Bulgaria is the jurisdiction that gets shortlisted on a single number. Ten per cent on corporate profit, flat, with no bracket and no surcharge, is easy to remember and easy to put in front of a board. Since 1 January 2026 the profit it applies to is measured in euro rather than leva, the lev having been replaced at the fixed rate of 1.95583 to the euro by the Council regulation of 8 July 2025 on the conversion rate, adopted with the Council decision admitting Bulgaria to the euro. The provision that sets the rate is one sentence long. Article 20 of the Corporate Income Tax Act as the National Revenue Agency publishes it states that the corporate tax rate is ten per cent, and states nothing further.
That brevity is the problem. A headline rate answers one question, which is what the state takes from profit measured in a particular way in a particular place. It says nothing about how the profit is measured, what happens when the money leaves, whether the profit belongs in Bulgaria at all, or what floor now sits underneath the rate for larger groups. Each of those four can change the answer, and in the files we see, at least one of them usually does.
What article 20 actually taxes
The ten per cent applies to the tax financial result, which article 22 defines as the accounting result adjusted by the tax permanent differences, the tax temporary differences and the other amounts the Act specifies. It reaches resident companies on profit from all sources at home and abroad, and non-residents on profit realised through a permanent establishment in the country and on the disposal of that establishment’s property. Other Bulgarian source income of a non-resident that the Act lists is taxed under the same Act, but by the withholding taxes of article 5(2) rather than by the rate in article 20. There is no reduced rate for small companies and no surcharge on financial institutions. To that extent the simplicity is genuine and worth something.
The adjustments are where the base narrows or widens. Article 43a, in force since 2019, implements the interest limitation rule in article 4 of the Anti-Tax Avoidance Directive. Exceeding borrowing costs are denied to the extent they exceed thirty per cent of the tax result before interest, taxes and depreciation, and paragraph 7, as worded since 1 January 2026, switches that denial off where the exceeding borrowing costs of the year do not exceed three million euro, a figure the Act now states in euro rather than leva. Paragraph 10 takes credit institutions out of the rule altogether. It sits alongside the older thin capitalization provision in article 43, and paragraphs 8 and 9 set the order in which the two apply when both would otherwise bite.
For a group funding a Bulgarian operating company with intragroup debt, that ordering matters more than the rate. Pushing interest into Bulgaria to shelter a ten per cent base does modest work at the best of times, and once exceeding borrowing costs pass the three million euro threshold the shelter stops being reliable.
The exit is a separate question from the rate
Profit taxed at ten per cent is still profit inside a Bulgarian company. Getting it to the shareholder engages article 194, which imposes a final withholding tax on dividends and liquidation shares distributed by resident legal persons to non-resident legal persons and to resident legal persons that are not traders, municipalities included, and article 200(1), which sets that rate at five per cent. For a shareholder outside the European Union without treaty relief, the combined burden on distributed profit is therefore not ten per cent.
Inside the Union the position is materially better than most jurisdictions offer. Article 194(3)(3) disapplies the withholding tax entirely where the recipient is a foreign legal person resident for tax purposes in an EU Member State or in a state party to the European Economic Area agreement, excepting hidden profit distributions. The provision as drafted carries no minimum shareholding and no minimum holding period, where article 3(1)(a) of the Parent Subsidiary Directive attributes parent status on a minimum holding of ten per cent. A Dutch holding company receiving a dividend from a Bulgarian subsidiary therefore meets no Bulgarian withholding charge at all, whatever its percentage.
The choice of shareholder jurisdiction is therefore not a marginal refinement. It is the difference between a five per cent leakage on every distribution and none, and groups holding Bulgarian companies directly from a non-treaty jurisdiction are paying for a decision that was never deliberately taken.
The floor underneath the rate
Since 1 January 2024 the Corporate Income Tax Act has contained a Part Five “a”, introduced by the amending act promulgated in 2023, which transposes Directive (EU) 2022/2523 of 14 December 2022 on a global minimum level of taxation. Article 260a states that the part governs minimum effective taxation of multinational groups and large domestic groups, and applies to constituent entities located in Bulgaria whose group’s ultimate parent reports consolidated revenue of at least seven hundred and fifty million euro in at least two of the four tax periods preceding the current one.
Where the effective rate in Bulgaria falls below fifteen per cent, the rate provision of that part charges the positive difference between fifteen per cent and that effective rate. The shortfall is not that difference applied to the whole profit. A substance based carve-out in the same part takes out of the jurisdictional profit five per cent of eligible payroll costs and five per cent of the carrying amount of eligible tangible assets located in the country, both percentages running down from higher transitional figures until 2032. Bulgaria has adopted a domestic top-up tax, so the charge is levied locally rather than surrendered to the parent jurisdiction, and the provision computing the domestic charge sets the payroll leg of the carve-out at nil. The group with people but few assets in the country keeps least of it.
This does not make Bulgaria a poor choice for large groups. It makes the ten per cent the wrong reason to choose it. Below the size threshold the rate does what it says. Above it, the arguments become labour cost, treaty access, talent supply and the quality of the local administration.
Interest and royalties, and the price of relatedness
Article 195 subjects a defined list of Bulgarian source payments to non-resident legal persons to a final withholding tax, and article 200(2) sets the rate at ten per cent. The list is the one article 12 draws: interest, including that inside finance lease instalments, rent of movable property, royalties, technical service, franchise, factoring and management or control fees, rent and disposal proceeds from Bulgarian immovable property, income from financial assets issued by resident legal persons, the state and the municipalities and from dealings in them, and penalties and compensation paid to recipients established in preferential tax regime jurisdictions. The National Revenue Agency publishes the same ten per cent for everything on that list other than dividends and liquidation shares.
There is no longer a reduced five per cent rate on interest and royalties. The article carrying it was repealed with effect from 1 January 2015 and replaced by an exemption, which is the Bulgarian implementation of the interest and royalties regime. Article 195(6)(3), with paragraphs 7 to 12, takes interest and royalties out of the charge where the recipient is the beneficial owner and is a company of a European Union Member State, or a Union establishment of such a company, and where payer and recipient are related persons. A company of a European Union Member State is itself a defined term, and paragraph 12 makes its three conditions cumulative: the legal form has to be one of those listed in annex 5 to the Act, the company has to be resident for tax purposes in a Member State and not treated under a treaty with a third state as resident outside the Union, and it has to be subject to one of the taxes in annex 6 without being exempt from it, or to an identical or similar tax imposed in addition to or instead of those taxes. The last of the three is the one that bites, because a vehicle exempt in its own state of residence loses the relief however long it has held its twenty five per cent. Relatedness means, as the revenue agency sets the conditions out, at least twenty five per cent of the capital held in either direction, or that much in both companies by a third company that is Bulgarian or of a Member State, held without interruption for two years. The relief may be taken before the two years have run, but if the holding breaks inside them the tax falls due at ten per cent with late payment interest.
The exemption is narrower than the dividend one. It is confined to the Union and does not extend to the European Economic Area, which the dividend provision covers. It does not reach rent of immovable property, nor technical service, management, franchise or factoring payments, which stay at ten per cent. Rent of movable property can fall inside it, because the Act defines royalties to include payments for the use of or the right to use industrial, commercial or scientific equipment, and defines that equipment as all movable things the enterprise uses in its business, vehicles, installations, means of production and means of providing services among them. Where the hired asset answers that definition the payment is a royalty and not rent, and the exemption is in play. Where it does not, the ten per cent stands. And paragraph 11 lists categories it never touches, among them income representing a distribution of profit or a return of capital, debt carrying a right to share in the debtor’s profits, debt repayable only after more than fifty years, and transactions whose main motive or one of whose main motives is tax evasion or avoidance.
Beneficial ownership is written into the statute, which treats a recipient as owner only where it receives the income for its own benefit and not as an intermediary or agent for another person. Where the recipient is a conduit without the functions to justify the receipt, the exemption is exposed on the ground the Court of Justice set out for this regime in the joined Danish interest cases, whose indications of abuse included conduit companies without economic justification and the purely formal nature of the group structure and of the financing.
A group extracting value through management and technical service fees rather than dividends is therefore choosing both the more expensive route and the one that attracts the most scrutiny.
The Dutch side of the same flow
Where a Dutch holding company sits above the Bulgarian entity, the dividend arrives without Bulgarian withholding tax and is then exempt in the Netherlands under the participation exemption, provided the holding meets the five per cent test in article 13(2) of the Wet op de vennootschapsbelasting 1969. Where the participation is held as an investment the exemption is still available if the subsidiary is subject to a profits tax amounting to a real levy by Dutch standards or if its assets are not predominantly low taxed portfolio investments, the two tests in article 13(11) being alternatives rather than cumulative conditions. Bulgarian corporate tax at ten per cent is a real tax on a real base, so the first is not the difficulty it is for genuinely untaxed subsidiaries.
The onward distribution is the point at which Dutch tax appears. Article 5 of the Wet op de dividendbelasting 1965 sets dividend withholding tax at fifteen per cent of the yield, subject to the domestic withholding exemption and to treaty reduction. Where the ultimate shareholder is in a treaty state or in the Union, the charge is frequently reduced or removed, but that has to be established rather than assumed.
The conditional withholding tax adds a further filter. Article 4.1 of the Wet bronbelasting 2021 sets the rate at the highest percentage in article 22 of the corporate income tax act, which for 2026 is 25.8 per cent, the Dutch corporate rate being 19 per cent on the first two hundred thousand euro of taxable amount and 25.8 per cent above it. It reaches interest, royalties and dividends paid to affiliated entities, and those it makes taxable include entities in low taxed jurisdictions as the Act defines them, entities interposed in artificial arrangements aimed at avoiding tax for someone else, and certain hybrid cases. It punishes an entity placed in the chain for the wrong reason.
Substance is not tested in Sofia
The ten per cent is available on profit that is genuinely Bulgarian. Whether it is depends on facts that are examined, when they are examined, in the state where the customer, the staff or the intellectual property actually sits. A Bulgarian company invoicing services performed by people in another Member State is exposed to a permanent establishment claim there, to a transfer pricing adjustment there, and to a place of effective management argument if the board is not resident and does not decide.
This is the failure mode we see most often. The rate becomes the reason for the structure, and the structure is then not resourced to earn it. In one mandate we reviewed a group that had moved a licensing function to a Bulgarian entity with no employees and a director who signed what was sent. The Bulgarian tax was correctly paid. The exposure sat entirely in the two states where development and marketing had continued unchanged.
Where the ten per cent genuinely earns its keep
The cases that work are the ones where Bulgaria is chosen for the operation and the rate is the second reason rather than the first. Software development centres, shared service functions, back office processing and manufacturing all put real people in the country, and where the people are the value, the profit follows them without argument.
For those groups the structure is conventional and durable. A Bulgarian operating company, a shareholder in a jurisdiction that removes the five per cent withholding tax and exempts the incoming dividend, and transfer pricing documentation that describes what the Bulgarian staff actually do.
The design question is whether the Bulgarian entity is a principal or a service provider. A development centre remunerated on a cost plus basis earns a modest return taxed at ten per cent, which is worth less than groups expect. An entity that owns the risk, funds the development and bears the downside earns the residual, which is worth a great deal, but only if it can be shown to control the risk and to have the financial capacity to carry it.
What the rate is worth once everything is counted
Ten per cent remains a competitive number in the Union, and euro area membership removes a settlement friction that had been a genuine irritant. Neither fact is sufficient alone. The rate is one component of an outcome that also includes the base as adjusted by article 43a, the five per cent exit charge or its absence depending on the shareholder, the ten per cent that still meets service flows and the rentals that are not royalties, the fifteen per cent floor above the size threshold as reduced by what survives of the substance carve-out, and the question of whether the profit was ever Bulgarian.
Bulgaria rewards operations and disappoints arrangements. Where a group puts activity in the country, the ten per cent applies to a return genuinely earned there and the exit can be organized to cost nothing. Where a group puts only an entity there, the ten per cent applies to a return another state is entitled to tax, and the saving is a provision waiting to be recognized. The rate is the same in both cases. What differs is whether anyone can defend the profit it was applied to.
This article is informational and does not constitute tax or legal advice. The treatment of any structure depends on its facts and on the law of each jurisdiction involved. Each engagement is subject to scope and applicable regulation.