Permanent Establishment (PE) — When a Foreign Company Owes Taxes in Bulgaria (2026)

What Is a Permanent Establishment

The concept of a Permanent Establishment (PE) is defined in §1, item 2 of the Supplementary Provisions of the Corporate Income Tax Act (CITA), which cross-references the definition in §1, item 5 of the Tax and Social Security Procedure Code (TSSPC). Under this provision, a PE is a fixed place of business through which a foreign person carries on business activity, in whole or in part, within the country.

Examples of a fixed place of business listed in the law include:

• Office or branch — leased or owned premises from which business activity is conducted
• Commercial representative office — if it carries on activity going beyond a preparatory or auxiliary character
• Factory or workshop — production facilities located on Bulgarian territory
• Warehouse — when used not merely for storage but also for delivery of goods to customers
• Construction site — a building or installation project exceeding a certain duration (see below)
• Mine, quarry or other site for the extraction of natural resources

At the international level, the PE definition follows Art. 5 of the OECD Model Tax Convention. This standard underpins most bilateral Double Tax Treaties to which Bulgaria is a party. The domestic definition in the TSSPC is largely harmonised with the international standard, but where a DTT is in force its provisions take precedence over domestic law.

Three core criteria must be met cumulatively for a PE to exist:

1. Fixed place of business — a specific geographical location (ownership by the foreign person is not required)
2. Permanence — the activity must have a certain duration rather than being one-off or incidental
3. Business activity — actual business operations of the enterprise must be carried on through that place

Types of PE

International tax practice and Bulgarian legislation distinguish several main types of PE, each with specific characteristics and thresholds for creation:

Fixed-place PE

The most classic form — the foreign person has a specific physical location in Bulgaria from which it conducts business. The place does not need to be owned by the enterprise; it is sufficient that it is at its disposal. Renting an office, even a shared one (coworking space), can give rise to a PE if the activity carried on from it is not of a preparatory or auxiliary character.

Construction PE

Under the OECD Model, a building site or construction or installation project constitutes a PE when its duration exceeds 12 months. It is important to note that individual DTTs may set a different threshold — for example, the Bulgaria-Germany treaty provides for a 9-month period. The duration is calculated cumulatively for related projects within the country.

Agency PE

When a person acting in Bulgaria on behalf of a foreign enterprise has and habitually exercises the authority to conclude contracts binding the enterprise, an agency PE is created. The condition is that the agent must be dependent — i.e. acting under the instructions of the enterprise, rather than being an independent intermediary. An independent agent (broker, commission agent) acting in the ordinary course of its business generally does not create a PE.

Service PE

Certain DTTs and domestic law provide for the creation of a PE when employees of a foreign enterprise provide services in Bulgaria for a period exceeding a specified number of days (typically 183 days within a 12-month period). This provision may apply even in the absence of a fixed place of business.

When a PE Does NOT Arise

The international tax standard and Bulgarian law provide for specific exceptions under which, despite the physical presence of a foreign person in the country, no PE is created. These exceptions are set out in Art. 5(4) of the OECD Model and are reproduced in most DTTs to which Bulgaria is a party.

A PE does not arise when the activity is of a preparatory or auxiliary character, including:

• Storage and warehousing — the use of facilities solely for the purposes of storing, displaying or delivering goods belonging to the foreign enterprise, without carrying on sales
• Maintaining stock — keeping a stock of goods solely for the purpose of processing by another enterprise
• Gathering information — maintaining a fixed place of business exclusively for the purpose of research, collection of market information, advertising or other activities of a preparatory character
• Purchasing goods — a fixed place used solely for purchasing goods or collecting information for the enterprise
• Independent agent — activity carried on through an independent intermediary (broker, commission agent) acting in the ordinary course of its business and under arm’s-length conditions

Special attention should be paid to the so-called anti-fragmentation rule, introduced by the Multilateral Convention (MLI) and adopted in the revised 2017 OECD Model. Under this rule, if several activities of a preparatory character are carried on by the same enterprise (or related enterprises) at the same place or in the same country, they may be considered in their entirety. If their combined effect goes beyond a preparatory or auxiliary character, a PE may be created.

Tax Obligations When a PE Exists

When a foreign legal entity creates a PE in Bulgaria, it is subject to corporate income tax at the rate of 10 % on the profits attributable to that PE. The tax base is determined under the CITA, applying the same accounting and tax-adjustment rules that apply to domestic legal entities.

Key obligations

• Registration with the NRA — the foreign person must register with the National Revenue Agency within 7 days of commencing activity through the PE
• Annual tax return — filed under Art. 252 of the CITA within the period 1 March to 30 June of the year following the tax year
• Advance tax instalments — the PE must make advance corporate tax payments under the general CITA rules (monthly or quarterly, depending on net sales revenue)
• Accounting records — the PE must maintain accounting records in the Bulgarian language and in Bulgarian leva, in compliance with the applicable accounting standards
• Annual financial statements — prepared and published in accordance with the general rules

VAT registration

The existence of a PE under the CITA does not automatically mean the existence of a “fixed establishment” within the meaning of the Value Added Tax Act (VATA). The concept of a “fixed establishment” for VAT purposes is different and follows the definition of the Court of Justice of the European Union (case C-605/12, Welmory). Nonetheless, in most cases the creation of a PE will also mean the existence of a fixed establishment for VAT purposes, triggering a VAT registration obligation.

Mandatory VAT registration arises upon reaching a turnover of BGN 166,000 over the preceding 12 consecutive months or upon certain intra-Community acquisitions and supplies.

Alternative: Withholding Tax (Without a PE)

When a foreign legal entity derives income from sources in Bulgaria but does not create a PE, that income may be subject to withholding tax under Art. 195 of the CITA. The tax rate is 10 % on the gross amount of the income.

Types of income subject to withholding tax

• Dividends and liquidation proceeds — distributed by Bulgarian companies to foreign legal entities (subject to exemptions under EU directives)
• Interest — accrued in favour of foreign persons
• Royalties and licence fees — for the use of copyrights, patents, trademarks, know-how
• Technical services — remuneration for technical, management and consultancy services
• Rent and other income from immovable property in Bulgaria

Withholding mechanism

Withholding tax is withheld and remitted by the payer of the income (the Bulgarian company), not by the recipient. The payer must withhold the tax upon payment of the income and remit it to the budget by the end of the month following the quarter in which the income was accrued. This rate may be reduced or eliminated through the application of a Double Tax Treaty (DTT), if the foreign person is a resident of a state with which Bulgaria has a treaty in force.

DTTs — Double Tax Treaties

Bulgaria is a party to 68+ Double Tax Treaties (DTTs), concluded with its principal trading partners, including all EU Member States, the United States, the United Kingdom, Switzerland, China, Russia and others. Most of these treaties follow the OECD Model.

Relevance of DTTs for PE

DTTs take precedence over domestic tax law by virtue of Art. 13 of the TSSPC. This means that even if the domestic PE definition is broader, the applicable DTT may restrict or exclude Bulgaria’s right to tax certain income. In practice a DTT may:

• Set a different threshold for a construction PE (e.g. 9 instead of 12 months, or vice versa)
• Exclude certain types of activity from the scope of a PE
• Reduce or eliminate withholding tax on certain types of income (dividends, interest, royalties)
• Provide a method for eliminating double taxation (credit method or exemption method)

Procedure for applying a DTT

To claim relief under a DTT, the foreign person must submit the following documents to the NRA:

1. Certificate of tax residence — issued by the tax authority of the state of which the foreign person claims to be a tax resident
2. Declaration that the person is the beneficial owner of the income
3. Declaration that the person does not have a PE in Bulgaria through which the income was derived
4. Evidence of the type and amount of the income

For income up to BGN 500,000 per year from a single payer, a simplified procedure applies. For higher amounts the decision rests with the NRA.

Multilateral Convention (MLI)

Bulgaria has ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS MLI). The MLI automatically modifies existing DTTs where both parties have accepted the relevant provisions. Among the key changes introduced through the MLI are the Principal Purpose Test (PPT), the anti-fragmentation rule and changes to the definition of an agency PE.

Remote Workers and PE Risk

With the growth of remote work, the question whether an employee working from home in Bulgaria for a foreign employer can create a PE for that employer has become increasingly relevant. The answer depends on the specific circumstances.

When a remote worker creates a PE

An employee working from Bulgaria may create a PE for the foreign employer if the following conditions are met:

• Concluding contracts — if the employee has the authority to conclude contracts on behalf of the employer and habitually exercises that authority from Bulgaria, an agency PE is created
• Permanence of activity — the activity must be continuous and systematic, not incidental
• Premises at the employer’s disposal — a home office may be regarded as a “fixed place of business” if the employer requires or expects the employee to work from there

When a remote worker does NOT create a PE

• Preparatory/auxiliary activity — if the employee only performs administrative support, research or internal coordination without authority to bind the employer, the activity usually qualifies as preparatory and does not create a PE
• Temporary work — short-term remote working (e.g. a few weeks) generally does not create a PE
• Employer does not require presence — if the choice of work location is entirely the employee’s and the employer does not control where work is performed, the PE risk is lower

Digital nomad visa and PE

Bulgaria offers a digital nomad visa, but it addresses only the immigration status of the individual. The visa does not provide tax certainty regarding the potential creation of a PE for the foreign employer. Companies whose employees work remotely from Bulgaria should independently assess the PE risk, regardless of the employee’s visa status.

Frequently Asked Questions