Italy
Bulgaria
Bulgaria's 10% corporate tax is less than half of Italy's 24% IRES. For an Italian owner, that triggers the controlled foreign company test of Article 167 of the TUIR. On dividends, however, Bulgaria benefits from being in the EU: Italian law never treats an EU country as a privileged regime.
This guide covers the treaty, the CFC test, dividends to an Italian company and to an individual, and the renumbering of the rules in 2027.
What Bulgaria asks of an Italian founder
- No visa, no permit: an Italian citizen can own, manage and live in Bulgaria.
- One owner and one manager, EUR 1 of capital; an Italian SRL can be the owner.
- Apostilled documents with certified Bulgarian translations.
- A capital account at a Bulgarian bank before registration.
The steps are in how to register a company in Bulgaria.
The 1988 treaty
| Income from Bulgaria to Italy | Treaty ceiling | Bulgarian domestic rate | What applies |
|---|---|---|---|
| Dividends to an individual | 10% | 5% | 5% |
| Dividends to an Italian company | 10% | 0% to EU companies | 0% |
| Interest | 0% | 10% | 0% |
| Royalties | 5% | 10% | 5% |
To use the treaty, a Bulgarian resident needs a "type 1" residence certificate, issued under a treaty, not the "type 2" domestic certificate.
Tax estimate
How much tax could you save?Three questions, then the yearly difference between your current rate and three jurisdictions.
Article 167: the CFC test
- 1Do you control the Bulgarian company?Control under the Civil Code, or more than 50% of profits
- 2Effective taxation below 15%?Yes: Bulgaria taxes at 10%
- 3More than one third passive income?Interest, royalties, dividends, low value intragroup services
- 4Both met: profit attributed to ItalyUnless you show a real economic activity with staff, equipment and premises
| Bulgarian company profile | Rate | Passive income | Outcome |
|---|---|---|---|
| Operating company with Bulgarian staff and outside clients | Below 15% | Under one third | Not attributed |
| Service company billing the Italian parent | Below 15% | Likely over one third | Attributed, unless substance is shown |
| Holding or IP company | Below 15% | Over one third | Attributed, unless substance is shown |
Article 167 applies to EU companies too: being in the EU does not exempt the EOOD, but real substance does. An advance ruling from the Italian tax agency is available.
Dividends to an Italian company
Article 89 excludes 95% of a dividend from the receiving company's income, unless it comes from a privileged regime. Article 47-bis defines privileged regimes as those of states other than EU members: a Bulgarian dividend therefore always qualifies for the 95% exclusion.
| On 100 of Bulgarian profit | Italian company owner | Italian individual owner |
|---|---|---|
| Bulgarian corporate tax, 10% | 10.00 | 10.00 |
| Bulgarian withholding | 0.00 | 4.50 |
| Italian tax on the dividend of 90 | 1.08 (24% on 5%) | 23.40 (26%) |
| Total | 11.08 | 37.90 |
Dividends to an Italian individual
- 26% substitute tax on the dividend, withheld by an Italian intermediary or declared in the return.
- No credit for the Bulgarian 5% in the usual case, since income under a substitute tax does not give a foreign tax credit; ask your adviser.
- Reporting: the shares go in the RW section of the return.
Running it from Italy
A company whose seat of management is in Italy is resident in Italy for tax, and working for it from home can create an Italian permanent establishment. Keep the manager, decisions and books in Bulgaria; see tax for non-residents.
The article numbers change on 1 January 2027
Legislative Decree 117 of 19 June 2026 replaces the TUIR from 1 January 2027. The rules survive, the numbers move:
- CFC rule: Article 167 becomes Article 186.
- Dividends: Article 89 becomes Article 98.
- Privileged regimes: Article 162.
- Residence: Article 82.
Advice dated before 2027 cites the old numbers.
The bottom line
For an Italian company, a Bulgarian subsidiary with real activity costs about 11 on 100 of distributed profit, helped by the EU exclusion from the privileged regime rules. For an individual owner, the 26% substitute tax brings it to about 38. In both cases Article 167 attributes a passive Bulgarian company without substance.
corpsec registers the EOOD, including for an Italian SRL owner, and provides the registered address. See the Bulgaria formation service, or read how Bulgarian corporate tax works.
Frequently asked questions
Is there a tax treaty between Italy and Bulgaria?
Yes, signed in Sofia on 21 September 1988 and ratified by Italy in 1990. It caps dividends at 10%, interest at 0% and royalties at 5%.
Is Bulgaria a tax haven for Italian purposes?
No. Article 47-bis of the TUIR excludes EU states from privileged regimes, so Bulgarian dividends get the 95% exclusion for Italian companies.
Does the Italian CFC rule apply to a Bulgarian company?
It can. Bulgaria's 10% is below the 15% effective tax line, so a controlled company with more than one third passive income is attributed, unless it has real substance.
How are Bulgarian dividends taxed for an Italian individual?
At the 26% substitute tax, usually without credit for the Bulgarian 5%. On 100 of profit, about 38 in total.
Can I run a Bulgarian company from Italy?
You can, but if its seat of management is in Italy it becomes Italian resident for tax.
Sources
- Normattiva, Law 389 of 29 November 1990: ratification of the Italy and Bulgaria convention signed in Sofia on 21 September 1988
- PwC Worldwide Tax Summaries, Italy, Withholding taxes (reviewed 13 July 2026): treaty rates with Bulgaria, dividends 10%, interest 0%, royalties 5%
- Brocardi, TUIR Article 47-bis: privileged tax regimes are those of states other than EU members and EEA states with an effective exchange of information
- Normattiva, TUIR Article 167 as applicable in 2026: control, the 15% effective taxation test, the one third passive income test and the substance exemption
- Normattiva, Legislative Decree 117 of 19 June 2026: new consolidated income tax act from 1 January 2027, CFC rule moved to Article 186
- Ecnews, 20 October 2021: Bulgarian tax residence certificates of type 1 and type 2, and treaty access
Read on 26 October 2026: the ratification law on Normattiva, PwC's Italian treaty table reviewed on 13 July 2026, and Article 47-bis TUIR on Brocardi. Read on 5 October 2026 for this series on Normattiva: TUIR Articles 89 and 167 and Legislative Decree 117/2026. The treaty articles themselves were not read; rates are from PwC, and the date of entry into force was not found. Our calculation for individuals assumes the 26% substitute tax on dividends with no credit for the Bulgarian 5%, the usual position for income under a substitute tax; confirm with an Italian adviser. This is not legal or tax advice.