Global Tax Alert | 6 December 2013

Bulgaria waives withholding tax on certain EU traded bond interest

  • Share

On 1 January 2014, amendments to the Bulgarian Corporate Income Tax Act will take effect. This Alert summarizes the changes relevant for multinational companies.

No withholding (WHT) on interest from certain debt instruments

No tax at source will be withheld on interest from bonds or other debt instruments issued by a Bulgarian entity and traded on an EU regulated market, regardless of the income recipient’s residency.

WHT also will not be due on interest from loans if the lender is an EU tax resident and the funds are raised by issuing bonds that are traded on an EU regulated market.

Changes to the implementation of the EU Interest and Royalties Directive

Bulgaria imposes 5% WHT on interest and royalty payments to EU residents, due to a transitional period for implementing the EU Interest and Royalties Directive. Effective 1 January 2014 this reduced rate will apply also in cases where the two-year holding requirement has not yet been fulfilled. Payments to be made after 1 January 2015 should no longer be subject to withholding provided that certain requirements are met.

Voluntary disclosure regime introduced for distribution of deemed dividend

The 20% fine on the amount of distributed deemed dividend (as defined by the Bulgarian Corporate Income Tax Act) will no longer apply if the taxpayer reports the distribution in its annual tax return. The law does not specify whether the deemed dividend reported in the return may refer to previous financial years.

Double Tax Treaty with Switzerland promulgated

The new Double Tax Treaty between Bulgaria and Switzerland has entered into force on 18 October 2013 and will become applicable as of 1 January 2014. Taxpayers currently enjoying the tax benefits of the old treaty will need to review the new set of rules and re-apply for relief under the new treaty.

EYG no. CM4027