Representative Offices
Double Taxation Treaties

Representative Offices

Foreign persons who are entitled to engage in business activities according to their national laws may carry out business in Bulgaria by opening a representative office. Since a representative office does not constitute a separate legal person, it may not perform business activities on its own behalf. Rather, the representative office acts in the name and on behalf of the principal in its transactions with local parties.

Bulgarian law applies only to transactions that relate to the creation and operation of the representative office itself (eg, local staffing and lease). These transactions are not concluded to realize the business objective of the principal, but are rather supporting transactions involving the maintenance of the representative office.

Although it does not constitute a separate legal person, a representative office must be registered with both the Bulgarian Chamber of Commerce and Industry and the regional subdivision of the Tax Directorate at the office's registered address.

A representative office is considered to be a tax-liable entity, and thus owes taxes to the state budget in relation to the local transactions which it concludes in order to facilitate its daily operations.

Representative offices which conclude local business transactions and representative offices which are engaged in profitable business activities on their own behalf may both fall within the category of 'permanent establishments'. A 'permanent establishment' is a defined premises or fixed base through which a foreign enterprise performs partially or wholly autonomous business activities in the country. (An 'autonomous' activity is an activity which is carried out on a regular basis or in which a person is necessarily engaged due to the nature of his business). Although no allowance is made for representative offices to engage in business activities, if such business activities are in fact performed locally then the resulting profit will be allocated to the representative office. The legal person - that is, the principal - will thus be taxed for income derived from these activities.

Tax authorities tend to interpret taxation provisions broadly, and apply them only to cases in which a representative office is authorized to transact directly on behalf of the foreign entity since it has declared itself to be a permanent establishment. If a representative office is a permanent establishment, it is obliged to keep books and records in accordance with Bulgarian accounting standards, and file tax returns on a regular basis.

In some cases, a representative office may be a representative of the principal (and thus not taxed for business transactions, but only for transactions relating to its existence and operation), while at the same time part of its activity may constitute a permanent establishment, for which it must keep books, file tax returns and pay taxes.

Any income derived in Bulgaria, other than funds sent by the principal to enable the representative office to pay its staff and meet other expenses, will be deemed to have its source in the country and will thus be taxed.

The representative office must pay value added tax (VAT) on transactions relating to the supply of goods and services which meet its local needs (eg, supply of stationery or car rental). If the transaction is international and involves the export of goods or services since it is concluded directly with the principal, then the representative office will not be liable for VAT or any other tax.

There is thus no substantial difference in the income taxation regimes for resident legal entities and non-resident legal entities that have registered a representative office when activities are performed locally, particularly if the representative office derives income in Bulgaria and falls under the definition of a' permanent establishment'.


According to Bulgarian tax laws, individuals who spend more than 183 days of each calendar year in Bulgaria are considered to be residents, regardless of their citizenship. Resident individuals are liable for tax on income derived worldwide, and will be taxed in accordance with Bulgarian laws.

An exception is made for foreign experts. These are liable for tax only on income that is derived from sources within Bulgaria, regardless of the duration of their stay. The legal definition of 'foreign expert' includes individuals who are permanently resident outside Bulgaria and who are invited by Bulgaria, or sent by another country or an international organization, to visit the country as specialists in order to provide expert assistance. In cases where an expert is employed by a representative office, his tax liability will depend on whether he is considered to be a resident or a non-resident, according to the criteria specified above.

Double Taxation Treaties

The above taxation principles apply if no double taxation treaty exists. A bilateral agreement or convention may serve as grounds for tax exemption. In these cases, the representative office may conduct all its activities without paying VAT and other taxes or similar charges, and foreign individuals in the office will not be subject to Bulgarian tax. They would be charged only for income received in respect of any remuneration that is not paid directly by the principal, but rather by local Bulgarian sources.

For further information on this topic please contact Dimiter Smilenov at Novel Consult by telephone(+359 2 988 3041) or by fax (+359 2 986 3955) or by e-mail ([email protected]).
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