An Israeli Company Operating in Bulgaria: Branch, Subsidiary or Representative Office, Permanent Establishment, VAT, Employees and an Annual Compliance Calendar

An Israeli company that starts selling, carrying out projects or employing people in Bulgaria needs to decide in what form to operate there. The decision affects tax, legal liability, VAT and the administrative burden. This guide compares the options and sets out the main obligations.

1In what ways can an Israeli company operate in Bulgaria?

2What is a permanent establishment and when is one created?

A permanent establishment arises when the Israeli company has a fixed place of business in Bulgaria, a construction project or services lasting more than six months, or an agent who concludes deals on its behalf, under the Israel-Bulgaria tax treaty. A permanent establishment is the basis that allows Bulgaria to tax the profits of an Israeli company. Under the tax treaty between Israel and Bulgaria, a permanent establishment is a fixed place of business through which the company's business is carried on, including a place of management, a branch, an office, a factory or a workshop.

1. Building site or installation project: a permanent establishment only if it lasts more than six months.
2. Services, including consultancy: a permanent establishment if the company's employees or persons on its behalf work in Bulgaria on the same or a connected project for more than six months within 12 months.
3. Dependent agent: under the MLI, a person acting in Bulgaria on behalf of the company who plays the principal role in concluding contracts that are routinely signed without material modification may create a permanent establishment.
4. Auxiliary activity: purely preparatory or auxiliary activity, such as storage or collecting information, does not create a permanent establishment, subject to the MLI anti-fragmentation rules.

Where a permanent establishment is created, the profit attributable to it is taxed in Bulgaria at corporate tax of 10%, and Israel grants a credit for the Bulgarian tax up to the amount of the Israeli tax. Details on tax and on transferring profits are in the guide Israel's tax treaties.

3What is the difference between a branch and a subsidiary?

A branch is part of the Israeli company registered in the Bulgarian Commercial Register. It is relatively simple to set up and has no separate capital, but the Israeli company is fully liable for its debts and for claims against it. A subsidiary is a Bulgarian company in every respect, whose liability is limited to its capital, and it usually finds it easier to open a bank account, take part in tenders and work with local customers.

• A branch is suitable when the activity is limited, when customers prefer to contract directly with the Israeli company, or when you want to offset losses at company level.
• A subsidiary is suitable when there is significant legal risk, many employees, assets in Bulgaria, a local partner or an intention to sell the business in the future.
• Land: a Bulgarian company may acquire urban land, and an Israeli company directly may not. See land in Bulgaria through a Bulgarian company.

4When is a trade representative office enough?

A trade representation office is enough as long as the activity in Bulgaria is limited to market research, marketing and customer contact, without selling goods or providing services. A trade representative office of a foreign company is registered in the register of the Bulgarian Chamber of Commerce and Industry, and subsequently also in the BULSTAT register. It is not a legal entity and may not engage in commercial activity, meaning selling goods or providing services. It is suitable for the market research stage, marketing and contact with customers and distributors.

According to the Chamber's 2025 application form, the application must include, among other things, an official document on the legal status of the foreign company, a resolution of the management body to open the office, a notarised power of attorney and an annual activity plan.

5Is a Bulgarian manager or representative needed?

A Bulgarian subsidiary is not required to appoint a Bulgarian manager, and the manager may be Israeli. A branch appoints a branch manager, who may also be a foreigner. In practice, having a local contact person makes communication with authorities, banks and courts easier.

There is also an Israeli consideration: a subsidiary whose decisions are all made in Israel may be treated as an Israeli resident for tax purposes, and then the Bulgarian tax advantage is lost. It is worth planning in advance where decisions are made and documenting it.

6When must an Israeli company register for VAT in Bulgaria?

An Israeli company making taxable supplies in Bulgaria is generally required to register for VAT, and according to PwC, as of November 2026, the standard VAT rate is 20%. A company established in Bulgaria, such as a subsidiary, must register when taxable turnover exceeds 51,130 euros, a threshold that applies from 1 January 2026, within 7 days of crossing the threshold. A foreign company not established in Bulgaria that makes taxable supplies there must generally register regardless of turnover, subject to exceptions.

The exceptions depend on the type of transaction and the place of supply, for example where the Bulgarian customer is a registered business that pays the VAT under the reverse-charge mechanism. This needs to be checked with a Bulgarian accountant before the first transaction.

7What are the obligations when employing staff in Bulgaria?

• A written employment contract, under the Bulgarian Labour Code.
• Notification to the National Revenue Agency (NRA) within three days of concluding or amending the contract, and within seven days of its termination.
• Minimum wage: the 2026 budget froze the minimum wage at 620.20 euros a month pending a new formula.
• Social security and health insurance: a total of 32.7% to 33.4% of insurable earnings in 2026, of which 18.92% to 19.62% is paid by the employer and 13.78% by the employee.
• Income tax on salary: a flat 10%, withheld at source by the employer.
• Israeli employees: an Israeli citizen who is not an EU citizen needs a work permit and residence, and this is a separate process that must be planned in advance.

A foreign employer without an entity in Bulgaria may encounter practical difficulty in running payroll and reporting, and this is sometimes the reason for setting up a subsidiary or working with a local employment company. Such employment is also examined for permanent establishment purposes.

8In what language and under what law should contracts be drafted?

Between businesses, the parties may generally choose the language of the contract and the governing law, and a Bulgarian court will respect a choice of foreign law under the Rome I Regulation, subject to mandatory rules. However, in legal proceedings in Bulgaria every document will be filed with a Bulgarian translation, and employment contracts, consumer contracts and documents submitted to authorities usually require a Bulgarian version or translation.

• A bilingual contract with a clause stating which version prevails.
• Explicit governing-law and jurisdiction or arbitration clauses.
• Currency: since 1 January 2026 Bulgaria's currency is the euro; contracts denominated in leva are read in euros at the fixed rate.
• Payment terms, late-payment interest and security, as these will determine how easy collection will be in the future.

9Does the activity require a licence?

Most commercial activities do not require a special licence beyond registering the company. Regulated activities, such as financial services, insurance, gambling, energy, pharmaceuticals, construction, tourism and transport, require a licence or registration with the relevant regulator, and sometimes a particular form of incorporation or higher minimum capital. It is worth checking this before choosing a structure.

10What is the annual compliance calendar for activity in Bulgaria?

11How do you open a bank account for activity in Bulgaria?

A subsidiary or branch opens an account with a Bulgarian bank after registration. The bank will ask for the documents of the Israeli and the Bulgarian company, the ownership chain up to the ultimate individual, proof of the source of funds and a description of the activity, and sometimes a meeting with the authorised signatory. An organised document file shortens the process. See also what is needed to open a file and know-your-customer.

12What must be reported in Israel?

The profits of a branch in Bulgaria are part of the Israeli company's income and are taxed in Israel, with a credit for the Bulgarian tax. A subsidiary is taxed in Bulgaria, and the Israeli company is taxed in Israel when it receives a dividend, subject to the rules. In both cases, the obligations to report a holding in a foreign company and the controlled foreign company rules must be checked and coordinated with the company's accountant. See the Israeli side of a property abroad.

13How do you decide on the right structure?

1. Define what will actually be done in Bulgaria: marketing, sales, a project, a service or manufacturing.
2. Estimate how long each project will last, in relation to the treaty's six-month threshold.
3. Check whether customers or tenders require a Bulgarian entity.
4. Check VAT obligations before the first transaction.
5. Decide whether employees will be hired, and how.
6. Choose a structure: representative office, branch or subsidiary, and plan management and reporting in both countries.

This guide provides general information only, and every activity requires a specific review of Bulgarian and Israeli law.

More on doing business in Bulgaria: Setting up a company in Bulgaria · Corporate tax and transferring profits to Israel from Bulgaria · Commercial disputes and litigation in Bulgaria · Comparison of 8 countries · All guides for companies and businesses

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