Tax Benefits for Foreign Companies in Bulgaria

Published on October 1, 2025 and written by Cyril Jarnias

Bulgaria is increasingly establishing itself as an attractive destination for foreign companies, drawn by its numerous tax advantages. This small Balkan country offers a competitive tax framework, with a corporate tax rate of just 10%, one of the lowest in the European Union. In addition to this favorable rate, businesses can benefit from a range of incentives, such as temporary tax exemptions and reductions for investments in economically disadvantaged regions. This favorable tax environment, combined with a skilled workforce and low operational costs, makes Bulgaria a strategic option for companies looking to establish and thrive in Europe.

Understanding the Tax Regime for Foreign Companies in Bulgaria

Tax Regime for Foreign Companies in Bulgaria

Bulgaria offers a particularly attractive tax environment for foreign companies, with some of the lowest tax rates in the European Union. The corporate income tax rate is set at 10%, making it one of the most competitive in Europe. This rate applies uniformly to all companies, regardless of their size or revenue.

Dividend Taxation

Dividends distributed by a Bulgarian company are subject to a 5% withholding tax. However, there are important exemptions:

• Dividends paid to an EU resident company are exempt from this withholding tax, provided the parent company holds at least 10% of the Bulgarian subsidiary’s capital for a minimum period of one year.
• Dividends paid to residents of countries that have signed a tax treaty with Bulgaria may benefit from reduced rates.

Value Added Tax (VAT)

The standard VAT rate in Bulgaria is 20%. However, a reduced rate of 9% applies to certain sectors such as hotel accommodation. Companies with annual revenue exceeding 166,000 BGN (approximately 85,000 euros) are required to register for VAT.

Eligibility Conditions for Tax Reductions

Bulgaria offers several tax incentives to attract foreign investment:

• Corporate tax exemption for investments in economically disadvantaged areas
• Tax reductions for investments in research and development
• Accelerated depreciation for certain assets

To benefit from these advantages, companies must generally meet specific criteria regarding investment and job creation.

Registration Process and Legal Compliance

Registering a foreign company in Bulgaria involves several steps:

1. Choose a legal form (EOOD, OOD or AD) 2. Reserve a company name 3. Prepare incorporation documents 4. Open a bank account and deposit share capital 5. Register with the commercial register 6. Register with tax authorities and social security

The average time to establish a company in Bulgaria is 2 to 4 weeks.

Examples of Foreign Companies in Bulgaria

Several multinational corporations have leveraged Bulgaria’s favorable tax regime:

Coca-Cola Hellenic Bottling Company established its shared services center in Sofia, benefiting from the low corporate tax rates.

Hewlett Packard Enterprise opened a global development center in Sofia, taking advantage of tax incentives for research and development.

Tax Implications for Different Business Structures

Branches of foreign companies are taxed at the same 10% rate as Bulgarian companies, but only on their Bulgarian-source income.

Subsidiaries, as separate legal entities, are subject to the 10% corporate tax on their worldwide profits.

Tax Treaties

Bulgaria has concluded tax treaties with more than 70 countries, including most EU countries, the United States, and Canada. These agreements aim to avoid double taxation and may offer reduced rates on dividends, interest, and royalties.

Capital Gains Taxation

Capital gains realized by non-residents from the sale of shares in Bulgarian companies are generally exempt from tax in Bulgaria, unless they involve real estate.

Thin Capitalization Rules

Bulgaria applies thin capitalization rules limiting the deductibility of interest when the debt-to-equity ratio exceeds 3:1. These rules aim to prevent base erosion through excessive intra-group loans.

Tax Incentives in Bulgaria: An Asset for Attracting International Investors

An Attractive Tax Regime for Foreign Investors

Bulgaria has positioned itself as a prime destination for international investors thanks to its particularly advantageous tax regime. At the heart of this strategy is a corporate tax rate set at 10%, one of the lowest in the European Union. This competitive tax policy aims to attract foreign companies and stimulate the national economy.

Targeted Tax Incentives

In addition to this attractive tax rate, Bulgaria offers various tax incentives to appeal to investors:

• Tax exemptions for companies investing in high-unemployment regions
• Tax credits for investments in research and development
• Special regimes for new businesses, with reduced tax rates during the first years of operation
• Accelerated depreciation for certain types of assets, allowing for reduced taxable base

These measures aim to encourage innovation, job creation, and economic development in the country’s less favored regions.

A Competitive Advantage Within the European Union

Bulgaria’s tax strategy gives it a significant advantage compared to other EU countries. While the average corporate tax rate in the EU is around 21%, Bulgaria’s 10% rate allows companies to achieve substantial savings. This difference can translate into millions of euros in savings for large multinationals, making Bulgaria particularly attractive for large-scale investments.

Success Stories of International Companies

Several international companies have already leveraged these tax advantages. For example, a major American technology company established a development center in Bulgaria, creating over 1000 highly skilled jobs. The company benefited not only from the low tax rate but also from tax credits for its R&D activities.

Similarly, a German automotive manufacturer chose Bulgaria to set up a new production plant, attracted by tax exemptions offered in a high-unemployment region. This project generated over 2000 direct and indirect jobs.

Impact on Bulgarian Economy and Foreign Direct Investment

Tax incentives have played a crucial role in attracting foreign direct investment (FDI) to Bulgaria. Between 2015 and 2020, FDI flows increased by 40%, stimulating economic growth and job creation. The technology, automotive, and shared services sectors particularly benefited from these investments.

The impact on the Bulgarian economy has been significant:

• GDP growth averaging 3.7% annually between 2015 and 2020
• Unemployment rate decrease from 9.1% in 2015 to 5.1% in 2020
• Infrastructure improvements through foreign investments
• Technology and know-how transfer benefiting local companies

Future Prospects

The Bulgarian government continues to refine its tax strategy to maintain its attractiveness. Discussions are underway to introduce new incentives targeting the green economy and artificial intelligence sectors, to attract investments in these future-oriented fields.

The stability of Bulgaria’s tax regime, combined with these targeted incentives, should continue to attract international investors in the coming years, thus strengthening Bulgaria’s position as a strategic investment hub in Eastern Europe.

Optimizing Tax Benefits for Foreign Companies

An Attractive Tax Regime for Foreign Companies

Bulgaria has positioned itself as an attractive tax destination for foreign companies, offering one of the most competitive taxation systems in the European Union. The main advantage is a corporate tax rate set at just 10%, representing the lowest rate in the EU. This rate applies to profits earned by companies, whether owned by residents or non-residents.

In addition to this advantageous tax rate, Bulgaria offers other tax incentives to attract foreign investment:

• Capital gains tax exemption on shares traded on the Sofia Stock Exchange
• Standard VAT rate of 20%, with reduced rates for certain sectors
• Dividend tax of only 5% for non-residents
• Possibility to carry forward tax losses for up to 5 years

Tax Credits and Special Regimes

Companies can benefit from specific tax credits, including:

• Tax credit for investments in high-unemployment regions
• Tax credit for job creation
• Tax deductions for R&D expenses

Certain economic sectors benefit from preferential tax regimes:

The manufacturing sector can obtain a full corporate tax exemption for 5 years if the investment is made in a high-unemployment region and creates at least 10 jobs.

High-tech companies can benefit from a reduced tax rate of 5% on income from patents and software.

Eligibility Conditions and Administrative Procedures

To be eligible for these tax benefits, companies must generally:

• Be registered in Bulgaria as a local company
• Make a minimum investment (varies by regime)
• Create a certain number of local jobs
• Maintain the investment for a minimum period (often 5 years)

Administrative procedures involve:

1. Company registration with the Bulgarian commercial register 2. Obtaining a tax identification number 3. Specific application for targeted tax benefits with the tax administration

Tax Structure Optimization

To maximize tax benefits, companies can consider the following strategies:

Establish a holding company in Bulgaria to benefit from the advantageous tax regime on dividends and capital gains.

Locate R&D activities in Bulgaria to take advantage of associated tax deductions.

Structure operations so that profits are realized by the Bulgarian entity rather than by subsidiaries in high-tax jurisdictions.

Concrete Examples of Tax Optimization

A technology multinational established its R&D center in Bulgaria, thus benefiting from an effective tax rate of 3% on its intellectual property income thanks to R&D tax deductions.

A European industrial group relocated its production to a high-unemployment Bulgarian region, obtaining a full corporate tax exemption for 5 years and reducing its operational costs by 40%.

An e-commerce company established its logistics platform in Bulgaria, benefiting from the 10% tax rate on profits and optimizing its supply chain for the European market.