Withholding Tax in Bulgaria — Tax on Payments Abroad (2026)

What Is Withholding Tax

Withholding tax is a final tax that is withheld by the payer of the income upon making a payment or accruing income in favour of a foreign person. The legal framework is contained in Art. 194–202a of CITA.

The underlying concept is that foreign persons who do not have a permanent establishment in Bulgaria do not file tax returns in the country. Therefore, the tax is withheld directly by the Bulgarian company before or at the time of payment.

Key condition: Withholding tax is levied when the recipient is a foreign legal entity that does not have a permanent establishment in Bulgaria through which the income was realized (Art. 195(1) CITA).

Which Payments Are Subject to Tax

Tax Base (Art. 199 CITA)

As a general rule, the tax base is the gross amount of the income. Special rules apply for dividends (gross amount), liquidation shares (difference between market value and acquisition cost) and disposal of immovable property (positive difference between sale price and acquisition cost).

Rates and Exemptions

Standard Rates (Art. 200 CITA)

• 5% — for dividends and liquidation shares (Art. 194 CITA)
• 10% — for all other types of income (Art. 200 CITA)

EU Directive Exemptions

1. Parent-Subsidiary Directive (2011/96/EU): Dividends distributed by a Bulgarian subsidiary to an EU/EEA parent are exempt if the parent holds at least 10% of the subsidiary’s capital for a continuous period of at least 2 years (Art. 194(3)(3) CITA).

2. Interest and Royalties Directive (2003/49/EC): Interest and royalties paid to an associated EU company are exempt if the companies are associated through direct participation of at least 25% in capital for at least 2 years (Art. 195(11)–(12) CITA).

Other Exemptions (Art. 196 CITA)

• Income from disposal of financial instruments on a regulated market
• Interest on bonds issued by a local entity and traded on a regulated market
• Interest on loans where the state or municipalities are the borrower
• Dividends in favour of a local legal entity with state participation or an investment fund

DTTs — How to Apply

Bulgaria has concluded over 70 Double Tax Treaties (DTTs). As international agreements, DTTs take precedence over domestic tax legislation (Art. 13 CITA).

DTTs may provide for reduced withholding tax rates, full exemption, or special rules for defining concepts such as “royalties” and “technical services.”

Simplified Procedure (income up to BGN 500,000)

For annual income up to BGN 500,000 (≈ EUR 255,000), the payer applies the DTT automatically without NRA permission (Art. 142(5) TSIPC). Required documents:

1. Tax Residence Certificate — from the recipient’s country for the year of income
2. Declaration from the recipient — confirming beneficial ownership and no PE in Bulgaria
3. Extract from the public register — proof of existence and representative authority
4. Transaction documents — invoice, contract, bank statement

The payer must declare the relief by 31 March of the following year.

Standard Procedure (income over BGN 500,000)

For annual income exceeding BGN 500,000, a formal Application for DTT Relief must be filed with the NRA (Art. 137 TSIPC). The NRA issues an opinion within 60 days. If no opinion is issued, tacit approval is assumed.

Procedure: Withholding, Declaration, Payment

Step 1: Withholding the Tax

The payer withholds the tax upon accrual of the income (Art. 195(5) CITA). The tax is borne by the recipient — the payer transfers the net amount after withholding.

Important: If the tax is borne by the payer (“gross-up”), the tax expense is not deductible (Art. 26(8) CITA).

Step 2: Declaration (Art. 201 CITA)

The tax is declared using the prescribed form, filed quarterly:

The declaration is filed electronically with the Territorial Directorate of the NRA at the payer’s registered address.

Step 3: Payment

The tax is paid within the same deadline as the declaration — by the end of the month following the quarter.

Example: On 15 February 2026, a Bulgarian company accrues royalties of EUR 50,000 in favour of a Swiss company. Withholding tax: 10% = EUR 5,000. The company transfers EUR 45,000 to the Swiss company and remits EUR 5,000 to the NRA. Deadline: 30 April 2026.

Tax Residence Certificate

The Tax Residence Certificate is the key document for DTT application. It must certify:

• That the person is tax resident in that country
• For the specific tax year in which the income was received

Important: A registration certificate or a certificate of taxes paid is not sufficient. The NRA requires a specific tax residence certificate.

The certificate should be obtained before applying the preferential rate. If the tax has already been withheld at the full domestic rate, the recipient may request a refund through the TSIPC procedure.

Penalties

• Late payment interest — the BNB base interest rate + 10 percentage points (annually) for each day of delay
• Fine — monetary sanction under Art. 261 CITA for failure to file or incorrect filing
• Joint liability — if a DTT is applied without proper basis (e.g. lack of a tax residence certificate), the payer is jointly liable with the recipient for the tax

Frequently Asked Questions

Conclusion

Withholding tax is one of the main forms of international taxation affecting a broad range of cross-border transactions. Understanding the applicable rates, EU directive exemptions and DTT relief procedures is essential for minimising the tax burden while maintaining compliance.

If you need advice on withholding tax obligations or DTT application, the team at Innovires Legal can help. Contact us for a consultation.

This article is for informational purposes only and does not constitute legal advice. For specific questions regarding withholding tax in Bulgaria, please consult a qualified professional.