Draft Amendments to the Corporate Income Tax Act

The Bulgarian Ministry of Finance has announced draft amendments to the Corporate Income Tax Act.

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 interest income from debt securities admitted to trading on a regulated market
• no tax will be withheld on interest income 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 member state of the European Union or in another state which is a contracting party to the Agreement on the European Economic Area
• the issuer has issued the debt securities for the purpose of granting a loan to a resident legal entity
• the debt securities have been admitted to trading on a regulated market

In addition, the draft introduces an amendment with respect to the 5 per cent withholding tax on interest received by beneficial owners that are EU residents or have a permanent establishment in 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
• based on the proposed amendments, the 5 per cent withholding tax would be applicable even if the related party requirement has been valid for less than 2 consecutive years, however if it ceases to be satisfied before the expiration of such 2 years, a recalculation of the withholding tax will be due

The draft amendments have not yet been reviewed and approved by the National Assembly and further changes are still possible.

Impact on investors: Subject to certain eligibility criteria, non-resident legal entities would be able to enjoy nil or reduced withholding tax on interest income.