Opening a Foreign Branch of a Bulgarian Company — Legal, Tax and Accounting Aspects (2026)

What is a foreign branch

A foreign branch is a segregated part of the Bulgarian company carrying out business activity in another state, without separate legal personality. The branch is registered under the Bulgarian company's name with a suffix (e.g. "[Name] Ltd. — Branch Munich" / "Zweigniederlassung") and managed by a local representative acting under power of attorney (Prokura, director, manager).

For tax purposes, the branch qualifies as a permanent establishment (PE) within the meaning of Art. 5 of the OECD Model Convention and the relevant bilateral treaties. The host state is therefore entitled to tax the profits attributable to the branch's activities on its territory.

Unlike a branch, a subsidiary (EOOD/OOD in Bulgaria, GmbH in Germany, Ltd. in the UK) is a separate legal entity with its own capital, management and liability. The distinction carries significant legal, tax and accounting consequences.

Branch vs. subsidiary — comparison

Procedure for opening a foreign branch

The procedure is governed by the host state, but the typical steps follow a similar sequence:

1. Corporate resolution — the general meeting (or sole owner) of the Bulgarian company resolves to open a branch, specifying seat, scope, manager and extent of representative power.
2. Notarisation and apostille — the resolution, articles of association and good-standing extract from the Bulgarian Commercial Register are translated and legalised with apostille (Hague Convention) or consular certification (outside the EU).
3. Official translation — sworn translation into the language of the host state.
4. Registration — filing with the competent commercial register: Handelsregister (Germany/Austria), Companies House (UK), Registrul Comerțului (Romania), Chambre de Commerce (France), etc.
5. Tax registration — obtaining a local tax identifier (Steuer-ID and USt-IdNr. in Germany, UTR and VAT number in the UK).
6. Bank account — opening a local bank account in the branch's name.
7. NRA notification — the Bulgarian company reports the branch activity in the annual return under Art. 92 CITA (Annex No. 2).

Typical timelines: 2–6 weeks for EU states, 4–12 weeks outside the EU. In Germany, Handelsregister filing takes 4–8 weeks; in the UK — under 2 weeks; in the UAE (DIFC/ADGM free zones) — 6–10 weeks.

Tax treatment in the host state

The branch is taxed under the corporate law of the state where it operates. Rates vary widely and are a decisive factor in jurisdiction choice.

Indicative rates — 2026

The branch maintains separate accounting under local GAAP, files a local tax return and may be subject to audit if thresholds (turnover, headcount, assets) are exceeded. Additional obligations typically include local VAT registration above the threshold and employer registration if local staff is hired.

Tax treatment in Bulgaria (CITA)

Bulgarian resident legal persons within the meaning of Art. 3, para. 2 CITA are taxed on their worldwide profits and income — both Bulgarian-source and foreign-source. This means the branch's financial result is included in the Bulgarian company's financial result.

To avoid double taxation, CITA provides two mechanisms:

Method 1 — Tax treaty (Art. 13 CITA)

Where a double tax treaty (DTT) is in force between Bulgaria and the host state, it prevails over domestic law. Most Bulgarian DTTs apply the exemption-with-progression method for PE profits — i.e. branch income is reported in Bulgaria but not taxed again.

Exemption applies, for example, in DTTs with Germany, Austria, the Netherlands, Belgium, France, Italy, Greece and most EU member states.

Method 2 — Tax credit (Art. 14 CITA)

Where no DTT applies (or the treaty provides for credit), the Bulgarian company may credit foreign tax paid against Bulgarian CIT, capped at the Bulgarian amount due on the same income (10% × branch profit). Any unused credit is not carried forward.

Reporting

Foreign income and foreign tax paid are reported in Annex No. 2 to the annual CIT return under Art. 92 CITA, along with Schedule No. 1 for foreign income. The return is due by 30 June of the following year. For Art. 14 purposes, a certificate from the foreign tax authority confirming the tax paid is mandatory.

Accounting — AS 21 "Effects of changes in foreign exchange rates"

Bulgarian companies applying the National Accounting Standards (NAS) account for the foreign branch's operations under AS 21. Companies applying International Financial Reporting Standards follow IAS 21.

Translation into the functional currency

Core rules for translating the branch's financial statements:

• Assets and liabilities — at the closing exchange rate on the balance sheet date.
• Income and expenses — at the rate on the transaction date (or an average rate for the period, absent material fluctuations).
• Equity — at historical rate on initial recognition.
• Translation differences — recognised in a separate component of equity ("Foreign currency translation reserve"), not in profit or loss.

Integration into the company's books

The branch's financial results are integrated into the Bulgarian company's accounting with separate analytical accounts allowing identification of branch operations. This is not a consolidated financial statement within the meaning of the Accountancy Act — the branch is not a separate legal entity.

Special regime: For branches in hyperinflationary economies, additional AS 21 translation rules apply.

Branch or subsidiary — which to choose?

The choice between a branch and a subsidiary depends on the scale of planned activity, risk appetite and structural needs of the business.

When to prefer a BRANCH

• Short-term expansion or market testing
• Low-to-mid expected turnover (
• No wish to inject separate capital
• Simplified accounting and integrated reporting
• Services with limited legal risk
• Quick wind-down option

When to prefer a SUBSIDIARY

• Long-term market presence
• High turnover and material assets
• Need for liability ring-fencing
• Local partners/co-shareholders
• Planned ESOP/option programmes for local staff
• Specific regulated activity (banks, payment institutions)
• Separate brand or standalone corporate identity

Our practical tip: IT/SaaS companies expanding into 2–3 markets often benefit from starting with a branch and, upon success, converting to a subsidiary. For fintech/regulated activities, a subsidiary is usually mandatory.

Practical case studies

Case 1 — Branch in Germany

A Bulgarian EOOD opens a branch in Munich in 2026 to provide consulting services.

• Handelsregister filing: ~EUR 250 state fee + legal fees EUR 1,500
• Steuer-ID and USt-IdNr. obtained
• 2026 result: profit EUR 100,000
• German corporate tax (KSt 15% + solidarity surcharge + Gewerbesteuer ~14–17%) — total ~EUR 30,000
• Bulgarian treatment: under the DTT with Germany — exemption method → no additional Bulgarian tax
• Reporting: Annex No. 2 to the Art. 92 CITA return

Case 2 — Branch in the UAE (free zone)

• UAE corporate tax — 0% for qualifying income in a free zone
• The Bulgarian company — resident under Art. 3, para. 2 CITA → worldwide taxation
• A DTT between Bulgaria and the UAE is in force and provides for exemption on PE income
• Always verify the specific text of the applicable DTT — some provide for credit or specific limitations
• Mandatory UAE substance — real activity, office, staff (otherwise risk of CFC rules applying)

Important: Using a branch in a low/zero-tax jurisdiction without genuine economic substance may fall under controlled foreign company (CFC) rules, ATAD measures or be challenged by the NRA as tax avoidance.

Common mistakes

• Failure to notify the NRA — omitting the branch from Annex No. 2 breaches Art. 92 CITA and triggers penalties.
• Double booking of income — the same income included both in Bulgarian books and in the branch consolidation.
• Missing AS 21 translation — leads to incorrect financial statements.
• Wrong choice between exemption and credit — misapplied DTT may cause double taxation or, conversely, unjustified exemption.
• No foreign tax documentation — under the credit method, a certificate from the foreign tax authority is mandatory.
• Confusion with representative office or liaison bureau — a rep office does not carry out business and is not a PE; a branch is.
• No transfer pricing documentation — dealings between the head office and the branch must be documented at arm's length.
• Incorrect VAT treatment — intra-company "supplies" between head office and branch in the EU are generally outside the scope of VAT (one taxable person), with exceptions (e.g. C-812/19 Danske Bank).

Inbound direction — branch of a foreign company in Bulgaria

Foreign traders may open a branch in Bulgaria under Arts. 17a–20 of the Commerce Act. The branch is registered with the Commercial Register at the Registry Agency and receives its own UIC for tax purposes.

The tax treatment mirrors the outbound direction: a Bulgarian branch of a foreign company is taxed at 10% Bulgarian CIT on income attributable to the branch, after which the foreign parent applies exemption or credit in its home state under the applicable DTT.

For the full procedure, documents, fees and VAT regime, see our detailed article: Branch of a foreign company in Bulgaria.

Frequently asked questions