Startup taxes in Bulgaria: from incorporation to exit
A 10% corporate rate is only the headline. Salary vs dividend, VAT on SaaS, ESOP taxed at exercise, and what an exit actually costs a Bulgarian founder.
The 10% flat rate is the first thing anyone hears about Bulgaria and the last thing that matters when the bill arrives. Founders who end up in real trouble almost never get there through the corporate rate. They get there because they paid their first AWS invoice without registering under Art. 97a, took nothing out of the company for two years and then took it all at once, or promised options to three people over email and learned about the tax only at exercise.
This piece walks the whole tax path of a Bulgarian startup - corporate tax and VAT, founder and team compensation, fundraising, exit, and enforcement. Which legal form you picked decides how much of it applies to you at all, and that choice is covered in our article on corporate structure; crypto assets follow their own logic in our MiCA and crypto guide. Figures reflect the rules in force as of August 2026, after euro adoption - all amounts below are in euro at the fixed rate of EUR 1 = BGN 1.95583.
1. 10% is the rate, not the bill
Corporate tax under Art. 20 is flat - 10%, no progression, no brackets. But it is not charged on accounting profit; it is charged on the tax result, which is the accounting result adjusted for permanent and temporary tax differences. The gap between the two is where startups lose money without doing anything aggressive:
- Expenses without documentary support (Art. 10 and Art. 26(2)). An invoice with no evidence the service was actually performed is not an expense - the single most common source of additional assessments on consulting and B2B services, especially between related parties.
- Entertainment expenses (Art. 204(1)(1)). Taxed at 10% expense tax, but when properly documented both the expense and that tax are deductible under Art. 206. Disallowance follows only from missing documentation or a personal expense.
- Fines, penalties and late interest owed to the budget (Art. 26(6)). Non-deductible. You pay the penalty with taxed money.
- Impairment and write-off of receivables (Art. 34-37). Not deductible in the year booked - only on lapse of the limitation period or the debtor's insolvency.
Customer acquisition cost is deductible in the period incurred, provided it is documented.
Losses carry forward, but only five years
A tax loss carries forward for five consecutive years until exhausted (Art. 138-143). For a startup that burns for three years and turns profitable in year four, that is usually enough. For one that burns for six, it is not.
A change of ownership, even above 50%, does not by itself forfeit the carryforward - there is no automatic loss of the right. The revenue authority can challenge it only under the general anti-avoidance clause in Art. 16, by showing the acquisition was made purely to use the losses.
The two reliefs Bulgaria does not have
Worth saying plainly, because the expectation usually arrives from another jurisdiction:
- No R&D tax credit and no super-deduction. Research spend is expensed as incurred; development spend is capitalised as an intangible only where technical feasibility and commercial intent are demonstrated.
- No Patent Box. All licence, royalty and IP disposal income is taxed at the standard 10% - against an Innovation Box at 9% in the Netherlands, or a Knowledge Development Box at 6.25% in Ireland.
The remission in Art. 184 for manufacturing in high-unemployment municipalities is effectively unavailable to software startups - software development and digital services are not treated as manufacturing.
2. VAT: three thresholds, not one
Almost every founder knows the EUR 51,130 number. Almost none know it is the least relevant of the three.
| Registration type | Threshold | Filing deadline | Input VAT credit |
|---|---|---|---|
| Mandatory (Art. 96) | EUR 51,130 over the calendar year | Within 7 days of the end of the period in which turnover was reached | Yes |
| Voluntary (Art. 100) | None | Any time | Yes |
| EU services (Art. 97a) | None | At least 7 days before the taxable event or payment | No |
| Intra-community acquisition (Art. 99) | ~EUR 10,226 per year | At least 7 days before crossing | No |
Art. 97a is the one that catches startups. Registration is mandatory for anyone receiving a service from a foreign taxable person under reverse charge - in practice, your first invoice from AWS, Google Ads, OpenAI, GitHub, Notion or Meta. The application goes in before the payment, not after. The same applies in reverse, when you supply a B2B service placed in another member state. A Stripe wrinkle: the payment services are exempt under Art. 46, but the accompanying software fees are taxable B2B services and do trigger Art. 97a.
For the Art. 96 threshold, only taxable supplies placed in Bulgaria count - B2B services to foreign taxable persons do not. So a SaaS startup with entirely foreign B2B customers can bill a million and never be caught by Art. 96, while having been required to register under Art. 97a since month two. Since 2026 the reference period for the Art. 96 threshold is the calendar year, not a rolling 12 months.
SaaS: B2B, B2C, and where your liability ends
B2B sales. Place of supply follows the customer (Art. 21(2)). With a buyer inside or outside the EU, the place of supply is outside Bulgaria and you invoice without Bulgarian VAT, stating "reverse charge" for EU customers or "place of supply outside the country" for non-EU. This is not a zero-rated supply - it is outside the scope of Bulgarian VAT, and the distinction matters when you fill in the ledgers.
B2C sales. The threshold for electronically supplied services to consumers across the EU is EUR 10,000 a year. Below it you charge 20% Bulgarian VAT; above it you owe the consumer's country's rate. The One Stop Shop regime (Art. 154-157c) saves you from registering in each state - you file quarterly and pay into a single account - but getting each country's rate right remains entirely your responsibility.
Merchant of Record. The most underrated distinction here. Stripe and PayPal are payment processors: you are the seller, you determine the VAT, you report through OSS. Paddle, Lemon Squeezy and Gumroad are Merchants of Record: they resell your software in their own name and take on VAT and sales tax worldwide, and you issue them a single B2B invoice without Bulgarian VAT. For a team of three, that is the difference between quarterly OSS reporting and none.
One more thing worth knowing: if you make both taxable and exempt supplies, your input credit is only partial (Art. 73). A startup with EUR 40,903 of SaaS turnover and EUR 10,226 of exempt financial services has a coefficient of 0.8 - on EUR 511 of VAT on office rent it recovers EUR 409.
3. Salary or dividend
The highest-value decision a founder makes in the early years, and almost always made on instinct.
Employment or management contract pay. Social security runs 32.7% to 32.9% of gross pay up to the maximum insurable income ceiling - roughly 18.92% to 19.12% on the employer and 13.78% on the individual - plus 10% income tax withheld at source. The full gross cost, employer contributions included, is deductible.
Dividend. Paid out of net profit after the 10% corporate tax and taxed at a 5% final withholding, with no social security due. Effective burden: 14.5%.
Here is the same EUR 51,130 of pre-compensation profit routed both ways, for a founder not insured elsewhere:
| Item | Scenario A: dividend + minimum self-insurance | Scenario B: all salary |
|---|---|---|
| Profit before compensation | EUR 51,130 | EUR 51,130 |
| Gross pay | EUR 0 | ~EUR 38,459 |
| Employer contributions (~19%) | EUR 0 | ~EUR 7,306 |
| Total compensation cost | EUR 0 | EUR 45,766 |
| Corporate tax (10%) | EUR 5,113 | ~EUR 536 |
| Dividend tax (5%) / income tax (10%) | EUR 2,301 | ~EUR 4,291 |
| Self-insurance contributions for the year | ~EUR 1,790 | EUR 0 |
| Net to the founder | ~EUR 41,926 | ~EUR 34,168 |
| Total burden | ~18.0% | ~33.2% |
Close to EUR 7,760 of difference on EUR 51,130 of profit. But it is a starting point for a conversation, not a recommendation, because Scenario A buys less: no insurance record, no pension entitlement beyond the minimum, no sickness or maternity cover, and no liquidity before the annual statement is adopted. An interim dividend is permitted on the basis of an interim statement showing sufficient profit after statutory reserves - but it is a corporate decision, not a current account.
The opposite extreme is its own risk: a founder doing real work for zero pay while taking everything as dividends is walking toward a hidden distribution finding, and that penalty is not small (see section 9).
The 2026 social security numbers
- Maximum insurable income: EUR 2,111.64 for January to July 2026, EUR 2,300.00 from 1 August 2026.
- Minimum insurable income for the self-insured: EUR 620.20.
- Self-insured contributions: 19.8% pension plus 8% health. The sickness and maternity fund is 3.5% and optional - but without it there is no sick pay and no maternity benefit.
Form OKD-5 must be filed within 7 days of starting personal labour activity. Merely holding units, without working, does not trigger it. Where income is cumulated, contributions apply up to the ceiling in a fixed order - employment, management contract, self-insured, then civil contracts - which matters once you run two companies or combine a salary with consulting work.
Expenses on the company
- Training and qualification. Fully deductible where connected to the business (Art. 11).
- Cars. Art. 217(2) offers a statutory 50% personal-use election with no trip logs - 50% of vehicle costs are then subject to the 10% expense tax. The alternative is 100% documented business use with trip logs.
- Home office. Utilities and internet are deductible where there is a lease or use agreement for part of the property. Rent paid to the founder as an individual is taxed at 10% after a 10% statutory expense allowance.
4. The team
Employees. The employer contribution is roughly 18.92% to 19.12%, the employee's 13.78%.
Food vouchers (Art. 209). Exempt up to EUR 102.26 per employee per month, on four cumulative conditions: issued electronically, given to all employees on employment contracts, no reduction in base pay, and no enforceable public liabilities on the employer. Miss one and the whole amount becomes taxable.
Per diems. Since 2026 the domestic overnight per diem is set in euro: at the EUR 22 daily rate, the tax-exempt cap is double that - EUR 44 a day. For a same-day trip with no overnight stay the rate is EUR 11, with an exempt cap of EUR 22 a day.
Freelancers on civil contracts. The statutory expense allowance is 25% (Art. 29(1)(3)). Contributions are due if income after that allowance equals or exceeds one minimum wage, or if the person is insured on another basis - in which case the amount is irrelevant.
Reclassification. Hiring developers on civil contracts with fixed hours, company equipment and direct supervision is the textbook case for a labour inspectorate order under Art. 405a declaring an employment relationship to exist. The penalty under Art. 414 runs roughly EUR 767 to EUR 7,669 per individual breach - across a team of eight, that is not one fine.
Remote and EOR. For staff working from abroad, the law of the country where the work is performed applies. An Employer of Record shifts local payroll obligations onto the provider, but does not answer a separate question: hiring key managers or sales directors abroad can create a permanent establishment for the Bulgarian company there.
5. ESOP: the taxable event is exercise
Bulgaria has no dedicated relief regime for employee options. This is not a gap in the reading - there simply is no regime, and the consequences are concrete.
| Moment | Tax treatment |
|---|---|
| Grant and vesting | Generally not a taxable event |
| Exercise | The spread between market value and strike price is employment income in kind: 10% income tax + social security up to that month's ceiling |
| Sale | The difference between sale price and market value at exercise: 10% income tax as capital gain (Art. 33) |
The practical problem is liquidity: an employee exercising options in a company with no secondary market owes tax and contributions on a paper gain, in the month of exercise, in cash. Which is why exercise is often timed to coincide with the exit rather than with vesting. RSUs are taxed on settlement over their full market value; phantom equity entirely as employment income when the cash is paid.
The variable capital company (Art. 263e onward) provides the corporate-law frame for employee shares that an OOD lacks. But the personal income tax act was not amended alongside it, so acquisition is still an in-kind benefit under the general rules. The form solves the corporate problem, not the tax one - exactly where most ESOP plans copied from foreign templates part ways with Bulgarian reality.
6. Fundraising: what is income and what is not
Issuing new units or shares is not income for the company. The excess of issue value over nominal value is booked to a share premium reserve - that is capital, not income, and it does not enter the tax result.
It is also not a supply for VAT, so it falls outside the scope of the tax. VAT on legal and advisory fees for the round is deductible to the extent the capital funds economic activity connected with taxable supplies. Contributing assets or IP in kind against units is likewise not a supply (Art. 10(1)(1)).
The legal mechanics of the instruments - SAFEs, convertibles, term sheets, vesting - are in our capital raising playbook. What follows is only the tax layer it does not reach:
- SAFE. Treated as an advance payment or reserve for a future capital increase. It generates no interest and no withholding tax - its practical advantage over a convertible loan.
- Thin capitalisation (Art. 43). Applies where borrowed capital exceeds equity more than threefold. A startup with minimum share capital and a large convertible from a foreign investor lands there easily.
- Interest limitation (Art. 43a). Exceeding borrowing costs are deductible up to EUR 3,000,000 or 30% of EBITDA, whichever is higher. With negative EBITDA, the first limb is the one that matters.
- Withholding on interest. 10% to a foreign lender, unless a treaty rate or the Interest and Royalties Directive applies.
Grants. Booked as deferred income and recognised in proportion to the qualifying costs incurred, so income and expense offset and the net effect is neutral. A later clawback is booked as a correction to income.
7. Exit
Deal structure moves the tax more than deal price does.
| Structure | Who pays | Tax |
|---|---|---|
| Share sale (founder as individual) | The founder | 10% income tax on the capital gain (Art. 33(3)) |
| Share sale (seller is a Bulgarian holding company) | The company | 10% corporate tax, plus 5% on distributing upward |
| Asset sale | The company | 10% corporate tax on the gain, plus 5% dividend tax to get the cash out |
| Transfer of a going concern (Art. 15 of the Commerce Act) | - | Not a supply for VAT (Art. 10(1)(2)) if the transferee is VAT-registered |
| Liquidation | The founder | 5% final tax on the liquidation share (Art. 38(4)) |
The exemption in Art. 13(1)(3) - 0% on income from selling shares - applies only to trades on an EU or EEA regulated market, so a sale of OOD units never qualifies. That is the one place where legal form has a direct tax consequence at exit.
Note the second row: there is no general participation exemption in the corporate act, so a Bulgarian holding company selling a subsidiary OOD pays 10% - the opposite of what investors accustomed to the Dutch regime expect.
Earnout. Drafted as an adjustment to the purchase price, it is taxed as a capital gain at 10% in the year received. Tied to the founder's continued employment or consulting, the revenue authority recharacterises it as employment income - income tax plus contributions. That difference is settled when the SPA is written, not afterward, and settled practice does not exist here, so the drafting has to be unambiguous.
A flip - swapping Bulgarian units for shares in a foreign company - is covered in the capital raising playbook; in short, it is a disposal and it is taxed, even though not a single euro has reached the founder. Capital gains are declared in the annual return by 30 April of the following year.
8. Withholding tax, holding companies, and where the company is really run
A Bulgarian startup owes withholding tax on payments to foreign legal entities: 5% on dividends and liquidation shares (Art. 194(1) and Art. 200), and 10% on interest, royalties, licence fees, management and control services and technical services (Art. 195 and Art. 200).
EU directives take that to zero on conditions:
- Dividends to an EU parent: 0% where it directly holds at least 10% of the capital for an uninterrupted period of at least 1 year (Art. 194(3)(3)).
- Interest and royalties to an associated EU company: 0% where one holds at least 25% of the other - or a third EU company holds at least 25% of both - for an uninterrupted period of at least 2 years (Art. 195(4)-(11)).
Applying a treaty. For income to a single foreign person up to roughly EUR 255,650 a year, the treaty is applied directly by the payer with no prior clearance (Art. 142(5)), provided you hold a tax residence certificate, a beneficial owner declaration and evidence of the payment's commercial basis. Above that, a request goes to the revenue authority.
| Country | Dividends | Interest | Royalties |
|---|---|---|---|
| United States | 10% / 5% at 10%+ ownership | 5% | 5% |
| United Kingdom | 5% / 0% for pension funds | 0% | 0% |
| Germany | 15% / 5% on direct holdings | 0% | 0% |
| Netherlands | 15% / 0% on qualifying holdings | 0% | 0% |
| Israel | 15% | 10% | 5% |
| UAE | 0% | 0% | 0% |
Payments to foreign freelancers for services performed entirely outside Bulgaria, without a permanent establishment here, are generally not subject to withholding (Art. 8 and Art. 37 of the personal act).
The Bulgarian holding company
Dividends from EU subsidiaries are excluded from the tax result (Art. 27), and dividends between Bulgarian entities are exempt from withholding (Art. 194(3)(1)). The weak point, as noted, is the sale: gain on disposing of units is taxed at 10%.
Foreign structures and their limits
Estonia offers 0% on undistributed profit and effectively 25% on distribution; the Netherlands a participation exemption and a 9% Innovation Box; Delaware 21% federal plus a franchise fee. Two rules limit how freely you can choose:
- Controlled foreign companies (Art. 156a-156zh). They apply where a Bulgarian company holds more than 50% of a foreign entity whose effective corporate tax is below 5% and the entity has no genuine substance.
- Place of effective management (Art. 3). An Estonian OU run entirely by a founder from an office in Sofia is taxable in Bulgaria as a resident. Estonian e-Residency is a digital identity and does not confer tax residence - the most expensive misunderstanding in this entire subject.
The founder is a Bulgarian tax resident if present more than 183 days in any 12-month period, or if their centre of vital interests is here (Art. 6). Conflicts go to the treaty's tie-breaker rules.
Pillar Two - the global minimum tax - applies solely to groups with consolidated revenue above EUR 750,000,000, so startups are entirely out of scope, notwithstanding how regularly it appears in decks where it has no business being. Transfer pricing documentation is much the same: the local file obligation only bites above two of assets ~EUR 19,430,000, net sales ~EUR 38,860,000, headcount 250.
The transfer pricing risk, though, does not wait for those thresholds. Management fees to a foreign holdco with no minutes, time records or actual deliverables are disallowed entirely under Art. 26(2), and any excess over market price is treated as tax avoidance or as a hidden distribution. Transferring software or patents to a foreign holdco at a nominal value gets adjusted to market with 10% tax on the difference.
9. Where enforcement actually hurts
Hidden distribution of profit. 5% dividend tax plus a 20% property penalty under Art. 267 on the amount. This is the most expensive single line item in this entire article, and it is triggered by things that look harmless: a personal expense paid by the company, an interest-free loan to a shareholder that never comes back, a consulting agreement with a related party with no demonstrable output.
Precautionary measures. Under Art. 121, the revenue authority can freeze accounts and charge property during an audit, where collection is presumed at risk. A frozen operating account mid-audit is an operational problem, not only a financial one.
Limitation periods. Liabilities lapse after 5 years from 1 January of the year following the year the return was due (Art. 171(1)); the absolute period is 10 years regardless of interruptions.
Corrective return. After the annual deadline passes you get one corrective return (Art. 104(3)) - for companies between 30 June and 30 September, for individuals 30 April to 30 September. One means one: find a second error and you have no instrument left.
10. The tax calendar
| Deadline | Obligation | Penalty |
|---|---|---|
| 14th of each month | VAT return, VIES and ledgers for the prior month (Art. 125) | EUR 256 to 5,113 |
| 25th of each month | Declarations 1 and 6; payment of payroll contributions and income tax | Statutory interest |
| 30 April, 31 July, 31 October | Quarterly return under Art. 55 / Art. 201 for withheld taxes and dividends | EUR 128 to 1,023 |
| 30 April | Annual personal return under Art. 50; annual Declaration 6 for the self-insured | EUR 51 to 511 |
| 30 June | Annual corporate return under Art. 92 and payment of corporate tax | EUR 256 to 1,534 |
| 15 July / 1 December | Corporate advance instalments for Q1-Q2 and Q3 (Art. 88-89) | Statutory interest |
| 30 September | The one corrective return | None (it prevents fines) |
| 30 September | Filing the annual financial statement with the commercial register (Art. 38 of the Accountancy Act) | EUR 1,023 to 2,557 |
Withholding tax on a dividend is remitted by the end of the month following the quarter in which the distribution decision was taken (Art. 201) - not the month of payment. A statutory audit kicks in above two of: assets EUR 2,000,000, net sales EUR 4,000,000, headcount 50.
11. A checklist by stage
Just incorporated. File form OKD-5 within 7 days, but only if you are actually starting to work in the company. Decide deliberately between self-insurance and a management contract - it is a five-figure annual decision.
First revenue, first hires. Register under Art. 97a before your first payment to a foreign service provider - a seven-day window forward, not backward. Track turnover against the Art. 96 threshold, remembering B2B services placed abroad do not count. Notify the revenue authority of employment contracts within 3 days and before the person starts. Selling B2C in the EU: weigh OSS against a Merchant of Record now, not after EUR 10,000.
Raising. Book the share premium reserve properly, review debt instruments against the thin capitalisation and interest limitation rules, and structure the ESOP knowing the tax lands at exercise.
Planning an exit. Run your own tax due diligence before the buyer runs theirs. Choose the deal structure with the tax bill on the table, and draft the earnout as a price adjustment if that is what it is meant to be.
Considering a move abroad. Check the CFC rules and transfer pricing, build real substance abroad, and review your own tax residence. Then answer honestly where the company is actually run from - on that question the revenue authority goes by facts, not registration.
This article is general information current as of August 2026, not individual tax or legal advice. The numbers depend on your insurance status, revenue mix and contracts - for a transaction or a restructuring, get an adviser. Amounts converted from leva at the fixed exchange rate are rounded and should be verified for any specific application.