Royalties and License Income for Individuals in Bulgaria — 6% Effective Rate (2026)

Who qualifies for the royalty and author-fee regime

The privileged 40% statutory deemed-expense (NDE) regime under Art. 29(1)(3) of the Personal Income Tax Act (ZDDFL) is available to Bulgarian tax-resident individuals receiving income from the use of intellectual or industrial property they have created.

Typical beneficiaries we work with include:

• Photographers — selling existing images through Shutterstock, Adobe Stock, Getty, Alamy
• Writers and journalists — author royalties for books, articles, scripts
• Developers — licensing proprietary software (SaaS, libraries, plugins) for royalty fees
• Musicians and composers — royalties from Spotify, Apple Music, SoundCloud, or local collective-management societies
• YouTube creators and podcasters — AdSense revenue, ad-share income
• Patreon/OnlyFans creators — where payments are for access to already-created works
• Graphic designers — licenses for fonts, icons, templates, 3D models
• Architects and engineers — licenses for drawings, plans, working projects

Important exclusion: Legal entities (EOOD, OOD, JSC) do not fall under this regime — they are taxed under the Corporate Income Tax Act (ZKPO) at the standard 10% corporate rate on profits.

What counts as a license fee or royalty

The statutory definition is in §1, item 8 of the Supplementary Provisions of the Corporate Income Tax Act, to which ZDDFL cross-refers. License fees are payments received for the use of or the right to use:

• Copyrights in literary, artistic, or scientific works, films, radio and TV recordings, computer software
• Patents, topographies of integrated circuits
• Trademarks, industrial designs, utility models
• Plans, secret formulas, production processes (know-how)
• Industrial, commercial or scientific equipment
• Information concerning industrial, commercial or scientific experience

Critical line: "shrink-wrap software" vs. license

Payment for a single copy of off-the-shelf software used by the licensee only (e.g. a seat of Microsoft Office or Adobe Photoshop for one's own work) is not a royalty within the meaning of §1, item 8 ZKPO. It is an ordinary purchase of a copy.

Conversely, payment for the right to copy, distribute, modify or resell the software is a royalty and qualifies for the 6% effective rate (when the recipient is a Bulgarian tax-resident individual).

Royalty vs. employment and business income

The most common mistake in practice is conflating two fundamentally different regimes. The key test is simple:

• Payment for CREATING something on commission → employment or business income (social security + 10% on net)
• Payment for USING an already-created work → author/license fee (6% effective, no social security)

Practice tip: For mixed situations (e.g. a photographer with both commissioned clients and stock sales), keep separate records for each income stream. The tax administration (NRA) may reclassify — so contracts and invoices should clearly state whether the payment is for creation or for use.

The regime: 40% deemed expenses and 6% effective rate

Art. 29(1)(3) ZDDFL entitles the taxable person to deduct 40% statutory deemed expenses from gross royalties and author fees. The formula is:

• Taxable base = Gross income × 60% (after 40% NDE deduction)
• Tax rate = 10% (general rate under Art. 48(1) ZDDFL)
• Effective rate = 10% × 60% = 6%

Example: A photographer receives EUR 5,000 (BGN 9,779) for a license on a photo series.

• Deemed expenses 40%: EUR 2,000
• Taxable base: EUR 3,000
• Tax at 10%: EUR 300
• Effective rate: 300 / 5,000 = 6%

You do not have to prove actual expenses — the 40% is applied automatically, regardless of your real spend on equipment, software, or travel.

Comparison with other Bulgarian regimes (2026)

The royalty regime is one of the most attractive — only the farmers' regime with 60% NDE produces a lower effective tax rate (Art. 29(1)(1) ZDDFL).

Social security: why none is due

Under Art. 6(2) of the Social Security Code (KSO), royalty and author-fee income is not a social-security insurable base. The rationale is conceptual: receiving payment for the use of intellectual property is not a "labour or business activity" for social-security purposes — it is the management of a personal intangible asset.

This has important practical consequences:

• If you are employed and also receive royalties → the employment contributions do not extend to the royalties
• If you are a self-insured person (SOL) with other business activity → SOL contributions are not due on royalty income
• Pension service time does not accrue from royalty income

Risk: reclassification by NRA into business activity

If the NRA determines that the "royalty" payments are actually remuneration for ongoing services (e.g. regular content production on schedule), the regime can be reclassified as business income under Art. 26 ZDDFL. In that case:

• No 40% NDE (or only 25% for freelance professions)
• SOL social-security contributions become due
• If annual turnover exceeds EUR 51,130 (BGN 100,000) — mandatory VAT registration

Red flags: identical monthly payments, absence of an identifiable copyright subject, contracts describing "services" rather than a "license."

Who withholds the tax: payer or recipient

When the payer withholds (standard case)

When the payer is a Bulgarian legal entity or sole trader (e.g. a publisher, studio, trademark user), the payer must:

• Withhold 10% on 60% of the gross = 6% of the gross amount
• Remit the withheld tax by the end of the month following the quarter in which the fee was paid (Art. 65 ZDDFL)
• Issue a "statement of paid amounts" and an official certificate to you

The recipient owes no additional tax but must still file the annual return.

When the recipient self-declares

If the author is a registered self-insured person and has filed a declaration with the payer, the payer does not withhold — the recipient pays advance tax quarterly on their own. For foreign-source income (YouTube, Spotify), there is no Bulgarian withholding either — the author pays directly.

Royalties from foreign platforms: YouTube, Spotify, Patreon

Global platforms treat Bulgarian creators differently depending on the payer's jurisdiction.

US platforms — YouTube, Amazon, TikTok US

Google (YouTube) requires a W-8 BEN to document Bulgarian tax residency. With a valid W-8 BEN invoking the Bulgaria–US double tax treaty, US withholding tax on royalties is reduced to 5% (the treaty royalty rate). Without a W-8 BEN, withholding can reach 30%.

In Bulgaria you declare the full gross income, apply 40% NDE, pay 10% on 60% (i.e. 6%), and claim a foreign tax credit for US withholding. The total effective burden stays around 6% (when the US withholds 5%).

Irish / UK / EU platforms — Spotify, Patreon, Shutterstock

Platforms based in Ireland (Spotify, Stripe/Patreon for the EU), the United Kingdom or other EU states typically do not withhold tax at source on payments to Bulgarian recipients — royalties are paid gross. You then apply the full 6% effective rate in Bulgaria.

We recommend keeping platform payout statements, annual 1099/1042-S forms from US payers, and tax-residency certificates — these are necessary evidence in a potential audit.

Filing and deadlines in the annual return

• Annex 3 — income from other business activity, including author and royalty fees (code 02)
• Annex 9 — foreign-source income (YouTube, Spotify, Patreon etc.), with the source country and foreign tax credit
• Filing deadline: by 30 April of the following calendar year
• 5% early-filing discount for electronic filing by 31 March (capped at EUR 256 under Art. 53(6) ZDDFL)

Advance payments

For self-insured persons or where no payer has withheld, the tax is paid quarterly — by the end of the month following the quarter (Art. 67 ZDDFL). The fourth-quarter advance is optional; any balance is due with the annual return.

For more practical guidance on deadlines, see our guide on advance tax payments.

Common mistakes and audit risks

1. Misclassification as "license" when it is really a service — on audit, NRA reclassifies and charges 10% on the gross plus social contributions
2. Not filing the annual return because the payer withheld — filing is mandatory regardless of withholding
3. Omitting foreign-platform income — YouTube AdSense, Patreon, Spotify are visible through DAC7 and similar information exchanges
4. Exceeding the EUR 51,130 threshold as "royalty" while the reality is business activity — triggers retroactive mandatory VAT registration
5. Mixing "personal use" with "license" for software — payment for own use is not a royalty
6. Skipping the 40% NDE — it is automatic; there is no requirement to prove actual expenses

Practice tip: keep a 10-year archive of license agreements, payment statements, 1099/1042-S forms, and platform screenshots — NRA can audit up to 5 years back, and 10 years in cases of tax fraud.

Frequently asked questions