Dividend Taxation in Bulgaria in 2026: What Every Foreign Business Owner Must Know

The 5% Rate, the ~14.5% Combined Burden, Zero-Rate Structures Under the Parent-Subsidiary Directive, Non-Resident Treatment, DTT Relief, and Dividends vs. Salary for Company Owners

Introduction

The 5% dividend withholding tax is the single most distinctive feature of Bulgaria’s tax system from the perspective of a foreign business owner. Combined with a 10% corporate income tax, it produces a total owner-level tax burden of approximately 14.5% on profits extracted as dividends — a rate unmatched by any other EU member state and roughly one-third of the equivalent burden in Germany, France, or Italy.

This is not a special regime, a tax holiday, or a temporary incentive. It is Bulgarian standard tax law, unchanged for nearly two decades, applying equally to Bulgarian-resident and foreign owners of Bulgarian companies. The rate has withstood multiple rounds of EU fiscal harmonisation pressure, survived a recent proposal to double it to 10% (rejected during the 2026 budget process), and remains stable as a structural feature of the Bulgarian tax framework.

For foreign entrepreneurs, investors, and business owners considering Bulgaria as a jurisdiction, understanding exactly how the dividend tax works — mechanically, legally, and in the context of their home country’s tax obligations — is essential. This article explains the full picture: the calculation, who pays it and when, the circumstances where the rate can be reduced to zero, how it interacts with double taxation treaties, why dividends are often preferred to salary for owner-directors, and the most common mistakes that foreign owners make in managing their Bulgarian dividend distributions.

What Are Dividends and When Do They Arise?

The Legal Mechanics of Dividend Distribution in Bulgaria

Dividends are distributions of net after-tax profit by a company to its shareholders or participants. In Bulgaria, the term covers distributions from limited liability companies (OOD and EOOD) to their owners, as well as distributions from joint stock companies (AD) to their shareholders. For the vast majority of foreign-owned Bulgarian businesses, the relevant vehicle is the EOOD (single owner) or OOD (multiple owners), and distributions to their owners are what this article addresses.

In Bulgarian company law, a dividend distribution requires a formal decision by the company’s participants (for OOD) or shareholders (for AD). For an EOOD — where the sole owner is the same person as the director — the sole participant/director issues the distribution decision. This formal decision is a legal prerequisite to dividend payment: profits cannot be informally withdrawn from the company account without a documented distribution decision. Doing so would constitute an irregular withdrawal, not a dividend, with different and generally less favourable tax treatment.

When Can Dividends Be Paid?

Dividends in Bulgaria can only be distributed from confirmed net profit — profit that has been established in the company’s annual financial statements and approved by the participants. This means:

• Dividends can only be paid after the financial year has ended and the annual accounts have been approved;
• Interim dividend distributions (during the financial year) are possible under certain conditions but require more careful legal structuring;
• Dividends cannot exceed the confirmed net profit for the relevant period; distributing more than the available profit is legally problematic;
• Accumulated retained earnings from prior years can also be distributed as dividends in a later year if not previously distributed.

The Bulgarian Dividend Tax Rate in 2026

5% — Confirmed and Unchanged

The Bulgarian dividend withholding tax rate in 2026 is 5%. This applies to dividends distributed by Bulgarian companies to individual shareholders — whether Bulgarian residents or non-residents, whether EU or non-EU nationals.

During the 2025–2026 budget process, a proposal was made to increase the dividend withholding tax rate to 10%, which would have significantly reduced Bulgaria’s competitive advantage in this area. The proposal was rejected, and the rate was confirmed at 5% for 2026. The political consensus around maintaining Bulgaria’s low-tax positioning reflects a recognition that the tax framework is a core element of the country’s economic development strategy and its attraction of foreign investment.

The Dividend Calculation — Step by Step

From Gross Profit to Owner’s Net Receipt

The following calculation shows precisely how much of a Bulgarian company’s gross profit reaches the owner after all applicable taxes, using €100,000 of pre-tax profit as the base figure.

Who Pays Bulgarian Dividend Tax — and When

The Withholding Mechanism

The Bulgarian dividend withholding tax operates as a tax withheld at source by the paying company. This means the company that distributes the dividend is responsible for calculating the 5% tax, deducting it from the gross dividend, and remitting it to the National Revenue Agency (NRA). The owner receives the net amount (after the 5% deduction). The owner does not file a separate return for the dividend income if the company has correctly withheld at source.

When the Dividend Tax Rate Is 0% — The Parent-Subsidiary Directive

The EU Framework for Intra-Group Dividend Flows

One of the most powerful and underutilised tools available to internationally structured businesses with Bulgarian subsidiaries is the EU Parent-Subsidiary Directive (Directive 2011/96/EU). Under this Directive, dividends paid by a Bulgarian subsidiary to a qualifying EU or EEA parent company are exempt from Bulgarian withholding tax — the rate is 0%, not 5%.

This is not a special approval or ruling — it is the automatic application of EU law to eligible intra-group dividend flows. Bulgaria has implemented the Directive into its domestic tax law (the Corporate Income Tax Act). The withholding exemption applies when the statutory conditions are met.

Conditions for the 0% Rate Under the Parent-Subsidiary Directive

• The parent company is resident in an EU or EEA member state (for EEA countries, certain conditions additionally apply);
• The parent company is subject to corporate income tax in its EU member state of residence (tax-transparent entities do not qualify);
• The parent company holds at least 10% of the capital (shares or participation) of the Bulgarian subsidiary;
• The parent company has held that minimum 10% participation for an uninterrupted period of at least 2 years (alternatively, a bank guarantee or security can be provided to cover the tax pending completion of the 2-year period);
• The arrangement is genuine and not an artificial arrangement whose principal purpose is to obtain a tax advantage (anti-avoidance condition; applies per the Directive’s GAAR provision);
• The Bulgarian subsidiary has verified the parent’s eligibility before making the distribution and has documented the basis for applying the 0% rate.

Jurisdictions Where the 0% Rate Applies

The 0% Parent-Subsidiary rate is available for distributions to parent companies in all 27 EU member states and EEA countries (Norway, Iceland, Liechtenstein), subject to the conditions above. Some of the most commonly used structures include:

Dividend Tax for Non-Resident Owners

The Position for Non-EU Business Owners

For individual owners of Bulgarian companies who are not resident in Bulgaria and not residents of the EU or EEA, the standard Bulgarian dividend withholding tax rate is 5%. This applies regardless of the owner’s nationality or country of residence, unless a more favourable rate is available under a double taxation treaty between Bulgaria and the owner’s country of residence.

How to Apply a Reduced DTT Rate

To benefit from a reduced dividend withholding rate under a DTT, the non-resident owner must typically provide the Bulgarian company with a certificate of tax residence issued by the competent authority of their country of residence. The Bulgarian company then withholds at the lower treaty rate rather than the standard 5%. If the standard 5% was already withheld and the treaty rate is lower, the owner can apply to the Bulgarian NRA for a refund of the excess.

Dividends vs. Director’s Salary — The Practical Choice

The Most Common Question for Bulgarian Company Owners

The choice between paying oneself as a director’s salary versus distributing profits as dividends is one of the first and most important decisions for a foreign owner of a Bulgarian company. The two approaches have significantly different tax and social contribution profiles, and most experienced owners use a combination of both.

The Optimal Combination — What Most Owners Do

In practice, the most tax-efficient structure for most owners of Bulgarian companies combines:

• A modest director’s salary at or slightly above the Bulgarian minimum insured income — providing Bulgarian social insurance eligibility, creating a deductible expense for the company, and maintaining a legitimate employment basis for the ВНЖ if the owner is on a business VNJ;
• One or more annual dividend distributions of the remaining after-tax profit at the 5% withholding rate, with no social contributions.

This combination optimises the total tax burden by using the salary to create social insurance eligibility and reduce the corporate tax base, while extracting the bulk of the owner’s income as dividends at the favourable 5% rate.

Bulgaria’s Dividend Tax in the EU Context

Where 5% Sits in the European Landscape

The table below compares dividend withholding tax rates across EU member states. For context, these are the rates applicable to dividends paid to individual resident shareholders — not the intra-company rates that may be reduced by the Parent-Subsidiary Directive.

Common Mistakes Foreign Owners Make with Bulgarian Dividends

Dividend Distribution — The Correct Legal Process

Step-by-Step Compliance Checklist

• Annual financial statements approved — the company’s accountant prepares and the participant(s) approve the annual financial statements confirming the available net profit for distribution
• Participants’ resolution — the participant(s) or sole participant (EOOD) pass a formal written resolution deciding to distribute a defined amount as dividends; for OOD, the resolution is passed at a Participants’ Meeting
• Distribution amount verified — the dividend amount does not exceed the distributable profit confirmed in the approved accounts
• Withholding tax calculated — 5% of the gross dividend (or the applicable reduced rate under DTT or PSD 0% if conditions are met)
• Net dividend paid — the company pays the net amount (gross less 5%) to the shareholder’s bank account; payment from the company’s Bulgarian bank account
• Withholding tax remitted — the company remits the 5% withholding to the NRA within the applicable legal deadline
• Annual NRA reporting — the company includes the dividend distribution in its annual corporate income tax return; non-resident withholding is reported on specific NRA forms
• Shareholder declaration (if Bulgarian resident) — Bulgarian tax resident shareholders include the dividend in their annual personal income tax declaration; the 5% already withheld is credited against any personal income tax liability

Who Benefits Most from Bulgaria’s Dividend Tax Framework

The 5% dividend rate combined with 10% corporate income tax creates the greatest financial benefit for owners whose income is primarily generated through their company and extracted as dividends. The following business profiles illustrate where the advantage is most pronounced:

Frequently Asked Questions