Bulgaria Freelancer

Guide on Bulgarian Freelancer Taxation

With its advantageous tax laws, Bulgaria attracts digital nomads, entrepreneurs, and freelancers alike. This article dives into the specifics of taxation for Bulgarian freelancers, compares it to the taxation structure for sole-owned limited liability companies (EOODs), and provides an overview of the key benefits and obligations involved in Freelancing in Bulgaria. If you are interestin in registering a company in Bulgaria this post might be interesting for you.

Benefits of Becoming a Freelancer in Bulgaria

The tax system is notably friendly to freelancers in Bulgaria. The ability to simplify the tax procedure by deducting a predetermined percentage of your income as recognized costs is one of the key benefits. Up to 25% of your revenue as a freelancer in Bulgaria is deducted as costs, which lowers your taxable income. This implies that your tax base will be €37,500 if your annual income is €50,000.

This effectively lowers your personal income tax rate to 7.5%. The registration process for freelancers is not to complicated. You’ll need a Bulgarian residency card (and thereby a Bulgarian tax number).

Freelancing in Bulgaria also enjoy fewer compliance requirements compared to businesses, such as using personal bank accounts, avoiding the need for a company bank account. In the past applications for bank accounts (from foreigners) were declined by Bulgarian banks. Additionally, Bulgaria has no minimum capital requirements for freelancers.

Comparing Freelancers and EOODs

EOODs, or sole-owned limited liability companies, have their own set of benefits and requirements. While freelancers can deduct a fixed 25% of their income as expenses, EOODs can deduct actual business expenses, which might be more beneficial if your expenses exceed 25%. Freelancers are often IT workers or software developers that benefit from a high margin business that usually keeps the expenses lower than 25%. In that case you profit from the 25% reduction.

Freelancers must pay social contributions based on their income, just like managers of EOODs. However, freelancers typically face less administrative burden compared to managing an EOOD, making freelancing a simpler option for many. EOODs distribute dividends that are taxed with 10%, but don´t trigger the payment of social contributions on that amount. If you want to pay yourself a (small) salary in your EOOD is your decision.

Tax Residency for Freelancers

To benefit from Bulgaria’s tax system, establishing tax residency is key. Therefore, you should stay more than 183 days in Bulgaria and have a permanent residence here.

Once tax residency is established, freelancers can access Bulgaria’s low tax rates and deductions.

Legal Obligations for Freelancers

Freelancers in Bulgaria must adhere to specific legal obligations, regardless of tax residency status. The flat personal income tax rate is 10%, applicable to 75% of your income (explained before) due to the recognized expenses deduction.

The annual deadline for declaring and paying this tax is April 30 of the subsequent year.

In addition, social security contributions, which are determined by their real monthly income, must be handled by freelancers. The maximum monthly income for social security is BGN 3400 (about €1700), and the contributions are restricted. The monthly contributions for individuals making more money come to about BGN 1000 (€500). By lowering taxable income even further, these donations increase the tax benefits.

Freelancer Taxation Example

Let’s break down an example to illustrate the tax process for freelancers in Bulgaria. Suppose your annual income is €50,000:

1. Recognized Expenses Deduction: Deduct 25% of your total income, equating to €12,500.
2. Social Security Contributions: Deduct the maximum social security contributions for the year, totaling roughly €6000.
3. Taxable Income: €31,500 is your taxable income after deductions.
4. Income Tax: If the taxable income is subject to the 10% tax rate, the annual taxes will be €3150.