Bulgaria adopted the euro on 1 January 2026, which reset every threshold in its tax system and dated most of the guidance written before then. It offers a flat 10% corporate tax, a 5% dividend withholding, a limited liability company that can be formed with symbolic capital, and full membership of both the European Union and the Schengen area.
Trade between Turkey and Bulgaria runs across a shared land border and through Kapıkule, the busiest crossing on Turkey’s western frontier. For a Turkish group this is the shortest and cheapest route into the single market: a Sofia entity can be registered in days, staffed locally at costs well below western Europe, and used to serve customers across the union without customs formalities.
The Bulgarian side is straightforward. What decides whether the structure works is the Turkish side — and Bulgaria sits in an unusual position there, because its 10% rate lands exactly on the line Turkish legislation draws for controlled foreign companies and below the line it draws for the participation exemption on dividends.
What Changed With Euro Adoption in 2026
Euro adoption was not a currency swap alone. The thresholds in the tax legislation were converted at the fixed rate and, in several places, the rules around them were rewritten at the same time. Anything quoting figures in lev should be treated as out of date.
| Item | Position from 2026 |
|---|---|
| Currency | Euro, at a fixed conversion rate of 1.95583 lev to the euro |
| VAT registration threshold | EUR 51,130 of taxable turnover, replacing the previous lev figure |
| Basis of the threshold test | Calendar year. The rolling twelve-month period was abolished |
| When registration takes effect | The day after the threshold is exceeded, regardless of processing time. The application is filed within seven days |
| Small business VAT regime | Available up to EUR 51,130: no VAT charged, and no input VAT deduction |
| Cross-border small business regime | An EU-wide regime up to EUR 100,000 of cross-border turnover, which cannot be combined with the national one |
| Taxable turnover for registration | Widened to include certain real estate transactions and financial services |
Registration now takes effect the day after the threshold is exceeded, not when the revenue agency processes the application. A company that crosses the line and files within its seven days is already a VAT taxpayer for transactions made in the interval — including any invoice issued without VAT on the day after it crossed.
Because the test also moved to a calendar-year basis, turnover resets each January. A business that was near the threshold on a rolling basis in December may find it has considerably more room in the new year, and one that grows quickly early in the year may cross far sooner than expected.
How to Set Up a Company in Bulgaria?
The first decision is the vehicle, and for a foreign parent it is narrower than the list of available forms suggests. Three of the six are unsuitable for an investor, and the practical choice is between a company and a branch.
Main types of business entities
The vehicle used by almost every foreign parent. Limited liability, ownership recorded as quotas, a manager appointed rather than a board. Tax and compliance treatment is identical whether there is one owner or several.
Used where investors need share classes, where the shareholder register must be transferable without amending the constitution, or where public issuance is contemplated. A board and fuller governance apply and a quarter of the capital is paid in at incorporation.
Registered in Bulgaria but liability runs to the parent. Taxed only on Bulgarian-source profit. Suitable for a defined project that will be closed afterwards, and generally the wrong answer where Turkish risk needs ring-fencing.
Cannot trade, invoice or earn income. Useful for market presence before committing, and subject to the same permanent establishment analysis as elsewhere if it steps beyond representation.
The statutory minimum for a limited company is about one euro, and only the nominal amount has to be recorded at incorporation. That is genuinely sufficient in law. It is not always sufficient in practice: banks, landlords and larger counterparties look at registered capital, and a company capitalised at one euro invites questions in exactly the situations where a foreign parent wants to appear substantial.
Additional funding can enter as shareholder loans or retained profit rather than registered capital, which keeps flexibility. That decision interacts with the Turkish transfer pricing and disguised capital rules on the parent’s side, so it should be taken as one decision rather than two.
Establishment Process
- Check and reserve the company nameNames must be unique in the commercial register and may be recorded in both Latin and Cyrillic script. A reservation holds the name while the file is prepared.
- Prepare the constitutional documentsDrafted in Bulgarian, setting the capital, the activity, the management structure and the registered address. Where the founders sign from abroad, signatures are notarised and legalised, and a power of attorney is prepared for a local representative.
- Deposit the share capitalPaid into a dedicated capital account at a Bulgarian bank, which issues the deposit certificate required for the filing. Even the nominal minimum passes through this step.
- File with the commercial registerSubmitted electronically or on paper, with a lower fee for electronic filing. The register processes a complete file in about three working days.
- Obtain the tax and statistical identificationRegistration with the revenue agency follows incorporation and is required before any transaction, payroll or filing.
- Arrange qualified electronic signaturesAnnual returns and most filings are made electronically and cannot be completed without one. This is routinely left until it blocks a deadline.
- Register for VAT where requiredMandatory once taxable turnover passes the threshold, with the application due within seven days. Voluntary registration is available below it and is often the right choice for a business trading across the union from day one.
Two to four weeks from first instruction is realistic for a foreign founder. The register itself is fast; the timetable is set by legalising documents abroad and, afterwards, by bank onboarding.
Documents Required for Company Formation
| Document | Requirements and notes |
|---|---|
| Constitutional documents | Drafted in Bulgarian, stating capital, activity, management and registered address |
| Founders’ identification | Passport copies for individual founders; for a corporate founder, current registry documents evidencing existence and representation |
| Resolution of the corporate founder | Approving the incorporation, the capital and the appointment of the manager |
| Notarised specimen signature | Of the appointed manager, in the form required by the register |
| Bank deposit certificate | Evidencing payment of the share capital into the dedicated account |
| Consent to the registered address | From the owner or holder of the premises |
| Power of attorney | Where the filing is made by a local representative |
| Translations and legalisation | Documents issued abroad require certified translation into Bulgarian and apostille under the Hague Convention |
Both Turkey and Bulgaria are parties to the Hague Apostille Convention, so documents issued in Turkey need an apostille rather than consular legalisation. This is a meaningful practical difference from jurisdictions outside the Convention, where the full embassy chain applies and adds weeks. Settle the company name, the capital figure and the identity of the manager before documents are apostilled, since an amendment afterwards means repeating the chain.
Is a Local Partner or Local Manager Required?
No. A Bulgarian company may be wholly owned by a foreign parent or by non-resident individuals, and there is no requirement for a Bulgarian shareholder. The manager need not be a Bulgarian citizen or resident, and a foreign parent may appoint its own personnel.
What becomes necessary in practice is presence rather than nationality. A manager who is never in Bulgaria complicates bank onboarding, and a company managed entirely from abroad raises the residence question addressed further below. Where the group has no one available locally, appointing a resident manager alongside a group representative is the usual arrangement.
Bulgarian Tax System and Comparison with Turkey
Bulgaria
- Corporate tax
- 10% Flat, no size threshold
- Domestic minimum tax
- None
- Dividend withholding
- 5% Nil for EU and EEA recipients
- Value added tax
- 20% Reduced rate 9%
- Annual return
- 1 March to 30 June Of the following year
Turkey
- Corporate tax
- 25% 30% for financial institutions
- Domestic minimum tax
- 10% Of profit before deductions
- Dividend withholding
- 15%
- Value added tax
- 20% Reduced rates 10% and 1%
- Annual return
- By the end of the fourth month Following the accounting period
Corporate tax and advance payments
Corporate tax is a flat 10% on profit. Bulgarian resident companies are taxed on worldwide income; a branch is taxed only on Bulgarian-source profit. The tax year is the calendar year. Tax is paid in advance during the year on projected taxable profit, with the obligation depending on the previous year’s net sales revenue.
| Net sales revenue in the base year | Advance payments |
|---|---|
| Up to EUR 153,387 | None |
| EUR 153,388 to EUR 1,533,875 | Quarterly instalments |
| Above EUR 1,533,875 | Monthly instalments |
| Year of incorporation | Exempt, whatever the revenue |
The annual return is filed between 1 March and 30 June of the following year, electronically, with a qualified electronic signature and the mandatory annual activity report. Losses carry forward for up to five consecutive years.
Tax on expenses
A separate 10% tax applies to certain expenses rather than to profit: business entertainment, fringe benefits provided to staff, and the private use of company assets. This has no equivalent in Turkish law and catches groups that budget benefits as an ordinary staff cost.
Withholding tax on payments abroad
| Payment | Rate | Relief |
|---|---|---|
| Dividends and liquidation proceeds | 5% | Exempt where the recipient is an EU or EEA entity and the payment is not a hidden distribution. Treaty relief otherwise |
| Interest and royalties | 10% | Exempt between associated EU companies with a direct holding of at least 25% held for at least two years. Treaty relief otherwise |
| Technical and management services | 10% | Treaty relief, where the treaty covers the payment |
| Capital gains from Bulgarian sources | 10% | Exemption or treaty relief where available |
Withholding is payable within three months from the beginning of the month following the distribution decision where the recipient is resident in a treaty country, and within one month otherwise. Treaty relief requires a tax residence certificate obtained before payment.
Bulgaria’s dividend, interest and royalty exemptions are directive-based and apply between EU and EEA entities. A Turkish parent is outside them. Dividends paid from Bulgaria to Turkey are therefore subject to the domestic 5% withholding, reduced only to the extent the double taxation agreement between the two countries provides, and only where a residence certificate is in place before the payment.
This is the most common misreading of Bulgaria by groups outside the union: the headline exemption is real, but it is for EU parents. The route for a Turkish group is the treaty, not the directive.
Value added tax
Bulgarian VAT follows EU legislation, including the place-of-supply rules. The standard rate is 20%, with a reduced 9% rate for items such as hotel accommodation and books, and zero rating for intra-community supplies and international transport.
- Tax period is one calendar month
- Returns and payment due by the 14th of the following month
- Intra-community supplies reported through the EU exchange system
- Registration threshold EUR 51,130, on a calendar-year basis
- Application within seven days of exceeding it
- Registration effective the day after the threshold is crossed
- Refunds within four months of the declaration
- Purchase invoices deductible within twelve months
Accounting System and Operational Compliance with Turkey
Bulgarian accounting follows the national accountancy act, with financial statements prepared under international standards or the national standards for small and medium enterprises depending on size. A Turkish group will find the framework closer to its own group reporting than the Turkish statutory books are, which reduces rather than increases the reconciliation burden.
The practical differences worth planning for are the electronic filing infrastructure, which requires qualified electronic signatures for the persons who file, and the direction of travel on invoicing: electronic invoicing is moving from a largely voluntary system to one with defined mandatory milestones, in line with the wider European position. A group setting up now should specify the invoicing solution with that in mind rather than retrofitting it.
One obligation catches dormant entities. A company with no activity in a year is still required to file a declaration of no activity, and skipping it triggers penalties even though no tax is due.
Bank Account Opening and Turkey-Related Companies
Bank onboarding is the least predictable step for a group structured from Turkey, and the reason a two-week formation becomes a six-week project. The determinant is the compliance file rather than the deposit.
- Ownership chain traced to the ultimate beneficial owners
- Evidenced description of the business model and expected flows
- Source of funds for the capital contribution
- Sanctions and compliance screening of the group and counterparties
- A manager able to attend in person
- Registered capital consistent with the stated activity
Structures with several intermediate holding layers, or a company capitalised at the nominal minimum while describing substantial planned turnover, are reviewed in more detail and take longer. Where the group can explain the commercial rationale in writing before the first meeting, the process shortens materially.
Tax Residency and Permanent Establishment Assessment
Bulgaria’s low rate is what attracts Turkish groups, and it is also what creates the two issues below. Neither is a reason to avoid Bulgaria; both are reasons to model the structure before incorporating rather than after the first dividend.
Bulgaria sits exactly on the controlled foreign company line
Article 7 of the Turkish Corporate Income Tax Law taxes a foreign subsidiary’s profit in the Turkish shareholder’s hands without distribution, where control exists and three conditions are met together. One is that the effective tax burden abroad is below 10%. Bulgaria’s rate is exactly 10%, so on the headline figure the condition is not met and the rules do not apply.
The exposure is that the test looks at the burden actually borne, not the statutory rate. Where deductions, reliefs or timing differences pull the effective burden below ten per cent in a given year, the condition is satisfied and — if the passive income and revenue tests are also met — the profit becomes taxable in Turkey without ever being distributed. A Bulgarian holding or licensing vehicle is far more exposed to this than a trading company with staff and premises.
The full participation exemption is not available
The full exemption for foreign dividends in Turkey requires the profits to have borne a tax burden of at least 15% in the subsidiary’s country. Bulgaria’s 10% does not meet it. What remains is the 50% exemption, which requires holding at least 50% of the paid-in capital and transferring the profits to Turkey by the corporate tax return filing deadline.
| Step | Treatment |
|---|---|
| Profit in Bulgaria | Taxed at 10% |
| Distribution to the Turkish parent | Bulgarian withholding at 5%, reduced where the treaty provides and a residence certificate is held |
| Receipt in Turkey | The 15% test fails, so half the dividend is exempt and half is taxed at the Turkish corporate rate |
| Credit | Bulgarian tax paid is credited, capped at the Turkish tax on the same income and evidenced by consular-certified documents |
| Condition | At least 50% of the paid-in capital, and transfer by the filing deadline |
The practical conclusion is that Bulgaria’s low rate is worth most where profit is retained and reinvested inside the European Union, and worth considerably less where it is distributed to Turkey each year. That is a structuring question with a real answer, and it should be settled before the entity is formed.
Where the company is managed from
Under Article 3 of the Turkish Corporate Income Tax Law, a company whose place of effective management is in Turkey is a full Turkish taxpayer on worldwide income, wherever it is registered. A Bulgarian company incorporated for the 10% rate but run entirely from Istanbul is the clearest example of the risk. Decisions taken in Bulgaria, management present there, and a documented record of both are what prevent the question arising — and Sofia’s proximity makes that easier to arrange than in most jurisdictions.
Social Security and Labor Legislation
Employment is governed by the Bulgarian labour code, with written contracts registered with the revenue agency before work begins. Personal income tax is a flat 10% withheld through payroll, and social security contributions are shared between employer and employee on earnings up to a capped monthly maximum, which limits the employer cost of senior salaries in a way Turkish employers will find unfamiliar.
Employment records have been largely digitalised, with a mandatory electronic register, while employers may still keep personnel files on paper. For a Turkish group the practical point is that payroll is cheaper than in western Europe but the registration formalities are front-loaded: the contract must be registered before the employee starts, not afterwards.
Company Formation Timeframe in Bulgaria
The register is fast and the tax registration is routine. The two variables are legalisation of documents in Turkey and bank onboarding afterwards.
| Stage | Typical duration |
|---|---|
| Name reservation and drafting | 2–5 days |
| Apostille and translation of foreign documents | 1–3 weeks |
| Capital account and deposit certificate | 2–5 days |
| Commercial register filing | About 3 days |
| Tax registration and electronic signatures | 1–2 weeks |
| Operating bank account | 2–6 weeks |
Common Mistakes Made by Investors
- Relying on figures quoted in lev. Every threshold changed with euro adoption in 2026.
- Assuming the EU exemptions apply to a Turkish parent. They are directive-based and reach EU and EEA entities only.
- Planning annual dividends to Turkey. The 15% test fails at Bulgaria’s 10%, leaving only the 50% exemption.
- Using a Bulgarian holding vehicle without substance. A passive entity is exposed to the Turkish controlled foreign company rules if the effective burden slips below ten per cent.
- Managing the company from Turkey. Effective management in Turkey makes it a full Turkish taxpayer on worldwide income.
- Registering for VAT late. Registration now takes effect the day after the threshold is crossed, not on processing.
- Capitalising at one euro while describing large turnover. Banks and counterparties read the register, and the mismatch slows onboarding.
- Assuming a dormant company files nothing. A declaration of no activity is still required and penalties follow if it is skipped.
Frequently Asked Questions
What is the minimum capital to set up a company in Bulgaria?
What is the corporate tax rate in Bulgaria?
How long does company formation in Bulgaria take?
Did euro adoption change the tax thresholds in Bulgaria?
Do the EU withholding tax exemptions apply to a Turkish parent company?
How are dividends from a Bulgarian subsidiary taxed in Turkey?
Will a Bulgarian company trigger the Turkish controlled foreign company rules?
Is a Bulgarian partner or resident manager required?
As the Ozbek CPA team, we advise groups based in Turkey on establishing and operating in Bulgaria — choosing between a company and a branch, modelling the effective burden including repatriation to Turkey, the Turkish residence and controlled foreign company tests, transfer pricing across both countries, and the treaty position on dividends. We work with local counsel and accountants in Bulgaria on the domestic registration and filings. Contact us.
