New DTT Between Bulgaria and the UK

The new DTT between Bulgaria and the UK, which replaces the former DTT signed in 1987, has been promulgated in the State Gazette and provides, among others, for the following withholding tax rates that shall be applicable for the income received after 1 January 2016:

1) Dividends Income:

• 5% withholding tax rate will apply the gross amount of the dividends, if the beneficial owner of the dividends is a resident of the other contracting state;
• 15% withholding tax rate will apply on the gross amount of the dividends where those dividends are paid out of income (including gains) derived directly or indirectly from immovable property by an investment vehicle that distributes most of this income annually and whose income from such immovable property is exempted from tax;
• 0% withholding tax rate will apply if the beneficial owner of the dividends is:
  • a company which is a resident of the other contracting state and is not covered by the above conditions for the application of the 15 percent rate;
  • a pension scheme.

2) Interest Income:

• 5% withholding tax rate will apply if the beneficial owner of the interest is a resident of the other contracting state;
• 0% withholding tax rate will apply if the interest is paid:
  • with respect of indebtedness arising as a consequence of the sale on credit of any equipment, merchandise or services;
  • on any loan of whatever kind granted by a financial institution;
  • to a pension scheme;
  • to the government of the other contracting state, a political subdivision or local authority thereof or to the central bank of that other contracting state; or
  • between companies, where one company holds directly at least 10% of the capital of the other company for at least one year prior to the payment of the interest or where both companies are held by a third company which holds directly at least 10% of the capital of both aforementioned companies for at least one year prior to the payment of the interest.

Additionally, the new DTT stipulates exchange of information in accordance with the international standards.

Impact on investors:  Eligible residents of the UK can benefit from treaty rates following the procedure set out in the Bulgarian Tax-Insurance Procedure Code.