limited company is to register the company and obtain a tax identification number, all this process will require around €256 among all the partners.
An address will be required for the companies headquarters. It will cost around €200 per year and if you want to hire your own address and do not want to share it with any other you will require to spend €500. If you are thinking to open an isolated company in Bulgaria, you will need an amount of €160. After all this, you have to keep some amount for the authentication of the documents by the Bulgarian embassy in your country.
You can register your company by living in Bulgaria or you can also able to do this from your own country. For this, your company manager would have to go to Bulgaria for opening an account in a bank, in which the company’s startup will be transferred. A specimen signature for a Bulgarian notary is also necessary for the follow-up steps.
If you want to run your company in Bulgaria living in your own country then you will have to go to the Bulgarian embassy in your country to authenticating some documents, the embassy will require a specimen signature, your consent and the power of attorney to open and close the initial bank account, you will also need to deposit the necessary minimum capital into it.
The bank account opened is used to deposit the share capital necessary to register the company. After the registration of the company, the bank account will remain for no use. Once you had identified your documents in Bulgarian embassy then you will not have to move to Bulgaria for any further documentation.
The other option is a little costly and lengthy compared to the above, as in this you have to hire a notary in your country for authentification of your documents after this the documents will also have to be translated and authentic in Bulgaria. If you want to take help from any other agency to handle your bookkeeping and accounts, recording of invoices, VAT declarations and complete record of your company, then you have to pay a fixed charge of €70 for it, after paying this amount you will get all your records effectively and efficiently.
The setup and provision of annual accounts will cost addition of €30.
The VAT registration cost is €144, if you are opening a small business regime then it is a one-time payment, which is needed the day after the entry into the commercial register. The process takes around 14 days.
If you want to start a business with export or import products, you will have to opt for registration, and the EORI application cost is around €144.
A social security number is necessary for operating your business as a manager, this process will need around €48 of investment. The social security number also helps you in getting dividends from the Bulgarian company.
Last but not least, the managers of the company are liable to pay €48 for the mandatory data protection registration.
The cost of a Bulgarian self-owned limited company is as follows:
- Preparation of bilingual corporate documents including both the languages English and Bulgarian and the registration of the company – €256
- Translation and authentication of the partners’ and manager’s documents -€150 to €200
- Address for the company’s headquarters (per year) -€200
- VAT registration -€144
- Data protection registration -€48
- Acquisition of a social security number for foreign nationals- €48
- Total costs will be €846
If you are thinking to open a company for the name only and it will remain inactive, you will have to pay the annual price for the company address and for the submission of the necessary documents and forms, which will cost around €340.
The shelf companies or the pre-existing companies can also become an option for you to purchase. These companies are registered on the commercial register but do not been operational. These shelf companies have no obligations, assets or debts.
The Pre-existing Company Package Costs Around €1500, and includes the Following:
- Limited company with a registered Bulgarian headquarters
- VAT registration
- Personal data protection registration
- Personal identification number for foreign nationals
- Company seal
- Company bank account
Is it a Good Idea to Purchase a Pre-registered Company?
The benefit of pre-existing companies is you have the option of skipping procedures and you do not have to wait for that, you are free to start your work at the day of commencement of business with this you do need to wait for 1 or 2 days to get registered, not the 14 days for VAT registration.
Consequently, the best advantage of pre-existing companies is that the company you are purchasing has already been registered for some time. So it will not be an issue for you to have to show that your company is at least 6 months old before you can grants or funds.
Transfer of the Company can Change many Details Like:
- Name of the company
- Location of the headquarters (necessary to be in Bulgaria only)
- The type of activities registered to the company
- The manager of the company
Creating a Business Anonymously: Bearer Shares in Bulgaria
One more best option is Bulgaria is the possibility of using bearer shares to have a completely anonymous business. Bulgaria is well known in the world because it is possible there to have a joint-stock company with bearer shares. Once the company is established wisely than it guarantees the anonymity of its owners.
This type of company will help in asset protection, for business transfers and for the merger-acquisitions, it is also helpful in the anonymity of the owners. You also have an option of hiring an agency which will help in creating the company and provide the manager and the board of directors. The shares which are notarized will be automatically sent to the client after entry into the partner’s ledger.
For adding the client’s name there is one more step needs to be followed that is the bank account.
You can also open the company bank account in the name of the fiduciary partner.
The bank account will be needed to be managed by the head director following the client’s specific instructions or, it is also possible by the person behind it, who could be the one in possession of the access codes and keys to allow transactions.
One partner agency can also help you to create a completely anonymous company for around €6016.
The Above Price Includes the Following:
- A joint-stock company with headquarters in Bulgaria
- Bearer shares (guaranteed confidentiality and ownership)
- Board of directors
- Lead director/representative
- VAT registration
- Company bank account
- Company seal
To establish a joint-stock company, you need to contribute a share capital of 50000 lev, which is equal to €25000, around 25% should be paid at the moment of establishment.
Many partner companies are there to help you with the accounting of this type of joint-stock company for an annual audit. The overall cost to hire a partner company is around €500.
Holding Companies in Bulgaria
There are many options available for holding the company in the European Union, you can choose them according to your preference from countries like Malta, Holland, Ireland and, to your surprise Bulgaria. According to the European directive, there are no deductions on dividends between subsidiaries and parent companies in the EU, Bulgarian companies can receive dividends from their subsidiaries within the EU completely tax-free.
There is a fixed rate of deductions which is 5% for Bulgarian holding companies to natural persons in the European Union. The Bulgarian holding company can establish its subsidiaries anywhere in the world, because of the benefit Bulgaria has no CFC rules are applicable in Bulgaria, this will allow the easy and seamless transfer of profits from one country to another. Dividends received from subsidiaries outside the EU are taxed at 10%.
If your Bulgarian company had a British Limited Company as a subsidiary that the income from this company is tax-free. In case, you if you had an offshore company in Belize, Saint Vincent or any other country, then the 10% rate needs to be charged as incorporation on the received dividends. The Bulgarian parent company would not have to show any type of bookkeeping or accounting for the subsidiary, this means the local authorities are not interested in knowing about what has happened in offshore companies.
Working as a Freelancer in Bulgaria
If you want to work in Bulgaria, you have many options to work, as you can also opt for becoming a freelancer, but it brings several responsibilities for you, you have to answer with all of your assets in case of any problem. There are many rules and regulations for the freelancers working in the IT sector and for freelance writers.
As a freelancer, you have an opportunity to reduce the fixed rate of the tax of 10% by a quarter and this opportunity gives you to deduct 25% in the form of operational expenses. The authors and freelancers with business models who are licensed can deduct 40%. This directly indicates that you only need to pay 6% in income taxes if you are categorized as literary.
Bank Accounts and Payment Gateways
Euro is not introduced by Bulgaria, but it is the SEPA area, meaning that the regulations for transfers and intakes are beneficial and the transaction periods are so minimum. The national currency of Bulgaria is Lev, and it is equal to €0.50.
Different currencies are used in the banks of Bulgaria, they commonly use Euro, US dollars and pounds, so it is quite easy to open a bank account using any kind of currency.
If we look into the laws and principles of Bulgaria, according to which you are not bound to open a bank account in Bulgaria whether if you are holding a Bulgarian company. However to complete the steps regarding the establishment of a company the Bulgarian account is recommended.
For Opening a Bank Account in Bulgaria, you need the Following Documents:-
- Company Registration Statement (or Similar). These documents clearly state that the company has been established and that it has not entered into an arrangement with creditors or similar.
- The company’s bylaws are also important, which shows that the representatives have the power to act as a representative and to open the account in the name of the company.
- In the case of the Bulgarian company, the BULSTAT certificate of registration.
- If your company will not do business in Bulgaria than you need a formal declaration that you are not going to do business in Bulgaria
- For US citizens: FACTA regulations must be taken into account.
- If the person depositing the money is not the final beneficiary, for example, is it is an authorised person, they will need a notarized document confirming that they are authorised to deposit the money.
The first two documents are needed to be certified and apostilled and translated into the Bulgarian language.
A Bulgarian Ministry of Foreign Affairs is legally responsible for doing the translation and lastly the translation is needed to be certified by the department of “legalization and certification.”
There are different modes of payments gateways available in Bulgaria, for example, Paypal business from Bulgaria. You are free to charge directly in Euros and Dollars and transfer funds to a Bulgarian account in the same currency, in these ways you can save some money from the Paypal currency conversion rates.
The Virtual POS of any local or European bank can also become an option for you, they offer much better terms than Paypal.
Register your Car with the Name of a Bulgarian Company
For saving your taxes and for deducting your car expenses, you have the option to you register your car in the name of your company in Bulgaria. This will give you a huge benefit and it can also deduct the total cost invested in the car over a period of 4 years. You can also deduct the cost of repairs and journeys.
There are certain requirements for transferring the used vehicles to Bulgarian territory, it is compulsory to have a well established and running company and to obtain the electronic reference number of the company registration. There is a sequel of administrative procedures needed to be followed for registering the car and changing the plates.
There are several agencies in Bulgaria who can take care of everything, they take a charge of around €150 which includes the state fee and assistance at all times. You will not have to move around any of the departments like the Ministry of Internal Affairs and departments of Road transportation for anything.
Car insurance and
taxes depend on the type of car you have, the date of registration and the
horsepower, significantly the rates are reduced.
Creating Corporate Substance and Outsourcing your Business in Bulgaria
Bulgaria is the best place for opening a company and it is also the best option if you want to create corporate substance or you simply want to increase your profits by outsourcing work, it cost low salaries and rents in the matter of your company profits.
Commonly outside of the capital, any service in Bulgaria is economical.
In the matter of distributing salary to the employees and manager of your company, you have to pay between €800 and €900 and outside only €600 and €700 is considered a good wage.
Bulgaria has wide varieties of options for you to opt any kind of business, you can also start a company there while running a European call centre and translating or adapting your business to other cultures. There is diversification of languages in Bulgaria, this means you will find workers that speak almost every languages, more specifically English, Russian and German. If you want to hire developers, marketing or programming experts, you will find them with many efforts.
According to your needs, you can hire an office in Bulgaria with cost around €200 and €300 per month.
If you find it difficult and time consuming, we have the team of experts who will help you in finding and hiring the best employees with a suitable salary. They can also provide you with workers with experience.
From the above discussion, you can set an idea that Bulgaria offers solutions for everyone. Here you have the choice to protect your assets through joint-stock companies, you also have bearer shares to maximize your anonymity and you can also set a holding company to optimize taxes and administrate the money that flows through your business. You also have the option to register your car in the name of the company for deducting your expenses.
Bulgaria is one of the best places in order to create corporate substance because it has low labour and rental costs there, you can also avoid the CFC rules there and you can easily escape the pitfalls in place at your company’s actual administration site.
All the above information is sufficient to become a resident of Bulgaria or to get a residency in Bulgaria, with all among this, we are always there to help you in any case of query and information. If you are thinking to set up your Bulgarian company you can contact us.