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INTERNATIONAL TAXATION
Individuals, regardless of their citizenship, may be subject to income tax in two different countries. This would be the case if an individual, who is a citizen of one country, receives income from another country. In this case, both countries can claim to tax the income received. Legal entities can also fall into a similar situation. The most typical example of this is if a legal entity registered in one country receives income by carrying out activities in another country. This most often happens by opening a branch in that other country. Then the local tax authtorities may request to tax the income generated by that branch, regardless of the fact that the legal entity is registered in another country. In order to avoid the risk of individuals and legal entities being forced to pay tax on the same income in two different countries, the governments of many countries have concluded double taxation agreements (DTAA).
Individuals are usually required to declare and tax their worldwide income in the country in which they are determined to be residents for tax purposes. The criteria by which an individual qualifies as “resident” within the meaning of the Personal Income Tax Act (PITA) are regulated in the provisions of Art. 4 of the Act. According to its para. 1, a resident individual, regardless of his citizenship, is a person:
- which has a permanent address in Bulgaria or
- who resides in the territory of Bulgaria for more than 183 days in any 12-month period, or
- which was sent abroad by the Bulgarian state, its bodies and/or organizations, Bulgarian enterprises, and members of his family, or
- whose center of vital interests is located in Bulgaria.
The final assessment of whether, in given specific circumstances, an individual is local or foreign within the meaning of the Personal Income Tax Act should be made after a comprehensive assessment of these circumstances. For example, an individual may have a permanent address in Bulgaria, but the center of his vital interests may be in another country, and then the second circumstance usually prevails in the assessment.
We at Stan Consulting can conduct a full analysis of your tax case in the context of international taxation and advise you on which country you meet the criteria for a "local" person and where you should declare and pay the taxes you owe. We can also assist you in cases where two countries have withheld tax from you for the same income. By applying the methods for avoiding double taxation regulated in the relevant DTAA, we will advise you on how to refund the double tax paid.
For more information, please do not hesitate to contact us.