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Tax Incentives for Small Businesses in Bulgaria – A Practical Guide for Entrepreneurs
Whether you are a local entrepreneur or a foreign investor, understanding the country’s tax environment can help you grow your business more effectively and make the most of available incentives.
Corporate Tax – One of the Lowest in the EU
Bulgaria applies a flat 10% corporate income tax rate, which is among the most competitive in Europe. This single rate applies to both small and large companies, creating a stable and predictable tax environment. For new or expanding businesses, this means more flexibility to reinvest profits and a simpler way to plan long-term finances.
Tax Relief for Reinvested Profit
Small companies that choose to reinvest their profits into development can benefit from tax relief. Eligible expenses may include purchasing new equipment, upgrading technology, or investing in research and innovation. These deductions help reduce the taxable base and encourage continuous growth and modernization. By strategically reinvesting earnings, small business owners can improve productivity while keeping more capital inside the company.
Employment Incentives and Subsidy Programs
Bulgaria also rewards employers who create jobs for specific social groups. Businesses hiring young workers, long-term unemployed individuals, or people with disabilities may qualify for reduced social security contributions or government-funded subsidies. These measures not only support inclusion but also help small businesses reduce labor costs and access skilled employees through public programs.
Simplified VAT Regimes for Small Enterprises
One of the key advantages for small businesses is the flexibility of Bulgaria’s VAT system. Companies with an annual turnover below 100,000 BGN can operate without VAT registration, which reduces administrative work and accounting costs. For those involved in cross-border e-commerce, Bulgaria offers the OSS (One-Stop Shop) scheme – a simplified EU-wide VAT mechanism that allows businesses to manage their tax obligations in one place instead of registering in multiple countries.
Reduced Dividend Tax – Efficient Profit Distribution
When distributing profits to individual shareholders, Bulgaria applies a 5% dividend withholding tax. This low rate allows entrepreneurs to receive income from their businesses in a more tax-efficient way compared to many other EU countries. It is a practical advantage for both Bulgarian owners and foreign investors who wish to extract value without heavy taxation.
Double Tax Treaties for Foreign Investors
Bulgaria has signed over 70 double taxation agreements worldwide. These treaties protect foreign investors from being taxed twice on the same income – once in Bulgaria and once in their home country. This network makes Bulgaria particularly attractive as a base for regional operations and holding structures within the European Union.
Encouraging Innovation and Regional Development
Beyond direct tax relief, Bulgaria offers several national and EU-funded programs aimed at supporting innovation, digitalization, and regional business development. Companies investing in high-tech projects, green energy, or manufacturing in economically less-developed regions can access grants, low-interest financing, and additional fiscal incentives.
Practical Example
| Scenario | Possible Benefit |
|---|---|
| Small company reinvests profit in new equipment | Reduced taxable base and increased long-term productivity |
| Employer hires long-term unemployed worker | Partial exemption from social contributions |
| Investor sells products online across EU via OSS | Centralized VAT reporting, no multiple registrations |
| Foreign shareholder receives dividends | Only 5% withholding tax on distributed profit |
Bulgaria’s tax system combines low corporate tax, accessible incentives, and simplified procedures that make it one of the most business-friendly destinations in the EU. With proper accounting and strategic planning, small businesses can maximize available reliefs and focus on sustainable growth. For entrepreneurs and investors alike, Bulgaria provides an attractive balance between low taxation, transparency, and opportunity.
If you are planning to start or expand your business in Bulgaria, our team at ASB Accounting Services Bulgaria is here to guide you through every step – from company registration and tax compliance to strategic financial planning. Contact us for professional support tailored to your business goals.
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