The tax position starts before the dividend is paid
For an overseas owner asking what taxes affect Bulgarian dividends, the headline rate is usually straightforward: Bulgaria generally applies 5% dividend withholding tax. The practical answer, however, depends on who receives the dividend, where they are tax resident, whether a double tax treaty applies, and whether the company has completed the corporate and accounting steps required to distribute profit lawfully.
A Bulgarian company is not a personal bank account. Its profit must first be established in its accounts, the relevant corporate tax must be settled, and a proper shareholder resolution must support the distribution. This distinction matters particularly to foreign founders who manage a Bulgarian limited company remotely and want to move funds abroad without creating avoidable tax or compliance exposure.
Corporation tax comes before dividend tax
A Bulgarian company normally pays 10% corporation tax on its taxable annual profit. This is a tax on the company, not a second tax charged to the shareholder. Only profit remaining after corporation tax, accounting adjustments, any applicable loss carry-forwards and other statutory requirements can ordinarily form the basis for a dividend.
For example, if a Bulgarian limited company has BGN 100,000 taxable profit, its corporation tax is generally BGN 10,000. Assuming there are no other relevant adjustments, BGN 90,000 remains as after-tax profit. If the shareholders resolve to distribute all of that amount to an individual shareholder, the company would normally withhold 5%, or BGN 4,500. The shareholder receives BGN 85,500.
The combined Bulgarian burden in this simple example is therefore 14.5% of the original profit. That is one reason Bulgaria remains attractive for entrepreneurs, but the calculation should not be used in isolation. Tax in the shareholder’s country of residence may still apply.
What taxes affect Bulgarian dividends paid to individuals?
Dividends paid by a Bulgarian company to an individual are generally subject to a final 5% withholding tax in Bulgaria. This commonly applies whether the individual is Bulgarian tax resident or lives abroad.
For a Bulgarian-resident individual, the Bulgarian company usually withholds the tax at source. The dividend income is generally taxed on that final basis rather than being added to employment income and taxed at progressive rates. In many ordinary cases, the shareholder does not need to make a separate annual declaration solely because of the Bulgarian dividend, although individual circumstances can change the filing position.
For a non-resident individual, the same 5% Bulgarian withholding rate is commonly the starting point. Their home country may then tax the dividend under its domestic law. Depending on the relevant treaty and local rules, the Bulgarian tax may be credited against the foreign tax due. A credit is not the same as an exemption, and it does not always remove the need to report the income abroad.
Dividend income is generally not subject to Bulgarian social security contributions. This does not mean that any payment labelled a dividend is automatically safe. Where payments are made without distributable profit, are unsupported by company records, or effectively pay for a shareholder’s work or private expenditure, the authorities may examine their true nature.
Dividends paid to companies
The recipient’s legal status is often decisive. Dividends paid by one Bulgarian company to another Bulgarian corporate shareholder are generally not subject to Bulgarian dividend withholding tax. The income is usually treated under the corporate tax rules applicable to the receiving company.
A distribution to a corporate shareholder tax resident in an EU or EEA Member State can also benefit from an exemption from Bulgarian withholding tax, provided the recipient falls within the statutory conditions. This is a significant point for group structures using companies in EU or EEA jurisdictions. The result should not be assumed merely because a company has a registered address in Europe. Tax residence, legal form, actual entitlement to the income and the substance of the arrangement may all be relevant.
For corporate shareholders outside the EU and EEA, Bulgaria’s domestic 5% withholding tax is normally the starting point. A double tax treaty may reduce that rate or provide another form of relief. Some treaties set conditions based on the shareholder’s ownership percentage, while others retain a 5% rate. The treaty wording and the shareholder’s facts must be checked before payment, not after funds have been transferred.
Double tax treaties can change the outcome
Bulgaria has concluded double tax treaties with many countries, including the United Kingdom. These agreements are intended to prevent the same income being taxed twice, but they do not create a universal right to pay no Bulgarian tax.
A treaty may limit Bulgaria’s taxing right at source, allow the shareholder to claim a foreign tax credit in their country of residence, or both. The available relief depends on the specific treaty, the type of recipient and its tax residence. Individual shareholders, trading companies, holding companies and investment vehicles can receive different treatment.
The Bulgarian company should obtain appropriate evidence before applying a reduced treaty rate. In practice, this may include a valid tax residence certificate and documents showing that the recipient is entitled to treaty benefits. More substantial payments can require a formal procedure with the Bulgarian revenue authorities. A company should not simply accept a shareholder’s assurance that they live in a treaty country.
This is particularly relevant where a UK-resident individual owns a Bulgarian company. UK tax may be payable on the dividend even after the Bulgarian 5% tax has been deducted. The availability and amount of UK credit relief depend on the shareholder’s wider UK tax position. Bulgarian advice and UK advice should therefore be coordinated rather than treated as competing alternatives.
Timing, withholding and reporting
A dividend normally becomes payable after the competent company body adopts a valid resolution to distribute it. For a limited liability company, this will commonly be a shareholders’ resolution based on approved financial results. Companies should also consider whether accumulated losses, mandatory reserves, previous distributions or other accounting issues restrict the amount available.
Once a taxable dividend is resolved, the Bulgarian company acts as the withholding agent. It is responsible for calculating, withholding and paying the applicable tax to the National Revenue Agency. As a general rule, dividend withholding tax is paid and declared by the end of the month following the quarter in which the decision to distribute the dividend was made.
The company may also have annual information-reporting obligations concerning income paid to individuals. Missing a filing date, using an incorrect recipient classification or paying the shareholder the gross amount without retaining the tax can expose the company to interest and penalties. The liability sits with the Bulgarian payer, which is why dividend administration should not be left to informal instructions between directors and shareholders.
Do not confuse dividends with shareholder withdrawals
Foreign owners sometimes transfer money from the company account and expect their accountant to decide later whether it was a dividend. That approach creates unnecessary risk. A payment might instead be a salary, management remuneration, loan, expense reimbursement, advance payment or a concealed profit distribution. Each category can have different tax, VAT, social security, accounting and documentary consequences.
A shareholder loan can be legitimate, but it requires real terms, correct accounting and evidence that repayment is expected. Personal expenses paid by the company also require careful treatment. Calling either a dividend after the event may not correct the original issue.
The safer process is to establish the intended payment before funds leave the company account, confirm there is sufficient distributable profit where a dividend is proposed, prepare the necessary resolution and calculate the tax at source. This is not unnecessary formality. It protects the company, its director and its shareholders if the records are reviewed later.
A practical approach for overseas shareholders
Before declaring a Bulgarian dividend, confirm the company’s after-tax distributable profit and the shareholder’s tax residence. Then identify whether the recipient is an individual, a Bulgarian company, an EU or EEA corporate entity, or a company resident elsewhere. This determines whether the standard 5% rate, an exemption or treaty analysis is likely to apply.
Next, prepare the company documents and obtain the tax evidence before making payment. Keep the shareholder resolution, accounting support, payment record and proof of tax payment together. Where the shareholder lives outside Bulgaria, consider the reporting treatment in that country at the same time rather than waiting for an overseas tax return deadline.
Bulgarian Law Firm assists international company owners with the legal side of corporate decisions and coordinates ongoing accounting and tax compliance through an established Bulgarian practice with permanent offices in Sofia and Burgas. A properly planned dividend is usually uncomplicated. The value lies in ensuring that a low headline rate is supported by the right structure, documents and reporting from the outset.