Welcome to ASB Accounting Services Bulgaria – your trusted partner for accounting, tax, and business services in Bulgaria!
Thank you for watching! Don’t forget to like, subscribe, and hit the bell button for more tips on doing business in Bulgaria!
How to Distribute Profits in Bulgaria
Dividend taxation in Bulgaria has been stable for many years, but the potential increase from 5% to 10% has pushed numerous company owners to reconsider their profit distribution strategy. The aim is to avoid unnecessary tax exposure while remaining fully compliant with Bulgarian legal and accounting rules. This article explains how dividends are distributed today, what preparatory actions matter, and how the upcoming currency transition from BGN to EUR may influence your plans.
Understanding the Current Dividend Distribution Framework
Before taking action, it is essential to understand how dividend distribution works in Bulgaria. Dividends may be paid only after a verifiable profit exists and shareholders have formally approved the distribution. Most companies distribute dividends after the end of the financial year, once the results are final. However, Bulgarian law also allows distribution of advance dividends, provided the company can demonstrate adequate profit for the ongoing year.
The shareholder decision is a mandatory document. It must specify the amount, the source of the profit, and the terms of payment. The withholding tax is currently 5%, and the company is responsible for deducting and paying it. No dividend may legally be distributed unless the accounting records accurately reflect the company’s financial position.
To help clarify the requirements, here is a short summary:
| Requirement | Description |
|---|---|
| Confirmed profit | The profit must be supported by accounting records and annual statements. |
| Shareholder decision | A formal resolution approving the payout is required. |
| Withholding tax | The company withholds and pays the dividend tax. |
| Compliance status | The company must not have restrictions such as losses or unpaid obligations. |
Why You May Consider Distributing Profits Before the Tax Increase
If your company has accumulated profits from previous years, distributing them now may reduce your future tax burden. A potential increase to 10% means that undistributed profits could become more expensive to distribute later. This is especially relevant for companies that keep large reserves or have not paid dividends for several years.
Before making a decision, your accounting must be complete. All transactions should be recorded, bank balances reconciled, and outstanding invoices processed. Dividends cannot be distributed based on estimates or incomplete data. If adjustments or corrections are pending, they must be finalised before profits become eligible for distribution.
You must also determine whether your company has restrictions. These include accumulated losses, unpaid capital contributions, or statutory obligations that legally prevent paying dividends. Addressing these issues early helps avoid delays and ensures that your distribution plan remains compliant.
How the BGN to EUR Transition Affects Your Dividend Planning
Another important factor is the expected transition from BGN to EUR. The timing of your dividend distribution may determine the currency you receive. If you distribute profits now, payments will typically be made in BGN, which will be converted to EUR at the official fixed rate once the transition takes place. If you wait, you may receive your dividend directly in EUR, but potentially at a higher tax rate.
While currency conversion may not significantly affect every business, some investors prefer to receive funds in EUR for operational or investment purposes. The decision therefore requires balancing taxation, timing, liquidity needs, and currency considerations.
Below is a simple comparison of the two possible approaches:
| Scenario | Key Considerations |
|---|---|
| Distribute before potential tax increase | Lower tax rate; payout in BGN; requires completed accounting. |
| Distribute after the EUR transition | Payout in EUR; potentially higher tax; more time for preparation. |
Taking a Responsible and Well-Informed Decision
The best approach is to evaluate your company’s financial position, available profit, liquidity needs, and long-term plans. A dividend distribution should never jeopardize the stability of the business. It must be based on verified financial data and a clear understanding of the implications.
Working with an accountant or tax advisor ensures that your distribution is lawful, timely, and aligned with your broader financial strategy. This is particularly important when considering advance dividends, which require careful monitoring and precise forecasting.
A structured and well-informed dividend strategy allows shareholders to benefit from their investment while ensuring the company remains strong, compliant, and prepared for future regulatory and financial changes.
Need Professional Support?
If you are considering dividend distribution before the tax increase or want clarity on how the EUR transition may affect your company, professional guidance can save you time, uncertainty, and risk. Our accounting team can review your financials, assess your eligibility, and prepare all required documentation so you can make a confident and compliant decision.
This information is provided for general guidance only and does not constitute tax, accounting, or legal advice. Each situation requires individual review.