Income tax on profits earned in Bulgaria: to pay or not to pay

Setting up a company in Bulgaria is possible for any foreigner (provided, of course, that certain requirements are met). However, earning income automatically entails paying taxes. It is at this point that the question arises: is it necessary to additionally pay income tax in Russia on profits earned in Bulgaria? Let us take a closer look.

Resident or non-resident

Under Art. 209 of the Tax Code of the Russian Federation, income received from sources in the Russian Federation and (or) from sources outside the Russian Federation is recognised as an object of taxation. The list of income subject to personal income tax itself is set out in Art. 208 of the Tax Code of the Russian Federation.

At first glance everything is simple, but the taxation procedure depends on the taxpayer’s status.

The Tax Code of the Russian Federation refers to the concepts of “resident” and “non-resident”. Under Russian law, the main criterion for recognising a person as a resident of the country is the number of days spent within the state during the 12 months preceding the date on which the income was received.

So, if a person has spent more than 183 days in Russia, they are a resident of the country (this rule applies even if that person holds the citizenship of a foreign state).

The Tax Code of the Russian Federation provides that tax residents are required to pay income tax on all types of income (including income received outside Russia). A different rule applies to non-residents: for this category of persons, income tax is paid only on income received outside the Russian Federation.

Accordingly, if a resident receives profit from their company registered in Bulgaria, they are required to pay tax in two states. Non-residents who have no income in Russia pay personal income tax only in Bulgaria.

The 3-NDFL return is filed with the tax office at the resident’s place of residence by 30 апреля of the year following the reporting year. The tax is paid by 15 июля of the same year in which the return was filed.

It should be borne in mind that, under Clause 3 of Art. 207 of the Tax Code of the Russian Federation, Russian military personnel serving abroad and employees of state authorities and local self-government bodies who are on assignment outside the Russian Federation are recognised as residents of Russia. The length of their stay outside the country does not affect this status.

Double taxation: how to avoid additional costs

In most cases, the issue of double taxation is resolved by signing an appropriate agreement.

On 8 июня 1993 года, Bulgaria and Russia concluded an Agreement for the Avoidance of Double Taxation with Respect to Taxes on Income and Property. Art. 2 of this agreement lists the types of taxes to which the document applies.

In most cases, residents of Russia who receive profit from a business in Bulgaria do not face any issues regarding double taxation (international treaties and agreements provide for their residents to be credited, on their own initiative, with the tax paid abroad). However, if difficulties still cannot be avoided, it is advisable to seek help from tax consultants. Specialist support will not only save money, but also spare your nerves.

Accounting services for your company in Bulgaria.

Company registration in Bulgaria

Residence in Bulgaria (long-term residence permit)