Bulgaria offers a very specific tax law in Europe, one of the most interesting ones. We believe it tells a lot about the opportunities for the country. Find below the reasons why.
First at all, there are two main points to recall about the tax law in Bulgaria. The income tax is a flat 10% rate. And the employees and employers do not pay contributions on salaries above 3.000 BGN. In addition, the corporate tax law is one of the lowest in the E.U as it is also only 10%.
Attractive tax law seems to be a particularity of Bulgaria. In France, for example, there is a progressive income tax scheme and no cap on the contributions on salaries. On the contrary, the Bulgarian system definitely encourages high salaries and income from capital.
No matter what the employee earns per month, 1000, 10 000 or 100 000 BGN. Ones income tax will always be 10% of ones salary. That means that the higher the salary, the bigger the fiscal competitive advantage.
As well, the employer and the employee will pay contributions (less than 40% in total) only on the first 3 000 levas. Everything one earns above 3 000 levas is almost a net amount as one will only have to remove the 10% of income tax which applies.
To us, this system of tax law should encourage companies to pay above average salaries for managerial and executive positions. This is also a system which should, in theory, encourage entrepreneurship. Because the system does not discourage to make a lot of money.
Unlike some other European countries where the more money one makes, the more taxes one pays on the marginal revenues, Bulgaria seems to be a heaven for entrepreneurs.
Why would one work hard if on every marginal euro one makes, he/she ends up giving a growing percentage to the state ? At the end of the day, the person ends up almost working for free.
Why would an entrepreneur work 80 hours a week, bear the risk of loosing everything if the venture fails, if at the end of the day, in case of success, he/she has to leave on the table the biggest part of the earnings?
In our opinion, Bulgaria is without any doubt the right place for an entrepreneur to launch an online business. Not only the cost of launching a business is lower than in many other countries but in addition, and in case of success, he/she will be able to keep a big share of his/her earnings.
In the same logic, companies established in Bulgaria could afford paying much higher salaries to managers and executives than in other European countries. In theory, it should contribute to attract the best talents of Europe.
Would you believe that, to make 6 000 euros net (after contributions and income tax) per month in France, an employee will almost cost 16 000 euros to his employer ? In Bulgaria, the employee will not cost more than 7 500 euros to his employer. To us, this is a strong incentive to attract high skilled and high paid labor force into outsourced engineering, R&D, and IT centers.
Bulgaria is the right place for an entrepreneur to launch an online business
Let’s give an example. If an entrepreneur wants to launch an online business, he/she doesn’t have any specific reason to establish his/her IT center in Paris, London or Barcelona. He can choose to establish his hub in Sofia for example, as his/her clients are online.
In addition, he/she could afford to pay higher salaries than in Paris, London or Barcelona because of the tax scheme described above. It means that those higher salaries should be a good incentive to convince people to relocate to Sofia to work for this company.
Last, not only the nominal salaries which will be paid will be higher but when one ads on top of that the cost of life differential, it means that the purchasing power of the employees will be multiplied by at least a factor of 2 or 2.5.
Sofia being a city offering everything any other western European city has to offer (even more on some aspects), it makes sense for an entrepreneur to establish his/her company here.
In conclusion, we would say that at this stage, it remains pure theory. Unfortunately, most of the companies currently outsourcing to Bulgaria are still mainly doing it for low skilled tasks.