Confused about Bulgaria setup

[pucecacou]

I've received contradictory information from a local accounting firm in Bulgaria and what I read from Deloitte tax guide highlights & PwC papers on WHT , or let's say my interpretation of the these summaries is approximate

case :
- SLU in Andorra (LLC), tax resident in Andorra as an individual. Reminder, Andorra is neither inside the EU nor the EEA
- planning to setup a company in Bulgaria which will have no economic substances inside of Bulgaria
- the 2 countries don't have a tax treaty

It's unclear whether my company in Bulgaria will be considered resident or non-resident and thus whether or not it'll besubject to CIT in Bulgaria.
It's also unclear if I'll pay 5% orbe exempt of acrued dividends from Bulgaria towards the company in Andorra. Can anyone help please ?

The accountant told me the the Bulgaria company would not pay for CIT and dividends (and be tax resident in Andorra alone which I'm fine with). But I'm in doubt

In other words, is WHT applied to non-resident companies (that do not have any income generated from sources in Bulgaria) when funds are distributed to non EEA residents residing in a country with no DTT?

 

[uncreative]

A few months ago I discussed a similar Andorra combination with tax advisors in Andorra and Malta, but with a active Malta Ltd instead of non-resident Bulgaria EOOD.

There I was told that it that the active company in Malta needs a certain substance and also pays corporate tax.
But there is no withholding tax in Malta. I think in Bulgaria you would have to pay the 5% WHT, since the EU parent subsidiary company regulation probably does not apply for Andorra.

An advantage is of course that you can use your SLU as a Holding to receive the dividends completely tax-free in Andorra and pay them out to you.

Btw a DTT between Andorra and Bulgaria seems to be planned: Andorra and Bulgaria Look to Conclude Tax Treaty Negotiations — Orbitax Tax News & Alerts

 

[pucecacou]

That DTT appears more to be a declaration of intent than something concrete in progress but thanks for sharing this open door.

 

[algotrader]

I've received contradictory information from a local accounting firm in Bulgaria and what I read from Deloitte tax guide highlights & PwC papers on WHT , or let's say my interpretation of the these summaries is approximate

case :
- SLU in Andorra (LLC), tax resident in Andorra as an individual. Reminder, Andorra is neither inside the EU nor the EEA
- planning to setup a company in Bulgaria which will have no economic substances inside of Bulgaria
- the 2 countries don't have a tax treaty

It's unclear whether my company in Bulgaria will be considered resident or non-resident and thus whether or not it'll besubject to CIT in Bulgaria.
It's also unclear if I'll pay 5% orbe exempt of acrued dividends from Bulgaria towards the company in Andorra. Can anyone help please ?

The accountant told me the the Bulgaria company would not pay for CIT and dividends (and be tax resident in Andorra alone which I'm fine with). But I'm in doubt

In other words, is WHT applied to non-resident companies (that do not have any income generated from sources in Bulgaria) when funds are distributed to non EEA residents residing in a country with no DTT?

If you are controlling a company abroad from Bulgaria as an individual it won't be taxed on CIT in Bulgaria except for distributed dividends to you as a private person:
https://taxfoundation.org/controlled-foreign-corporation-cfc-rules-europe-2021/But there's a change that got introduced lately for the case of a Bulgarian holding company having subsidiaries abroad (which might apply to your case):
"Undistributed income of foreign subsidiaries of a Bulgarian resident company may be taxed, subject to the controlled foreign company (CFC) rules (for more details, please see the Group taxation section)."
https://taxsummaries.pwc.com/bulgaria/corporate/income-determination

 

[pucecacou]

Hum ok. An accountant from VEDA ended to tell me the opposite, that 10% would be paid in Bulgaria with 5% dividends, given that Andorra is not EU/EEA

 

[algotrader]

Hum ok. An accountant from VEDA ended to tell me the opposite, that 10% would be paid in Bulgaria with 5% dividends, given that Andorra is not EU/EEA

It really depends on your case, i.e. whether you have any substance in Andorra etc.. "Following the EU directive, the CFC rules will not be applicable where the controlled company carries on “substantive economic activity” supported by staff, equipment, assets, and premises."

Here you will find further information:
https://www.orbitax.com/taxhub/coun...99032664b744078d3259d65cd183ba/Main-Rules-603https://regfollower.com/bulgaria-modifies-the-cfc-rules/https://mnetax.com/bulgaria-tax-changes-introduce-first-cfc-rules-modify-thin-cap-provisions-31358The change in CFC rules is recent, so some accountants might not be up to date. I have the same problem with my stock trading business for which profits are exempted from tax when they are realized on a regulated stock exchange for EU/EEA or US shares. But it's almost impossible to find a competent accountant familiar with these new rules although lots of expert lawyers know them. Finding a competent account is very difficult in Bulgaria despite them being very expensive compared to other services here. Almost everyone I know here with a business has had issues with their accountants.

I would recommend you to ask an expert lawyer instead (someone who has published about your specific case with a controlled company abroad somewhere - search on google - maybe also using google translator).

Ok, wait I see that I didn't understand your setup correctly. You are saying that you are an individual with LLC in Andorra who is going to set up a subsidiary in Bulgaria owned by the LLC in Andorra, if I understood correctly?
In that case your company in Bulgaria will of course have to pay 10% CIT on the worldwide revenue in Bulgaria and the 5% WHT on dividends distributed to Andorra (in absence of a DDT).
"Bulgarian tax residents are taxed on their worldwide income. "
https://taxsummaries.pwc.com/bulgaria/corporate/taxes-on-corporate-income

 

[Fdegroot]

Substance in Andorra can be created. The dividend wht is a downside, but 1) a salary can be paid 2) there seem to be generous deductions on salary and turnover but so far the downside is that there is a div wht and the accounting costs are sky high.