Corporate Tax in Bulgaria 2026 and Dividends to Israel: 10% Corporate Tax, Withholding Tax, the Tax Treaty and What You Pay in Israel

Bulgaria offers one of the lowest corporate tax rates in the European Union, but for an Israeli owner the real question is how much remains once the profit reaches Israel. This guide covers tax at company level, withholding tax, the tax treaty, taxation in Israel, and the risks that can make the structure more expensive than expected.

1What is the corporate tax rate in Bulgaria in 2026?

Bulgarian corporate tax is a flat 10% on taxable profit, and there is no additional local corporate tax. According to PwC's review updated in August 2026, the rate did not change in 2026.

• Annual return: filed between 1 March and 30 June of the year following the tax year, and the difference between the annual tax and the advance payments is paid by the same date.
• Advance payments: monthly or quarterly, depending on sales turnover in the previous year; a company set up in the current year or the preceding year is exempt from advance payments.
• Limitation: five years from the beginning of the year following the date on which the tax should have been paid, with a possible extension up to ten years.
• Large groups: the global minimum tax rules (Pillar Two) apply in Bulgaria, including a domestic top-up tax, to large multinational groups only.

2Does Bulgaria have special tax regimes?

Not for ordinary business activity, which is subject to the general 10% corporate tax (PwC, as of November 2026). Special tax regimes are limited to specific sectors: tonnage tax on commercial shipping at 10% based on net tonnage, and alternative taxation for part of the gambling sector. Ordinary commercial, services or technology activity is subject to the general corporate tax.

3How much tax is withheld in Bulgaria on a dividend to an Israeli shareholder?

Under Bulgarian law and according to PwC, as of November 2026, a dividend paid by a Bulgarian company to a shareholder who is neither resident in Bulgaria nor in the EU is subject to 5% withholding tax. The exemption for EU parent companies, under the Parent-Subsidiary Directive, does not apply to an Israeli company.

4What does the tax treaty between Israel and Bulgaria provide?

The treaty limits Bulgarian tax on dividends, interest and royalties paid to an Israeli resident, but as of November 2026 a dividend is in practice taxed at 5% under Bulgarian law, because the domestic rate is below the treaty ceiling. Israel has a double taxation treaty with Bulgaria, signed in Jerusalem on 18 January 2000 and modified by the Multilateral Instrument (MLI). The authorities of both countries have published a joint synthesised text. A treaty limits tax in the source country but does not increase it: if the domestic rate is lower than the treaty ceiling, the domestic rate applies.

To benefit from the treaty, Israeli residence must be proven, usually with a certificate of residence from the Israel Tax Authority, and the treaty rules and the principal purpose test added under the MLI must be met. A broader look at Israel's treaties is in the guide Israel's tax treaties by country.

5How much tax is paid in Israel on a dividend from a Bulgarian company?

As of November 2026, an individual resident in Israel pays 25% on a dividend from a foreign company, or 30% if he is a substantial shareholder, meaning he holds 10% or more of any of the means of control. The Israeli surtax on high income may also apply. The tax withheld in Bulgaria is credited against the Israeli tax on the same income, up to the amount of the Israeli tax.

Where the shareholder is an Israeli company, according to PwC's tax summary a dividend from a foreign company is generally taxed in its hands at 23%, and in certain circumstances it is possible to elect a mechanism that also gives credit for part of the corporate tax paid by the foreign company. Deciding between direct holding and holding through an Israeli company requires an accountant's calculation. Details are in the guide tax for an Israeli investor in a foreign company.

6What is the total burden on profit reaching an Israeli owner?

Based on the rates as of November 2026 (PwC), out of a profit of 100 in a Bulgarian company roughly 63 is left for an Israeli individual owner who is a substantial shareholder, and 67.5 if not. The following calculation is an illustration only, before surtax, expenses and adjustments. It assumes a profit of 100 units, Bulgarian corporate tax of 10% and 5% withholding on the dividend, and a credit in Israel only for the tax withheld from the dividend.

The meaning: Bulgaria's low corporate tax does not cancel the tax in Israel, it defers it until distribution. The difference between Bulgaria and Israel is paid in Israel when the profit is distributed, unless the controlled foreign company rules apply, in which case Israeli tax may arise even before distribution.

7When is a Bulgarian company treated as a controlled foreign company?

When it is controlled by Israeli residents and most of its income is passive, because the 10% Bulgarian corporate tax is below the 15% threshold in the law. Under section 75B of the Israeli Income Tax Ordinance, an Israeli controlling shareholder in a controlled foreign company is taxed on his share of undistributed profits, as if he had received them as a dividend. The conditions are cumulative, and mainly: most of the income or profit is passive, the foreign tax rate on the passive income does not exceed 15%, more than 50% of the means of control are held by Israeli residents, and the shares are not traded or are traded only to a small extent.

Bulgaria's 10% corporate tax meets the rate condition. A Bulgarian company that holds rental properties, makes loans or receives royalties, and is controlled by Israelis, should therefore be checked in advance. A company with genuine business activity in Bulgaria, employees and customers is less exposed, but that too is a review that should be documented.

8Is it better to take a salary or a dividend?

There is no single answer: a salary reduces the 10% corporate tax but is taxed in Israel at the marginal rate, while a dividend bears 5% withholding in Bulgaria and 25% or 30% tax in Israel, with a credit. A salary for a director or manager is an expense that reduces taxable profit in Bulgaria, but it is taxed at the individual level and may trigger Bulgarian social security contributions. Under the treaty, directors' fees from a Bulgarian company may be taxed in Bulgaria, and employment income may be taxed in the country where the work is performed, subject to the 183-day exception.

There is no single answer here. The right combination depends on the marginal tax rate in Israel, the extent of the work actually performed in Bulgaria and the ownership structure, and it needs to be calculated with an accountant in both countries.

9When does an Israeli company operating in Bulgaria create a permanent establishment there?

When it has a fixed place of business in Bulgaria, a building site lasting more than six months, or a dependent agent acting on its behalf. Under the treaty, a permanent establishment is a fixed place of business through which the business of the enterprise is carried on, including a place of management, a branch and an office. A building site or installation project is a permanent establishment only if it lasts more than six months, and the provision of services through employees is a permanent establishment if it lasts more than six months within a 12-month period.

The MLI broadened the dependent agent rule: a person acting in Bulgaria on behalf of the Israeli company who plays the principal role in concluding contracts may create a permanent establishment even without an office. Where a permanent establishment is created, the profit attributable to it is taxed in Bulgaria at 10%, and Israel grants a credit.

10What is the VAT rate in Bulgaria and when must you register?

• Rates: 20% standard rate, and a 9% reduced rate for certain types of supplies.
• Registration threshold: from 1 January 2026, registration is mandatory when taxable supplies in Bulgaria exceed 51,130 euros in the current or previous year, within 7 days of crossing the threshold.
• Foreign company: a company not established in Bulgaria that makes taxable supplies there must generally register regardless of turnover, subject to exceptions.
• Voluntary registration: possible, but not retroactively.

11What must be reported in Israel?

A shareholder resident in Israel should check the obligation to declare a holding in a foreign company, for example on Form 150, and annual reporting of dividends, capital gains and deemed dividends if the controlled foreign company rules apply. To receive a credit for the Bulgarian tax, a withholding certificate from the company is needed. The obligations are collected in the guide the Israeli side of a property abroad.

12How should you plan before distributing profits?

1. Confirm the current dividend withholding rate with the Bulgarian accountant.
2. Obtain an Israeli certificate of residence, if needed to benefit from the treaty ceilings.
3. Check whether the owner is a substantial shareholder and whether surtax applies.
4. Check the controlled foreign company tests for the relevant year.
5. Document where the company's material decisions are made.
6. Keep the withholding tax certificates for the credit in Israel.
7. Coordinate reporting in both countries before the filing deadline in Israel.

This guide provides general information and is not tax advice; every structure requires a specific review with an accountant in Bulgaria and in Israel.

More on doing business in Bulgaria: Setting up a company in Bulgaria · An Israeli company operating in Bulgaria · Commercial disputes and litigation in Bulgaria · Comparison of 8 countries · All guides for companies and businesses

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