Bulgaria as an outsourcing destination
Bulgaria offers a low cost business environment including low rental prices and employees with an average net salary of EUR 327/month. Bulgaria has a very well developed Internet infrastructure which offers fabulous opportunities to outsource activities to a Bulgarian subsidiary. The EU Parent-Subsidiary Directive enables the parent company to repatriate the low-taxed profits in a tax-efficient way:
Several EU countries offer an attractive IP holding regime but levy relatively high corporate income taxes on pure trading income. Other EU countries such as Malta and Cyprus levy low corporate income taxes on trading income but have an island image. Bulgaria is a good alternative within the EU and offers a flat corporate income tax rate of only 10% applicable to all types of income. A Bulgarian company can function as a subsidiary of a non-EU parent company. As such, one achieves a minimum tax leakage in Europe (10% corporate tax and 5% withholding tax) and a tax-efficient repatriation of the profits.
It is also possible to avoid the 5% withholding tax on dividends by interposing an intermediate holding company in a EU country which doesn’t levy withholding tax on dividend payments, such as the UK or Hungary. A cost-benefit analysis will determine if such an intermediate holding vehicle is a smart solution (the avoidance of the 5% Bulgarian withholding tax on dividends versus the additional cost of an intermediate holding vehicle in the UK or Hungary for example).