Bulgaria vs Romania for a freelancer

[Bl4ckJackk]

Hi guys. My situation is the following:
- IT freelancer in mid EU (poor country though)
- plan to make about 20k euro a month
- total taxes where I live will be about 30%, not worth for what the country provides.
- 95% of what I make I invest into stocks, crypto, p2p loans, and once I become accredited also a lot of private equity. So after paying 30% in taxes on my sole proprietor income I once again have to pay about 15% on the profits from investing.

I am looking for an EU country to relocate to to minimize my tax burden, and so far, the best options seem to be Bulgaria and Romania.

Romania:
I would have a microcompany, where I would be also employed for a minimum salary. This should be like 2 or 3% for yearly corporate tax (+ some deductions form salary) and if I want to extract the money, then another 8% so total like 11% I think.
But of course if I reinvest the profits, I don't have to pay the 8%. The turnover is capped at 500k but I can have multiple companies.

Bulgaria:
I would be a freelancer, so no separate company. The taxes add up to about 9% and the more you make the lower they are up to like 7,5% min.
I would have to pay that on my turnover every year, then I can invest the money that's left and the profits from investing would be taxed at 5% for dividends and 10% capital gains and interests. Not bad, and also simpler than having a company.

So my question is, if any of you had contemplated any of these approaches, went for one of them and why?
The Bulgarian route seems easier for me, also I could live by the sea. And the total tax burden would be 9% + 5 to 10% so around 15% total.
But could I use the Romanian microcompany to invest in various assets and just claim that this is also my area of business and the profits from investing would then be taxed as business income with that 1%? That could really move the scales, does anyone know how that works? I would be able to accumulate wealth with about 1-2% tax and then after like 10+ years I could either pay the 8% on dividends if I want to extract the money or maybe there would be some other method to make the dividends zero, using some other strategies etc...

So Romania seems better, but Bulgaria seems easier, also a lot depends on if I can just claim all profits from investing as a business activity and tax it as business income and not as capital gains and so on...

To close, if any of you have personal experience with any person or company that specializes in the whole relocation and tax package in either Romania or Bulgaria, I would be grateful for the contacts or recommendations.
Thanks in advance for any answers and insights.

 

[pastet89]

I am from Bulgaria.

I am not familiar with the 7.5%-9% tax you are talking about, but I think I have heard 7.5% if you register as a free profession individual, which I would not do. I might be wrong but long term anything apart from a company might be a bigger mess to deal with. If you open a company (EOOD), you can pay social/pension expenses etc... based on the max base for this (3400 BGN), then pay a huge salary to put the company on zero profit and pay 0% dividend. So you end up with 10% income tax + 30-40% on these 3400 BGN social taxes per month.

With that being said:

- even if you could do this 7.5-ish% thing for IT development or free profession, you can not do it for crypto trading, this I can confirm on 100%. I am doing crypto trading the last years myself and I am running from Bulgaria's accounting mess (by trying to open an offshore company) for the following reasons:

- Calculating the crypto profit is a total hell. It is very complex as you need PL for each individual trade in BGN. The rules are not clear. There currently even debates if you need to pay 20% VAT on the NFTs for assuming them for copyright income. And if the tax office decides to look into your records they will always find something which they don't like.

- In the best scenario you will pay 10% on your crypto profit. This is if you accept my lawyer's opinion who is 100% against the official statement of the tax office which states: 15% + 30-40% social tax on up to the 3400 BGN per month base.

- Bulgaria is a mafia country where many if not most of the active politicians are mafiosos. It's a public secret that the authorities are blackmailing fair people to pay them "leave me alone fee" just because they can. This was at its worst for around a decade and the last 2 years or so a new government is trying to get established but there is not enough political stability, there is an endless cycle of new elections and the situation is very unpredictable. If you earn 7 figures you automatically get in the magic list for "special observation" and potential blackmail.

With that being said, if you obtain BG residency and get rid of your own tax residency, for the crypto trading you could try to do what I am trying to do the last year. To open an offshore company in a jurisdiction without a DTA, find a remote director in a country which won't make the offshore company tax liable there, and pay 5% dividend and nothing more. Also this way the tax authorities will never be able to inspect your book records and you get immune to them. The disadvantage to this is that it is very hard to find a director. I am trying to build my whole setup for a long time so far, and it seems the end is near. But I don't want to celebrate too early. My research showed a BVI or Gibraltar company + Filipino director should do the trick. Also for obvious reasons when opening the offshore company you must be careful not to declare anywhere Bulgaria or even worse a Bulgarian address as a business address or place of management.

It could be hard to get clients to pay you through an offshore company for IT services though (I am a developer as well BTW). So for this part, you could still go for a local company or something similar.

 

[gab1]

What would it take (for an EU citizen) to obtain the Bulgarian residency which is required for the freelancer tax status there?

Is just presenting a rental agreement enough or do I need to prove that I am physically present in the country for X amount of time a year?

 

[AndyAresa]

I am from Bulgaria.

I am not familiar with the 7.5%-9% tax you are talking about, but I think I have heard 7.5% if you register as a free profession individual, which I would not do. I might be wrong but long term anything apart from a company might be a bigger mess to deal with. If you open a company (EOOD), you can pay social/pension expenses etc... based on the max base for this (3400 BGN), then pay a huge salary to put the company on zero profit and pay 0% dividend. So you end up with 10% income tax + 30-40% on these 3400 BGN social taxes per month.

With that being said:

- even if you could do this 7.5-ish% thing for IT development or free profession, you can not do it for crypto trading, this I can confirm on 100%. I am doing crypto trading the last years myself and I am running from Bulgaria's accounting mess (by trying to open an offshore company) for the following reasons:

- Calculating the crypto profit is a total hell. It is very complex as you need PL for each individual trade in BGN. The rules are not clear. There currently even debates if you need to pay 20% VAT on the NFTs for assuming them for copyright income. And if the tax office decides to look into your records they will always find something which they don't like.

- In the best scenario you will pay 10% on your crypto profit. This is if you accept my lawyer's opinion who is 100% against the official statement of the tax office which states: 15% + 30-40% social tax on up to the 3400 BGN per month base.

- Bulgaria is a mafia country where many if not most of the active politicians are mafiosos. It's a public secret that the authorities are blackmailing fair people to pay them "leave me alone fee" just because they can. This was at its worst for around a decade and the last 2 years or so a new government is trying to get established but there is not enough political stability, there is an endless cycle of new elections and the situation is very unpredictable. If you earn 7 figures you automatically get in the magic list for "special observation" and potential blackmail.

With that being said, if you obtain BG residency and get rid of your own tax residency, for the crypto trading you could try to do what I am trying to do the last year. To open an offshore company in a jurisdiction without a DTA, find a remote director in a country which won't make the offshore company tax liable there, and pay 5% dividend and nothing more. Also this way the tax authorities will never be able to inspect your book records and you get immune to them. The disadvantage to this is that it is very hard to find a director. I am trying to build my whole setup for a long time so far, and it seems the end is near. But I don't want to celebrate too early. My research showed a BVI or Gibraltar company + Filipino director should do the trick. Also for obvious reasons when opening the offshore company you must be careful not to declare anywhere Bulgaria or even worse a Bulgarian address as a business address or place of management.

It could be hard to get clients to pay you through an offshore company for IT services though (I am a developer as well BTW). So for this part, you could still go for a local company or something similar.

Hi pastet89, thank you for an insider's opinion on Bulgaria. When you say that the authorities are likely to blackmail people with 7 figure incomes, would the authorities do the same to foreigners resident in Bulgaria, or is it more commonly done to native Bulgarians?
Also I assume seven figures are in BGN, so it is around 500k Euro. If a freelancer makes 250-300k EUR in Bulgaria, is he likely to get attention of the authorities as a potential target?

 

[pastet89]

Hi pastet89, thank you for an insider's opinion on Bulgaria. When you say that the authorities are likely to blackmail people with 7 figure incomes, would the authorities do the same to foreigners resident in Bulgaria, or is it more commonly done to native Bulgarians?
Also I assume seven figures are in BGN, so it is around 500k Euro. If a freelancer makes 250-300k EUR in Bulgaria, is he likely to get attention of the authorities as a potential target?

I think it's much less likely for foreigners, especially if they are from the EU. Yes, 1M BGN is 500K EUR.

As you can imagine, no one can be sure if and at what number they would harass you - there are still no public documents with the blackmail level tiers lol. Definitely plenty of people have made way more than 7 figures without being bothered and is also likely that people who have made less have been.

The 7 figure threshold comes from a leaked recording of a private conversation with an ex-politician a couple of years ago who said after 1M BGN you get into this list of interest.

I think for 6 figures non-crypto business, especially for a foreigner the chance something to happen is super low. But I personally would not try to do anything significant that catches the attention in this country (without an offshore company).

P.S. A foreign bank account would also help as if you don't have a physical businesses most of the time the worst they can do to you is to freeze the bank account.

 

[Bill D]

I am from Bulgaria.

I am not familiar with the 7.5%-9% tax you are talking about, but I think I have heard 7.5% if you register as a free profession individual, which I would not do. I might be wrong but long term anything apart from a company might be a bigger mess to deal with. If you open a company (EOOD), you can pay social/pension expenses etc... based on the max base for this (3400 BGN), then pay a huge salary to put the company on zero profit and pay 0% dividend. So you end up with 10% income tax + 30-40% on these 3400 BGN social taxes per month.

Are you sure it would be okay to change your salary from one month to the next one, in a huge way, to be able to swallow all the profit as a salary ? (From example from 0 or 1000 to 1000000)
isnt there a risk of hidden profit distribution penalty ?

 

[pastet89]

Are you sure it would be okay to change your salary from one month to the next one, in a huge way, to be able to swallow all the profit as a salary ? (From example from 0 or 1000 to 1000000)
isnt there a risk of hidden profit distribution penalty ?

To be honest I was also wondering how often the change if salary is made: monthly, at the end of the year or more often as I have never done it myself.

But I can confirm for sure it's legal and you can do it.

 

[Bill D]

But I can confirm for sure it's legal and you can do it.

You mean you had confirmation it's legal and no risk to change a salary from 3000 in november to 300 000 in december then back in january?
Because it's important to make sure they cannot call it a hidden profit distribution, then penalties could be very hefties it seems

 

[pastet89]

You mean you had confirmation it's legal and no risk to change a salary from 3000 in november to 300 000 in december ?
Because it's important to make sure they cannot call it a hidden profit distribution, then penalties are very hefties

As I said, I can not tell when and how you change the salary. I have been told that you can do it by at least two accountants, one of which with a legal degree. And they told it so clear and convincingly that it even did not sound to me like something "fishy" or a gray area thing.

That being said, I am not a legal advisor so if you have doubts about my words you should confirm them with a professional tax advisor/lawyer - something I would always do regardless of what I read on any forum BTW.

 

[Bill D]

As I said, I can not tell when and how you change the salary. I have been told that you can do it by at least two accountants, one of which with a legal degree. And they told it so clear and convincingly that it even did not sound to me like something "fishy" or a gray area thing.

That being said, I am not a legal advisor so if you have doubts about my words you should confirm them with a professional tax advisor/lawyer - something I would always do regardless of what I read on any forum BTW.

Yes right, I had the same idea from an accountant but an other gave conflicting view, thanks pmed you

 

[AndyAresa]

Yes right, I had the same idea from an accountant but an other gave conflicting view, thanks pmed you

It might be possible to structure salary as base + annual performance bonus, so one may withdraw most of the company profits in December as a deductible bonus

 

[Dexur]

I've been in a similar situation myself and decided to pick Romania. I already moved here to a rented apt., got residency, opened a corporate bank acc., etc.
Romania seems like a decent country with a good enough level of English. Also, all the prices are 2-3 times cheaper than in my original country, and they have amazing internet!
Corporate tax is also quite low ( 10 % ) so you can reinvest your earnings. Although I haven't figured out the process and taxes of investing through the company.

 

[Bl4ckJackk]

I've been in a similar situation myself and decided to pick Romania. I already moved here to a rented apt., got residency, opened a corporate bank acc., etc.
Romania seems like a decent country with a good enough level of English. Also, all the prices are 2-3 times cheaper than in my original country, and they have amazing internet!
Corporate tax is also quite low ( 10 % ) so you can reinvest your earnings. Although I haven't figured out the process and taxes of investing through the company.

Hi Segd thanks for posting. I have found your posts on here so I know you are one of the few who have done it. I even contacted the company you have mentioned somewhere, I think it was reinvent consulting, so I will see what they will tell me if they will even reply to my mail. Their web page was only available in romanian which surprised me a little bit for sure.
Hopefully I will find the answer about the investment taxation as that seems to be the most important thing for me right now. Do you do any investing through your micro-company or just outside?

 

[Dexur]

Hi Segd thanks for posting. I have found your posts on here so I know you are one of the few who have done it. I even contacted the company you have mentioned somewhere, I think it was reinvent consulting, so I will see what they will tell me if they will even reply to my mail. Their web page was only available in romanian which surprised me a little bit for sure.
Hopefully I will find the answer about the investment taxation as that seems to be the most important thing for me right now. Do you do any investing through your micro-company or just outside?

That accounting company is a bit slow and not talkative, but they helped me on many issues.
I've recently employed myself with their help.
For residence ( CNP ) I recommend R&R partners. You need a rental agreement to apply for residency.
For corporate banking - ING (English online bank). Transilvania and BRC denied my application

I haven't done any corporate investing yet due to lack of time for proper research, so if you'll get some useful info, please share with us!

 

[Bl4ckJackk]

That accounting company is a bit slow and not talkative, but they helped me on many issues.
I've recently employed myself with their help.
For residence ( CNP ) I recommend R&R partners. You need a rental agreement to apply for residency.
For corporate banking - ING (English online bank). Transilvania and BRC denied my application

I haven't done any corporate investing yet due to lack of time for proper research, so if you'll get some useful info, please share with us!

Thank you very much for your input. I'll definitely share what I'll find, I know some people are already waiting for that info.
I wanted to ask what were the steps you undertook to set up and in what order? Meaning if I were serious about relocating there, should I first try to get a bank account, or do I need the residency frist, meaning I need to have a rental agreement and so on? I would not want to dissolve my proprietorship in CZ for instance and then find out that I need it for some paperwork in Romania and only after I need to dissolve, and stuff like that...

 

[Dexur]

Thank you very much for your input. I'll definitely share what I'll find, I know some people are already waiting for that info.
I wanted to ask what were the steps you undertook to set up and in what order? Meaning if I were serious about relocating there, should I first try to get a bank account, or do I need the residency frist, meaning I need to have a rental agreement and so on? I would not want to dissolve my proprietorship in CZ for instance and then find out that I need it for some paperwork in Romania and only after I need to dissolve, and stuff like that...

Sorry, only now saw the reply.

1) Open SRL micro company. I used Rolegal (first link in Google), but they ripped me off with their prices. Now I would recommend Reinvent consulting. They cost peanuts, but English service is mediocre.
Remember that you also need to employ yourself to get 1% tax rate.
There are also some extra things to pay like virtual office, tax fees, etc.
2) Get an accountant. Reinvent costs me around 45e/month + end of the year expenses. They also do salary calculations for you.
3) Get a rental apartment and ask it to be official contract. Without official paper you won't get...
4) Residence permit aka CNP. Getting one as EU person is super easy. I used R&R partners, around 300e.
5) Get a local phone number contract with CNP. Prepaid works fine too if you need it for any previous steps.
6) With CNP you can get a corporate bank account. Don't pay middle man ( 300e, not guaranteed to succeed), just walk in to any branch. I recommend ING or Raiffeisen.
7) Get me a beer once you're done.

100-1500e for Registration depending on the provider.
450e for virtual office for 3 years
Around 60e for accounting
Salary taxes are 250e.

So at the minimum, you're looking at around 1000e initial expenses and 300 monthly (but you will have a social security and a pension ). For a 40m² studio in a good location in a new building I'm paying 400+50e monthly.

Final taxes:
1% revenue tax
8% dividend tax
250e salary tax

Still have no idea about investing through the company, but capital gains tax is only 10% here, so I'm fine taking the money out. I feel safer when my savings are under my own name

 

[PinkCat]

With that being said, if you obtain BG residency and get rid of your own tax residency, for the crypto trading you could try to do what I am trying to do the last year. To open an offshore company in a jurisdiction without a DTA, find a remote director in a country which won't make the offshore company tax liable there, and pay 5% dividend and nothing more. Also this way the tax authorities will never be able to inspect your book records and you get immune to them. The disadvantage to this is that it is very hard to find a director. I am trying to build my whole setup for a long time so far, and it seems the end is near. But I don't want to celebrate too early. My research showed a BVI or Gibraltar company + Filipino director should do the trick. Also for obvious reasons when opening the offshore company you must be careful not to declare anywhere Bulgaria or even worse a Bulgarian address as a business address or place of management.

It could be hard to get clients to pay you through an offshore company for IT services though (I am a developer as well BTW). So for this part, you could still go for a local company or something similar.

You sure the bulgarian government won't try to claim that since you live in Bulgaria you owe the difference in taxes to the bulgarian government?

 

[pastet89]

You sure the bulgarian government won't try to claim that since you live in Bulgaria you owe the difference in taxes to the bulgarian government?

I can't be sure that I will wake up tomorrow if you put a gun at my face and ask me about it. But I am quite sure that tomorrow the sun will sunrise from east and not from west.

 

[PinkCat]

I can't be sure that I will wake up tomorrow if you put a gun at my face and ask me about it. But I am quite sure that tomorrow the sun will sunrise from east and not from west.

Great. So have you had any progress on your setup? Would you care to share details with us, seems interesting and well researched.

 

[pastet89]

Great. So have you had any progress on your setup? Would you care to share details with us, seems interesting and well researched.

Yes, I am done with my setup. Gibraltar company + Filipino director. I am barely starting but so far things seem fine.

I had created in the past another topic on why it is good to have a Filipino director: because if you don't have Filipino income (e.g. for crypto this means trading on Filipino exchanges), you have zero tax liability there, even if you have a Filipino director. No need to register or have any adiminstrative duties in the Philipines either.

But this is just as it is more affordable, I am sure BVI directors are amazing, the problem is most of them start at around 10K per year.

In terms of jurisdiction BVI would work just as fine as Gibraltar, probably even better. I went for Gibraltar just because I didn't like the communication of the Registered Agents on the lower price end in BVI. BVI also has less strict due diligence and administrative requirements.