Bulgaria: euro adopted without giving up the flat tax

The lev has been pegged to the euro through a currency board since the nineties. This mechanism fixes the parity and in practice removes currency risk for a budget denominated in euros.

A foreign resident receiving income in euros was therefore already, in effect, living in a euro economy. The formal changeover does not change their situation in this respect.

What changes lies elsewhere: in monetary policy, access to European mechanisms, interest rates, and the conversion effects on prices observed during previous changeovers.

We publish neither the adoption date, nor the official conversion rate, nor the arrangements for dual price display: we have not been able to verify them in an up-to-date official source.

This difference from Romania is worth emphasising, as the two countries are so often compared on tax alone: the Romanian leu floats, the Bulgarian lev does not.

One indirect effect is nevertheless worth noting for a resident: membership of the euro area gives access to the single market's payment and credit instruments on the same terms as in other member states, which the currency board peg did not fully guarantee.

Article 48 of the Bulgarian law sets the rate applicable to the general annual tax base at 10%¹. The tax is flat, with no progressive scale and no general tax-free band.

This rate is part of the general law and applies to the whole population. It is neither time-limited nor conditional on recent arrival — a fundamental difference from the Portuguese, Italian or Greek regimes.

Nothing in the adoption of the euro requires it to be changed. European tax harmonisation is progressing, but it concerns corporate tax and value added tax, not personal income tax.

Dividends are subject to a final withholding tax of 5%², and Article 13 exempts income from the disposal of financial instruments as defined by law, at a rate of 0%³.

For an employee, the personal rate is the main burden. For an entrepreneur, it describes only part of the situation: they receive distributed profit, and the cost combines corporate tax and then the withholding tax on distribution.

We publish neither the Bulgarian corporate tax rate nor social contribution rates: they do not appear in the extracts available to us, although they are essential to this calculation.

Bulgarian law also treats as resident a person who has a permanent address in Bulgaria, who stays there for more than 183 days⁴ over twelve months, or whose centre of vital interests is there.

This last criterion is expressly provided for in the law, and it deprives purely formal relocations of any effect. A permanent address is not enough if one's life remains elsewhere.

• The currency board already removed currency risk: the euro changes little for a resident.
• The 10%¹ rate is part of the general law, and therefore more stable than a tax incentive regime.
• An entrepreneur's real cost combines corporate tax and the withholding tax on dividends.
• The centre-of-vital-interests criterion deprives a purely formal address of any effect.
• The exemption for disposals of financial instruments is strictly defined and does not extend by analogy.

In return for these advantages, one must set out what Bulgaria does not offer: an underfunded public healthcare system, slow administration, and international schooling concentrated in Sofia. The country suits a mobile self-employed person with modest needs for public services, and much less a family looking for the equivalent of what it is leaving behind.