Bulgarian residents are taxed on their worldwide income. Dividends, except those from EU/ EEA resident group companies, are included in the corporate income tax base and subject to tax at the general corporate income tax rate. Dividends received from group companies’ resident in a EU/ EEA Member State are exempt from tax. However, effective 1 January 2016, dividends distributed to a Bulgarian company by its subsidiaries located in EU or EEA are exempt from corporate income tax only if such distribution is not treated as a tax-deductible expense by the distributing company or in any way does not reduce the tax base of the subsidiary.
Current-year “foreign” losses are set off against the total income in the same way as domestic losses. However, if the tax treaty with the country where the permanent establishment is located provides for the exemption method to avoid double taxation, no “foreign” losses from the permanent establishment can be set off in the current year.
Generally, losses from a foreign source (e.g. a permanent establishment in another country) are carried forward only against taxable income of the same source. Nevertheless, losses from a permanent establishment in an EU/EEA Member State are carried forward:
- against taxable income from the same permanent establishment if the method of avoidance of double taxation under the tax treaty with the respective country is "exemption with progression". In case the permanent establishment is terminated and there are losses that have not been absorbed, these losses are carried forward under the general rules (against the taxable income of the company) for the remaining period of 5 years; or
- under the general rules (against the taxable income of the company) if the method of avoidance of double taxation is a tax credit, including in a non-treaty situation.
Undistributed income of foreign subsidiaries of a Bulgarian resident company is not taxed.