Welcome to ASB Accounting Services Bulgaria – your trusted partner for accounting, tax, and business services in Bulgaria!
Shareholder Loans in Bulgaria Explained: 0% Interest Risk, Tax Rules and Safer Alternatives
If you finance your Bulgarian company with personal funds, the structure matters just as much as the money itself. Many owners transfer funds quickly, record them loosely, and assume they will sort the paperwork later. That is where problems begin. In Bulgaria, funding from a shareholder can be lawful and practical, but the tax treatment depends on the legal form, the documents, and the terms you use. A poorly structured transaction can lead to transfer pricing adjustments, disputes during a tax audit, or even arguments that the payment was hidden profit distribution.
A standard shareholder loan is not company revenue. It is not booked as income. It creates a liability on the company’s balance sheet and should be repaid under agreed terms. That sounds simple, but once the lender and the company are related parties, Bulgarian tax rules expect the arrangement to reflect market conditions. In practice, this means the loan should look like a real financing transaction, not an informal transfer.
What a compliant shareholder loan should include
If you choose the loan route, documentation is not optional. A proper file should show exactly what happened, why it happened, and how the company will repay the funds.
- A written loan agreement signed before or at the time of funding
- The exact loan amount and currency
- A repayment term and clear repayment conditions
- An interest clause aligned with market conditions
- Bank transfers that create a full audit trail
- Clear accounting entries for receipt and repayment
Cash should be avoided. Bank transfers are much easier to prove and much safer in an audit. Repayments should also be documented with the same discipline.
Why a 0% shareholder loan creates risk
This is the point many foreign owners miss. Bulgarian transfer pricing rules apply to related-party transactions. Under the arm’s-length principle, related parties should act as independent parties would. For loans, that includes interest.
So, can a shareholder lend money at 0%? Legally yes. From a tax perspective, it creates risk. The tax authorities may apply imputed interest and increase the company’s taxable result. This can happen even if both sides agreed to the terms.
- Possible tax adjustment based on market interest
- Higher taxable profit
- Additional documentation requirements
The safer alternative: additional cash contribution
Bulgarian law offers a different mechanism for companies: an additional cash contribution under Article 134 of the Commerce Act. This is not a loan. It is a specific legal tool designed for temporary financing.
- It does not increase company capital
- It can be structured without interest
- It requires a formal shareholder decision
- It is suitable for short-term funding needs
This is the correct way to use 0% financing in many cases, as long as the legal structure is followed properly.
The legal detail that owners often overlook
An additional cash contribution must have a defined term. It cannot be open-ended. The company is expected to return the funds after that period, depending on available resources and a formal decision.
This requirement shows that the mechanism is designed for temporary support, not permanent financing.
Main risks when the structure is wrong:
Most issues appear later, during audits or reviews. The initial transfer may seem harmless, but the long-term impact can be significant.
- Reclassification as hidden profit distribution
- Exposure to 5% dividend tax
- Transfer pricing adjustments
- Weak accounting documentation
Quick comparison
| Option | Best used when | Main compliance focus |
|---|---|---|
| Shareholder loan | When structured financing with repayment terms is required | Agreement, market interest, documentation |
| Additional cash contribution | When temporary internal funding is needed | Formal decision, defined term, legal structure |
A shareholder loan is a powerful tool, but it must follow market conditions. If you want to use 0% safely, a standard loan is often not the right approach. The additional cash contribution mechanism is usually more appropriate when used correctly.
Choosing the right structure from the beginning saves time, cost, and risk. Reviewing the setup in advance is always easier than correcting it after a tax inspection.
Need help choosing the right funding structure for your Bulgarian company?
If you are comparing a shareholder loan with an additional cash contribution, this is the right moment to review the details before you move forward. A proper structure can reduce tax risk, improve compliance, and save time later. Speak with our team to assess your case and understand which option fits your business best.
This content provides general information and does not constitute tax, accounting, or legal advice. Each situation should be reviewed individually.