Amendments to the Corporate Income Tax Act

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Summary: 
Amendments to the Corporate Income Tax Act that have been approved will introduce certain exemptions and relief from the withholding tax on interest income received by non-resident legal entities
Fri, 22/11/2013

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