Keeping accounting records for psychologists and psychotherapists in Bulgaria requires a specific approach that combines the need for financial accountability with the dynamics of mental health professionals.
Psychotherapeutic practice in Bulgaria has been on the rise in recent years, primarily in the private sector, due to the lack of state regulation and health system coverage. This has led to a growing need for a well-structured and simplified accounting solution that meets the specific reporting and tax obligations of these professions.
Since many psychologists and psychotherapists work as freelancers, they often use simplified accounting methods that allow for easy management of income and expenses. However, it is essential for these professionals to be informed about the different legal registration forms and how they can impact taxation and reporting.
In this article, we explore the main legal options, compare freelancing with company registration, and provide recommendations for optimal financial management in these professions.
Choosing a Legal Form: Freelancer or Company?
The first step in managing accounting for psychologists and therapists is choosing a legal form that suits their individual needs and professional plans.
Freelancer
Psychologists and psychotherapists prefer to work as freelancers because they want to minimize their administrative obligations while maintaining the ability to work independently without complex reporting.
Registering as a freelancer allows for simplified accounting, where standardized expenses are recognized without the need for detailed reporting.
Advantages:
- Minimal bureaucracy: This form reduces administrative procedures and simplifies operations for independent psychologists and therapists, allowing them to issue invoices and manage social security contributions easily.
- Flexibility and easy reporting: Professionals benefit from a fixed percentage of recognized expenses, significantly reducing the need for extensive documentation.
- Suitable for individual practice: Freelancing allows for a personalized approach to clients and flexibility in working hours, which is often crucial for psychologists and therapists.
Disadvantages:
- Legal risks: Freelancers are personally liable for any legal disputes and obligations, meaning their personal assets may be affected in case of claims.
- Limited expansion opportunities: Freelancers can hire staff, but this is not very advantageous because salaries are not considered deductible expenses as they are for companies due to standardized expense recognition.
Company (Sole Proprietor or Limited Liability Company – EOOD)
Registering a company requires submitting documents to the Commercial Register and the National Revenue Agency. The process includes choosing a company name, filling out an application, and presenting the manager’s ID card. A minimum capital deposit is required for an EOOD, and the registration is completed within a few days.
Advantages:
- Protection of personal assets: In an EOOD, the psychologist’s personal assets are protected, as company liabilities are limited to the registered capital. This reduces financial risks and provides security in case of legal disputes or obligations.
- Expansion opportunities and corporate clients: Registering a company allows psychologists to enter into contracts with corporate clients and state institutions, significantly increasing revenue potential and the client base. This enables them to offer services such as corporate training, employee psychological consultations, and specialized stress management programs.
- Hiring staff and professional partnerships: A company structure allows psychologists to employ staff and assistants or collaborate with other specialists. They can build a team to handle administrative tasks or add additional professional services, such as consultations with specialists in other therapeutic fields.
- Tax planning and expense deductions: Companies can strategically manage their expenses by deducting employee costs, marketing expenses, rent, and equipment, which reduces the tax burden. VAT registration is mandatory for a turnover exceeding BGN 166,000.
Disadvantages:
- Higher administrative costs and complex accounting: Companies have more extensive reporting obligations, requiring full and detailed financial accounting. Psychologists must hire professional accounting services to meet all requirements, including annual financial statements and tax declarations. These costs and procedures increase the administrative burden and consume time.
- Compliance with additional legal and regulatory requirements: As legal entities, companies must adhere to specific regulations and maintain documentation for all transactions. Any violations can lead to fines and penalties, making precise accounting even more crucial.
- Employee responsibilities: If a psychologist decides to hire staff, they must provide various employee benefits and social security contributions, such as health and pension insurance. These obligations increase fixed costs and place additional responsibilities on the company manager, especially in cases of employee contract termination or downsizing.
Taxation
Taxation is a key element in accounting for psychologists and psychotherapists, as it directly affects income and expense planning. The method of taxation varies depending on the chosen legal form, making the decision between freelancing and company registration essential for the long-term management of financial obligations.
Freelancer
Freelance psychologists are subject to a 10% tax on annual income, after first deducting the standardized recognized expenses.
- Standardized recognized expenses: These expenses are acknowledged as a fixed percentage of total revenue, significantly simplifying accounting and relieving professionals from the need to document every minor expense. For example, if a psychologist has an annual income of BGN 50,000 and the standardized recognized expenses are 25%, the taxable amount will be calculated on the remaining BGN 37,500 minus the social security contributions paid throughout the year. A 10% tax rate is then applied to this amount. This method is particularly useful for professionals with minimal administrative expenses, as it reduces the accounting burden and allows them to focus on their clients.
Company (EOOD/ET)
Companies are subject to a more complex tax regime, which includes both corporate profit tax and a requirement for VAT registration under certain conditions.
- Corporate tax and VAT: Companies pay a 10% corporate tax on profit, calculated after deducting actual proven business expenses. If a company’s annual turnover exceeds BGN 100,000, it is required to register for VAT and charge 20% on its services. This VAT registration obligation necessitates strict VAT documentation, increasing the need for precise accounting and careful pricing strategy planning.
- Dividend distribution: Unlike freelancers, a company’s profit is not distributed directly. Instead, after paying corporate tax, the net profit can be distributed as dividends to owners (shareholders), which are subject to an additional personal income tax. The dividend tax is 5%, adding an extra financial burden for the company manager, but it also provides opportunities for controlled income planning.
Social Security Contributions
Social security contributions are an integral part of self-employed psychologists’ financial responsibility. Those registered as freelancers are required to pay their own health and social security contributions to the state system, but this also allows for some flexibility.
Freelancer
Managing accounting as a freelance psychologist includes mandatory social security contributions, meaning they must personally pay the necessary health and social insurance into the state system.
- How contributions are calculated: Psychologists can choose their own social security income base, with a minimum threshold set by the government. The chosen threshold directly impacts monthly expenses—the higher the base, the higher the contributions. It is important to note that healthcare coverage does not depend on the size of the contribution base, but a higher base leads to a larger future pension, which can be a significant advantage for those planning long-term.
- Advantages and challenges of self-insurance: The ability to control the social security income base allows psychologists to adjust their contributions according to their current financial situation—for example, if they have fewer clients, they can opt for the minimum threshold.
Company (EOOD/ET)
For company registration (such as an EOOD or ET), social security contributions are structured differently and offer slightly more flexibility in terms of options for insuring the manager, especially if the company expands and hires additional staff.
- Social security contributions for the manager: In an EOOD, the manager can choose to insure themselves as a self-employed person, similar to freelancers, or under a management and control contract. This contract is equivalent to an employment agreement but is not a standard labor contract. It provides better health and pension coverage but requires higher insurance costs. This flexibility allows psychologists to choose the insurance model that best suits their personal and professional goals. For example, if they plan a long-term practice and need stable pension rights, the management and control contract may be the preferred option.
- Employee social security contributions: If the company decides to hire employees, it is obligated to provide the same social and health rights for them, including employer-paid social security contributions. This requirement adds additional costs for the company, which can be significant, especially if there are many employees. Hiring staff not only involves fulfilling social security obligations but also complying with legal requirements related to employment contracts and employee rights protection.
- Planning contributions and controlling expenses: For many psychologists registered as an EOOD, this form of insurance provides additional flexibility in expense management. The company can decide whether to pay social security contributions only for the manager or to hire external specialists as freelancers for specific tasks.
Accounting Support and Activity Documentation
Accounting documentation is relatively simple and accessible when working as a freelancer. The primary goal is to record income without the need to track every purchase or minor expense, as standardized recognized expenses are applied.
Freelancer
- Key income documents: As a freelance psychologist, the main document you will issue is an invoice or receipt for each service provided and paid for. These documents serve as proof of your income, and it is advisable to keep them organized, either as digital copies or in folders with physical receipts.
- Simplified reporting: Freelancers are not required to maintain strict accounting records for all expenses, which eliminates the need to collect invoices for every purchase. Instead, as previously mentioned, standardized recognized expenses are automatically applied, reducing taxable income by a fixed percentage.
Company (ET/EOOD)
For psychologists who decide to register a company, accounting maintenance and documentation become more complex and require stricter reporting. This structure is more suitable for those who anticipate a higher volume of work or plan to hire employees.
- Mandatory documentation for income and expenses: When operating as a company, every financial transaction must be supported by documentation. For income, this could be invoices, while for expenses, it may include invoices and rental agreements if applicable. Each of these documents must be properly organized to be presented when required for audits or annual reporting purposes.
- Accounting records: Every company is required to maintain full records of its income and expenses. The annual financial report is mandatory and must include complete information about the company’s financial status. It is submitted to the Commercial Register and the National Revenue Agency. These reports cover not only operational income and expenses but also the company’s assets and liabilities, providing a deeper insight into its financial condition.
- Need for professional accounting services: Many psychologists who register a company choose to hire an accountant or use professional accounting services, as proper documentation and compliance with legal requirements require accounting knowledge and regular reporting. This is especially important for companies registered for VAT or those with a higher volume of transactions that need to be accurately accounted for.
Accounting for Specific Activities (Online Consultations, Group Therapy, Part-Time Employment)
Psychologists and psychotherapists often offer their services in various formats—online consultations, group sessions, or part-time employment combined with freelance practice.
Each of these activities requires a different accounting approach and has specific requirements that must be understood to avoid tax and social security misunderstandings.
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Freelancer
- Online consultations and group therapy: If you provide online consultations or group therapy as a psychologist, the income from these services is documented as standard services, and it is important to issue invoices for each session. If you have clients from abroad, you should check whether you are required to register for VAT.
For example, when providing services to clients within the EU, VAT registration may be required, especially if your annual turnover exceeds a certain threshold. It is advisable to discuss this with an accountant to ensure compliance with legal requirements.
- Part-time employment: If you combine employment with freelance work, your employer will cover your social security contributions under the employment contract, which is beneficial as it eliminates the need for you to pay them yourself. However, for income from freelance work, you must pay social security contributions to cover the difference up to the minimum social security income required for freelancers.
For example, if your primary employment contract covers social security contributions at a lower base, you will need to make additional contributions from your freelance income to reach the minimum required threshold.
Company (ET/EOOD)
Companies account for income and expenses from specific activities according to corporate accounting practices.
- Online consultations: When online consultations are conducted under a company, the income is accounted for as part of the company’s overall revenue and must be documented with invoices issued by the company. For international clients, particularly from the EU, compliance with VAT regulations is necessary. This may include issuing zero-rated invoices for clients with a valid VAT number or charging Bulgarian VAT for clients without one.
- Group therapy and training: If group therapy sessions or training programs are organized by the company, it must maintain records of each client and all received payments. These revenues are included in the company’s total income and form part of the annual financial statement. In such cases, the company can deduct expenses related to organizing these events, such as venue rental, material purchases, or event advertising.
- Part-time employment: If a psychologist is employed under a labor contract while also owning a company (ET or EOOD), the social security contributions under the employment contract are covered by the employer. However, for the company’s activities, the psychologist must choose between two options: self-insurance or a management and control contract (DUK).
With self-insurance, contributions are based on the minimum social security income, providing lower costs and flexibility. Under a DUK, however, insurance can be based on a higher income, offering better health and pension coverage. Additionally, salaries and contributions under a DUK are considered company expenses, which may have tax advantages. This choice allows the business owner to select an insurance model that best aligns with their financial and professional goals.
Conclusion
Managing accounting for psychologists and psychotherapists can seem challenging. Choosing the right legal structure and understanding tax and social security obligations can significantly simplify the process.
Whether you prefer working as a freelancer with simplified reporting or through a company with greater protection and expansion opportunities, understanding the key financial responsibilities is essential for the success of your practice.
From properly documenting income to optimizing social security contributions and planning expenses, all these aspects contribute to professional stability and security. With attention to detail and timely consultation with a specialist, you can organize your business in a way that is not only efficient but also sustainable for the future.
