The National Assembly approved amendments to the Corporate Income Tax Act, which will enter into force as of 1 January 2014.
One of the most important changes is related to the withholding tax on interest received by non-resident entities, whereby:
- no tax will be withheld on income on interest from debt securities issued by a resident legal entity and admitted to trading on a regulated market in Bulgaria or in a member state of the European Union or in another state which is a contracting party to the Agreement on the European Economic Area (EU/EEA country)
- no tax will be withheld on income on interest from debt securities issued by a non-resident issuer when all of the below criteria are met:
- the issuer is a resident for tax purposes in a EU/EEA country
- the issuer has issued the debt securities with the purpose of granting a loan to a resident legal entity
- the debt securities have been admitted trading on a regulated market in Bulgaria or in a EU/EEA country
In addition, an amendment has also been made with respect to the 5 per cent withholding tax on interest received by beneficial owners that are EU resident or have a permanent establishment in the EU:
- at present one of the criteria to apply the above withholding tax rate is for the local payer of the income to have been a related party to the beneficiary of the income for at least 2 consecutive years
- upon the amendment coming into effect, the 5 per cent withholding tax will be applicable even if the related party requirement has been valid for less than 2 consecutive years as of the income payment date, however, if it ceases to be satisfied before the expiration of 2 years, a recalculation of the withholding tax will be due and the standard withholding tax on income on interest will be applied
Impact on investors: As of 1 January 2014, non-resident legal entities meeting certain eligibility criteria will enjoy nil or reduced withholding tax on interest income.
Related Newsflashes: Draft Amendments to the Corporate Income Tax Act