Company Formation in Bulgaria & Emigration

At first glance, Bulgaria sounds like an emigration paradise and tax haven. The lowest cost of living in the in the EU, low taxes and proximity to the sea.

But beware, there are some disadvantages that, emigration and the founding of a company, which is often associated with it, can turn out to be a wrong decision. We clarify!

Pros and cons of Bulgaria at a glance:

- Member of the EU since 2007, but still the most backward country in Europe

- Administrative bodies very slow and sluggish, hardly any possibilities to speed this up

- Flat tax 10%, corporate income tax or personal income tax always only 10%.

- Cost of living is one of the lowest in Europe

- In addition to the low tax burden of only 10%, the wage costs, as well as ancillary wage costs, are in the lower range.

- Profit distributions to own private account only 5% dividend tax

TOP 3 disadvantages of founding a company in Bulgaria:

1. Flat Tax 10% - Most expenses are not deductible

A general tax rate of 10% applies in Bulgaria. It does not matter whether you are founding a corporation such as a Bulgarian GmbH or for natural persons such as freelancers. Only 10% tax is paid on the profit. That sounds fair and sounds tempting. Of course, the aim should be to offset or deduct as much as possible in order to reduce profits and, conversely, to pay less tax. Unfortunately, the whole thing has a big catch: Normal expenses such as office rent, salaries, ancillary office costs, internet, etc. can not be deducted from taxes.

However, essential expenses such as advertising costs, company cars, consulting expenses, as well as the main part of expenses incurred outside of Bulgaria, e.g. in Germany are not tax deductible. It also doesn't reduce profits.

Since mainly the costs that have to do with your own office location can be charged, a company in Bulgaria is rather unsuitable for digital nomads, frequent travelers or commuters.

Even more serious is the registration in Bulgaria as a self-employed person. In this case, when founding a sole proprietorship, i.e. not a corporation, no costs can be deducted at all - i.e. the 10% is like a tax on sales. If you earn EUR 200,000, you pay EUR 20,000 in taxes (10%).

2. Bank account in Bulgaria

The times are long gone when Germans and Austrians made the pilgrimage across the border to Bulgaria and could simply open bank accounts there - especially without a physical address and center of residence in Bulgaria.

There are currently some start-up agencies that support the founder or emigrant in founding a company in Bulgaria - but there is no indication anywhere that opening a bank account at a Bulgarian bank is hardly possible anymore. This is similar to Cyprus. Even direct banks such as Transferwise or Revolut have denied access to Cyprus, i.e. a bank account for the country of Cyprus can no longer be opened with these providers. The situation is similar for Bulgaria with their state banks, but also with more and more direct banks.

3. Rule of Law & Language and Writing

However, the rule of law and transparency are still the biggest problem areas in Bulgaria. The European Union has therefore repeatedly warned Bulgaria about its inadequate fight against corruption. As a result, the EU Commission is demanding clear control mechanisms from the Bulgarian government, otherwise further funds from EU funds could be blocked. Always the same old tenor, but still as topical as ever. One must not forget: Bulgaria is the poorest country in the EU, struggling with the greatest social problems.

Bulgaria is completely different from other countries in terms of language and writing. The Bulgarian language does not use the Latin, but the Cyrillic alphabet. Added to this are the many dialects in the different regions. Learning the language is extremely difficult, especially since the English skills of the Bulgarians in the country leave a lot to be desired. In the capital city, Sofia, you can communicate to some extent. If you want to do business seriously in Bulgaria, you can hardly avoid learning the language extensively.

All types of taxes in Bulgaria:

Below we deal with all types of taxes in Bulgaria and note what will change in 2023 and which tax rates will apply. Before we start and examine all Bulgarian taxes, we would like to analyse the differences in taxes incurred within Europe. The differences within countries are alarming.

We clarify:   How much tax do you pay in Bulgaria? (DE vs. BGR) -how much is left?

Here is an overview of the Bulgarian tax types:

1. Corporate income tax in Bulgaria (GmbH / OOD)
2. Capital gains tax Bulgaria dividends
3. Profit tax in Bulgaria
4. VAT Bulgaria
5. Income tax Bulgaria
6. Income tax Bulgaria
7. Tax consulting accounting
8. Company formation

Corporation tax, also known as business tax, is calculated as a percentage of a company's profit or turnover. First of all, it should be mentioned that there is no trade tax in Bulgaria. The applicable corporate tax rate for corporations is 10% on profit. A corporation or legal entity in Bulgaria, like the GmbH in Germany, is equivalent to the Bulgarian legal form of the OOD.



There is a special case in Bulgaria: In Germany, on the other hand, limited partnerships (KG) or open commercial companies (OHG) are pure partnerships and are taxed at the personal income tax rate. It is different in Bulgaria: The two legal forms КД (KG) and the с-ие (OHG) are also legally regarded as corporations in Romania and are subject to this taxation.

The corporation tax of 10% on the profit also applies.

Example: The company "Obermann" has a turnover of €520,000 in 2023 and generates a profit of €500,000

Question: What taxes are due?

Answer: 10% corporate tax is charged on the profit. I.e. EUR 50,000 in taxes must be paid.

Wrong! : Hardly any expenses can be deducted. Goods purchased or services abroad cannot be claimed. Most of the time, sales = profit or approximately.

Solution: Instead of paying 10% tax on profit/sales, there is a tax rate of only 1% on sales in Romania! (If Eastern Europe then Romania!)

This is only for taxation on company level - If profit distributions are foreseen - DE and BGR differ again drastically!

The capital gains tax, also known as the withholding tax, is calculated as a percentage of the profit to be paid out. Dividend tax applies, whether in the case of a profit distribution in the form of a dividend from your own company or dividend payments from listed stock corporations (shares). This is 5% in Bulgaria.



Participations of Bulgarian companies in other Bulgarian companies and their distribution of profits among themselves do not trigger any dividend tax and are completely tax-free. Requirement: The condition that a participation of at least 10% for at least 1 year still exists! Dividends received by a foreign company as a result of a stake in a Bulgarian company are taxed at 5% at source. Mother-daughter companies in Bulgaria can therefore transfer profits tax-free.

A profit distribution for private persons has a 5% profit tax:


Example: The company "Hartmann" had a turnover of €600,000 in 2023 and generated a profit of €400.00. A profit of €200,000 is now to be paid out to the managing director as a dividend.

Question: What taxes are due on the profit distribution?

Answer: €200,000 is to be paid out, which means that 5% dividend tax is due to the Bulgarian state in taxes. The managing director, Mr. Hartmann, has his winnings paid out. He has €190,000 at his free disposal.

Mistake 1: Not cashing out winnings too quickly. A company should mature over 1-3 years before it is distributed to private persons. Better: invest in real estate or other investments.
Mistake 2: Simply transfer profits (withdrawals) to your own private account in your home country.

Foreign private persons who are not resident or registered in Bulgaria, regardless of their place of residence, are then usually subject to withholding tax in their home country.

If you invest in a Bulgarian property instead of paying out a profit and have the rental income transferred to your private account in your home country (e.g. DE, AT, CH) - this income is tax-free in Germany. (Clearly regulated in the DBA DE-BGR)

By way of comparison, 26.75% tax is levied on profit distributions in Germany.

A profit tax is, as the name suggests, a tax on the on the profit. As discussed above, for a profit tax of 10% is due for corporations. For further details please contact us for 1. corporate tax and 2. Capital Gains Tax / Dividends to take a closer look.



Unlike Bulgaria, which is much more sluggish and slower than neighboring Romania due to higher corruption, Romania keeps reducing all taxes on profits year after year. Since 2018, income tax has been reduced from 16% to 10%. The turnover amount was increased from €100,000, then €500,000 up to €1 million to benefit from the 1% tax. A dividend payment to private individuals was still 15% tax in 2015. A uniform 5% dividend tax has been in force for years.

Due to the 1% tax regulation and other influences, we always recommend Romania as a founding country instead of Bulgaria!

Update 2023: 10 minute initial consultation 100% free.

Inquire now

Give us a call:+49 89 904 22 360

4. VAT Bulgaria

Subject to sales tax, is an obligation to apply for a sales tax ID and the VAT registration is binding for sales of more than BGN 50,000 per year. Depending on the exchange rate, this is around EUR 25,000. Natural and legal persons who make more than the equivalent of approx. EUR 25,000 in sales per year are obliged to report and pay sales tax. The standard VAT rate in Bulgaria is 20%.



With accession to the EU, Bulgaria also adopted the so-called reverse charge procedure (reversal of tax liability). If the reverse charge regulation is used, the invoice will be issued without VAT. This rule applies to corporate customers who also have a VAT ID. In the supplier's and customer's books, as well as in the VAT returns, the (actually unpaid) VAT is accounted for as both deductible and collected VAT.

Exports to third countries are exempt from VAT

1. A reduced sales tax rate or exemption from sales tax only applies
a) Exempted are: Social, medical institutions, education and research
b) Exempted are: Investment companies, credit and insurance industry
c) 9% sales tax for accommodation, tourist services and hotels

Example: The entrepreneur "Ortmann" has a turnover of €80,000 in 2023 with digital goods and therefore has no expenses (profit: €80,000). Sales are 50% each from private and corporate customers within the EU.

Question: Which sales taxes are due?

Answer: Mr. Ortmann is subject to sales tax and does not pay sales tax on 50% of his sales thanks to the reverse charge procedure. The other 50% or 40,000 of sales/profits are subject to 20% sales tax in full.

Mistake 1: Not splitting up multiple companies to save on VAT in a more VAT friendly country like Romania.
Mistake 2: Not using the reverse charge procedure

In Romania, the threshold is EUR 60,000 and up to 3 small businesses can operate at the same time to be VAT exempt.

Update 2023: 10 minute initial consultation 100% free.

Inquire now

Give us a call: +49 89 904 22 360

5. Income Tax Bulgaria

In general, a flat income tax rate of 10% applies. Bulgaria, including Romania, has the lowest income tax rate in the EU at 10%. However, there are exceptions for even lower tax rates: (e.g. the tax rate for dividends, tax rate for income from the transfer of real estate, etc.)

Update 2023: 10 minute initial consultation 100% free.

Inquire now

Give us a call: +49 89 904 22 360

6. Income tax Bulgaria

The payroll tax for salaries and wages is 10%. Social security contributions and income tax are calculated, withheld and paid by the employer. The total employee share is: 13.48%. The total employer contribution is: 20-22%



10,92 %  Pension insurance employee share
4,8 %  Health insurance (employer's share)
2,1% Tax on continued payment of wages in the event of illness and maternity protection (employer's share)
0,4-1,1% Unemployment insurance (employer's share)
2,8% Additional statutory pension insurance (employer's share)

Employee share:
for public insurance – 8,38 %;
for additional statutory pension insurance – 2,2 %;
to health insurance – 3,2 %