Freelancing or company registration for foreigners? Which is better?

Bulgaria is increasingly becoming a preferred destination for freelancers. Foreigners discover the country’s advantages due to its lower cost of living, attractive tax rates, and access to the European market.

With a 10% income tax, Bulgaria offers one of the most favourable tax environments in the EU. Additionally, the country provides easy integration for foreigners who want to register as self-employed or start their own businesses. In this context, company registration for foreigners is a frequently chosen option for starting a business in Bulgaria.

This article aims to provide useful information for foreigners who want to work as freelancers in Bulgaria. We will explore the registration steps, legal and tax requirements, and specific procedures for foreigners in Bulgaria, such as address registration.

Legal framework for foreigners in Bulgaria

types of visas and work permits

Foreigners who want to work in Bulgaria as freelancers should be aware of the necessary visas and work permits.

Citizens of the European Union can reside and work in the country without a visa but must register. In contrast, third-country nationals must obtain a Type D visa for long-term residence.

Address registration for foreigners in Bulgaria is mandatory for any stay exceeding 90 days. Below is a brief overview of the primary visa types and work permits:

1. No visa is required (for European Union and EEA citizens)
   Citizens of the European Union (EU) and the European Economic Area (EEA) have the right to free movement and residence in Bulgaria without needing a visa. They can work and reside in the country indefinitely but must complete address registration for foreigners in Bulgaria within 90 days of entering the country.
2. Type C visa (short-term stay)
   This visa is suitable for third-country nationals wishing to stay in Bulgaria for a short period (up to 90 days within 180 days). It is appropriate for short business trips or consultations but does not grant the right to long-term work or self-employment registration. This visa can be used for business meetings, negotiations, or event participation.
3. Type D visa (long-term stay)
   The Type D visa is mandatory for third-country nationals who want to work or reside in Bulgaria for more than 90 days. It is the most commonly used visa for freelancers who plan to stay in the country and develop a long-term activity. After obtaining a Type D visa, the foreigner can apply for a long-term or permanent residence permit in Bulgaria.
4. Work permit is required for third-country nationals who wish to work in Bulgaria. It is important to note that freelancers may not need a work permit if they work independently as self-employed individuals (freelancers). In this case, they only need to obtain a Type D visa and register as self-employed with the NRA and the Commercial Register.

EU citizens can reside and work in Bulgaria without a visa, but for stays over 90 days, they must complete address registration for foreigners in Bulgaria and submit an application for a residence certificate with the local authorities (Directorate of Migration at the Ministry of Interior). The procedure is simplified and requires minimal documentation, such as an ID card, proof of address, and proof of income or activity.

Registering as a freelancer in Bulgaria

What are the steps for foreigners to register as freelancers?

The freelancer registration process includes submitting an application for business activity to the local municipality or the National Revenue Agency (NRA). The primary required documents include the following:

• Passport or ID card (for EU citizens).
• Address registration for foreigners in Bulgaria.
• Bank statements, if required, to prove financial stability.

Once these documents are submitted, the foreigner receives a UIC (Unified Identification Code) and can start their activity.

Choosing a legal form: freelancer or company

A foreigner has two main registration options: as a self-employed individual (freelancer) or through company registration as a foreigner. Below is a table comparing the advantages and disadvantages of both options:

Income tax and social security for foreigners

Income tax

Bulgaria’s income tax for freelancers is 10% for both local citizens and foreigners operating in the country. This flat tax is one of the main advantages of the Bulgarian tax system, providing competitive conditions for work and business.

However, foreigners should be well informed about the procedures and requirements related to income declaration. This way, they could avoid double taxation, especially if they have income in Bulgaria and other countries.

Declaring income

Every foreigner operating in Bulgaria as a freelancer must submit an annual tax return to the National Revenue Agency (NRA). The declaration must include all income received from Bulgaria and abroad (if applicable), considering that foreigners may be treated as residents or non-residents for tax purposes, depending on their place of residence.

1. Natives
   • A foreigner will be considered a resident for tax purposes if they reside in Bulgaria for more than 183 days in a calendar year or if they have their centre of vital interests in the country (e.g. family, permanent address, business activity). In this case, the foreigner is obliged to declare all his worldwide income, i.e., that received in Bulgaria and other countries.
2. Foreign persons
   • If the foreigner does not qualify as a resident, he will be considered a foreign person for tax purposes. In this case, the foreigner only has to declare income derived from sources in Bulgaria (e.g., services provided to Bulgarian clients). Foreign persons may also apply for double taxation avoidance if there is an agreement between Bulgaria and their country of residence.

Double taxation agreements

Bulgaria has double tax agreements (DTAs) with multiple countries, allowing foreigners to avoid paying taxes on the same income in two countries. For this agreement to apply, the foreigner must provide a tax residency certificate from his country of residence, which proves that he has already paid taxes on the same income in another country.

1. Documents and process for applying for the DTAA
   • In order to benefit from the agreement’s advantages, the foreigner must submit the relevant application to the NRA for the DTAA and a tax residence certificate from his country of origin. The procedure may also include evidence of taxes paid abroad, if applicable.
2. Possible tax reliefs
   • Depending on the specific agreement, the foreigner may benefit from various reliefs, including a reduction or exemption from paying tax on income earned in Bulgaria. This allows freelancers to avoid double taxation and optimise their tax planning.

Value added tax (VAT)

Value-added tax (VAT) is a key element in Bulgaria’s tax legislation and is essential for foreigners freelancing or running a business in the country. VAT is charged on sales of goods and services, and the standard rate in Bulgaria is 20%. VAT registration becomes compulsory if a person or company’s annual turnover exceeds BGN 166,000. This rule is valid for both nationals and foreigners who carry out economic activity in Bulgaria.

VAT registration

VAT registration may be mandatory or voluntary for foreigners working as freelancers or running a company in Bulgaria, depending on the circumstances. Here are the main points:

1. Compulsory VAT registration
   • VAT registration becomes compulsory when annual turnover exceeds BGN 166,000. This applies to any natural or legal person, whether resident or non-resident. The turnover includes revenue from sales of goods and services provided in Bulgaria and/or the European Union.
2. Voluntary VAT registration
   • If a foreigner plans to do business with customers in the EU or wishes to benefit from the advantages of income and expense taxation through VAT, he may choose to register voluntarily for VAT, even if the turnover is lower than BGN 166,000. This can be advantageous for freelancers who often purchase services or goods with VAT included, as they will be able to deduct VAT from their purchases.

VIES declaration and dealing with customers in the EU

Freelancers and companies that provide services to clients in the European Union must comply with specific rules for declaring these services, known as the VIES declaration. VIES (VAT Information Exchange System) is a system for exchanging VAT information between EU Member States that allows the validity of VAT numbers of companies in different countries to be checked.

1. When is a VIES return submitted?
   • A VIES return is required when a freelancer or company registered for VAT in Bulgaria provides services to a company registered for VAT in another EU Member State. This is a key mechanism for avoiding double taxation within the EU. For this purpose, a monthly VIES return is filed with the NRA.
2. Partial VAT registration for services in the EU
   • If a foreigner supplies services to companies in the EU, he can partially register for VAT, even without being obliged to register fully (e.g., for lower turnover). This is necessary to ensure the correct charging and declaration of VAT for cross-border services within the EU.

Specifics for foreigners working in Bulgaria

Foreigners registered as freelancers or company managers in Bulgaria must comply with Bulgarian law, even if their clients are located outside the country. Some key points include the following:

1. VAT for international clients
   • If the foreigner provides services to clients outside Bulgaria but within the EU, the tax rate may differ. Services provided to companies outside the EU are usually exempt from VAT, but all procedures must be followed to account for this revenue properly.
2. Self-assessment of VAT on services received from abroad
   • If the freelancer or company receives services from companies outside Bulgaria (e.g. consultancy, software solutions, etc.), it is necessary to self-assess VAT on the services received. This requires keeping correct records and including these amounts in the monthly VAT returns.
3. VAT refunds for foreigners
   • According to Bulgarian legislation, foreigners who have paid VAT on purchases in Bulgaria (e.g. purchases of equipment or office supplies) can apply for a VAT refund. This is done by submitting an application to the National Revenue Agency (NRA) and complying with the conditions set out in the VAT refund for foreigners section of the NRA website.

Tax pitfalls and how to avoid them

Foreigners doing business in Bulgaria should make sure they comply with all VAT registration and declaration requirements. Some common mistakes include:

• Failure to file VIES returns for services provided to customers in the EU.
• Omitting to reverse charge VAT when receiving services from foreign suppliers.
• Lack of accurate documentation for VAT-exempt transactions (e.g. transactions with non-EU companies).

Basic insurance obligations

1. Health insurance: All foreigners with long-term or permanent residence are obliged to pay health insurance contributions. This provides them with access to Bulgaria’s public health system, which includes free or subsidised medical services. The health insurance contribution is fixed and, for 2023, amounts to 8% of the minimum insurable income.
2. Foreigners who are self-employed in Bulgaria must also contribute to social security. These cover pension, temporary incapacity for work, maternity and unemployment benefits (optional). Social security contributions are important to secure a pension when you reach retirement age and to receive temporary disability benefits.

Contributions for 2024

Bulgaria’s minimum insurance income for self-employed persons was increased to BGN 1,077 in 2024. This means that all insurance contributions for self-employed persons will be calculated based on this threshold, regardless of whether the person’s actual income is lower than this minimum threshold.

Indicative social and health insurance rates for 2024:

From 1 January 2025, the minimum wage in Bulgaria increased to 1077 BGN.

This increase affects the minimum social security income, becoming 1077 BGN.

According to the new minimum social security income, the recalculation of social security contributions for 2025 is as follows:

1. Pension and health insurance only (total percentage: 22.8%):

1077 BGN. × 22.8% = 245.56 BGN per month

2. Pension, health, temporary incapacity for work and maternity insurance (total rate: 26.3%):

1077 BGN × 26.3% = 283.25 BGN per month

These amounts represent the minimum monthly contributions and may be higher if your actual income exceeds the minimum contribution threshold.

Filing returns and paying contributions

Self-employed persons, including foreigners, are obliged to submit a monthly declaration form 1 by the 25th of the month following the month for which the contributions are due. The declaration is submitted to the ъ and includes information on the amount of social security contributions to be paid. The contributions must also be paid by the 25th of the following month.

1. Penalties for late payment of social security contributions
   If a self-employed person fails to pay the social security contributions on time, the National Revenue Agency (NAP) may impose interest for late payment. This can accumulate significantly over time, so foreigners must meet all deadlines.
2. Changes in Social Security StatusIf a foreigner ceases freelancing or switches to another form of employment, they must notify the NRA and change their social security status by filing the appropriate documents to terminate self-insurance.

Resolving practical issues for foreign freelancers

Address registration and opening a bank account

Address registration of a foreigner in Bulgaria is made for stays of more than 90 days. After registration, they can open a bank account, and the documents required by banks include a passport, proof of address and sometimes a bank statement from the home country bank.

Invoicing and payments

Foreigners performing services in Bulgaria must issue invoices in accordance with Bulgarian law. It is important to follow the invoicing rules, correctly state VAT if you are registered, and submit tax documents on time.

Navigating the bureaucratic system

One of the main challenges for foreigners is the complexity of the Bulgarian administrative system. When submitting documents or interacting with government authorities, foreigners may face language barriers and bureaucratic hurdles. Working with a professional tax consultant or lawyer can ease these processes.

Conclusion

For a successful start as a freelancer in Bulgaria, foreigners need to understand the legal and tax requirements, as well as the procedures for registering a foreign or freelance company. Compliance with administrative rules, such as registering a foreigner’s address in Bulgaria and properly declaring income, is key to avoiding legal problems. Bulgaria provides many opportunities for freelance work thanks to its low taxes and strategic location in the EU, making it an ideal place to develop a career or business.