Employment contract or a DUK management contract?

The general director (manager) of a company in Bulgaria may choose not to pay himself a salary if he is at the same time a founder and is entitled to dividends. In this case he must pay social contributions (осигуровки) on the minimum salary, and if he holds a permit for permanent or long-term residence in Bulgaria, then also «здравни осигуровки». Thus, holders of a long-term residence permit pay contributions to ДОО (state social insurance) and ДЗПО (supplementary mandatory pension insurance), while holders of a permanent residence permit or EU long-term resident status additionally pay contributions to НЗОК (health insurance).

If the manager wants to receive a salary but is not a resident of Bulgaria and has no right to work as an employee, it is possible to do without an employment contract by concluding instead a management and control contract – DUK. What is this document?

How does a DUK differ from an employment contract?

A DUK contract is a type of civil contract, not an employment contract. This means that the contract does not need to be registered with the National Revenue Agency (NAP), it cannot be open-ended, it does not require recording working hours or defining a workplace. In addition, a civil contract, unlike an employment contract, may be unpaid.

A DUK contract may be concluded with a foreigner who owns the company; no work permit issued by the Ministry of Labour and Social Policy is required for this. The person concluding the contract may be either the company’s director or its founder or one of its founders. Not everyone may hold the position of manager: for example, it is not possible for those who have previously been declared bankrupt or who were a director, board member or member of a supervisory body of a company that went bankrupt in the last two years, if creditors remained unsatisfied.

From the point of view of tax legislation, a DUK is treated the same as an employment contract, but it is an entirely different document. It is not an employment contract: the employment record book of a manager who has concluded such a contract is not filled in, and the time of his management under a DUK is not counted as length of service. In addition, a person who has concluded such a contract is not entitled to paid leave and other payments due to employees under the Labour Code on the basis of an employment contract.

Whereas an employment contract cannot be concluded retroactively, a DUK can be concluded as of the beginning of the month in which the activity was started.

Another difference: an employment contract can only be concluded with mandatory notification of NAP (the tax office), whereas for a DUK this is not required. There is also no need to enter the contract in the Commercial Register.

The conclusion of a DUK is not governed by the Labour Code, and this also applies to the grounds for terminating the contract. While terminating an employment contract may in practice be difficult, as it involves mandatory notice to the employee and payments to him, terminating a management and control contract is considerably simpler.

The content of a DUK contract is determined by the parties concluding it, but the document must necessarily contain the following points:

• The parties to the contract – a legal entity (for example, an OOD (LLC)) and the person appointed under the contract as its representative.
• The relations between the parties arising in connection with the performance of representative management activity, the duties of the manager (director) and his remuneration.
• The rights and obligations of the parties.
• The term of the contract – it may also be open-ended.

In addition to the main points, further ones may be added, for example on the resolution of possible disputes. A clause relating to a ban on competing activity is also often added to a DUK. Under this ban, without the company’s permission the director has no right to conclude commercial transactions on his own behalf or on behalf of others, to manage other OODs or to participate in them. All these restrictions apply where the activity in question is similar to the activity of the OOD concluding the contract.

From the point of view of tax payment, as we said above, a DUK contract is treated the same as an employment contract, but there are small nuances. For example, a DUK is in no way linked to working hours, and income is not calculated in proportion to time worked. Social contributions are paid to the following funds:

• «Пенсии»;
• «Общо заболяване и майчинство»;
• «Трудова злополука и професионална болест»;
• «Безработица».

The income on which contributions are paid cannot be lower than the minimum or higher than the maximum (3400 leva). The minimum salary of a company director in a particular sector is approved every year according to the classifier of economic activities. The amount changes every year.

The maximum salary may be any amount, but the maximum salary amount on which social contributions are levied is, as of 01.04.2022 — 3400 leva; social contributions are not levied on the rest of the money the manager receives, but 10% income tax is paid on it.

If the person who has concluded a DUK does not work under the contract for a whole month, for example while on unpaid leave or on sick leave, the minimum monthly income is determined in proportion to the working days of the month without regard to the hours worked.

A manager under a DUK must pay contributions even if he is a pensioner (including a Bulgarian pensioner).

Since it is quite difficult to work out the finer points of taxation on your own, we strongly recommend consulting, before concluding an employment contract or a management and control contract (DUK), a knowledgeable accountant.

Company registration in Bulgaria

Accounting services for your company in Bulgaria.

Residence in Bulgaria (long-term residence permit)