Dividends and liquidation shares distributed by local entities for the benefit of foreign legal entities and local entities that are not traders are subject to withholding tax. The same applies for income of foreign legal entities which is from a source in Bulgaria, when it is not generated through a permanent establishment in the country. Withholding tax is not levied on income from disposal of financial instruments.
The rate of income tax on dividends and liquidation quotas is 5%. The rate of income tax on income of foreign legal entities which is from a source in the country is 10%.
Persons that have withheld and paid withholding tax and those that have accrued income are obliged to submit a tax return.
Foreign entities in their capacity as taxpayers are given the choice of recalculation and subsequent recovery of the withholding tax in Bulgaria. The amount of tax refund is the difference between the tax paid by the foreign entity for the income from source of and corporate tax rates which would be payable if the benefits are received by local entities.
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