One of the most common questions entrepreneurs ask when running a company in Bulgaria is:
Should I pay myself a salary or take dividends?
At first glance, this may seem like a simple accounting choice. In reality, it has a significant impact on:
- taxes
- social security contributions
- cash flow
- long-term financial planning
Bulgaria is known for its relatively simple and competitive tax system, but there are still important nuances to consider.
How Owner Salary Works in Bulgaria
Company owners and managers can receive compensation in several ways:
- management contracts
- employment contracts
- self-employment income (as a self-insured person)
In all cases, this results in a monthly salary, which is subject to:
- personal income tax (10%)
- social security contributions
- health insurance contributions
Key Advantages of Salary
- Provides regular monthly income
- Grants access to social benefits (pension, healthcare, sick leave, maternity, etc.)
- Is treated as a company expense, reducing corporate profit
For many business owners, especially those without other insured income, this is an important factor.
How Dividends Work in Bulgaria
Dividends represent a distribution of company profits to shareholders.
They can only be paid after:
- the financial year is completed
- the company has generated profit
In Bulgaria:
- corporate tax = 10%
- dividend tax = 5%
This relatively low dividend tax often creates the impression that dividends are always the better option.
However, it’s important to note: profits are already taxed at 10% before dividends are distributed
So the effective total tax is higher — although still competitive compared to many EU countries.
The Core Difference
The main difference between salary and dividends lies in social security contributions.
Salary
- subject to social contributions
- reduces company profit
- paid monthly
- provides social security rights
Dividends
- no social contributions
- paid from after-tax profit
- no guaranteed monthly income
- no social benefits
The decision is essentially a balance between:
- tax efficiency
- financial stability
- social security
When Salary Makes More Sense
Salary is often the better option in the following situations:
1. You rely on social security benefits
If you plan for maternity leave, sick leave, or pension — insured income matters.
2. You want predictable monthly income
Salary provides stability regardless of company performance.
3. Your company is not consistently profitable
Dividends can only be paid from profit — salary can be paid regularly.
4. You want to reduce taxable profit
Salary is a legitimate business expense.
When Dividends Are More Efficient
Dividends are often preferred when:
1. The company is profitable and stable
Consistent profits allow flexible distributions.
2. You already have social security coverage elsewhere
(for example, in another company or country)
3. You aim for lower overall tax burden
Dividends avoid social contributions.
4. You want flexibility in cash extraction
You decide when and how much to distribute.
Common Mistakes to Avoid
Many entrepreneurs make the mistake of withdrawing funds without a clear structure, for example:
- treating personal expenses as company costs
- taking undocumented loans from the company
These practices may be reclassified as hidden profit distribution, leading to:
- additional taxes
- penalties
- audits
The key is to extract funds legally and transparently:
- salary
- dividends
- or a structured combination of both
The Most Practical Approach: A Combination
In practice, the most efficient model is usually a combination of salary and dividends.
A common approach:
- maintain a reasonable salary to ensure social security
- distribute remaining profits as dividends
This allows you to:
- balance tax efficiency
- maintain financial stability
- optimize long-term planning
No One-Size-Fits-All Answer
Every company is different:
- structure
- revenue levels
- growth plans
- international exposure
That’s why there is no universal answer. The right strategy depends on your specific situation.
Think Beyond Taxes — Build a Sustainable Structure
Choosing between salary and dividends is not just about paying less tax. It’s about building a sustainable financial structure that supports:
- your business growth
- your personal financial security
- long-term stability
With the right planning and professional advice, this decision can make a significant difference.
How We Approach This at Anagami
At Anagami, we don’t look at this as a simple accounting question. We treat it as part of a broader strategy:
- tax optimization
- cash flow planning
- international structuring
- long-term business growth
Because the goal is not just to optimize today. It’s to build a structure that works as your business scales.
