Renovated house (140 m2)
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Owning property and living in Bulgaria - Tax implications
Whether you are buying a Bulgarian property for investment or a holiday home, or are hoping to settle and start working in Bulgaria, you should seek professional advice on the tax implications.
If you are thinking of living in Bulgaria more or less permanently, you may cease to be liable for UK taxes. However, if you spend a requisite number of days in the UK you will still incur tax on your income. More information can be obtained from HM Revenue and Customs´s IR20 booklet Residents and Non-Residents - liability to tax in the UK. This can be obtained from the Centre for Non-Residents, Fitzroy House, P.O.Box 46, Nottingham NG2 1BD or downloaded from the HMRC´s website
Income earned in the UK is subject to a 15% witholding tax in Bulgaria but, thanks to a double taxation agreement between the UK and Bulgarian authorities, you will be able to offset this against your UK tax bill.
The Bulgarian tax year ends on 31 December. Annual tax returns have to be submitted by 15 April and payment of tax has to be made within 30 days of submission.
Who has to pay tax in Bulgaria?
As an owner of Bulgarian property you will become subject to Bulgarian taxes on your worldwide income, gains and assets in the following circumstances:
- If you are living in Bulgaria permanently and have residence status
- if you spend more than 183 days a year living in Bulgaria without residence status
Bulgarian personal taxes start at 1,400 Leva of taxable income, rising to 24% on taxable income over 7,200 Leva. If you are working in Bulgaria, your employer will deduct income tax at source.
If you set up a limited liability company to buy your Bulgarian property (obligatory if your purchase involves land), you will have to pay corporation tax of 15% on any income it generates.
Inheritance tax in Bulgaria
If you are living in Bulgaria with residence status, you are liable to inheritance tax on both Bulgarian property and overseas property. If you are living in Bulgaria without residence status, you are liable to inheritance tax only for Bulgarian property.
Inheritances received from a spouse or direct relative are exempt. Brothers, sisters, nieces and nephews who inherit pay tax of 0.7% on values above 250,000 Lev. All other beneficiaries pay tax at rates of up to 20%
Taxes on Bulgarian property
Bulgarian property taxes are relatively straightforward and are listed below:
- Municipal tax - Buyers of Bulgarian property must pay a 2% municipal tax on completion of their purchase.
- Annual property and waste collection taxes - The annual property tax is 0.15% of the registered value of your Bulgarian property. There is also a waste collection tax of less than 20 GBP. These taxes may be raised from 2006.
- Capital Gains Tax - Capital gains are treated as income. A Bulgarian property used as a main residence for at least three years is exempt for personal taxation purposes. However, there are no exemptions if your Bulgarian property is owned by a limited liability company; 15% corporation tax will be payable on any capital gain.
Anyone serious about living in Bulgaria or working in Bulgaria should fully investigate the financial and legal issues of the country. The tax system is not totally bewildering but it is sufficiently different to the UK system to warrant professional advice on how to reduce the risk to you and your Bulgarian property.