Bulgaria's 5% Dividend Tax: How EU Founders Use It

The flat 5% rate

When a Bulgarian company distributes profit to an individual shareholder, withholding tax is a flat 5% — whether the recipient is Bulgarian, another EU national, or non-EU. There are no progressive brackets and no surcharges.

When dividends are 0%

Under the EU Parent-Subsidiary Directive, dividends paid to an EU/EEA-resident company that owns at least 10% of the Bulgarian company for at least 1 year are exempt from Bulgarian withholding tax. This makes Bulgarian operating companies excellent subsidiaries inside a holding structure.

When dividends are higher

• Non-EU corporate shareholder, no treaty: 5% (still low)
• Resident in a "preferential tax regime" jurisdiction (Bulgarian blacklist): 10%

Mechanics of distribution

1. Approve annual financial statements at a shareholders' meeting
2. Resolve to distribute profit (specify amount)
3. Withhold 5% and pay to the NRA by the end of the month following distribution
4. File the declaration under Art. 55 CITA quarterly

You can distribute interim dividends during the year as long as the company has retained earnings and remains solvent — many founders draw monthly or quarterly.

How it compares across the EU

Country	All-in tax on €100 of pre-tax corporate profit distributed to founder
Bulgaria	€14.50
Estonia (distributed)	€22.00
Cyprus (non-dom)	€12.50
Ireland	€40+
Germany	€48+
France	€43+
Spain	€40+

Pitfalls

• Treaty shopping through letterbox EU parents is increasingly challenged by Bulgarian tax authorities under PPT (principal purpose test) rules
• Constructive dividends — personal expenses paid by the company can be reclassified, adding 5% plus penalties
• Capital reduction is sometimes used to extract profit at 0%, but it's a regulated procedure, not a workaround

Bottom line

5% is the lowest non-zero dividend rate in the EU, and combined with the 10% corporate rate it delivers an all-in burden few jurisdictions can match. Plan distributions deliberately, withhold on time, and the system runs smoothly.