Bulgaria Withholding Tax Guide: Royalties, Interest, and Service Fees (2026)

Withholding tax is the part of Bulgarian corporate compliance most founders underestimate. The headline corporate rate is a clean 10%, but the moment your Bulgarian company pays a foreign provider for software, interest on a loan, a brand license, or a consulting fee, a second tax may apply on top - withheld at source and paid to the Bulgarian budget by your company, not by the foreign recipient.

This is the comprehensive 2026 guide: every category, every rate, every treaty effect, and the practical filing process. Whether you are a SaaS founder paying Stripe, a holding company paying interest on shareholder loans, or a crypto business paying a foreign developer, this affects you.

What withholding tax actually is

When your Bulgarian OOD or EOOD pays certain types of income to a non-resident (a person or company outside Bulgaria), the law treats part of that payment as Bulgarian source income of the foreign recipient. Bulgaria taxes it - by requiring you to deduct the tax from the payment before sending it abroad.

You pay the supplier 90% (or 85%, or 95%, depending on the rate). The remaining 10% (or 15%, or 5%) is paid to the Bulgarian tax authority.

This is not a deduction from your corporate tax. It is a separate tax on the foreign recipient that you collect and remit on their behalf.

The default Bulgarian withholding tax rates (2026)

These apply to payments to non-residents when no double tax treaty or EU directive reduces them:

Income type	Default rate	Treaty common rate	EU directive rate
Dividends	5%	0% to 5%	0% (parent/sub)
Interest	10%	0% to 10%	0% (related EU)
Royalties (incl. software license)	10%	0% to 10%	0% (related EU)
Technical services	10%	often 0%	n/a
Management consulting fees	10%	often 0%	n/a
Rental of immovable property	10%	varies	n/a
Franchise / factoring	10%	varies	n/a
Capital gains on Bulgarian real estate / shares	10%	varies	n/a
Payments to "low tax jurisdictions"	10%	n/a (treaty not available)	n/a

A few rates are higher in narrow cases - the most important being the 10% on payments to listed low tax jurisdictions (the Bulgarian black list), which cannot be reduced by treaty because Bulgaria does not have treaties with them.

Dividend withholding: the 5% that everyone meets first

When your Bulgarian company pays a dividend to a foreign shareholder, the default rate is 5%. We covered the founder side of this in our 5% dividend tax guide, but two crucial points:

• EU / EEA companies that hold at least 10% of your Bulgarian company qualify for the EU Parent-Subsidiary Directive: 0% withholding on the dividend if the holding has lasted at least 1 year (or is held continuously after distribution).
• Individuals in EU / EEA countries pay the 5%. There is no individual exemption. The shareholder may then claim a credit in their home country under the relevant tax treaty.

For holding company structures, the Parent-Subsidiary Directive is what makes Bulgaria-as-EU-base genuinely tax efficient. Get the holding period and percentage right, document the holding properly, and the dividend flows tax free to the parent.

Royalties: where most software businesses get caught

A "royalty" in Bulgarian tax law is broader than you might think. It includes:

• Software licenses (yes - your Adobe, Figma, Notion, Slack subscriptions arguably qualify, although tax authorities increasingly accept that off-the-shelf SaaS subscriptions are services, not royalties)
• Use of trademarks, brand names, designs
• Patent licenses
• Know how, formulas, processes
• Use of industrial / commercial / scientific equipment
• Film, video, music, and broadcast rights

The default withholding is 10% on the gross payment. The EU Interest and Royalties Directive reduces this to 0% between related EU companies (25%+ holding, 2+ years), and most EU treaties cut the rate to 5% or 10%.

Practical example: Your Bulgarian agency pays EUR 5,000 a year to a US licensor for using their proprietary design templates. Default 10% withholding applies = EUR 500. The US-Bulgaria treaty caps royalties at 5%, so with the right paperwork (form 1 or 1A application, plus US Form 6166 residency certificate) you pay USD 250 and the licensor receives the rest.

Where founders mess this up: they pay the full invoice, fail to withhold, and three years later face a tax assessment for the 10% they should have deducted plus interest and penalties. The liability is on the Bulgarian payer, not the foreign recipient.

Interest: shareholder loans and intercompany debt

Interest paid by a Bulgarian company to a non-resident lender has 10% default withholding, reduced to 0% for related EU companies under the Interest and Royalties Directive (subject to the same 25% / 2 year conditions).

Two things to watch:

1. Thin capitalisation rules. Bulgaria limits interest deductibility when your company''s debt to equity ratio exceeds 3:1 with related party debt. Excess interest is not deductible from corporate tax (but is still subject to withholding). Plan shareholder loans with this in mind.
2. Transfer pricing. Interest rates on intercompany loans must be at arm''s length. Tax authority benchmark for shareholder loans typically tracks 3 month EURIBOR plus a margin reflecting credit risk - usually 2% to 5% in 2026.

Service fees: the most contested area

Bulgaria withholds 10% on certain service fees to non-residents:

• "Technical services" (a broad and contested category)
• Management services
• Consulting services
• Engineering services

Most EU and OECD double tax treaties exempt service fees from source country withholding entirely, treating them as business profits taxable only where the provider is resident. This is the most common treaty relief used in practice.

Example: Your Bulgarian e-commerce company pays a German consultant EUR 8,000 for a 3 month engagement. Bulgaria-Germany treaty puts business profits at the consultant''s residence - 0% withholding, provided you obtain the consultant''s German tax residency certificate and file the treaty relief application before payment.

Without the residency certificate, you must withhold 10%. And the supplier will, fairly, insist you gross up.

How treaty relief actually works

Bulgaria has signed double tax treaties with about 70 countries. To apply a reduced or zero rate, the recipient must prove residence in the treaty country. The process:

1. The foreign recipient obtains a tax residency certificate from their home tax authority. Valid for 1 year typically.
2. Your accountant files an Application for Treaty Relief with the Bulgarian National Revenue Agency (NRA) - Form 1 or 1A depending on payment size.
3. For payments under BGN 500,000 per year, the treaty rate can be applied immediately on filing (no pre-approval needed).
4. For payments over BGN 500,000 per year, you need a positive NRA ruling before applying the reduced rate.
5. Without the paperwork, you withhold the full 10% (or 5% for dividends). The recipient can later reclaim, but the process is slow.

This is procedural work your accountant should handle automatically as part of tax compliance.

EU directives override treaties (in your favour)

For payments between related EU / EEA companies, two directives can eliminate Bulgarian withholding entirely:

• Parent-Subsidiary Directive: 0% on dividends when the EU parent holds 10%+ for 1+ year
• Interest and Royalties Directive: 0% on interest and royalties between EU associated companies (25%+ holding, 2+ years)

These are stronger than any treaty - no withholding at all rather than a reduced rate. For groups structuring a Bulgarian operating subsidiary under an EU holding company, these directives are the foundation of the structure.

Filing and payment timeline

• Withholding is due by the end of the month following payment.
• Filed with quarterly returns (form for "Tax on income of non-resident persons").
• Annual reconciliation in the corporate tax return.
• Late payment: monthly interest at the Bulgarian central bank base rate + 10 percentage points (about 13% annualised in 2026).
• Failure to withhold: the full unwithheld tax becomes payable by the Bulgarian company, plus interest, plus a fine of up to BGN 6,000 per missed transaction.

The black list: payments to "low tax jurisdictions"

Bulgaria publishes a list of jurisdictions with "preferential tax regimes" - effectively a black list. Payments to entities in these jurisdictions are subject to 10% withholding with no treaty relief available. The list changes periodically and includes most classic offshore centres (BVI, Cayman, Bermuda, Seychelles, etc.) plus a few unexpected entries.

If your supply chain includes a payment to a company in a black list jurisdiction, build the 10% withholding into the contract from day one. Negotiate the price so the net to the supplier is what they need.

Practical checklist for every cross border payment

Before your Bulgarian company pays a non-resident:

1. Classify the payment. Is it a royalty, interest, service fee, or pure goods supply? Pure goods - no withholding. Anything else - check the table.
2. Identify the recipient''s tax residence. Get this in writing on the invoice.
3. Check the treaty rate. If lower than the Bulgarian default, plan to apply treaty relief.
4. Obtain a tax residency certificate from the recipient before the first payment.
5. For related EU companies: check whether an EU directive gives you 0%.
6. Document the holding if applying the Parent-Subsidiary Directive (cap table, board minutes, holding period).
7. Withhold and pay by the end of the following month if no relief applies.
8. File quarterly.

Get this routine wrong and your "10% Bulgarian tax" structure quietly becomes a 15% to 20% effective rate by leakage. Get it right and Bulgaria sits comfortably at the bottom of the EU tax cost table.

Summary

• Default rates: 5% on dividends, 10% on everything else.
• EU directives reduce qualifying related party flows to 0%.
• Treaties reduce most service fees to 0% and most royalties / interest to 5% or 10%.
• The Bulgarian company is liable, not the foreign recipient.
• Documentation (residency certificate, treaty relief application) is what unlocks the lower rate.
• Always plan payments to black list jurisdictions with the full 10% baked in.

If you''re structuring a payment flow that touches multiple countries and want a second opinion before signing the contract, book a 30 minute call. For ongoing handling of withholding, treaty applications, and quarterly filings, our tax and compliance service covers it.

Related reading

• Bulgaria''s 10% Corporate Tax Explained
• Bulgaria''s 5% Dividend Tax: How EU Founders Use It
• Bulgarian Holding Company Structures for EU Founders
• Bulgaria vs Estonia e-Residency Comparison
• Bulgaria Company Annual Costs (Year 2+)
• Substance Requirements for Bulgarian Companies