What is a DUK contract? Who needs it, pros and cons

Company directors often ask whether plane tickets, hotel accommodation and similar expenses can be treated as company costs. The answer to this question depends on whether a management and control contract (DUK) has been concluded between the company and its general director.

If there is no contract and the director is considered a “самоосигуряващо се лице”, the name of the status speaks for itself: the director pays for himself, and the company does not cover his expenses.

If, however, a management and control contract has been concluded between the director and the company he works for, travel expenses may be paid at the company’s expense. In this case, though, the director must be paid a salary (classified as a manager’s salary), on which the corresponding tax is paid.

How is a DUK concluded?

A management and control contract is concluded between the company and its director. It is a civil contract, not an employment contract. It is concluded in writing and includes information on the director’s rights and obligations, his remuneration, and the conditions for terminating the contract. The director submits a notarised consent with a specimen signature to the Commercial Register.

The law prohibits the director from engaging in competing activities. In particular, he may not conclude commercial transactions in his own name or on behalf of others, or manage other companies (provided the activity is carried out in the same field).

A person may not act as director if he has been declared bankrupt, or has headed an organisation that went bankrupt in the last two years leaving unsatisfied creditors, or failed to fulfil certain obligations under the law on reserves of oil and petroleum products.

What else should you keep in mind?

From the point of view of tax legislation, a DUK is treated as equivalent to an employment contract. Nevertheless, it is not an employment contract: no entries are made in the director’s employment record book, length of service is not counted, and the director is not entitled to paid leave or other payments due to employees. At the same time, the director must pay social contributions for a number of risks. This obligation remains even if the director retires. Since the contract is not tied to working hours, the income subject to social contributions is not calculated in proportion to the hours worked.

The contract may be terminated:

• by agreement of the parties;
• unilaterally;
• automatically upon expiry of the term, if the contract was concluded for a fixed term;
• upon liquidation of the company or its declaration of bankruptcy;
• in the event of the director’s death.

How advisable is it to conclude a management and control contract? The answer depends on a number of factors, so each case must be considered individually. Sometimes concluding a contract is advantageous for the company and the director, in other cases it is simpler to do without it. The lawyers of Bulgarian Expert are always ready to advise you on such matters and to suggest the best course of action in your situation.

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