Taxation of Copyright and Royalty Income in Bulgaria (2026)

Legal framework

The tax treatment of copyright and royalty income in Bulgaria is shaped by several interlinked statutes, each of which governs a distinct layer of taxation and social security:

• Personal Income Tax Act (PITA) — governs taxation of resident individuals on copyright and royalty income, advance tax, annual filing and the statutory deductible expenses.
• Corporate Income Tax Act (CITA) — regulates withholding tax (WHT) on royalties paid to non-resident legal entities and transposes the EU Interest & Royalties Directive for related-party flows.
• Social Security Code (SSC) — defines the scope of insurable income. Crucially for creative professions, copyright and royalty income is in principle not included in the insurable base.
• Value Added Tax Act (VATA) — treats the grant of rights to use an IP object as an independent economic activity and a taxable supply of services.
• Copyright and Related Rights Act (CRRA) — the civil-law foundation for the contracts: it defines what a protected work is, who qualifies as an author, which rights can be licensed and under what terms.

The interplay means that when structuring a copyright or licensing deal you must simultaneously consider the civil-law classification under CRRA and the tax/social security consequences under PITA, CITA, SSC and VATA.

Income classification — Art. 29 PITA

Copyright and royalty income received by Bulgarian resident individuals is classified under Art. 29 PITA as “income from other economic activity”. The key practical nuance — and the most common source of error in practice — is that PITA provides for two different percentages of standard deductible expenses, depending on the legal qualification of the payment:

The difference is not merely technical — it reflects the legislator’s view that the author or performer has already incurred time and cost in creating the work whose use is being remunerated. Payment for use is thus “passive” income from an already-created asset and receives the higher 40 % deduction. Payment under a civil contract for ongoing work — consulting, design, translation — receives 25 %.

In practice, mixed contracts are common: one part of the price is for creating the work (e.g. custom software development, design, commissioned writing) and another part is for the transfer or licensing of the rights to use it. In such cases good drafting practice is to split the two amounts explicitly in the contract so the correct percentage can be applied to each component. Lack of clear allocation is a frequent source of disputes with the NRA during audits.

Tax rate and effective taxation

The flat rate of 10 % under Art. 48 PITA applies to the tax base. However, the tax base is not equal to gross income — it is calculated as follows:

• Gross payment
• less standard deductible expenses (40 % or 25 %)
• less mandatory social security contributions, if any are due (e.g. if the recipient is a self-insured person and this income enters their insurable base)
• equals the tax base on which the 10 % flat rate is applied

The result is an extremely low effective tax. For copyright and royalty income with 40 % standard deductible expenses the effective rate on gross is 10 % × 60 % = 6 %. For civil-contract income with 25 % deductibles the effective rate is 10 % × 75 % = 7.5 %. These figures typically ignore social security — which for “pure” copyright payments is not due at all, as we will see below.

For comparison, the combined burden on dividends and liquidation shares (corporate income tax plus dividend tax) comes to roughly 15 %, while operating as a registered freelancer attracts social security on top of income tax. The copyright regime is therefore materially more favourable for creative professions.

Advance tax (Art. 43 PITA)

Where the payer of the remuneration is a business or a self-insured person, it is in principle required to withhold a 10 % advance tax on the tax base (gross less standard deductibles and social security, where applicable) before remitting the net amount to the author. This mechanism is set out in Art. 43 PITA and aims to secure collection of the tax “at source” during the year.

Exception — self-insured recipients

If the recipient is a self-insured person within the meaning of the Social Security Code and notifies the payer in writing of that fact, the payer does not withhold advance tax. In that case the recipient pays the advance tax themselves on a quarterly basis via their own advance-tax return. This is an important relief for established creative professionals and consultants registered as liberal professions.

Q4 — no advance tax

Under Art. 67(1) PITA, no advance tax is due on income received in the fourth quarter of the year. Those amounts are settled via the annual income tax return. This rule applies both to amounts withheld by the payer and to amounts the recipient would otherwise pay themselves.

Income certificate and Art. 73 return

The payer must issue an income certificate under Art. 45(4) PITA to the recipient, showing amounts paid and tax withheld, and must report the data in the Art. 73(1) PITA return of income paid, which is filed by 28 February of the following year. The NRA uses this return for cross-checks against the recipient’s annual filing.

Social security — the key advantage

One of the most significant advantages of the Bulgarian copyright and royalty regime is that this income is not included in the insurable base under the Social Security Code. No social security or health contributions are due on it. Unlike salary or civil-contract income, where the total insurance burden can exceed 30 %, for copyright payments the tax-and-social-security load is limited to the 6 % effective tax.

This makes the regime extremely attractive for authors, visual artists, musicians, performers, writers, journalists and other creative professionals whose work consists of creating and licensing protected works.

Exception — self-insured in another capacity

If the recipient of the copyright payment is a self-insured person in another capacity — e.g. a sole trader, a registered liberal profession, or an owner-manager of an EOOD — they include the copyright income in the annual reconciliation of their insurable base, but only up to the statutory maximum. The maximum monthly insurable base for 2026 is approximately EUR 2,112 (following Bulgaria’s adoption of the euro from 1 January 2026). If the person has already hit this ceiling from another source, additional copyright income triggers no further contributions.

For a full picture of the social security burden across different income forms see our guide to taxes and social security in Bulgaria.

Annual filing

Copyright and royalty income is declared in the annual PITA return under Art. 50, by completing Appendix No. 3 (form 2031) — “Income from other economic activity”. The filing deadline is 30 April of the following calendar year.

Appendix No. 3 uses specific income-type codes that correspond to the Art. 29 classification:

• Code 304 — copyright and royalty payments with 40 % standard deductibles (Art. 29(1)(2)(b)).
• Code 307 — non-employment relations and civil contracts with 25 % standard deductibles (Art. 29(1)(3)).

Mis-coding is one of the most common reasons for audit adjustments — especially for mixed contracts where part of the income is for creating the work and part for its use. We recommend seeking advice in advance when in doubt, because retrospective corrections typically trigger interest and enforcement proceedings.

Non-residents — withholding tax (Art. 195 CITA)

Where the copyright or royalty payment is made to a non-resident legal entity, a different regime applies. Under Art. 195 CITA, 10 % withholding tax is due on royalties paid to foreign legal entities. The tax is final, withheld by the payer and remitted by the end of the month following the quarter in which the payment was accrued.

DTT relief

Bulgaria has concluded over 70 Double Taxation Treaties (DTTs), under most of which the royalty rate is reduced to 5 % or 10 %, and in some cases to 0 %. To apply the DTT rate the procedure under Art. 142 of the Tax and Social Security Procedure Code must be followed — for payments above a threshold, an application is filed with a tax residency certificate, beneficial-owner declaration and documents evidencing the legal basis.

Interest & Royalties Directive — 0 % between related EU companies

Art. 200a CITA transposes Directive 2003/49/EC (Interest & Royalties Directive) and provides full exemption from withholding tax on royalties paid between related EU companies, subject to the following conditions:

• The recipient is a company tax-resident in an EU Member State and is the beneficial owner of the income.
• There is direct participation of at least 25 % in the capital (one in the other, or both held by a common parent).
• The holding has been uninterrupted for a period of at least 2 years.

Exception for scientific and cultural works

An important practical carve-out: under § 1, item 8 of the Supplementary Provisions of CITA, payments for scientific and cultural works are excluded from the definition of “royalties”. No withholding tax is therefore due on such payments. For a full analysis of the WHT regime see our article on withholding tax in Bulgaria.

VAT treatment

For VAT purposes, the grant of a right to use an IP object qualifies as an independent economic activity and a taxable supply of services at the standard rate of 20 % VAT. This applies regardless of whether the licensor is an individual or a legal entity.

VAT registration

Mandatory VAT registration is triggered on taxable turnover above EUR 100,000 over any 12 consecutive months. Below this threshold the licensor may operate without a VAT number but can register voluntarily, which is often worthwhile when dealing with EU corporate clients.

Place of supply

The place-of-supply rules under Art. 21 VATA determine which country has the right to tax the service:

• B2B within the EU — the place of supply is where the customer is established. The Bulgarian licensor issues a VAT-exempt invoice marked “reverse charge”.
• B2C within the EU — under the general rule the place of supply is where the supplier is established (Bulgaria, 20 % VAT), except under the special regimes for electronic services.
• Customers outside the EU — generally outside the territorial scope of VATA and not subject to Bulgarian VAT.
• Related parties — in B2B deals reverse charge is still the rule, but particular attention must be paid to transfer pricing.

Software and SaaS — special rules

The classification of software payments is one of the most disputed questions in international tax and is especially relevant for the Bulgarian IT sector. The NRA follows the interpretation in the OECD Commentary to Art. 12, drawing the following distinctions:

• Standard end-user licence (shrink-wrap, click-wrap) — where the customer pays for use of a copy of the software for its own needs, without the right to modify, reproduce or distribute it, the payment qualifies as business profit, not royalty. No withholding tax for non-residents.
• Licence with commercial exploitation rights — where the customer has the right to reproduce, modify, sub-license or distribute the software, the payment is a royalty and attracts 10 % WHT (subject to DTT relief or zero rate under the Directive).
• SaaS (Software as a Service) — access to a cloud service is generally classified as a service, not a licence. Payments are business profit and are typically not subject to WHT — unless they qualify as “technical service fees”, which also attract 10 % WHT for non-residents under Art. 195 CITA.
• Custom software development — where an individual develops software to order, the payment is for a service (25 % deductibles under code 307). If however the contract transfers the source code and exclusive rights, a royalty component may arise, which is separated and treated under the rules for code 304.

We recommend that software contracts be drafted in detail and reviewed annually, as even small wording changes can have significant tax consequences both in Bulgaria and in the counterparty’s jurisdiction.

Practical examples

To make the regime more concrete, here are three typical situations illustrating how the tax is calculated in different hypotheses:

1. An author writes an article for a media outlet, fee EUR 1,000. The fee is for granting publication rights — a typical copyright payment under code 304. Standard deductibles: 40 % = EUR 400. Tax base: EUR 600. Tax: 10 % × EUR 600 = EUR 60. Effective rate on gross: 6 %. No social security.
2. A designer creates a logo for a company under a civil contract, fee EUR 1,000. The payment is for performing a service — code 307. Standard deductibles: 25 % = EUR 250. Tax base: EUR 750. Tax: 10 % × EUR 750 = EUR 75. Effective rate: 7.5 %. Social security is also due on this income.
3. A non-resident (a US company) receives a royalty from a Bulgarian user, EUR 1,000. The Bulgarian payer withholds 10 % WHT = EUR 100. Under the Art. 142 DOPK procedure and the Bulgaria–US DTT, the rate is typically reduced to 5 % (EUR 50), and the balance is either refunded or not withheld at all if the documents are submitted in advance.

Inheritance of copyright

Copyright passes to the author’s heirs, who continue to collect royalty payments for use of the work during the 70 years following the author’s death (under CRRA). The tax treatment for the heirs, however, is different: they are not “authors or performers” within the meaning of Art. 29(1)(2)(b) PITA and therefore do not benefit from the 40 % standard deductibles.

In practice, royalty payments received by heirs are declared either under code 307 (25 % deductibles) as other economic-activity income, or as other taxable income in the relevant appendix, depending on the specific structure of the arrangement. Heirs should seek tax advice because the classification depends on the scope of the rights and the form of the arrangements with users.

Frequently asked questions