I own a property abroad. What obligations do I have in Bulgaria?

            In this article, we will examine, from a tax perspective, what reporting and payment obligations may arise for an individual who is resident in Bulgaria in relation to property owned abroad.

            What does it mean for a natural person to be resident in Bulgaria? According to Article 4 of the Personal Income Tax Act (PITA), a resident natural person, irrespective of nationality, is a person who:

1. who has a permanent address in Bulgaria, or

2. who stays in Bulgaria for more than 183 days in any 12-month period, or

3. which has been sent abroad by the Bulgarian State, its authorities and/or organisations, or by Bulgarian enterprises, and by members of his or her family, or

4. whose centre of vital interests is in Bulgaria.

            For the purposes of point 4, the centre of vital interests is deemed to be in Bulgaria where the person’s interests are closely linked to the country. In determining these, account may be taken of the person’s family, property, the place from which the person carries out their employment, professional or business activities, and the place from which they manage their property. A person is not a resident individual if they have a permanent address in Bulgaria but the centre of their vital interests is not situated in the country.

            As can be seen from the provision cited, the criteria on the basis of which a natural person is deemed to be resident are listed as alternatives, i.e. it is sufficient for the individual to fall within one of the scenarios set out above to be regarded as a resident within the meaning of Bulgarian law. It must be determined whether the individual’s interests are closely linked to the country. To this end, the following are subject to examination: the location of the person’s family and property, the place from which the person carries out their employment, professional or business activities, and the place from which they manage their property. Account must be taken of the person’s family and social ties, their commitments, political, cultural or other activities, the location of their business, the place from which they manage their assets, and so on. The circumstances must be examined in their entirety, with particular attention being paid to considerations relating to the person’s personal conduct.

            Under Article 2 of the Income Tax Act, the income of both Bulgarian and foreign individuals is subject to taxation under this Act.

            Pursuant to Article 8(10) of the Income Tax Act, income arising from the use, sale, exchange or other transfer of immovable property, including a share in such property or a limited right in rem over it, situated within the territory of the country, is deemed to be from a source within the country.

            Under Article 13(1) of the Income Tax Act, income derived during the tax year from the sale or exchange of the following is not taxable:

1) a residential property, provided that more than three years have elapsed between the date of acquisition and the date of sale or exchange;

2) up to two properties, as well as agricultural and forestry land, regardless of the number, provided that more than five years have elapsed between the date of acquisition and the date of sale or exchange.

            This provision applies to local individuals, including where the income is derived from abroad.

            Pursuant to Article 50(1)(4) of the Income Tax Act, resident individuals must submit an annual tax return using the prescribed form to declare the shares and equity interests they hold in companies, places of business, designated bases and immovable property abroad.

            Pursuant to Article 52(1), point 3 of the Income Tax Act, in conjunction with Article 50a of the Income Tax Act, non-taxable income is not subject to mandatory declaration in the Annual Tax Return under Article 50 of the Income Tax Act (ATR). Resident individuals may declare in the Annual Tax Return the income acquired during the year which is exempt from tax under this Act, the income subject to final tax under Article 38 and/or subject to alternative tax under Chapter Seven ‘a’, property received by way of inheritance, bequest or gift, as well as property received through the restoration of ownership rights in accordance with the provisions of a legislative act.

            Under the Income Tax Act, when determining the tax liabilities of persons in cases of transactions between related parties, transactions concluded under terms whose fulfilment results in tax avoidance, and the application of arm’s length prices, transfers linked to a specific base, as well as interest on finance leases, the provisions of the Corporate Income Tax Act aimed at preventing tax avoidance shall apply accordingly.

            Bulgaria has signed double taxation agreements (DTAs) with other countries, which should also be taken into account when determining tax liabilities. Pursuant to Article 75 of the Income Tax Act, where a tax treaty or other international agreement ratified by the Republic of Bulgaria, which has been promulgated and has entered into force, contains provisions which differ from the provisions of this Act, the provisions of the relevant tax treaty or agreement shall apply.

            That was the theoretical part. What does that mean in practice?

You have bought a property abroad

            Let us assume that you are a natural person who is resident in Bulgaria (for example, because the centre of your vital interests is in Bulgaria). In 2023, you purchased a property abroad.

            You are required to declare ownership of this property in the ‘Real Estate’ section of Part II of Annex No. 8 ‘Shares held, equity interests in companies, place of business, fixed base and immovable property abroad’ of the Annual Tax Return (ATR) under Article 50 of the Income Tax Act for 2023. Ownership must be declared.

Part II – Information on places of business, designated bases and immovable property abroad held as at 31 December of the tax year

		Country	Address	Type	Date and year of acquisition (dd/mm/yyyy)
Place of business
Specified base
Real estate	1
	2
	3
	4
	5

            Let us assume that in 2023 you received income from letting this property. The local legislation of the country in which the property is situated, the Double Taxation Agreement with that country (if one exists) and the Income Tax Act must be applied. Generally speaking, rental income will be taxable in the country where the property is situated, and you will declare and pay the tax there. In order to apply the Double Taxation Agreement, you should obtain a certificate of declared and paid taxes from the local tax authority where the property is situated. As a resident of Bulgaria, you should complete Annex No. 9 ‘Application of methods to avoid double taxation for income declared in Annexes Nos. 1, 2, 3, 4, 5 and 6’ in the Annual Tax Return for 2023.

            Similarly, for each subsequent year, you should declare your ownership of the property for as long as you own it, and any rental income, if applicable.

You have sold a property abroad

            Similarly to what is described above, the local legislation of the country in which the property is situated, the double taxation agreement with that country (if any) and the Income Tax Act should be applied.

            Under Bulgarian law, if the documented sale price of the property is lower than the documented purchase price, there is no taxable income. If the documented selling price of the property is higher than the documented purchase price, the taxable income is the positive difference between the selling price and the purchase price.

            This positive difference between the selling price and the purchase price may be tax-exempt in the country where the property is situated and taxable in Bulgaria. In this case, you should enter code 501 or code 502 in Part I of Appendix No. 5, ‘Income from the transfer of rights or property’, of the Annual Tax Return for the relevant year.

Part I – Calculation of taxable income

Table 1

№	Code		Selling price	Acquisition cost	Positive difference (col. 3 – col. 4 > 0)	Expenses (col. 5 × 10% – only for income with codes 501, 502 and 505)	Partial payment received during the year (only for income with codes 502 and 504)	Lease payments received during the year (only for income with code 505)	Taxable income 1. (line 5 – line 6); or 2. (line 5 – line 6) × (line 7 : line 3) – for income with code 502; or 3. (cell 5 × (cell 7:cell 3)) – for income with code 504; or 4. (cell 5 – cell 6) × (cell 8:cell 3) – for income with code 505
1	2		3	4	5	6	7	8	9
1
2
3
4
5
6
7	Total taxable income for the property as per Table 1 (the sum of the amounts shown in column 9)
Code		Type of income:							Expenses
501		Income from the sale or exchange of immovable property, including limited rights in rem over such property							10 per cent
502		Income from the sale or exchange of immovable property, including limited rights in rem over such property, where the sale price is paid in instalments across different tax years
503		Income from the sale or exchange of movable property (road, air and water transport vehicles; works of art, collectors’ items and antiques)							x
504		Income from the sale or exchange of movable property where the sale price is paid in instalments in different tax years
505		Income from the provision of property under a lease agreement which expressly provides for the transfer of ownership of the property							10 per cent
506		Income from the sale of items pursuant to Article 27(5) of the Income Tax Act – in this case, the market price of the item is stated in column 3, and in column 4 – the tax value (for tax-depreciable assets under the Corporate Income Tax Act) or the documented acquisition price (for items that are not depreciable assets under the Corporate Income Tax Act)							x
507		Income from the transfer of a sole trader’s business with deregistration – in column 3, the sale price specified in the contract is entered, and in column 4, the equity of the sole trader’s business

            The positive difference between the sale price and the purchase price may be taxable in the country where the property is situated and taxable in Bulgaria. If this difference is taxed in the country where the property is situated and a double taxation agreement applies, then, as a resident of Bulgaria, you should complete Annex No. 9 ‘Application of methods to avoid double taxation for income declared in Annexes 1, 2, 3, 4, 5 and 6’ of the Annual Tax Return for the year in which the sale took place and the proceeds were received.

            If this positive difference between the selling price and the purchase price is not subject to tax in the country where the property is situated or in Bulgaria, you may enter code 501 or code 502 in Part II of Appendix No. 13 ‘Non-taxable income, income subject to final tax under Article 38 of the Income Tax Act, with the exception of that listed in Annex No. 8, and property received by inheritance, bequest, gift or through the restoration of ownership rights in accordance with a statutory act’ in the Annual Tax Return for the relevant year.

Part II: Tax-exempt income from the transfer of assets acquired during the year

Code	Type of income:	Gross amount of income	Acquisition cost
1	2	3	4
501	Income from the sale or exchange of immovable property, exempt from tax pursuant to Article 13(1)(1) and/or (26) of the Income Tax Act
502	Income from the sale or exchange of immovable property, where the sale price is paid in instalments in different tax years, exempt from tax pursuant to Article 13(1)(1) and/or (26) of the Income Tax Act
503	Income from the sale or exchange of movable property (including road, air and water transport vehicles; works of art, collectables and antiques, etc. other than those specified under codes 504–5081), exempt from taxation pursuant to Article 13(1)(2) and/or (26) of the Income Tax Act
504	Income from the sale or exchange of movable property, where the sale price is paid in instalments across different tax years, exempt from taxation pursuant to Article 13(1)(2) and/or (26) of the Personal Income Tax Act
508	Income from the sale or exchange of shares, units, compensation instruments, investment certificates and other financial assets, exempt from taxation pursuant to Article 13(1)(5) and/or (26) of the Income Tax Act, with the exception of income under code 5081
5081	Income from the disposal of financial instruments, exempt from tax pursuant to Article 13(1)(3) of the Income Tax Act
510	Compensation for the compulsory expropriation of property for state and municipal purposes, exempt from taxation pursuant to Article 13(1)(12) of the Income Tax Act
Note: In cases of sale, exchange or other transfer for consideration of more than one item of property under the relevant code, the total amounts shall be entered in columns 3 and 4.

            It should be noted that there is an automatic exchange of information between the Member States of the European Union (EU). Under the Income Tax Act, undertakings and self-employed persons within the meaning of the Social Security Code – as payers of income – must provide the National Revenue Agency (NRA) with information on income from rent or other provision of immovable property for use in return for payment, accrued and/or paid to natural persons resident in another Member State of the European Union. Similar provisions exist in the legislation of other Member States.

            The Income Tax Act provides for fines or financial penalties for any person who fails to submit a tax return by the deadline, or who omits or misrepresents information or circumstances in a tax return.