Double Tax Treaties (DTTs) in Bulgaria — Application Guide (2026)

Introduction

In the context of increasing internationalisation of business, double tax treaties (DTTs, known in Bulgarian as SIDDO) are an indispensable tool for tax planning. Bulgaria has concluded over 70 DTTs with countries around the world, providing extensive opportunities for optimising the tax burden on cross-border operations.

This article examines the practical aspects of applying DTTs to corporate income — from the legal framework through procedures to common challenges.

Legal Framework

Place of DTTs in the Legal Hierarchy

Pursuant to Art. 13 of the Corporate Income Tax Act (CITA, or ZKPO in Bulgarian), when an international treaty ratified by the Republic of Bulgaria, promulgated and entered into force, contains provisions different from the provisions of the Act, the provisions of the international treaty shall apply. This means DTTs take precedence over domestic tax legislation.

The procedure for applying DTTs is governed by Art. 135–142 of the Tax and Social Insurance Procedure Code (TSIPC, or DOPK in Bulgarian). These provisions determine the conditions under which taxable persons may benefit from the relief provided in the treaties.

Income Falling Within the Scope of DTTs

Under Art. 12 of CITA, income from Bulgarian sources that falls within the scope of DTTs includes:

1. Business profits derived through a permanent establishment (PE) in Bulgaria.
2. Dividends from participation in Bulgarian legal entities (Art. 12(3) CITA).
3. Interest, including interest under financial leasing (Art. 12(5)(1) CITA).
4. Royalties — copyright and licence fees (Art. 12(5)(3) CITA).
5. Fees for technical services (Art. 12(5)(4) CITA).
6. Fees under franchise and factoring agreements (Art. 12(5)(5) CITA).
7. Rental income from movable and immovable property (Art. 12(5)(2) and Art. 12(6) CITA).
8. Management or control fees for a Bulgarian legal entity (Art. 12(5)(6) CITA).
9. Income from financial assets and transactions with financial assets issued by Bulgarian entities (Art. 12(2) CITA).

Withholding Tax

Without the application of a DTT, these incomes are subject to withholding tax under CITA:

• 5% for dividends and liquidation shares (Art. 200(2) CITA).
• 10% for all other income (Art. 200(2) CITA).

A DTT may reduce these rates or fully exempt certain income from taxation in Bulgaria.

Typical DTT Provisions

Dividends

Most DTTs concluded by Bulgaria provide for a reduced rate on dividends:

• 5% — when the beneficial owner of the dividends holds a certain percentage of the capital (usually 25% or more).
• 10–15% — in other cases.

Some treaties (e.g. with Cyprus) provide for exemption under certain participation conditions.

Interest

Typical DTT rates for interest:

• 0% — some treaties fully exempt interest (e.g. under the EU Interest and Royalties Directive 2003/49/EC for associated companies).
• 5–10% — the standard reduced rate in most treaties.

Royalties

• 5–10% — typical reduced rate.
• 0% — under the EU Interest and Royalties Directive 2003/49/EC for associated EU companies.

Business Profits

Under the standard Art. 7 of the DTT (based on the OECD Model), the profits of an enterprise of one Contracting State shall be taxable only in that State, unless the enterprise carries on business in the other State through a permanent establishment situated therein. If there is a PE, the profits are taxable in the other State, but only to the extent attributable to that PE.

Technical Service Fees

Not all DTTs treat technical services separately. Where the treaty does not contain a specific article on technical services, they fall under “Business Profits” (Art. 7) and are taxable only in the state of the recipient (unless a PE exists).

Permanent Establishment (PE)

Definition

Under § 1(5) of the Supplementary Provisions of TSIPC and the standard Art. 5 of the DTT (OECD Model), a PE is a fixed place of business through which the business of an enterprise is wholly or partly carried on. This includes: place of management, branch, office, factory, workshop, mine, quarry and construction site (usually where the duration exceeds 9–12 months).

Exceptions

The following are not a PE:

• A place used solely for storage, display or delivery of goods.
• A stock of goods maintained for processing by another enterprise.
• A place for purchasing goods or collecting information.
• Activities of a preparatory or auxiliary character.

The period after which a construction site or assembly project becomes a PE varies across DTTs — typically between 6 and 12 months.

Procedure for Applying a DTT

Simplified Procedure (Art. 142 TSIPC) — Up to EUR 255,000 (BGN 500,000)

When the total amount of income from all payers does not exceed BGN 500,000 (approximately EUR 255,000) on an annual basis, the simplified procedure applies. Under this procedure, the payer of the income does not submit an application to the NRA but maintains a set of documents that must be presented in the event of an audit.

Required documents:

1. Certificate of Tax Residence — issued by the tax administration of the recipient’s state for the relevant year. This is the most important document and cannot be replaced by a certificate of registration or a certificate of paid taxes.
2. Declaration from the income recipient — the foreign entity confirms that it is the beneficial owner of the income and does not have a PE in Bulgaria.
3. Extract from the public register of the relevant state — certifies the signatory’s power of representation.
4. Documents relating to the accrued income — invoices, contracts, bank statements.
5. Evidence of service performance — meeting minutes, correspondence, work products, travel tickets and expense orders (the list is not exhaustive).

Under the simplified procedure, the payer is required to file a declaration under Art. 142(5) of TSIPC by 31 March of the following year, declaring the amount of income paid and the tax relief granted.

Standard Procedure (Art. 137–141 TSIPC) — Over EUR 255,000 (BGN 500,000)

When the income exceeds BGN 500,000 annually, an Application for DTT Application (on a standard form) must be submitted to the NRA. All documents required for the simplified procedure must be attached, plus a power of attorney.

Deadline for opinion: The NRA issues its opinion within 60 days of submission. If the NRA does not issue an opinion within the deadline, tacit consent for the application of the DTT is deemed to have been given.

Appeal: The NRA’s opinion refusing the application of a DTT may be appealed under the TSIPC procedure.

Refund of Withheld Tax

If withholding tax under CITA has been paid before obtaining the NRA opinion on DTT application, the obliged person has the right to offset or refund. The procedure involves:

1. Filing an Application for Offset and Refund with the NRA.
2. Attaching all documents required for the DTT.
3. The NRA issues an Offset or Refund Decision within 30 days.

Certificate of Tax Residence

For Foreign Entities

The Certificate of Tax Residence is issued by the tax administration of the relevant state. It certifies that the entity is a tax resident of that state for a specific year.

Critical requirement: The certificate must be for the year in which the income was received. A certificate from a different year is insufficient. Certificates of registration or certificates of paid taxes are also not accepted — they have no evidentiary value for DTT purposes.

For Bulgarian Entities

When a Bulgarian legal entity receives income from abroad and wishes to apply a DTT in the other state, it must obtain a Certificate of Tax Residence from the NRA. The procedure is governed by Ordinance No. H-16 of 12 December 2019.

The application is submitted to the territorial directorate of the NRA by registration and the certificate is issued within 7 days of submission (Art. 88 TSIPC).

Bulgaria’s DTT Network

Bulgaria has concluded DTTs with over 70 countries, including all major trading partners. Some of the more significant treaties:

• EU: Germany, France, Italy, Spain, Netherlands, Austria, Cyprus, Luxembourg, Ireland.
• Non-EU: United Kingdom, United States, Switzerland, UAE, China, India, Russia, Turkey, Israel, Canada, Japan.

Each treaty is individual and may contain different rates and conditions. It is therefore essential to analyse the specific treaty before planning a cross-border operation.

Special EU Regimes

Parent-Subsidiary Directive (2011/96/EU)

For dividend distributions between associated companies in the EU (with a minimum 10% participation in the capital for a continuous period of 2 years), full exemption from withholding tax applies. Implemented in Art. 194(3) of CITA.

Interest and Royalties Directive (2003/49/EC)

Interest and royalties between associated companies in the EU (with a minimum 25% participation) are exempt from withholding tax. Implemented in Art. 195(6) of CITA.

The Concept of “Beneficial Owner”

The beneficial owner principle is key to DTT application. Tax relief is granted only if the income recipient is the beneficial owner, not merely a formal recipient or intermediary.

For structures involving intermediary companies (conduit companies), the NRA may refuse DTT application if it establishes that the intermediary:

• Has no genuine economic activity.
• Does not bear the risks associated with the income.
• Was created solely for tax planning purposes (treaty shopping).

This practice is consistent with the CJEU rulings in Cases C-116/16 (Danish Cases) and with the provisions of the OECD Multilateral Instrument (MLI).

Practical Tips

When Paying Income to Foreign Legal Entities

1. Determine the type of income under Art. 12 of CITA — this determines the applicable DTT article.
2. Check whether the DTT provides relief — if the DTT rate is higher than the domestic rate, the treaty does not apply.
3. Collect documents in advance — the certificate of tax residence should be available before the payment date or at least before the declaration deadline.
4. Determine whether the simplified procedure applies — under EUR 255,000 annually, no application is filed, but documents must be available.
5. File the declaration under Art. 142(5) TSIPC by 31 March.

When Receiving Income from Abroad

1. Obtain a Certificate of Tax Residence from the NRA — this is the basis for DTT application in the other state.
2. Check the procedure in the other state — each jurisdiction has its own requirements.
3. Apply the method for avoiding double taxation — usually the credit method (Art. 14 CITA) or the exemption method.

Common Mistakes

• Presenting a certificate of registration instead of a certificate of tax residence.
• Absence of evidence for the reality of the service.
• Incorrect classification of the type of income (e.g. technical services instead of business profits).
• Failure to file the declaration under Art. 142(5) TSIPC.

Frequently Asked Questions

Conclusion

DTTs provide significant opportunities for reducing the tax burden on cross-border operations, but their application requires strict compliance with the procedures and conditions established in the TSIPC. The key factors for successful application are: correct classification of income, timely collection of documents (most importantly the certificate of tax residence) and accurate declaration. For more complex structures or income exceeding EUR 255,000, we recommend consultation with a tax specialist familiar with the specific DTT.

This article is for informational purposes only and does not constitute legal advice. For specific questions regarding the application of DTTs, please consult a qualified tax adviser or lawyer.