We review control of foreign companies and planned cross-border transfers, identifying potential tax exposure, supporting evidence and reporting needs.
In one ARG review, the documents and deadlines for a CFC and exit tax assessment were spread across several people. ARG examined the relevant contracts, payments and residency circumstances, then converted the analysis into a practical action list.
The result was a clearer view of which information mattered and what was still required. That distinction is central to this service. A foreign subsidiary may create Bulgarian CFC exposure because of control and low foreign taxation, while a transfer of assets, activity or tax residence may create a separate exit tax issue.
ARG can help when you need to
Identify the Bulgarian taxpayer, foreign entities and establishments, associated enterprises and voting, capital and profit rights.
Provide foreign accounts, tax computations and payments so the Bulgarian-law profit and low-tax comparison can be calculated.
Document the people, premises, equipment and assets actually supporting the foreign business and its income.
Before moving assets or activity, establish taxing rights, market value, tax basis and any instalment conditions.
A controlled foreign company, or CFC, can cause a Bulgarian corporate taxpayer to include foreign profits before receiving a dividend. Under ZKPO Article 47в, the rule covers a foreign entity or foreign permanent establishment whose profits are not taxable or are exempt in Bulgaria. For an entity, the taxpayer alone or with associated enterprises must hold more than 50% of votes, capital or profit rights. The low-tax test is also essential: foreign corporate tax actually paid must be less than the difference between the tax calculated under Bulgarian rules and that foreign tax. Simply paying less than Bulgaria’s headline 10% rate is not the statutory test. Corporate Income Tax Act, Articles 47в–47 д
That is the point at which a group structure stops being a purely foreign investment question and becomes a Bulgarian tax-residence and profit-allocation issue. The test is not limited to direct shareholding. The statute looks at voting rights, capital and profit rights together, so a company can be within scope even where the Bulgarian person does not own a majority of shares in the narrow corporate-law sense. What matters is practical control and the tax gap between the foreign entity and the Bulgarian corporate tax that would have applied to the same profit.
For an initial review, ARG would focus on three questions.
This is why the service is useful before a restructuring, acquisition, dividend policy change, or holding-company set-up. A structure that looks efficient at group level can still create a current Bulgarian tax exposure if the foreign subsidiary is sufficiently controlled and lightly taxed. The practical value of the review is to show whether the group needs a full CFC analysis now, rather than after the annual tax result has already been affected.
The control test also means that commercial arrangements and ownership percentages must be read together. For example, a Bulgarian parent with 40% direct ownership can still be within scope if related enterprises push the aggregate control above 50%. That is why the factual ownership map matters more than the label attached to each vehicle in the chain.
In a Bulgarian CFC review, the control question and the low-tax question must both be answered before you can judge the exposure.
For example, if the same profit produces hypothetical Bulgarian corporate tax of€10,000, foreign tax of€4,000 is below the remaining€6,000 and satisfies the low-tax comparison. Foreign tax of€6,000 does not, because it is above the remaining€4,000. The calculation must use a Bulgarian-law tax base and the legally relevant foreign tax payments; comparing two countries’ advertised rates is insufficient. Control and this tax comparison identify potential inclusion, after which the substantial-activity exception must be assessed.
The practical next step is to map the ownership chain, identify related enterprises, and compare the foreign entity’s tax position against the Bulgarian benchmark on the same profit before making any move that changes control, profit rights, or the foreign tax profile.
Indirect holdings, foreign permanent establishments, and genuine economic activity can keep a foreign structure inside or outside the Bulgarian CFC regime, but they do so for different reasons under the current Corporate Income Tax Act (ЗКПО).
Indirect ownership matters because the law aggregates the Bulgarian taxpayer’s participation through related enterprises’ direct holdings in the foreign entity. In other words, the group cannot avoid CFC analysis by splitting the interest across affiliates. The statute looks through the chain, so the combined position of the Bulgarian taxpayer and related parties is what counts. That is commercially important in holding structures, family-owned groups, and multinational platforms where control is spread over several companies rather than sitting in one direct shareholder.
A Bulgarian taxpayer’s foreign permanent establishment can also be a CFC within Article 47в; an establishment is part of the same legal person, so the foreign-entity shareholding test is not applied to it as though it were a subsidiary. Article 47в(3) addresses a different situation: an establishment belonging to a CFC is excluded from the low-tax comparison where its profits are untaxed or exempt in the CFC’s residence state. It is not a blanket exemption for all foreign branches. Map each legal person and establishment separately and show where each layer’s profit is taxed.
The most important substantive exception is the genuine-business test in Article 47г(7). The CFC inclusion does not apply if the foreign entity carries on substantial economic activity supported by the personnel, equipment, assets, or premises needed for that activity, and the taxpayer must prove those facts.
That proof requirement is not cosmetic. It shifts the discussion from legal form to operating reality. A foreign company with real staff, a functioning office, business assets, and operating capability has a much stronger case than a passive holding or treasury vehicle with little more than a bank account and intercompany contracts. For a client, that means the commercial story has to match the records. If the entity exists to run real operations, the file should show how those operations are actually carried on.
The practical consequence is that the review is not only about whether the foreign company is taxed lightly. It is also about whether the group can evidence substance strongly enough to resist current Bulgarian inclusion. If the exception applies, the CFC charge does not arise on that basis. If it does not apply, Article 47г requires the Bulgarian taxpayer to include the undistributed tax profit, or the foreign permanent establishment profit, in the current-year tax result in proportion to the relevant interest and the period of control.
For an initial assessment, ARG would normally ask for the ownership chain, the location and functions of the foreign entity, staffing and premises information, basic accounting and tax data, and the documents showing where the activity is actually performed. That gives a practical answer to the real question, which is whether the structure is a genuine operating business or a low-tax holding arrangement that the Bulgarian rules will currently tax.
The next step is to test those facts against the statutory exception before any restructuring, dividend planning, or cross-border migration of functions is implemented.
These are corporate-tax rules. A foreign individual who moves to Bulgaria does not automatically acquire this corporate CFC obligation simply because they own overseas shares. Establish the Bulgarian corporate taxpayer, the foreign entity or establishment, the relevant tax year and the associated-enterprise relationships before calculating any inclusion. The owner’s personal residence and reporting obligations require their own analysis.
For an entity that qualifies, Article 47г requires the foreign tax profit to be calculated under Bulgarian rules, using the taxpayer’s applicable accounting standards. Inclusion follows the highest participation percentage in voting, capital or profit rights and the proportion of the foreign period for which CFC conditions were met. If the foreign period differs, inclusion falls in the Bulgarian year in which that foreign period ends. Obtain acquisition dates and changing profit entitlements; a year-end ownership chart alone cannot establish the full-year calculation. ZKPO Articles 47в and 47г(1)–(3),(8)
Tell us where you live, how your business works and what you want to change. We will help you identify the questions to resolve and the next steps to consider.
Exit taxation applies where a transfer within the same legal or economic ownership causes Bulgaria to lose its right to tax the later disposal result. ZKPO §1, point 104 defines that transfer; Articles 155–155г set the triggers, calculation, limited temporary-transfer exception and payment relief. Moving assets or an activity to a foreign establishment can therefore create tax without a sale or cash proceeds. A transfer to a separately owned subsidiary may instead engage ordinary disposal or restructuring rules, so identifying the legal parties is the first step. ZKPO §1, point 104 and Articles 155–155 г
The practical point is that the charge is triggered by the loss of Bulgarian taxing rights, not by a sale to an outside buyer. That is why a restructuring can create exit-tax consequences even when the business remains inside the same group. If the transaction changes where Bulgaria can tax future gains, the statute treats that migration of value as the relevant event.
For qualifying transfers to an EU or EEA state, the law does not remove the tax, but it can defer payment. In other words, the liability exists, yet the cash outflow may be spread over time if the statutory conditions are met. For EEA cases, the deferral also depends on the required mutual-assistance treaty condition. That distinction matters commercially because a group may be able to complete the restructuring without an immediate full payment, but it should not assume the charge disappears.
ARG would first identify whether the planned step is a transfer of assets, a migration of activity, or a residence change that shifts future taxing rights out of Bulgaria. Then it would check whether the destination is in the EU or EEA and whether the transfer fits the deferral conditions. The route changes if the move is inside the EU or EEA, because the law may allow staged payment, but the existence of the charge still has to be analysed up front.
A simple example shows the logic. If a Bulgarian company moves a business line to a foreign branch and Bulgaria will no longer tax the later gain on those assets, Article 155 is the relevant lens. If the same move is structured toward an EU or EEA destination, the question is then whether the payment can be deferred under the statute rather than paid immediately.
The next step is to map the exact transfer route, the destination jurisdiction, and the assets or activity leaving Bulgaria before any restructuring document is signed.
The exit-tax base is the positive excess of increases over decreases under Articles 155а and 155б for the transferred assets or activity in the relevant year, and the tax is then calculated by applying the corporate tax rate. So the calculation is not a flat exit fee. It depends on the accounting movement tied to the transferred value and on the structure of the transaction under the current Corporate Income Tax Act (ЗКПО).
That means two files matter at once. First, the numbers in the accounts must show the increases and decreases for the transferred assets or activity. Second, the restructuring steps must show what was actually moved and when Bulgaria lost taxing rights over later gains. If either part is unclear, the tax base cannot be checked reliably.
Article 155г allows five equal annual instalments for qualifying incidental or irregular transfers to an EU state or an eligible EEA state. For a non-EU EEA destination, an effective agreement providing equivalent assistance in recovery of tax claims is required. The first instalment is due with corporate tax for the transfer year; the following four fall due at the corresponding annual payment deadlines and carry statutory interest. The taxpayer elects this treatment in the annual corporate return and must support eligibility when requested. The deferred amount cannot exceed the corporate tax due for the period.
The exact amount depends on the accounting data and the transfer structure. A move of a single asset, a branch migration, and a broader transfer of operating activity can produce different calculation files even if the legal concept is the same. ARG would therefore test the asset register, the relevant trial balance entries, and the restructuring documents together before it gives a practical view on whether deferral is available and how large the instalments would be.
An EU destination does not make relief automatic. Check that the transfer is one covered by Article 155г, has the required incidental or irregular character and satisfies the destination conditions. Then model both the instalments and interest. A later sale, a disqualifying onward transfer, insolvency or liquidation can accelerate the outstanding amount; failure to pay an instalment within 12 months also triggers acceleration. A qualifying EEA exception applies to specified onward transfers. Notify the competent NRA directorate within 14 days after an acceleration event. If the transfer and that event occur in the same year, the instalment regime does not apply.
The next consideration is to align the accounting evidence with the legal route early, because the way the transfer is documented can decide whether the payment may be spread over five years or must be settled in the ordinary corporate-tax cycle.
The best evidence is the material that shows both the ownership position and the real operating substance of the foreign entity. For a CFC and exit-tax review, ARG would normally test ownership records, accounts, foreign tax information, contracts, payment flows, staffing records, premises data, equipment records, and the residency facts that explain where the activity is actually carried on under the current Corporate Income Tax Act (ЗКПО).
That evidence serves two different purposes. Ownership records answer the control question. Financial and tax records show whether the foreign entity is taxed more lightly than the Bulgarian benchmark and whether any later distribution or disposal issue may arise. Operational records show whether the entity has the personnel, equipment, assets, or premises needed for the substantial-economic-activity exception. If the file only shows corporate ownership and intercompany invoices, the review is incomplete. If it also shows real staff and functioning premises, the CFC analysis may change materially.
ARG’s role is to turn scattered material into a practical action list. In a real review, the useful outcome is not a long abstract memo. It is a clear map of what is proven, what is missing, and which missing item changes the tax result. That is exactly how the service helps before a restructuring, a subsidiary sale, a residence move, or a transfer of business abroad.
One practical implication follows from that approach. If the documents already show strong personnel, premises, and activity in the foreign company, the client can focus on proving substance. If they do not, the next step is not to force the conclusion, but to gather the missing evidence before the Bulgarian filing position is set. That is the point at which ARG can tell you whether the structure needs a CFC defence, an exit-tax plan, or a redesign before implementation.
The CFC register under Article 47д should connect each year’s ownership percentages, included profits, restricted losses, foreign tax and later distributions or disposals. Under Article 47г, a later taxable distribution can reduce the tax result up to the previously included profit, while a taxable disposal has its own cap and excludes amounts already relieved. Foreign corporate tax on included profits may qualify for a credit under Article 14(4). Keep the original inclusion calculations and payment evidence so the same profit can be traced through later years. CFC losses are restricted to the same CFC or another CFC in the same foreign country, with the statutory five-year carryforward; they do not freely offset Bulgarian trading profit.
The temporary-transfer exception in Article 155в is narrow: return within 12 months must be combined with securities financing, collateral, prudential capital requirements or liquidity management. Ordinary equipment sent abroad for a short commercial project is not exempt merely because a return date appears in the contract. Prepare the asset schedule, destination, purpose, valuation and actual return evidence before relying on this exception. ZKPO Articles 47г–47д,155в–155 г
Compare the related procedures in this category, including their requirements and the stage at which you need them.
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