In this article, we will look at how Bulgarian companies and their owners can prepare in advance for a potential increase in the dividend tax from 5% to 10%. In such a case, timely profit distribution can lead to significant savings and improved financial planning. 💼
Understand how dividend distribution works in Bulgaria today
In Bulgaria, dividends are distributed after the end of the financial year and following the approval of the annual financial statements by the company’s owners. There is also an option to distribute interim dividends based on current profits, provided that the accounting records allow it. For any dividend distribution, the following is required:
- a formal decision by the sole owner or the General Meeting of shareholders;
- sufficient profits confirmed by accounting records;
- no legal or contractual restrictions.
Currently, the dividend tax in Bulgaria is 5% and is withheld by the company when payments are made to individuals. The company is obliged to remit this tax to the state budget within the statutory deadline and to declare it to the National Revenue Agency (NRA).
What should you consider before the tax potentially increases?
If you have accumulated profits from previous years, distributing them at the current 5% tax rate may give you a real financial advantage. If the rate is doubled, the net amount you receive as an owner will be significantly lower. Before proceeding with distribution, you should:
- make sure your accounting records are complete and accurate;
- ensure there are no unresolved adjustments;
- confirm that the company has no outstanding public liabilities;
- verify that there are no accumulated losses that legally restrict distribution.
Don’t forget the upcoming BGN to EUR transition
The upcoming transition from the Bulgarian lev to the euro is also a factor that should not be underestimated. If you distribute dividends now, you will receive the amount in BGN, which will later be converted into EUR. If you wait, the payment will most likely be made directly in EUR, but at a higher tax rate. This means you need to analyze two effects at the same time:
- the tax effect (5% vs. 10%);
- the currency conversion effect.
Professional tax assessment is strongly recommended to avoid losses resulting from sub-optimal decisions.
When Is Dividend Distribution Risky or Not Advisable?
| Situation | Risk | Recommended Action |
|---|---|---|
| Accounting not finalized | Profit incorrectly calculated | Finalize all reports before distribution |
| Outstanding tax liabilities | Account seizure or blocked payments | Settle all public liabilities |
| Expected tax audit | Payments may be frozen | Wait until the audit is completed |
| Transition to the euro | Loss from currency conversion | Plan timing based on the fixed exchange rate |
| Contractual restrictions | Breach of contract terms | Consult an accountant or lawyer |
| Accumulated losses | Illegal distribution | Cover losses before paying dividends |
| Missing formal resolution | Invalid payment | Prepare shareholder decision or meeting minutes |
How Can T8G Consulting Assist You?
The T8G Consulting team provides comprehensive advisory services in relation to:
- determining the optimal timing for profit distribution;
- preparing dividend documentation;
- assessing risks related to tax changes;
- currency planning for the transition to the euro;
- communication with the National Revenue Agency and regulatory authorities.
We do not just process documents — we help you make informed and strategic decisions for the future of your business.
Contact us if you are looking for reliability, accuracy, and full tax compliance in your cross-border operations. For useful and engaging insights, visit our partners’ channel!