Bulgaria risks becoming one of the EU countries with the highest tax burden for outsourcing and IT

Bulgaria is the only one in the EU that has introduced a global tax of 15% on large local and multinational corporations, but has not allowed all the reliefs to be used. This inevitably affects foreign investment in the country.

KEY FACTS

• Bulgaria is the only one in the EU that has introduced a national additional tax, but has not accepted the exception for smaller cases “de minimis”.
• In addition, our country is the only one in the EU that has introduced a national additional tax, but has not allowed full relief for economic activity, according to a report by the Expert Club for Economics and Politics (EKIP).

EXPERT OPINION

“This will make doing business in Bulgaria much more expensive without the need for it. The idea of ​​this type of legislation, although not very useful for Bulgaria, is to avoid tax competition between different jurisdictions. The effect is that you are tripping up your own business. There are several large companies that will pay higher taxes without needing to. There will be a higher price for end users, fewer jobs. This will make Bulgaria a worse destination for foreign investments,” Stoyan Panchev, one of the report’s authors, told Forbes.

ACCENT

Bulgaria risks becoming one of the countries in the EU with the highest level of effective tax burden for the service sector and especially outsourcing and IT. From a country with not too high taxes for this type of service, Bulgaria is becoming one with the highest taxes. In this way, we significantly increase taxation for the IT and outsourcing sector, commented Panchev. The result is a decline in the competitiveness of this sector in our country. The risk is that this becomes a trend and we see a write-off of this type of investment.

WHY THIS IS IMPORTANT

The substantial business exemption is a key element of the global minimum tax system, thus distinguishing real business from artificial tax schemes. One of these exceptions has already been accepted – to prove the existence of a certain production inside the country. The other has yet to be accepted – it is related to the number of workers and proves that the state is not being used as a tax haven.

The “de minimis” exception would help smaller enterprises located in Bulgaria, which are part of large groups, not only to have a greater effective tax burden, but also to incur unnecessarily greater administrative costs in complying with tax rules . This omission puts the country in a disadvantageous situation in terms of attracting foreign investments and stimulating the leading Bulgarian industrial groups to international expansion.

KEY STORY

The global minimum tax rules were introduced late last year, after a cumbersome legislative process and a lack of open public debate.

These rules came into force under Directive 2022/2523, although the document allows EU countries where no more than 12 ultimate parent companies of large multinational or domestic groups are located to defer implementation of the rules.

The rate in Bulgaria of 10% is one of the lowest in the world. The only country with a lower nominal rate is Hungary – with 9%. In this way, at least apparently, it seems that the level of corporate taxation in our country is very low. However, this is inconsistent with the level of the effective corporate tax burden, as different countries have different rules for determining the tax base and different tax relief policies.