Pillar 2 Dashboard: Bulgaria

On March 27, 2025, Bulgaria’s 2025 State Budget Law was published in the Official Gazette. This includes a number of changes to the Corporate Income Tax Law to amend the Global Minimum Tax provisions from January 1, 2024.

On September 18, 2024, the Bulgarian Ministry of Finance published for public consultation draft legislation to amend the Bulgarian minimum taxation rules, including the introduction of the Transitional UTPR Safe Harbour. This was submitted to Parliament on December 2, 2024. Updated draft legislation was issued by the Ministry of Finance on February 18, 2025.

On December 22, 2023, the Law Amending the Corporate Income Tax Act (to implement the EU Minimum Tax Directive), was published in Issue 106 of the Official Gazette.

On December 13, 2023, the Bulgarian Parliament approved the amendments to the Corporate Income Tax Act to implement the Pillar 2 GloBE rules.

The law needs to be signed by the President to be enacted.

On September 26, 2023, the Bulgarian Ministry of Finance issued a draft law for the implementation of the EU Global Minimum Tax Directive.

General

As expected, the GloBE Law closely follows the EU Directive. There are very few options given to member states in the EU Directive in terms of flexibility over national implementation.

The 2025 Budget Law includes a new Section 2 of the additional provisions to the CIT Law to provide that the OECD Guidance (which includes the OECD Model Rules, Commentary, Administrative Guidance and Safe Harbours Guidance) is to be used as a source of examples or interpretation for the application of the Global Minimum Tax rules in Bulgaria.

As noted below, many aspects of the OECD Administrative Guidance (with a key exception) are not included in the original GloBE Law, however, they are included in the 2025 Budget Law.

Administrative Guidance

None of the provisions in the first set of OECD Administrative Guidance are included in the original GloBE Law, however, numerous aspects are included in the March 2025 Budget Law. This includes:

-Rebasing monetary thresholds in the GloBE Rules

-The deemed consolidation rules

-Excess negative tax carry-forward guidance

-The equity gain or loss inclusion election

-Qualified Ownership Interest/Flow through entity

-The extension of the taxable distribution method election to insurance investment entities

-The exclusion of Insurance Investment Entities from the definition of Intermediate Parent Entity and Partially-Owned Parent Entity

-Blended controlled foreign company regimes;

-The debt release election;

-The portfolio shareholding election;

-Excluding sovereign wealth funds from the definition of Ultimate Parent Entity.

The only aspect of the Second Set of OECD Administrative Guidance included in the original GloBE Law is the QDMTT Safe Harbour.

Provisions of the Second Set of OECD Administrative Guidance that are included in the March 2025 Budget Law include:

• Tax Credits Guidance (MTTCs)
• Transitional UTPR Safe Harbour

Aspects of the Third and Fourth Set of OECD Administrative guidance included in the March 2025 Budget Law include the Transitional CbCR Amendments, the changes for Blended CFC regimes and the definition of Securitisation entities.

Safe Harbour and Penalty Relief Guidance

The GloBE Law provides for the Transitional CbCR Safe Harbour and the QDMTT Safe Harbour. The Transitional UTPR Safe Harbour is included in the March 2025 Budget Law.

Importantly, Article 260z(3) of the GloBE Law includes an election for a simplified calculation for non-material constituent entities (NMCE), as provided in the OECD Safe Harbour and Penalty Relief Rules. The GloBE revenue and GloBE income of a NMCE is the total revenue of that constituent entity as determined in accordance with relevant CbC Regulations.

A NMCE is a constituent entity of an MNE Group that is not consolidated on a line-by-line basis in the MNE Group’s audited consolidated financial statements solely for size or materiality grounds.

For NMCEs whose revenues exceeds EUR 50 million, the financial accounts used to qualify for the Simplified Calculations Safe Harbour must be prepared in accordance with either an Acceptable Financial Accounting Standard or an Authorised Financial Accounting Standard.

The March 2025 Budget Law includes numerous amendments to the Transitional CbCR Safe Harbour to reflect the December 2023 OECD Administrative Guidance (including hybrid arbitrage arrangements, MNEs not required to file CbC Reports and Purchase Accounting Adjustments).

New Article 260y1 (inserted by the 2025 Budget Law) applies the OECDs Switch-Off rule for the QDMTT Safe Harbour where a QDMTT jurisdiction decides:

-not to impose a QDMTT on Flow-through Entities created in its jurisdiction;

-not to impose a QDMTT on Investment Entities subject to equivalents Articles 7.4-7.6 of the OECD Model Rules;

-to adopt an equivalent of Article 9.3 (international activity exemption) without limitation;

-to include JVs or members of a JV Group within the scope of the QDMTT but imposes the liability on Constituent Entities of the main group instead of directly on the members of the JV Group;

-not to apply a QDMTT on a Constituent Entity that is a Securitisation Entity.

Elections in the OECD Model Rules

The GloBE Law includes all of the key elections as provided in the EU Minimum Tax Directive, including:

-Excluded Entity Election

-Election to use the Realization Method

-Stock-Based Compensation Election

-Election to Spread Capital Gains

-Consolidation Election

-GloBE Loss Election

-Tax Transparency Election

-Taxable distribution Election

-Unclaimed Accrual Election

-Distribution Tax Regime Election

-Substance-Based Income Exclusion Election

-Prior Year Adjustment Election

-Transitional Safe Harbour Election

-De minimis Election

Elections in the Administrative Guidance

The March 2025 Budget Law includes a number of elections as provided in the OECD Administrative Guidance, including:

-Portfolio Shareholding Election

-Excess Negative Tax Carry-Forward Election

-Equity Investment Inclusion Election

-Debt Release Election, and the

-Qualified Ownership Interest Election

Differences to Model Rules

As expected, the GloBE Law closely follows the EU Directive. There are very few options given to member states in the EU Directive in terms of flexibility over national implementation.

The main options relate to the design of the QDMTT.

The key differences are with the OECD model rules. ie:

-The GloBE Law extends the GloBE rules to include large scale, purely domestic groups,

-Bulgaria applies the IIR to not only foreign subsidiaries but also to all domestic constituent entities. This is permitted but not mandatory under the GloBE Model Rules.

The OECD Model Rules allow flexibility as to how to apply the UTPR. Bulgaria’s approach is to apply a UTPR top-up tax rather than a denial of deduction.

As such the carry forward provisions in Article 2.4.2 of the Model Rules for UTPR amounts not sufficient to provide for the additional cash tax expense are not relevant and these rules are not included in the GloBE Law.

New Articles 260i(5)-(7) of the CIT law (inserted by the 2025 Budget Law) provide that the UTPR tax allocated to Bulgaria is allocated to individual constituent entities in Bulgaria based on the following formula:

50% x (Number of employees in the constituent entity/ Number of employees in the MNE group in the country) + 50% x (Total value of tangible assets in the constituent entity/ Total value of tangible assets in the MNE group in the country)

Qualifying Domestic Minimum Top-Up Tax

Chapter 34(l) of the GloBE Law provides for a QDMTT (or at least a domestic minimum tax that is likely to be classed as a QDMTT) as of January 1, 2024.

Article 260z(26) of the GloBE Law provides that the method of calculation is to take the general top-up tax calculation, or additional top-up tax from a prior year.

Under Article 260z(26) of the GloBE Law, the Payroll carve out element of the Substance-Based Income Exclusion does not apply for QDMTT purposes. The OECD Administrative Guidance does not require this to be included for a domestic minimum tax to be a QDMTT.

Under Article 260z(27)(2) of the GloBE Law, where the consolidated financial statements of the UPE are prepared on the basis of eligible accounting standards other than the International Accounting Standard adopted by the EU (in Regulation (EC) No 1606/2002), for QDMTT purposes,  the International Accounting Standard ( as adopted by the EU) or National Accounting Standard is used. 

This is amended in the March 2025 Budget Law, which provides that when the constituent entities of an MNE group located in Bulgaria prepare their financial statements for the reporting period in accordance with the Bulgarian Accounting Act on the basis of:

1. the same accounting standard, the QDMTT is determined on the basis of this accounting standard (ie Bulgarian GAAP if the CEs in Bulgaria apply Bulgarian GAAP or IFRS if the CEs in Bulgaria apply IFRS). The tax period is the calendar year;

2. different accounting standards, the QDMTT is determined on the basis of the accounting standard in used in the consolidated accounts. The tax period is the accounting period of the group.

Under Article 260z(27)(3) where a constituent entity of an MNE Group located in Bulgaria prepares more than one financial statement based on different accounting standards, the QDMTT is determined as follows:

1. where all other constituent entities of the same MNE Group located in Bulgaria prepare their financial statements for the reporting period under the Accountancy Act on the basis of the same accounting standard, that accounting standard is used;

2. if the other constituent entities apply different accounting standards, the accounting standard used in the consolidated accounts applies.

As provided in the OECD Administrative Guidance,  CFC taxes are not pushed down when considering the QDMTT ETR under Article 260z(27) of the Pillar Two Ordinance. Article 260z(27) prohibits the pushdown of taxes for PEs, CFC’s, Hybrid entities, and also for taxes on distributions (aside from Bulgarian withholding tax). This ties in with the Second Set of OECD Administrative Guidance.

Under Article 260z(25) of the GloBE Law, top-up Tax under a QDMTT in respect of Joint Ventures and Minority-Owned Constituent Entities is the whole amount irrespective of the fact that the UPE would only be subject to tax on its share of the Top-up Tax arising from Joint Ventures, JV subsidiaries, MOCEs.

Registration

Not provided in the Legislation.

Filing

The relevant aspects of the submission of a GloBE Information Return (GIR) are included, as provided in the EU Directive.

The proposed approach is that every Constituent Entity located in Bulgaria will have an obligation to file a GIR in Bulgaria. However, this obligation can be discharged if the GIR is filed by:

-The Ultimate Parent Entity, or

-The Designated Filing Entity.

Where the GIR is being filed by either the Ultimate Parent Entity or the Designated Filing Entity, the Constituent Entity, must file a notification with the Revenue.

The notification must contain:

-Details of the entity that is filing the GIR, and

-The jurisdiction in which such an entity is located.

Where the GIR is filed by the Designated Local Entity it needs to outline the Constituent Entities that it is filing on behalf of.

Both the GIR and associated notifications must be filed no later than 15 months after the end of the fiscal year (with an 18-month deadline for the Transition Year).

Article 260z(23) of the GloBE Law also requires submission of an additional self- assessment return (a ‘GloBE Top-Up Tax Return’) by the GIR filing deadline.

The 2025 Budget Law additionally requires the submission of a QDMTT return by the GIR filing deadline.

An amended Article 260y23 (inserted by the 2025 Budget Law) provides that the GloBE information return (“GIR”) will be submitted in the currency of the group consolidated financial statements. In cases where conversion into BGN is necessary, the official exchange rate for the last day of the fiscal period of the BGN to the currency in which the top-up tax is determined should be used.

Article 260y25 provides that domestic top-up tax returns will be converted in BGN based on the exchange rate of the Bulgarian National Bank for the last date of the fiscal period.

Section 30 of the 2025 Budget Law provides that the filing/payment deadline for the GIR and tax returns for the first (transitional year) is 18 months after the last day of the tax period however, this cannot be before June 30, 2026. The filing system will be operational from January 10, 2026.

Payment

Chapter 34k of the GloBE Law requires the top-up tax to be paid by the deadline for filing the GIR return.

Penalties

A late filing penalty of between 100,000 BGN and 200,000 BGN applies (increased to up to 300,000 BGN for repeated failures).

Filing an incorrect GloBE return or QDMTT return is subject to a penalty of between 50,000 BGN and 150,000 BGN applies (increased to up to 250,000 BGN for repeated failures).

No returns issued yet.