The anticipated increase in Bulgaria’s dividend tax from 5% to 10% is one of the most discussed fiscal changes for 2025–2026. Although the legislative process is not yet finalized, the strategic impact on foreign investors and business owners is already evident. Bulgaria is known for one of the lowest tax burdens in the EU. This includes a flat 10% corporate income tax and a 5% withholding tax on dividends. Any change to this structure directly affects profit planning, cash extraction, and ownership strategies. 💼
What Is the Current Dividend Tax Regime in Bulgaria?
Bulgaria currently imposes a 5% final withholding tax on dividends distributed to individuals, including non-resident shareholders. This tax is due at the moment of distribution, not when profit is earned. Key features of the current regime:
- 5% tax at distribution, regardless of residency;
- Applies to both domestic and foreign shareholders;
- The company withholds and remits the tax upon payment.
Comparative context:
Countries like Germany, France, and Italy impose dividend taxes exceeding 25–30%, making Bulgaria attractive. Even with a potential increase to 10%, Bulgaria remains competitive—though no longer without risk.
The next section explains what’s being proposed and how it may affect you as a foreign investor.
What Exactly Is Being Proposed?
The draft budget for 2026 includes a proposal to increase the dividend tax rate from 5% to 10%. While the law is not yet enacted, the fiscal direction is clear: increased revenue through capital gains taxation. Financial impact:
| Distributed Dividends | At 5% Tax Rate | At 10% Tax Rate | Difference |
|---|---|---|---|
| €100,000 | €5,000 | €10,000 | €5,000 |
| €200,000 | €10,000 | €20,000 | €10,000 |
| €500,000 | €25,000 | €50,000 | €25,000 |
Important: If enacted in 2026, dividends paid by the end of 2025 would still be taxed at the current 5% rate.
The next section outlines strategic actions for business owners in Bulgaria.
What Should Foreign Business Owners Do?
Question:
Should you distribute dividends before 2026?
Answer:
Yes, if you want to benefit from the lower 5% tax rate. If you have retained earnings, it may be wise to distribute them before the new tax takes effect.
Factors to consider when making the decision:
- Size of undistributed profit;
- Personal tax obligations in your home country;
- Plans for reinvestment in Bulgaria;
- Access to funding outside of dividends;
- Preferred currency of future distributions (BGN vs EUR).
Examples of strategic actions:
| Strategy | Advantage | Potential Risk |
|---|---|---|
| Distribution in 2025 | Lower tax (5%) | Currency exposure (BGN) |
| Deferral until 2026 | Denominated in EUR | Higher tax rate (10%) |
| Reinvestment | Tax deferral | No personal income |
| Partial distribution | Balanced tax exposure | More complex reporting |
| Use of holding company | Tax optimization option | Jurisdiction-dependent rules |
The next section explores how the upcoming euro adoption may influence dividend distributions.
How Will Bulgaria’s Euro Adoption Affect Dividends?
Bulgaria plans to adopt the euro (EUR) in the coming years. Despite the fixed exchange rate, the process involves banking, operational, and accounting adjustments, which can influence:
- The currency of dividend payouts (BGN → EUR);
- Tax base calculation and documentation;
- Timing of distributions.
Example:
If dividends are paid in 2025, they will be received in BGN. If distributed in 2026–2027, they will likely be paid in EUR, but possibly at the higher 10% rate. Dividend planning must be coordinated with your FX strategy. The following section explains why proper documentation is now more critical than ever.
What Is Required for Full Tax Compliance?
With increased scrutiny from the Bulgarian National Revenue Agency (NRA), accurate documentation for dividend payments is essential. Every distribution must be supported by. Mandatory documents:
- Approved annual financial statements;
- Shareholder or general assembly resolutions;
- Proof of tax withholding and payment;
- Up-to-date shareholder register.
Incomplete documentation can result in:
- Delays in dividend payouts;
- Tax penalties and fines;
- Higher audit exposure.
The table below summarizes strategic options and their implications.
Dividend Tax Strategy Table for 2025–2026
| Scenario | Tax Rate | Currency Impact | Strategic Advantage |
|---|---|---|---|
| Distribute in 2025 | 5% | Paid in BGN | Lowest tax burden |
| Distribute after 2026 | 10% | Likely in EUR | Accounting clarity |
| Reinvest profits | Deferred tax | No FX exposure | Increased liquidity |
| Partial distribution | Optimized effect | Mixed exposure | Flexibility |
| Holding company structure | Jurisdictional | Cross-border tax | Potential tax efficiency |
What Should You Remember?
Question:
Is this tax increase merely a technical adjustment?
Answer:
No. This is a strategic change that affects ownership behavior, profit structures, and long-term business value.
Top 3 priorities for business owners:
- Build updated financial models under the new tax scenarios;
- Time dividend distributions alongside FX strategy and tax changes;
- Ensure full legal and accounting compliance.
Bulgaria remains a strong jurisdiction, but the new rules require precise tax planning and full regulatory alignment.
T8G Consulting supports foreign entrepreneurs in Bulgaria with strategic clarity, full tax compliance, and precise financial planning. Whether you’re preparing a dividend distribution, building a holding structure, or optimizing your EU presence — we provide actionable solutions based on expertise, real results, and current legislation.
Contact T8G Consulting today to prepare your business for what’s next — with no surprises. For more practical insights, visit our partners’ channel for updates and business intelligence.
❗ This content provides general information and does not constitute tax, accounting, or legal advice. Each situation is different and should be reviewed individually.