Advance Dividend Distribution in Bulgaria — NRA Guidelines and Hidden Profit Distribution Risk (2026)

Who is affected by the advance dividend regime

The rules on advance profit distribution apply to all Bulgarian capital companies:

• Sole owners of an EOOD — individuals or entities holding 100 % of the capital who wish to receive part of the expected annual profit before 31 December.
• Partners in an OOD — acting through a resolution of the General Meeting under Art. 137 of the Commercial Act.
• Shareholders in an EAD or AD — the regime applies with additional requirements (interim financial statements approved by the Board).
• Managing directors who are also owners — the typical SME profile, for whom the advance dividend is the most efficient extraction channel.

Public companies on regulated markets are outside the scope (governed by the Public Offering of Securities Act), as are regulated sectors (banks, insurers, pension funds) where BNB and FSC impose additional restrictions on distributions.

What counts as an advance dividend

An advance dividend is a payment in favour of the owner or partners made before the financial year is closed and the annual financial statement is drawn up. It is based on a forecast of net profit for the current year, not on a profit already realised and stated in the accounts.

Two similar situations must be distinguished from an advance dividend:

• Dividend from retained earnings — where the company holds undistributed profit from previous closed years, a distribution is lawful at any time. This is not an advance dividend.
• Repayment of an additional cash contribution — if the owner previously provided a loan or cash contribution under Art. 134 of the Commercial Act, the return of those funds is not a dividend and is not taxed.

The financial year in Bulgaria matches the calendar year (Art. 50 of the Accountancy Act). Advance distribution therefore always concerns the period from 1 January to 31 December of the current year, ahead of the annual financial statement drawn up in the following year.

Change in NRA practice — the 9 June 2022 Opinion

Until mid-2022, the NRA treated advance payments to owners as hidden profit distribution under § 1, item 5 of the Additional Provisions of CITA — a double hit (no deductible expense plus additional tax under Art. 194 CITA).

Following a request by the Institute of Certified Public Accountants of Bulgaria (ICPA), the NRA Central Office issued Opinion No. 33-00-165 #1 of 9 June 2022, recognising advance profit distribution during the financial year as permissible subject to specific conditions.

The opinion is not a statute — it is an interpretative act. It binds the revenue authority in audits, but the Supreme Administrative Court may adopt a different reading in litigation. Documentation is decisive: the stronger the accounting basis, the safer the position on audit.

The opinion does not create a new right. It confirms that the Commercial Act and CITA already allow distribution of an expected profit, if the formalities are observed and the transaction is genuine.

The three conditions for a valid advance distribution

Under the NRA opinion (and later practice), an advance payment is recognised as a dividend (rather than a hidden distribution) where all three of the following conditions are cumulatively met:

Condition 1 — a reasoned forecast of net profit

The company must hold objective data supporting a reasonable forecast that a profit at least equal to the distributed amount will be realised by 31 December. Typical documentation:

• Accounting statement of accrued revenue, expenses and current result as at the resolution date.
• Interim financial statements (recommended, though not legally required for an EOOD/OOD).
• Annual budget or business plan with revenue forecasts through year-end.
• Contracts, confirmed orders, subscription revenue — evidence that the forecast is stable.

The shorter the remaining period until 31 December, the easier the forecast is to justify. A December payment based on eleven months of actual data carries far less risk than an April payment based on a single quarter.

Condition 2 — a formal distribution resolution

An EOOD requires a written resolution of the sole owner of the capital, recorded in the company resolutions book. An OOD requires a resolution of the General Meeting of partners under Art. 137(1)(3) of the Commercial Act, adopted by simple majority (more than half of the capital), unless the articles of association require a qualified majority.

Minimum content of the resolution: (a) the amount distributed on account; (b) the period it relates to (the current financial year); (c) the basis — reference to the profit forecast and the attached accounting data; (d) the payment date and method; (e) the obligation to withhold 5 % dividend tax.

Condition 3 — a complete audit trail

The documentation bundle that proves, on audit, that the amount is a dividend rather than an undocumented payment:

• Sole owner resolution or General Meeting minutes.
• Accounting statement / interim balance sheet referred to in the resolution.
• Bank transfer order or cash voucher evidencing payment.
• Accounting entries (Dr 122 "Retained earnings" or an analytical sub-account "Advance-distributed profit" against Cr 425 "Payables to partners — dividends").
• Declaration under Art. 55 PITA (Form 4001) for the withheld 5 % tax.

Tax treatment — how the 15 % combined burden arises

The advance payment is tax-equivalent to the regular annual distribution. Two taxes apply to the company's profit, regardless of whether the amount is distributed during the year or after year-end closing:

• Corporate income tax — 10 % on the company's annual taxable result (Art. 20 CITA). Paid by 30 June of the following year, together with the annual CITA return under Art. 92.
• Dividend tax — 5 %, final tax (Art. 38(2) PITA for Bulgarian resident individuals; Art. 194 CITA for non-resident persons). Withheld and remitted by the paying company.

The combined effective rate is 15 % — 10 % corporate income tax plus 5 % dividend tax on the after-tax residual. This combined rate is among the lowest in the EU — the average in Western Europe is approximately 35-45%.

Worked example

An EOOD with expected annual profit of EUR 50,000:

• 30 June 2026: advance distribution of EUR 20,000 gross dividend.
• Withheld 5 % dividend tax: EUR 1,000, remitted to the NRA by the end of the following quarter.
• Paid to the owner: EUR 19,000 net.
• 31 December 2026: actual profit of EUR 50,000 realised.
• 30 June 2027: corporate income tax 10 % × EUR 50,000 = EUR 5,000.
• Remaining distributable profit: EUR 50,000 − EUR 5,000 − EUR 20,000 = EUR 25,000.

Hidden profit distribution risk under Art. 194 CITA

Where the conditions for an advance distribution are not met, or the facts do not support the "dividend" qualification, the NRA reclassifies the amount as hidden profit distribution.

When hidden distribution arises

• The actual annual profit is lower than the amount distributed in advance (the excess is an "artificial" dividend without cover).
• The forecast is not supported by objective accounting data — a "by feel" resolution.
• No formal sole-owner resolution or General Meeting minutes exist.
• Payments to the owner without documentary support, explained as "advance on dividend".
• Mixing personal and corporate spending through the company card, later "settled" with a dividend.

Consequences of hidden distribution

• 10 % tax on hidden distribution — Art. 194(3) CITA, payable by the company in addition to other liabilities.
• Non-deductible for tax purposes — the amount cannot be treated as an expense (Art. 26, item 11 CITA), effectively raising the corporate tax bill.
• Default interest — BNB base rate plus 10 percentage points, from the due date.
• Administrative penalties — 10 % to 15 % of the mis-qualified amount where the breach is found on audit.
• Criminal liability — in material amounts and with intent, Art. 255 of the Criminal Code (tax offences) may come into play.

Worked example of hidden distribution

• Forecast annual profit: EUR 50,000.
• Advanced distributed in July: EUR 40,000.
• Actual annual profit after closing: EUR 30,000.
• Shortfall — EUR 10,000 hidden distribution.
• Additional 10 % tax under Art. 194(3) CITA: EUR 1,000.
• Total effective burden on the EUR 10,000: 10 % CIT + 5 % dividend + 10 % hidden distribution ≈ 25 %, plus interest and penalties.

The only practical way to avoid reclassification when the forecast has not materialised is to return the advance dividend before 31 December through a formal resolution reducing the distribution and an offsetting bank transfer. If this occurs before year-end closing, reclassification does not take place.

Comparison with alternative extraction channels

An advance dividend is not the only way for an owner to receive funds from the company. Each alternative has a different tax and social security profile:

For an owner who does not need additional social security accrual (already covered by another employment, for example), the advance dividend remains the most efficient channel.

Step-by-step procedure

1. Accounting preparation and forecast

   Prepare a statement of accrued revenue, expenses and the current result as at the latest cut-off. Forecast the remainder of the year on signed contracts and seasonal patterns.

2. Legal review

   For an OOD, review the articles of association for any qualified majority or special procedure on advance distribution.

3. Sole-owner or General Meeting resolution

   Draft the resolution (EOOD) or minutes (OOD) with the mandatory elements — amount, basis, timing, 5 % withholding. Sign and enter into the resolutions book.

4. Accounting entry and payment

   Record the distribution. Withhold 5 % dividend tax on the gross amount and transfer the net amount to the owner.

5. Tax filing and remittance

   File the declaration under Art. 55 PITA (Form 4001). Filing and remittance deadline: the end of the month following the quarter of payment (Art. 65(1) and Art. 56 PITA).

6. Year-end reconciliation

   After 31 December, verify that actual annual profit is at least equal to the amount distributed in advance. Any shortfall requires either a recovery resolution or reclassification as hidden distribution.

7. Annual CITA return under Art. 92

   By 30 June of the following year, file the annual CITA return. Corporate income tax is calculated on the full annual profit.

Most common mistakes in practice

• No formal resolution — oral agreements or resolutions back-dated. On audit, the NRA rejects the "dividend" qualification.
• Over-optimistic forecasts — distribution of amounts exceeding a realistic financial result. Especially risky in businesses with volatile cash flow.
• Failure to withhold the 5 % tax — leads to default interest and penalties under Art. 175 of the Tax-Insurance Procedure Code.
• Missing Form 4001 filing — even if the tax is withheld and paid, failure to file the declaration itself attracts a separate fine.
• Mixing personal and corporate property — card spending and personal purchases paid from the company account, rationalised as "advance on dividend" without documentation.
• Ignoring the articles of association — for an OOD, where the partnership agreement requires a qualified majority but the resolution is adopted with a simple majority.
• No year-end correction — after 31 December it becomes clear that actual profit is lower than expected, yet no recovery resolution is adopted.

Frequently asked questions