Insurance of foreigners from the EU under a labour contract
Upon hiring a foreigner from the European Union under a labour contract at a company registered in Bulgaria, neither a work permit, nor Certificate A1 certifying the applicable legislation is required. Pursuant to the Bulgarian legislation, social security contributions, health insurances and taxes are payable under the labour contract.
Before the conclusion of a labour contract with a foreigner from the EU, the person is required to:
- to have an address of residence in the country, which is proved by a rental agreement.
- to obtain an identification number of a foreigner from the National Revenue Agency (NRA) according to his/her address of residence in the country. If the person is not in Bulgaria, the identification number of a foreigner may be obtained by the person’s employer only with a notarised power of attorney explicitly authorising the employer to represent the person before NRA.
Pursuant to Art. 6, Para. 1 of the Entering, Residing and Leaving the Republic of Bulgaria of European Union Citizens and Members of Their Families Act, a citizen of the European Union may reside in the Republic of Bulgaria with a valid ID card or a valid passport for up to three months. An EU citizen may reside on a long-term or permanent basis in the Republic of Bulgaria. For this purpose, the person should obtain a certificate issued by the Border Police General Directorate of the Ministry of Interior, Sofia Directorate of the Ministry of Interior or the Regional Directorates of the Ministry of Interior, or by officials authorised by the respective directors. The certificate of long-term stay is valid for up to five years, and afterwards a certificate of permanent stay is issued, if the person has resided legally and continuously for five years in the Republic of Bulgaria or if the person meets the conditions described in detail in Art. 16 of the aforesaid Act.
Besides a certificate of long-term or permanent residence of an EU citizen, EU citizens may request the issuance of a certificate of long-term or permanent residence on a media card. The media card certificate contains additional data, such as a photo, personal number of a foreigner (PNF), address. For this purpose, an application should be filed as per the procedure stipulated in the Regulation for Issuance of Bulgarian Identification Documents.
If the person has obtained a personal number of a foreigner (PNF), an application should be filed with NRA to delete the identification number of a foreigner in order to avoid confusion in the tax insurance system.
In case of long-term residence in Bulgaria of a foreign citizen and if the latter is employed under a labour contract, the foreign citizen should choose a GP in the country.
Insurance of employees from the European Union sent on a business trip in Bulgaria
In case of a short-term business trip in Bulgaria of an employee from the EU, the legislation of the country sending the employee shall apply, and the salary and the business trip expenses of the employee shall be calculated pursuant to the legislation of this country. Issuance of Certificate A1 is not required for a short-term business trip.
In case of a long-term business trip in Bulgaria, the EU directives shall apply.
- In case of a business trip exceeding 30 days, issuance of Certificate A1 for the applicable legislation is mandatory.
- In case of a business trip exceeding 90 days, issuance of Certificate A1 is also mandatory, as well as issuance of a personal number of a foreigner in Bulgaria by the Ministry of Interior, the Migration Directorate.
In order to determine whether there are grounds for social and health insurance in Bulgaria with respect to a person falling within the coordination regulations, first the social security legislation applicable for this person should be established.
The applicable legislation is determined pursuant to the provisions of Section II of Regulation 883/2004 (in force as of 01.05.2010).
The applicable legislation indicates the member state where the mandatory social security contributions are payable, including for the activities and income from other member states.
The main rule in determining the applicable legislation requires that the person should be governed by the legislation of the member state on the territory of which he/she works.
Pursuant to Art. 11(3)(a) of Regulation 883/2004, a person performing activity as employed or self-employed in a member state shall be governed by the legislation of this member state.
If the person also works on the territory of other member states for one or more employers or as self-employed, different provisions of Section II of Regulation 883/2004 shall apply to determine the applicable legislation, depending on the particular hypotheses.
The procedure for taxation of the income realised under contracts for management and control from a source in the Republic of Bulgaria is directly related to qualifying the beneficiary as a local natural person within the meaning of Art. 4 of the Taxation of the Income of Natural Persons Act (TINPA) or as a foreign natural person within the meaning of Art. 5 of TINPA. The tax obligation of local natural persons concerns their income from sources in the Republic of Bulgaria and abroad, and of foreign natural persons – only the income from sources in the Republic of Bulgaria (Art. 6 and Art. 7 of TINPA).
Within the meaning of Art. 4 of TINPA, a local natural person, regardless of his/her citizenship, is a person:
- Who has a permanent address in Bulgaria, or
- Who resides on the territory of Bulgaria for more than 183 days within every 12-month period, or
- Who has been sent abroad by the Bulgarian state, by its authorities and/or organisations, by Bulgarian enterprises, and his/her family members, or
- Whose centre of life interests is in Bulgaria.
For the purposes of Art. 4, Para. 1, item 2 of TINPA, the person is considered local for the year in which the stay exceeds 183 days. The day of leaving and the day of entering the country are regarded separately as days of residing in the country, and only the period of the stay in Bulgaria for the purpose of training or medical treatment is not considered to be residence in Bulgaria (Art. 4, Para. 2 and Para. 3 of TINPA).
For the purposes under Art. 4, Para. 1, item 4 of TINPA, the centre of life interests is in Bulgaria if the person’s interests are closely related to the country, and these interests may include the family, the ownership, the place of work, professional or economic activity performed by the person, and the place of management of his/her property. A person having a permanent address but not the centre of his/her life interests in Bulgaria is not a local natural person (Art. 4, Para. 4 and Para. 5 of TINPA).
Pursuant to Art. 8, Para. 6, item 9 of TINPA, income from a source in the Republic of Bulgaria is any remuneration under a contract for management and control of an enterprise which is paid by a local entity/person, a commercial representative office, a place of business activity or an established office in the Republic of Bulgaria. It should be noted that the relations under contracts for management and control, including contracts with members of management and supervisory bodies of enterprises are labour relations within the meaning of § 1, item 26, letter “h” of the Additional Provisions of TINPA.
If considered to be a local person, the person will be subject to taxation pursuant to the provisions of Art. 24 of TINPA, in connection to § 1, item 26, letter “h” of the Additional Provisions of TINPA. In this regard, the taxable income under a labour contract is determined pursuant to Art. 24 of TINPA, and the annual tax base – pursuant to Art. 25 of TINPA.
If considered to be a foreign person, the person will be subject to taxation pursuant to Art. 37, Para. 1, item 9 of TINPA, which stipulates that, regardless of the circumstances under Art. 13 of TINPA, a final tax is levied on remunerations from a source in Bulgaria under contracts for management and control of enterprises charged/paid in favour of foreign natural persons in the absence of an established office in the country. The tax rate of the final tax under Art. 37 is 10 per cent (Art. 46, Para. 1 of TINPA).
On the grounds of Art. 65 of TINPA, the tax on income under Art. 37, Para. 1, item 9 of TINPA should be deducted and paid by the enterprise paying the remuneration by the end of the month following the quarter of charging the income from the enterprise.
Enterprises which pay remunerations and deduct the final tax on charged/paid income of foreign persons under chapter VI should declare these circumstances in a tax return under Art. 55, Para. 1 of TINPA to be submitted by the end of the month following the quarter of the tax payment.
Pursuant to Art. 58 of TINPA, at the foreign person’s request a certificate of tax payment is issued by the Territory Directorate of the National Revenue Agency where the tax return under Art. 55, Para. 1 of TINPA has been submitted.
Pursuant to Art. 37, Para. 7 of TINPA, a final tax is not levied on income exempted from taxation under Art. 13 of the same Act and charged/paid in favour of natural persons having established themselves for tax purposes in an EU member state or in another ЕЕА (European Economic Area) member state. These circumstances are proved before the income payer by way of a certificate issued by the tax administration of the state where the person has established herself/himself for tax purposes, and a declaration by the person who has gained the income on the presence of the circumstance under Ar. 13 of TINPA (Art. 37, Para. 8 of TINPA).
The provision of Art. 75 of TINPA should be explicitly pointed out as especially important with respect to taxation, as it regulates prevalence over the internal tax legislation of the conventions and other international agreements for avoidance of double taxation which are ratified by the Republic of Bulgaria, promulgated and in effect. If the Republic of Bulgaria is a party to a convention for avoidance of double taxation concluded with the country of origin of the particular natural person, the latter should prove the grounds for applying this convention pursuant to section III of Chapter XVI of the Tax Insurance Procedure Code.