Tax on Expenses in Bulgaria 2026 — Entertainment, Social Benefits and Benefits in Kind

What the tax on expenses covers

The tax on expenses is governed by Chapter 28 “Tax on Expenses” of the Corporate Income Tax Act (CITA), Articles 204–217. It is a final tax (Art. 216 CITA) owed by companies that incur certain types of expenses, irrespective of whether they report a profit or a loss for the year. The rate is 10% and has remained unchanged since 2007.

Article 204(1) CITA exhaustively lists three categories of expenses falling within the scope of this regime:

1. Entertainment (representation) expenses related to the company’s activities (Art. 204(1)(1) CITA);
2. Social benefits provided in kind to workers, employees and persons hired under a management and control contract (Art. 204(1)(2) CITA);
3. Benefits in kind relating to assets used for personal purposes (Art. 204(1)(4) CITA).

It is important to distinguish the tax on expenses from the corporate income tax: the former is levied on a separate, self-standing tax base, whereas the latter is levied on the taxable profit. For more on the general regime, see our article on Bulgarian corporate income tax.

Entertainment expenses — definition and scope

The term “entertainment expenses” is not expressly defined in CITA, but by cross-reference the definition in Article 62 of the Regulations for Implementation of the VAT Act applies. Under that definition, entertainment expenses are those incurred by a trader for:

• Welcoming, hosting and seeing off guests and delegations;
• Accommodation of business partners and travelling representatives;
• Food and drinks served during business meetings;
• Organising business meetings, receptions, presentations and celebrations;
• Business gifts (within reasonable limits) for clients and partners.

Article 62(2) of the Regulations expressly excludes from the scope of entertainment expenses those incurred for congresses, conferences, symposiums and similar scientific events directly related to presenting or testing the company’s goods or services. In other words, participating in a conference at which the company presents its product is not an entertainment expense but an ordinary marketing expense — hence not subject to the 10% tax and fully deductible.

The dividing line between entertainment and advertising/marketing expenses is one of the most contentious issues in practice. During audits, the Bulgarian Revenue Agency (NRA) frequently re-characterises “Christmas parties” and “business dinners” as entertainment if there is no demonstrable link to a specific marketing objective or documented programme.

Social benefits provided in kind

Social expenses are regulated by Art. 204(1)(2) CITA and defined in § 1(34) of the Additional Provisions to CITA. For an expense to qualify as a “social benefit provided in kind” and fall within the favourable threshold regime, three conditions must be met simultaneously:

1. Provision in kind — i.e. in the form of goods, services or benefits rather than cash. Any cash relationship between the employer and the employee (e.g. “meal money” in an envelope) means the benefit is not in kind, falls outside the tax-on-expenses regime and is taxed as the individual’s income under the Personal Income Tax Act (PITA).
2. General availability — the benefit must be available to all workers and employees, not just selected individuals or managers only. Selective provision (e.g. only to top management) breaks the social-expense regime and risks being re-characterised as a hidden profit distribution.
3. Inclusion of management contract holders — the regime also covers persons hired under a management and control contract, not only employees on employment contracts.

When these conditions are met, CITA provides for three sub-categories of social expenses with different tax treatment:

• (a) Voluntary supplementary insurance — contributions to voluntary pension schemes, voluntary health insurance and life insurance made for the benefit of employees (Art. 204(1)(2)(a));
• (b) Food vouchers — paper or electronic vouchers issued by licensed operators from the list maintained by the Ministry of Finance (Art. 204(1)(2)(b));
• (c) Other social benefits in kind — sport cards, company transport, canteen meals, gifts for work and family occasions, holiday facility expenses and the like.

Thresholds for 2026 (in euro after euro adoption)

From 1 January 2026, Bulgaria adopted the euro and the previous lev-denominated amounts in CITA were converted at the fixed exchange rate of EUR 1 = BGN 1.95583. The BGN 60 threshold for voluntary insurance and the BGN 200 threshold for food vouchers convert as follows:

*Subject to meeting the exemption conditions under Art. 209 CITA (see section 6 below). The thresholds apply monthly and per individual employee, not as an annual average across the workforce — a nuance often overlooked in bookkeeping practice.

Tax base — how it is calculated

The methodology for calculating the tax base varies by category of expense. The rules may be summarised as follows:

• Entertainment expenses — the base equals the entire amount booked for the tax year, with no deduction of thresholds or related income. Every euro recorded as entertainment goes directly into the base.
• Social expenses in kind (general) — the base is formed by the expenses booked for the year, reduced by any related income for the same period (e.g. employee co-financing or reimbursements).
• Voluntary insurance:
  • If the employer has no enforceable public debts at month-end — the base is only the excess over EUR 30.68 per employee per month, summed for the year;
  • If the employer has enforceable public debts — the base is the entire expense booked for the month (not just the excess).
• Food vouchers:
  • If the conditions under Art. 209 CITA are met — the base is the excess over EUR 102.26 per employee per month;
  • If conditions are not met — the base is the entire expense booked for the month.
• Benefits in kind for personal use — Art. 215a CITA allows the use of a 20% standard rate on the total expense (instead of allocating between personal and business use), which is convenient for vehicles, mobile phones, real estate and other dual-purpose assets.

Food voucher exemption conditions (Art. 209 CITA)

The favourable regime exempting food vouchers up to EUR 102.26 is conditional on several simultaneously fulfilled requirements under Art. 209 CITA:

1. No public debts — the employer has no enforceable public debts as at the end of the month in which the vouchers are distributed. This includes VAT, corporate tax, social security and local tax liabilities.
2. Provision in kind — the vouchers cannot be exchanged for cash and are booked as a social expense in kind rather than as remuneration.
3. Equal access — all employees are entitled to vouchers in equal amounts or in accordance with an existing collective labour agreement governing the benefit.
4. Licensed operator — the vouchers must be issued by an operator included in the list of licensed operators maintained by the Ministry of Finance under Art. 209(5)–(10) CITA.

If any of these conditions is not met, the exemption falls away and the entire monthly expense for the vouchers is taxed at the 10% rate.

Practical example — IT company “Innovator EOOD”

To illustrate the regime in action, we consider a fictitious but typical example from our practice: the company “Innovator EOOD” has 10 employees, no public debts, and has incurred the following expenses during 2026:

• Food vouchers: EUR 120/month per employee — EUR 14,400/year total;
• Voluntary health insurance: EUR 40/month per employee — EUR 4,800/year total;
• Entertainment expenses (business dinners, client meetings): EUR 8,000/year;
• Christmas corporate party: EUR 3,000.

The tax-on-expenses calculation is as follows:

1. Food vouchers: EUR 120 − EUR 102.26 = EUR 17.74 excess per employee per month. Base: 17.74 × 12 months × 10 employees = EUR 2,128.80. Tax (10%): EUR 212.88.
2. Health insurance: EUR 40 − EUR 30.68 = EUR 9.32 excess. Base: 9.32 × 12 × 10 = EUR 1,118.40. Tax: EUR 111.84.
3. Entertainment + Christmas party: EUR 8,000 + EUR 3,000 = EUR 11,000 (entire amount goes into the base). Tax: EUR 1,100.
4. Total tax on expenses: EUR 1,424.72.

Bonus — effect on corporate income tax: the underlying expenses (EUR 14,400 + EUR 4,800 + EUR 11,000 = EUR 30,200) and the tax on them (EUR 1,424.72) are deductible and reduce taxable profit. At a 10% corporate tax rate, this yields approximately EUR 3,162 in corporate tax savings, so the net effective burden of taxing these expenses is significantly lower than the nominal 10%. For context on the general regime, see our article on taxes and social security in Bulgaria.

Effect on corporate income tax

One frequently overlooked aspect of the regime is its positive interaction with corporate income tax. Under Art. 206 CITA, both the taxed expenses themselves and the tax on expenses payable are deductible and reduce taxable profit. This means:

• Double effect — the expenses reduce the base and the tax on expenses reduces it too;
• Net effective rate — with a 10% corporate tax and a 10% tax on expenses, the effective net burden on entertainment and social expenses is approximately 9% of the gross amount, not 10%;
• Tax planning — well-documented, properly-taxed benefits can be economically more attractive than equivalent gross salary increases (on which full social security contributions and personal income tax are due).

For this reason, companies often choose in-kind social benefits as a way of motivating staff with a lower overall tax burden compared to cash bonuses of equivalent value.

Filing and payment

The tax on expenses is declared and paid on the same timeline as the corporate income tax:

• Annual corporate tax return under Art. 92 CITA — the tax is reported in a separate section of the corporate income tax return filed by all corporate taxpayers.
• Filing deadline: 1 March to 30 June of the year following the tax year (a unified window in force since 2022 CITA amendments).
• Payment deadline: the same — by 30 June of the following year.
• Election for “in-kind” taxation — for benefits in kind for personal use (Art. 204(1)(4)), the company must make an express election to be taxed under CITA rather than under PITA (Art. 24(3) PITA read with Art. 217(3) CITA). The election is declared in the annual return and applies for the entire tax year.
• On liquidation or deregistration — the tax due is declared and paid within 30 days of the date of deletion from the Commercial Register.

Common mistakes and practical tips

From our audit and tax advisory practice, we have identified the following typical errors in applying the regime:

1. Cash bonus labelled as a “social expense” — if the employer hands out cash or transfers sums to employee cards marked “social”, this is not an in-kind social expense and is taxed as employment income. Re-characterisation during audit triggers additional social security contributions, personal income tax and default interest.
2. Benefit granted only to the manager or a select group — breaches the general-availability condition. The NRA may classify the benefit as a hidden profit distribution within the meaning of § 1(5) of the Additional Provisions to CITA, with the resulting negative consequences (non-deductibility, dividend tax).
3. Failure to make the “in kind” election in the annual return — leads to automatic application of the PITA regime, which is often more costly.
4. Confusing entertainment with marketing expenses — conferences, exhibitions, product test events and media campaigns are marketing, not entertainment, and are outside the scope of the tax.
5. Using an unlicensed voucher operator — removes the Art. 209 CITA exemption and subjects the entire monthly expense to tax.
6. Ignoring monthly excesses — some accountants calculate thresholds on an annual average basis, which is incorrect. The calculation is always monthly and per individual employee.

Related topics that round out the picture of Bulgarian tax risk can be found in our articles on related-party loans, taxation of dividends and challenging an NRA audit act.

Frequently asked questions