Does a Home Office in Bulgaria Create a Permanent Establishment — the New OECD Framework (2026)

What you will learn in this article

• What exactly the OECD replaced in the Commentary on Article 5 in November 2025, and when a home office crosses the 50 % working-time threshold;
• What a “commercial reason” is and which grounds for home working are expressly not recognised as one;
• Why the Bulgarian definition of a permanent establishment is wider than the OECD model, and what that means for the taxation of a foreign company;
• Why remote work from Bulgaria triggers a second, independent threshold — the 25 % social security one;
• Which obligations arise once a PE exists, and which documents support your conclusion before the NRA.

Home office and PE: what changed in November 2025

In short: the OECD deleted the two short paragraphs (18 and 19) that framed the home office around whether the dwelling was “at the disposal of” the enterprise, and put in their place a detailed new part of the Commentary — “Cross-border working from a home or other relevant place” (paragraphs 44.1–44.21). It rests on two consecutive questions.

1. Permanence and existence of a place of business. If the individual works from home for less than 50 % of their total working time in any 12-month period, the home is generally not treated as a place of business of the enterprise.
2. Commercial reason. Once the threshold is reached or exceeded, what matters is whether the individual’s presence in that particular state serves the business of the enterprise — access to clients, suppliers, market or resources.

Neither step is automatic: below the threshold the position is usually more comfortable, but that is not absolute protection, and above it a PE does not follow by default, only a closer analysis of the facts.

What has not changed matters too. The Commentary is an interpretative instrument, not the treaty itself — the wording of the double tax treaties in force is unaffected. Nor did every state adopt the framework in the same terms: India, for instance, expressly disagrees with the conditions for treating a home as a place of business, and other states set out their own criteria for measuring the threshold. In a cross-border case this means the answer may differ on either side of the border.

Permanent establishment under Bulgarian law: a wider definition than the OECD model

This is the first difference that usually goes unnoticed. The concept sits in § 1, item 2 of the Supplementary Provisions of the Corporate Income Tax Act (CITA), which refers to § 1, item 5 of the Supplementary Provisions of the Tax and Social Insurance Procedure Code (TSIPC). That provision covers three distinct limbs:

• limb (a) — a fixed place (owned, leased or used on any other basis) through which a foreign person carries on business in the country, wholly or in part;
• limb (b) — activity carried on by persons authorised to conclude contracts on behalf of the foreign person (excluding independent agents under Chapter Six of the Commerce Act);
• limb (c) — the habitual conclusion of commercial transactions with a place of performance in the country, even where the foreign person has neither a permanent representative nor a fixed place.

The third limb has no direct counterpart in Article 5 of the OECD Model. It requires neither a fixed place nor an agent — the regularity of the transactions is enough. The practical consequence: the debate about the 50 % threshold and the home office is a treaty debate, not a domestic-law one.

The order of analysis for Bulgaria is therefore the reverse of what most expect. The first question is not “what does the OECD Commentary say” but “is there an applicable treaty at all”. International treaties ratified in accordance with constitutional procedure, promulgated and in force for Bulgaria form part of domestic law and prevail over conflicting provisions of domestic legislation (Article 5(4) of the Constitution); the procedure for applying them is set out in the TSIPC. Where no treaty is in force between Bulgaria and the employer’s state, the wider domestic definition operates on its own.

We cover the general framework of the concept separately — see permanent establishment: types, thresholds and tax consequences. This article focuses on the home office.

The 50 % threshold and the commercial reason test

The threshold is measured against the individual’s total working time over a 12-month period — not against the calendar year and not against days of presence. That distinction matters: the 183-day rule (Article 4(1)(2) of the Personal Income Tax Act) is also counted over a 12-month period, but it determines the tax residence of the individual and has no bearing on the employer’s PE.

The commercial reason test is the new decisive element, and it has a clear negative side. Under the Commentary, allowing work from home purely to save costs is not in itself a commercial reason. The same holds for the employee’s convenience, for talent retention, and for the mere fact that clients happen to be located in the state where presence is not directed at them.

Conversely, a commercial reason will usually exist where the individual develops the Bulgarian market, meets local clients or suppliers, or coordinates a local team.

Not sure which side of the line your organisation falls on? Send us the facts and we will tell you what the analysis shows.

Owner-manager: the highest risk profile

The 2025 Commentary gives particular attention to the case where the individual is the sole or principal carrier of the enterprise’s business. There, the home office will generally amount to a place of business of the enterprise. This is not new to Bulgarian practice — but it is now stated expressly.

Example: a company incorporated in Germany (GmbH) has one managing director who is also its sole shareholder. He lives in Sofia and works from there four days a week, roughly 80 % of his working time over 12 months. The clients are mostly German, but negotiations are conducted and decisions taken from Sofia.

On that profile the threshold is exceeded and the presence is not incidental — it is the business itself. The PE risk in Bulgaria is high. If a PE is found, the profit attributable to it is taxed at 10 % corporate income tax (Articles 4(2) and 20 CITA), and registration and filing obligations follow.

One distinction is worth drawing here, because it is often blurred. A PE is not a separate legal entity, and remitting profit to head office is not a dividend distribution — the withholding tax in Article 194 CITA applies to dividends of resident legal entities. By contrast, a Bulgarian subsidiary (EOOD/OOD) distributing a dividend to a foreign owner carries a combined burden of 15 % (10 % corporate income tax plus 5 % dividend tax). Transfers between the PE and other parts of the enterprise abroad have their own regime under Article 195(4) CITA.

From our practice: for companies with a single owner-manager, a change in the country of residence is almost always a tax event for the company too, not only for the individual. The analysis costs less before the move than after an audit.

The preparatory and auxiliary carve-out still stands

Even where a place of business exists, Article 5(4) of the Model retains its force: no PE arises where what is done from that place amounts to no more than a preparatory or auxiliary function. The classic examples are internal administrative support, information gathering, and internal coordination without authority to bind the enterprise.

Two qualifications narrow this exception.

1. The anti-fragmentation rule. Splitting one activity into several “auxiliary” parts among related parties does not help where, taken together, they form a cohesive business operation. The Multilateral Convention (MLI) has been in force for Bulgaria since 1 January 2023 (the instrument of ratification was deposited on 16 September 2022) and modifies part of its treaty network. Whether a particular treaty carries an anti-fragmentation rule depends on the positions of both states and has to be checked treaty by treaty.
2. Domestic law contains no equivalent exception. The definition in § 1, item 5 of the TSIPC Supplementary Provisions does not list preparatory and auxiliary activities as an exception in the way the Model does. Absent an applicable treaty, this exception is effectively unavailable.

Two different 50 % thresholds

This is the distinction that causes more trouble in practice than the PE question itself. Cross-border remote work involves two independent thresholds, measured in different ways.

The tax threshold is the new 50 % of working time under the OECD Commentary and concerns the enterprise.

The social security threshold comes from Article 13 of Regulation (EC) No 883/2004 and concerns the individual. Where a person pursues a substantial part of their activity in the state of residence, the social security legislation of that state applies. The benchmark sits in Article 14(8) of Regulation (EC) No 987/2009: a share below 25 % measured by working time and/or remuneration indicates that a substantial part of the activity is not carried out in that state.

Since 1 July 2023 a Framework Agreement on the application of Article 16(1) of the Regulation to habitual cross-border telework has been in force. It allows social security to remain in the employer’s state where telework is below 50 % of working time. As of 2026 there are 23 signatory states — among them Austria, Belgium, Croatia, the Czech Republic, Estonia (from 1 February 2026), Finland, France, Germany, Ireland, Italy, Liechtenstein, Lithuania, Luxembourg, Malta, the Netherlands, Norway, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden and Switzerland.

Bulgaria is not among the signatories. For work performed from Bulgaria the general rules therefore apply, not the relief under the agreement.

The practical consequence is instructive. An employee working from Sofia two days a week spends roughly 40 % of their working time in Bulgaria. That is below the 50 % tax threshold but above the 25 % social security benchmark. The result: most likely no PE, yet the foreign employer owes contributions under Bulgarian legislation and the corresponding registration. We set out the procedure in our article on registering a foreign employer with the NRA, and the A1 certificate in our article on posting workers within the EU.

In other words, a company can pass the tax analysis comfortably and still be left with unmet obligations in Bulgaria.

If a permanent establishment does arise: what follows

• Registration. The foreign person must be entered in the BULSTAT register; the TSIPC expressly addresses the consequences of failing to do so where business is carried on through a PE (Article 8(3)).
• Corporate income tax. Profit attributable to the PE is taxed at 10 % (Articles 4(2) and 20 CITA).
• Annual tax return. Filed between 1 March and 30 June of the following year (Article 92(2) CITA), together with the annual activity report.
• Profit attribution. Determining the PE’s result runs through the rules on dealings between the PE and the rest of the enterprise — adjacent to transfer pricing.
• VAT is a separate question. The notion of a “fixed establishment” under the VAT Act does not coincide with a PE. The national registration threshold is EUR 51,130 and, from 1 January 2026, is tested as annual turnover within the calendar year rather than over 12 consecutive months (Article 96(1) VAT Act, amended SG No. 115 of 2025), and a foreign person with a fixed establishment in the country registers through an accredited representative — branches being the exception, as they register under the general procedure (Article 133(1) VAT Act).
• Where no PE arises. Certain Bulgarian-source income remains subject to withholding tax under Article 195 CITA — see withholding tax and the procedure for treaty relief under double tax treaties.

What to document now

The new framework is good news for organised companies, because both steps are proved with documents rather than with explanations after an audit. The minimum set:

1. A remote work policy — who may work from abroad, for how long, and with whose approval.
2. Working-time records by location — so the 50 % threshold is measurable rather than arguable.
3. Evidence of where management decisions are taken — minutes, agendas, place of meetings.
4. The scope of authority — who negotiates and who signs contracts on behalf of the company.
5. The reason for the work location — whether the employer provided an office and whether it required work from home.
6. A treaty analysis — with an express conclusion under Article 5 and Article 5(4).
7. A social security analysis — the share of activity in Bulgaria and the basis for the applicable legislation.

If you already have staff working from Bulgaria, ask for a review of both thresholds at once — tax and social security. They are tested against the same data.

Frequently asked questions

Sources

• OECD — The 2025 Update to the OECD Model Tax Convention (November 2025)
• § 1, item 5 and Article 8(3) of the TSIPC; § 1, item 2 of the Supplementary Provisions and Articles 4(2), 20, 92(2), 194 and 195 of the CITA; Article 4(1)(2) of the Personal Income Tax Act
• Article 5(4) of the Constitution of the Republic of Bulgaria
• Article 13 of Regulation (EC) No 883/2004 and Article 14(8) of Regulation (EC) No 987/2009
• Articles 96(1) and 133(1) of the VAT Act (amended SG No. 115 of 2025, in force from 1 January 2026)
• National Revenue Agency — Application of double tax treaties
• Belgian Federal Public Service Social Security (depositary) — list of signatory states to the Framework Agreement on cross-border telework