Moldova has recently clarified certain requirements related to the taxation of dividends distributed during the period 2008-2015 to residents of Bulgaria, in the context of the application of the double tax treaty concluded between the two countries in 1998. According to the treaty, Bulgarian residents who hold at least 51 % of the capital of a dividend-distributing Moldavian company are subject to a 5% withholding tax rate on those dividends, whereas all other Bulgarian dividend-recipients (who do not fulfil the capital ownership criteria) are subject to a 15% withholding tax rate.
The rates of taxation of dividends provided by the double tax treaty between Bulgaria and Moldova are significantly lower in comparison with those prescribed in the Tax Code of Moldova. However, as is typically the case, the tax treaty is deemed to prevail over the domestic legislation of Moldova and this has been confirmed by the Moldavian State Tax Service.
Despite being given priority in the application of tax treaties over domestic legislation, а resident of Bulgaria is obligated to provide to the payer, before the date of payment of income, a certificate of Bulgarian residence in order to for the treaty provisions to apply. As a result of omitting this step, the income of a resident of Bulgaria will be subject to withholding tax in accordance with the dispositions of the Tax Code which is rated at 15% (if related to profits earned between 2008 and 2011) or 6% (if related to profits earned between 2012 and 2015).
Additionally, the Bulgarian beneficial owner is entitled to ask the Moldavian dividend-payer to claim back the overpaid income tax on dividends if the Bulgarian residence certificate is submitted in the same tax year, even after the payment of income. In such cases, previously filed income tax forms will need to be retroactively corrected.