Guide on Bulgarian Freelancer Taxation
Digital nomads, businesses, and freelancers are drawn to Bulgaria because of its favorable tax rules. This article examines the taxation of freelancers in Bulgaria in detail, draws comparisons to the taxation of sole-owned limited liability companies (EOODs), and summarizes the main responsibilities and advantages of freelancing in Bulgaria. . If you are interested in registering a company in Bulgaria we got you.
Benefits of Becoming a Freelancer in Bulgaria
Bulgaria has a very business-friendly tax system. A major perk is that you can streamline your tax preparation by writing off a set percentage of your income as expenses. In Bulgaria, you can reduce your taxable income as a freelancer by deducting up to 25% of your earnings as costs. If your yearly income is €50,000, then your tax base will be €37,500.
As a result, your effective personal income tax rate drops to 7.5%. No special steps are required to register as a freelancer. A Bulgarian tax number is required, which can be obtained through a Bulgarian residency card.
If you’re a freelancer in Bulgaria, you can use your personal bank account instead of a corporate bank account, which means you have fewer compliance needs to worry about. Many Bulgarian banks have turned down accounts from non-Bulgarian citizens in the past. Furthermore, freelancers in Bulgaria are not required to have a certain amount of funds on hand.
Comparing Freelancers and EOODs
One set of rules and regulations applies to EOODs, or sole-owned limited liability corporations. Freelancers are limited to deducting a predetermined 25% of their income as expenditures, while EOODs have the flexibility to deduct actual company expenses. This could be a better strategy if your expenses end up being more than 25%. Many people who operate as freelancers in the IT or software development industries do so because their businesses have a large margin and their expenses are typically less than 25%. Then the 25% discount is to your advantage.
Managers of EOODs and freelancers alike are subject to income-based social contributions. However, many people find that freelancing is easier than maintaining an EOOD because freelancers usually encounter less administrative strain. EOODs pay out dividends that are subject to a 10% tax rate, but that sum is not subject to social contributions. It is entirely up to you whether you wish to include a (minimal) salary in your end-of-life planning.
Tax Residency for Freelancers
Becoming a tax resident of Bulgaria is essential if you want to profit from their tax system. As a result, you need to establish permanent residency in Bulgaria by spending more than 183 days here.
Freelancers in Bulgaria can take advantage of the country’s advantageous tax policies when they’ve obtained tax residence.
Legal Obligations for Freelancers
Regardless of their tax residency status, freelancers in Bulgaria are obligated to follow certain legal requirements. As previously mentioned, 75% of your income is subject to the 10% flat personal income tax rate because of the recognized costs deduction.
This tax must be declared and paid every year by April 30th of the following year.
A freelancer’s genuine monthly income is also a factor in determining their social security contributions. There is a cap on contributions and the highest monthly income that can be used for social security is BGN 3400 (approximately €1700). Contributions up to around BGN 1000 (€500) per month are due from persons with higher incomes. These contributions enhance the tax benefits by further reducing taxable income.
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:
- Recognized Expenses Deduction: Deduct 25% of your total income, equating to €12,500.
- Social Security Contributions: Deduct the maximum social security contributions for the year, totaling roughly €6000.
- Taxable Income: €31,500 is your taxable income after deductions.
- Income Tax: If the taxable income is subject to the 10% tax rate, the annual taxes will be €3150.
Freelancer Salary Calculator
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Effective Tax Rate: -%
Frequently Asked Questions (FAQs)
1. What taxes do freelancers in Bulgaria pay?
Freelancers pay a flat 10% income tax on 75% of their revenue after deducting recognized expenses. They also contribute to social security, capped at BGN 1000 (~€500) per month for high earners.
2. Can freelancers use personal bank accounts?
Yes, freelancers in Bulgaria can use personal bank accounts, avoiding the need for business accounts.
3. What are the benefits of freelancing over establishing an EOOD?
Freelancers benefit from simplified registration, fewer compliance requirements, and the ability to deduct 25% of income as expenses. EOODs may be advantageous for those with high actual expenses.
4. Do freelancers need to stay in Bulgaria year-round to benefit from its tax system?
No, but they must establish tax residency by spending more than 183 days per year in Bulgaria and having a permanent residence.
5. How much social security do freelancers pay?
Social contributions are based on monthly income and capped at BGN 1000 (~€500) for higher earners.
6. When is the tax filing deadline?
Freelancers must declare and pay their taxes by April 30 of the following year.
