Artists often face various challenges when dealing with social security contributions and taxes. Despite the creativity and innovation in their work, accounting-related aspects can seem complex and confusing.
However, proper tax planning is essential to ensure stability and predictability in their financial activities. Here, we will explore the key aspects of appropriate accounting for artists to help those who want to manage their financial obligations more effectively.
Types of Freelance Professions for Artists
Freelance professions encompass various artistic activities characterized by their creative and independent nature.
Artists in these professions typically work on a project basis or provide services to various clients without being bound by long-term employment contracts. They have the freedom to organize their work process, but they must also manage their own social security contributions and taxes.
Here is a brief list of the most common artistic professions recognized as freelance professions:
- Actors and directors
- Musicians and singers
- Painters and sculptors
- Makeup artists and hairstylists
- Writers and screenwriters
- Dancers and choreographers
- Photographers and videographers
- Craftsmen
- Designers
Registering Artists as Freelancers or Companies
Artists have two main options for registering their activity:
- As self-employed individuals (freelancers)
- Establishing a company
The choice between these two options depends on the nature of the activity, the scale of the projects, and the level of responsibility the artist is willing to take on.
Registering as a freelancer is more suitable for artists who work individually and do not plan significant business expansion. On the other hand, establishing a company provides greater legal protection and flexibility when working on larger projects and with corporate clients. Each option has its pros and cons, which should be carefully considered.
How Are Social Security Contributions and Taxes Organized for Artists?
For freelance professionals, the insurable income is determined based on the minimum insurable threshold and is subject to mandatory health and social security contributions. Self-employed individuals must pay social security contributions calculated monthly and should be mindful of changes in the minimum insurable income.
Artists pay a 10% personal income tax. Tax reliefs related to expenses for copyrights and intellectual property can reduce the tax burden. Depending on the artist’s activity, a patent tax may apply. The article Calculating Patent Tax—Obligated Persons, Amount, and Payment provides more about the patent tax.
When Is VAT Registration Required?
Artists whose turnover exceeds BGN 166,000 in the last 12 months must register under the Value Added Tax (VAT) Act. Voluntary VAT registration is also an option, which has advantages and disadvantages, especially when working with foreign clients. VAT registration is mandatory when working with partners from the European Union.
Copyright and Taxes
Copyright plays a crucial role in accounting for artists, who often generate income from their work.
Earnings related to copyrights are explicitly treated in the tax system. Understanding this is essential to avoid taxation errors on such income and to take advantage of existing reliefs that can lower the tax burden.
What Is Copyright?
Copyright is a form of protection that grants creators of original works of art, literature, music, and other intellectual products the right to control their use and distribution.
Artists can receive earnings for every use of their works, which includes:
- Sale of original works (e.g., paintings, books, music compositions)
- Licensing copyrights for third-party use of their works
- Receiving royalties for the use of their works in various media (e.g., films, advertisements, music streaming platforms)
How Are Copyright Earnings Taxed?
Income from copyright royalties is subject to a specific tax regime, different from standard earnings. Under Bulgarian law, copyright income is typically classified as intellectual property income.
Taxation on these earnings includes the following main characteristics:
- Expense Norm – A deductible expense is applied to income from copyright royalties, allowing part of the income to be tax-exempt. In Bulgaria, this expense norm is typically 40% of total earnings, meaning only 60% of the income is taxable. This relief accounts for artists’ costs in creating their works without requiring proof of expenses.
- Example: If you earn BGN 10,000 from selling copyrighted works, 40% of this amount (or BGN 4,000) is considered tax-exempt expenses. The tax is applied only to the remaining BGN 6,000.
- Taxation at 10% Personal Income Tax—After applying the expense norm and deducting social security contributions, the remaining taxable income is subject to a 10% personal income tax, which is the standard rate for individuals in Bulgaria.
- Social and Health Insurance – Social and health insurance contributions may be required depending on whether the artist is registered as a self-employed individual or operates through a company. If you are self-employed, you must pay contributions based on the minimum insurable income set for your profession.
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Social Security Contributions and Taxes on Income from Abroad
Foreign income is also subject to taxation, but several key factors must be considered to avoid unnecessary double taxation. Artists working internationally often face the question of how their income will be treated for tax and social security purposes when their income source is outside Bulgaria.
Double Taxation: What Is It?
Double taxation occurs when income is taxed both in the country where it was earned (abroad) and in Bulgaria. If the necessary measures are not taken, this can lead to significantly higher tax costs. Bulgaria has signed international agreements with many countries, known as Double Taxation Avoidance Agreements (DTA), to prevent this.
These agreements allow income earned abroad to be taxed only in one country (typically the country of origin) or provide an opportunity to apply for a tax credit in another country (Bulgaria). If you have already paid taxes on this income abroad, your tax liability in Bulgaria can be reduced or eliminated.
What Should You Do?
- Check if a Double Taxation Agreement exists between Bulgaria and the country where you earn income. For example, Bulgaria has such agreements with almost all EU countries and many non-EU countries.
- Obtain proof of taxes paid abroad. This may be a certificate from the local tax authorities confirming how much tax you have paid. This document is required to apply for a tax credit in Bulgaria.
- Declare all income in Bulgaria, including earnings from abroad. Even if taxes were already paid abroad, you must still declare the income to the Bulgarian tax authorities. If a double taxation agreement applies, the tax declaration can include the foreign tax paid, reducing the tax liability in Bulgaria.
What Types of Foreign Income Are Taxable?
Foreign income may include various types of earnings, such as:
- Copyright royalties for works published abroad (e.g., music, books, films)
- Revenue from live performances, participation in international projects, or exhibitions
- Income from online sales of artwork (e.g., digital paintings, music, video content)
Social Security Contributions for Foreign Income
Social security is another important aspect when earning income from abroad. If you work as an artist in another EU country or a country with a social security agreement with Bulgaria, you may remain insured in Bulgaria. This exempts you from the obligation to pay social security contributions in a foreign country. To do this, you need to complete specific forms. One of these is Form A1, which confirms that you are insured in Bulgaria.
If no such agreement exists, you may be required to pay social security contributions in the foreign country according to its laws, potentially leading to dual contributions. To avoid this, consulting with an accountant or legal expert familiar with international social security regulations is essential.
Conclusion
Accounting for artists may seem complex, but proper financial planning helps avoid problems and allows you to focus on your creative work. Choosing the right registration type, paying taxes on time, and utilizing tax reliefs will help optimize your financial stability.
