Holding Structure in Bulgaria — Tax Benefits, Substance and Participation Exemption (2026)

Why structure through a Bulgarian holding

A holding company is one whose primary activity is owning participations (shares or quotas) in other companies. Practical motivations for using a holding:

• Risk segregation. Separating different business lines into separate companies, so that risk or debt in one does not affect the others.
• Tax-efficient distributions. Intra-group dividends are not taxed, allowing net refinancing and reinvestment without intermediate tax.
• Flexible dividend policy. The holding distributes to its owners when they wish, independently of subsidiary operations.
• M&A preparation. The holding can sell a “clean” participation in a subsidiary (share deal) rather than an asset deal, generally delivering better tax outcomes.
• Succession planning. A family can transfer business control via the holding without disturbing the operating companies.
• Access to foreign markets. The holding facilitates grouping international subsidiaries under one ownership and management.

Legal forms of a holding

For most medium and family structures, ЕООД or ООД is the usual choice. For planned international expansion, attracting investors or listing — АД.

Special regimes — abolished

Historic special “holding companies” under Chapter 11a of the Commerce Act (Art. 277 et seq.) were abolished in 2018. Today there is no special “holding” regime in Bulgarian law — any ООД/АД may act as a holding without separate registration.

Dividends received by the holding — exemption under Art. 27 CITA

The core tax benefit of a Bulgarian holding is Art. 27(1)(1) CITA, which excludes from taxable income dividends distributed by:

• Local legal entities;
• Foreign legal entities resident for tax purposes in a Member State of the EU or a state that is a party to the EEA Agreement.

Practical consequence: when the Bulgarian holding receives a dividend from its operating subsidiary (Bulgarian or EU/EEA), the dividend is not subject to corporate tax. The full 100% of profit distributed upstream remains in the holding without intermediate tax.

Dividends from third countries (outside EU/EEA)

Dividends received from subsidiaries resident for tax purposes in third countries (USA, UK post-Brexit, Switzerland, Turkey, etc.) are taxed with 10% Bulgarian corporate tax. The applicable DTT may provide a tax credit for the withholding suffered in the source state, but full exemption is generally unavailable.

Exceptions from the exemption

Art. 27(2) CITA excludes application where:

• There is hidden profit distribution;
• Distribution from special-purpose investment companies (REITs/SPVs);
• The distributing entity has reduced its taxable profit by the distributed amounts.

Distribution of dividends to the holding’s owners

Individual owners

A dividend distributed by the holding to a Bulgarian resident individual (local person / tax-obliged person in Bulgaria) is subject to 5% final tax (Art. 38 PITA). Withheld by the holding before remittance, declared via Art. 55 PITA return by the end of the month following the quarter of payment.

An effective overall burden of 15% combined rate (10% corporate + 5% dividend) arises only at the operating-company level. No additional layer is applied between the holding and operating companies within the group (Art. 27).

Corporate owners (holding of a holding)

If the owner of the Bulgarian holding is another legal entity (e.g. a Cypriot company), the applicable regime is Art. 194 CITA — 5% withholding. Exceptions:

• EU/EEA resident corporate owner. No withholding if holding ≥10% of capital for ≥2 years (Art. 194(3)(3) CITA; Directive 2011/96/EU).
• Third-country corporate owner. Applicable DTT — reduced rate (typically 5-10%) subject to beneficial owner requirements.

Directive 2011/96/EU — Parent-Subsidiary Directive

The Parent-Subsidiary Directive is the cornerstone of cross-border dividend exemption in the EU. Applicability in Bulgaria is expressly provided in Art. 194(3)(3) and Art. 27(1)(1) CITA. Key conditions:

PSD anti-abuse clause

A 2015 amendment added an anti-abuse clause: the exemption does not apply if the arrangement or series of transactions has as a principal purpose a tax advantage that defeats the object and purpose of the Directive, and does not reflect genuine economic reality. In Bulgaria this is transposed via Art. 16 CITA (tax avoidance).

Substance — a mandatory requirement

Modern practice of the NRA, the Supreme Administrative Court and EU tax authorities requires holding companies to have real economic presence. Lack of substance turns a holding into a “letterbox company” — a formality that tax authorities may disregard when applying PSD, DTT and domestic anti-avoidance rules.

Key substance indicators

• Office address with real access — not merely a registered address or PO Box.
• Employees — at least one qualified manager, even if part-time.
• Management decisions — taken in Bulgaria, documented with minutes and meetings.
• Independent director — not only formally appointed but actively functioning.
• Bank account in Bulgaria with operational activity.
• Own expenses — professional services, rent, salaries — evidencing genuine activity.
• Decisions independent of the owner — the board/manager must not be a puppet of the ultimate beneficial owner.

In cross-border matters, the NRA increasingly requests substance documentation — especially for PSD or DTT relief. Absence may lead to denial of benefits and assessment.

Beneficial owner test

Under DTT and PSD, exemption or reduced rates are available only to the beneficial owner of the income, not the formal recipient. Bulgaria applies the concept in line with ECJ case law (Scandia, Danish cases Sparkasse Allgäu, Denmark v Y Denmark, 2019).

Indicators that a company is not the beneficial owner:

• Obligation to pass dividends received onwards (back-to-back structure);
• No genuine disposition over funds received;
• Structure adds no economic value — mere pass-through;
• Ultimate recipient is in a jurisdiction without a DTT / with lower taxation.

A Bulgarian holding can satisfy the test if genuine management, reinvestment decisions, financing and operational control take place in Bulgaria.

ATAD and CFC rules — holding restrictions

The Anti-Tax Avoidance Directive (ATAD — 2016/1164/EU) introduced a package of rules transposed into CITA:

• Interest limitation (Art. 43a CITA). Deduction capped at 30% of tax-adjusted EBITDA or EUR 3,000,000 per year — whichever is higher.
• Exit tax (Art. 155b et seq. CITA). Taxation of unrealised gains on transfer of assets or seat outside the EU.
• CFC (Controlled Foreign Company) rules (Art. 47c CITA). Attribution of passive income to a Bulgarian holding controlling a low-taxed foreign subsidiary (effective rate <50% of Bulgarian tax).
• Hybrid mismatches (Art. 47d CITA). Prevention of double deductions or exemption via hybrid structures.
• GAAR. Art. 16 CITA on tax avoidance between related parties.

CFC specifics for holdings

If a Bulgarian holding controls a subsidiary in a low-tax jurisdiction, passive income (dividends, interest, royalties) of the subsidiary may be attributed to the Bulgarian holding. Exception: where the subsidiary conducts “substantive economic activity” supported by staff, equipment and assets — substance test again.

Practical example — Bulgarian holding structure

Family Bulgaria — ООД 1 (IT services) and ООД 2 (real estate), each with profit EUR 500,000. Owner — a Bulgarian resident individual.

Without holding (direct ownership)

• ООД 1 corp. tax 10% = EUR 50,000; distribution EUR 450,000; dividend 5% = EUR 22,500. Net individual: EUR 427,500.
• ООД 2 likewise: net EUR 427,500.
• Total net: EUR 855,000.

With holding (new ЕООД-holding above the two companies)

• ООД 1 corp. tax EUR 50,000; distribution EUR 450,000 to the holding — tax-free.
• ООД 2 likewise: EUR 450,000 to the holding.
• Total in the holding: EUR 900,000.
• Holding distributes dividend to individual: 5% of EUR 900,000 = EUR 45,000.
• Net individual: EUR 855,000 — the same.

No tax benefit at direct exit to the individual. The holding benefit arises with:

1. Reinvesting EUR 900,000 into a new project — no intermediate tax.
2. Deferral of dividend tax — while funds remain in the holding, the individual owes nothing.
3. Sale of a subsidiary participation (share deal) — gains potentially exempt under specific conditions.
4. Building a regional group with EU subsidiaries — full PSD exemption.
5. Succession planning — transfer of the holding rather than operating assets.

Frequently asked questions