Bulgaria is a rather unknown country in Eastern Europe that is part of the European Union. Nevertheless, the past years more and more digital nomads start to explore the country. Especially the small mountain village of Bansko is getting popular amongst the digital nomad community. However, is it also interesting so set up tax residency in Bulgaria?
What to do in Bulgaria?
The capital of Bulgaria is Sofia. More and more tourist start traveling to the city. Also amongst digital nomad there is some traction towards Sofia. Most people visiting Bulgaria in any case start in Sofia as it is home to the most international airport in the country.
Furthermore, you might know Bulgaria as a summer holiday destination at the Black Sea. There are some historical cities in the area. But there is definitely also a lot going on for the party people under us.
What less people know is that in winter you can enjoy skiing in Bulgaria. Bulgaria has different skiing areas which offer more affordable prices than countries like Austria, France or Suisse.
If you are not a beach person or not into skiing, you might still find something to like in Bulgaria. All over the country there is beautiful nature and historical sites.
Tax residency in Bulgaria: general rules
Do you think about spending some time in Bulgaria and setting up your tax residency in the country? Then you should have a basic understanding of the general tax rules.
There are two ways by which (digital nomads) can obtain tax residency in Bulgaria.
Tax residency in Bulgaria via the days test
The first way to establish tax residency in Bulgaria is by the so-called days test. This means you spent 183 days or more in a twelve month period in the country. You will become tax resident for the tax year during which you exceeded this limit.
Tax residency in Bulgaria because of your centre of vital interests
As most nomads don’t want to spend six months per year in one country, the days test might not be so appealing. However, you can also establish tax residency in Bulgaria based on your centre of vital interests.
This basically means that if you have the majority of your vital interest – both economical as from a private life point of view -, you can obtain tax residency in Bulgaria. Digital nomads will overall not have too many links with one specific country as they are traveling around to various places. Therefore, you can ensure you have most of your links to Bulgaria.
You could do this, for example, by renting a place in Bulgaria all your round. You might think about this as wasted money if you only stay in the country for a few months. However, for long-term you can find nice apartments to rent around €200 per month. All depending on the place where you would want to rent.
Another option is to buy a place in Bulgaria. Just as rental prices, prices for buying real estate are very affordable compared to some other countries. You can find nice studios/apartments from €30.000.
By having your own place – rented or bought – you will already have a significant link to the country. A stronger link than you will probably have to any other country as you’ll just rent a place for a short term in most countries you’ll be visiting. If you add a Bulgarian bank account to your collection or provide your work through a Bulgarian company and put your official address in Bulgaria, you might be able to consider yourself a Bulgarian tax resident.
Unlike the days test, the centre of vital interests leaves more room for discussion. So there is no boundary when you will and when you won’t qualify as having your tax residency in Bulgaria. Digital nomads could use this to their advantage by taking action proactive to become a Bulgarian tax resident.
Flat tax rate
Bulgaria taxes you on your worldwide income and the personal income tax rate is a flat 10%. So irrespective of the amount you make, your tax liability will amount to 10%. This unlike most Western countries where they have a progressive tax rate and you pay more taxes if you make more.
Limited social contributions
The other nice thing about Bulgaria is that their social contributions are capped at a rather low rate. You will only pay social contributions on a maximum income of BGN 3.400 (equivalent to approximately €1.750). Social contributions differ a bit for employees than for self-employed individuals, but overall you’ll probably end up paying around 30%. However, given the cap, you will maximally pay around €525 social contributions at most. The higher your income, the lower the actual impact of these social security contributions.
Setting up a company in Bulgaria
Another way to profit from Bulgaria’s low taxes is to set up a company there. Just like the personal income tax rate, the corporate tax rate is a flat 10%.
Nevertheless, if you take money out of the company via a dividend, you should be aware of the fact that an additional 5% withholding tax is due.
If we take both corporate tax and withholding tax into account, this will bring the total tax burden of your Bulgarian company at 14,5%. This rate is higher than the rate for income received directly as a private individual (as then there is no withholding tax involved). However, in this way you do avoid the social contributions as they are only due on income from (self-)employment and not on dividends.
From a compliance point of view, you should know that wages in Bulgaria are lower than in Western countries. In this way, you might also be able save on costs of compliance and taking care of your affairs in Bulgaria.
We try to avoid taxes as much as possible in order to increase your net income and ultimately your quality of life. What you definitely don’t want is to pay taxes on the same income twice. Therefore, it’s important to avoid double taxation. Double taxation could occur when you set up tax residency in Bulgaria but at the same time another country deems you a tax resident there. In order to avoid such issues, we would advice you to only work with professionals in the field.