Tax Residency Criteria in Bulgaria
In Bulgaria, the criteria for determining tax residency are outlined in Article 4 of the Corporate Income Tax Act and Article 5 of the Personal Income Tax Act. According to these laws, an individual or entity is considered a tax resident if they meet any of the following conditions:
- Individuals:
- Have their permanent address in Bulgaria;
- Reside in Bulgaria for more than 183 days in a calendar year;
- Are employed in Bulgaria and have a work permit;
- Are students enrolled in a Bulgarian educational institution for more than 183 days in a calendar year.
- Entities:
- Are incorporated in Bulgaria;
- Have their registered office or place of management in Bulgaria;
- Carry out their main economic activity in Bulgaria.
The rationale behind these criteria is to ensure that individuals and entities with significant ties to Bulgaria contribute to the country's tax revenues. By establishing clear criteria for tax residency, the legislation aims to prevent tax evasion and ensure fairness in the tax system.
Impact of International Tax Treaties
Bulgaria has entered into numerous tax treaties with other countries to prevent double taxation and promote cross-border trade and investment. These treaties may modify or provide exceptions to the standard criteria for tax residency as defined in domestic law.
For instance, under the Bulgaria-Cyprus tax treaty, an individual is considered a resident of Bulgaria if they have a permanent home in Bulgaria and spend more than 183 days in Bulgaria in a calendar year. However, if the individual also has a permanent home in Cyprus and spends more than 183 days in Cyprus in a calendar year, they will be considered a resident of Cyprus for tax purposes.
These treaty-specific modifications aim to provide clarity and prevent double taxation by establishing clear rules for determining tax residency in cases involving cross-border activities. They reflect the mutual agreement between Bulgaria and other countries to facilitate tax compliance and enhance economic cooperation.
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