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Taxation of Foreign Direct Investments



by Viara M. Todorova
Djingov, Gouginski, Kyutchukov & Velichkov - Sofia Office

January 12, 2013

Despite the continuous economic turmoil, Bulgaria has managed to lead a consistent policy of creating a favorable tax regime ever since its accession to the EU in 2007. The policy objectives aim to attract foreign capital investments and reduce the scale of the grey economy. Bulgaria is now considered a low tax jurisdiction as it generally applies a flat-rate tax of 10 % on capital and personal income. In terms of government revenue, the total tax burden is allocated as follows: 53.2% in indirect (i.e. consumer) taxes; 26.6% in social security contributions; and only 20.2 % of the burden is derived from direct taxes (i.e. taxation of direct economic activity). These figures place the country in second-to-last place in terms of direct taxation in the EU, followed only by the Slovak Republic. By comparison, the EU average for the share of direct taxation stands at 31.1%. Evidently, Bulgaria offers a very competitive tax treatment of businesses compared to other EU Member States. In times of economic slowdown, tax rates have not been increased in Bulgaria and they are expected to remain so unchanged.


 

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