Bulgaria the perfect mid-shore option….
- Why Bulgaria?
The OECD and EU Initiatives bring about a lot of changes. From FATCA to GATCA, BEPS, AML/CFT Directive, Tax Rulings, Global Transparency, Exchange of information, UBO’s Registers and many more… CSPs under a magnifying glass… How should we deal with it?
With all these rules being changed rapidly and frequently, in facing this new reality we have to adapt and rearrange our industry and our client’s business approach. What should we do?
0% Tax is gone! Paying taxes at a reasonable price is our new goal!
Mid-Shore Option might not be the desired option, but it is the best we have today.
Bulgaria as a mid-shore Jurisdiction that may offer many advantages for active businesses all over Europe.
The use of a Bulgarian company on its own or as part of an international structure may dramatically decreased than the global tax burden on the taxpayer.
Why Bulgaria? It is a parliamentary democratic republic, a NATO Member since 2004, and an EU member since 2007. It has the second lowest public debt in Europe – just after Luxembourg. There is no ethnical tension or immigrant issues; it is a stable and secure country. Bulgaria is still not a member of the EU monetary system, but Bulgarian currency – the BGN – has been fixed to the Euro since 2007. Thus the risk of devaluation is 0%, or at least it is the same as it is for the Euro.
- Investment and business opportunities in Bulgaria
Bulgaria offers great tax benefits, very low business costs, and government incentives to attract foreign investors. The rental and real estate costs in Bulgaria are not only much lower than in the leading European countries, they are even lower compared to the rest of the countries in the Balkan Peninsula or other Eastern-European countries. At the same time the quality of premises is pretty good. The cost of utilities is low as well.
Labour costs in Bulgaria are some of the lowest in Europe. This is not only because of the difference in the wage levels but also because of the limits in the social contribution. The highest Social Security Contribution to be paid is €500 per month (€6000 per year), no mater how high is the salary. Thus, if you are an employer in Bulgaria, you will pay 5-8 times less compared to other European countries. At the same time, the quality of the labour force in Bulgaria is very good. Nowadays Bulgaria is one of the leading providers of business process outsourcing services in Europe.
There are many government incentives aiming to atract big investors in Bulgaria. They may benefit from social security contribution exemption, and up to 0% profit tax under surtain surcumstances.
Capital adequacy and equity requirements in Bulgaria are higher in comparison to other European countries which results in a stable and secure bank system. At the same time, it is still possible to open a bank account just for a couple of days. The biggest European banks are represented in Bulgaria, and the banking facilities are very well organised. Interest rates on deposits are still higher than in the rest of Europe.
- 3. Taxation – the lowest taxation in Europe
The idea of the Bulgarian tax system is to be attractive, and not only by having one of the lowest tax rates in the EU. It is attractive because it is very simple, very easy and straightforward to apply. Bulgarian taxpayers benefit from a 10% flat rate of corporate profit tax, a flat 10% personal income tax on their worldwide income and 0 to 5% dividend tax without any exceptions or restrictions. There is no inheritance or gift tax in Bulgaria. VAT is 20%, and Bulgaria has double tax treaties with 80 countries all over the world.
As a full member of the EU, Bulgaria accepted to implement all new global transperancy rules into its domestic legislation. It is expected to start working from the end of 2017.
At the same time given that Bulgaria is surrounded by countries like FYRoM (Former Yugoslavian Republic of Macedonia), Turkey and others which will not join soon the EU and OECD global transparency rules, companies in such countries as a part of a structure, together with Bulgarian company, (i.e. Macedonian Silent Partnership mother Company with subsidiary in Bulgaria), may give some more fresh air to taxpayers who are not yet ready to be so transparent…
How one may benefit from a company in Bulgaria.
As a result, the profit is realised by the Bulgarian company, where it will be taxed at 10%. This is one of the most common and easily administered structures. In case the UBO needs to repatriate the profits outside of Bulgaria, 0-5% dividend tax will be applicable. In case the Bulgarian Company has EU parent coimpany or parent company in third country where beneficial tax treaty is aplicable (i.e Canada), the dividend tax will be 0.
The 10% profit tax might be optimized in case of joining additional jurisdiction in the structure, i.e Maltese company as intermediary.
It is not obligatory to distribute dividends in Bulgaria in order to benefit from the low taxation, as it is in Malta for example, and the UBOs may absolutely freely and without any restrictions invest the company’s profit all over the world.
Use of a Bulgarian consultancy company.
Let say you are Belgian IT expert, who works for Google. Instead of having a personal contract agreement with Google, you could set up a Bulgarian consultancy company. You might be the shareholder and director of that Bulgarian company. The services would be directly provided to the client (Google) but the Bulgarian company will issue the invoices and will collect the income. In case you do not like the idea of announcing in your country of residency (Belgium) that you have passive income from dividends from Bulgaria, you may distribute all the profits in the Bulgarian company as your salary in Bulgaria.
In case the idea of receiving salary doesn’t satisfy you, you can use the company profits for your personal spendings. Here we have other solutions…
We could have another situation. Let us say you are an entrepreneur in the IT sector. You have Belgian company and you would like to expand, but you don’t see any opportunities in Belgium, because of the high wages and because of the high taxation. Having your Bulgarian company you could hire local IT specialists to work for you, and the Bulgarian company will act as a subcontractor of your Belgian company. So you will be able to move part of your profits in Bulgaria where it will be taxed at 10%.
Another beneficial case would be a Bulgarian holding company with subsidiaries in the EU.
Dividends received by the holding company are tax exempt. In case the Bulgarian company allows personal spending to the directors instead of a salaries, it will be taxed only at 5% as the holding company is not actively trading.
Nowadays the need of proving substance is important tax issue. As we already indicated, it is cheap and easy to achieve substance in Bulgaria, thanks to the attractive cost of labour and premises.
Setting up a company in Bulgaria is a very fast and an easy procedure. It takes just three working days to set up a company and around ten days to obtain EU VAT registration. Personal presence is not required. Bank accounts will be opened in couple of days also. The most common legal form is LTD Limited liability company. In some cases joint stock companies are prefered as bearer shares are still an option – société anonyme.
1st day of November 2016
(on behalf of Zara Consult Ltd)
Iven De Hoon
(on behalf of De Hoon & Parners)