New Double Tax Treaty between Bulgaria and the United Kingdom

New Double Tax Treaty

KPMG's Tax News outline and highlight legislative changes and trends in the area of tax.


The seventh issue analyzes the provisions of the new Double Tax Treaty between the Republic of Bulgaria and the United Kingdom of Great Britain and Northern Ireland which is to be ratified by the National Assembly.


On 26 March 2015, the Republic of Bulgaria and the United Kingdom of Great Britain and Northern Ireland signed a new Double Tax Treaty (“the new DTT with the United Kingdom”) which will replace the currently applicable DTT signed in 1987. It introduces some new rules which significantly differ from the currently applicable provisions. 


The new DTT with the United Kingdom introduces unified criteria for a resident with respect to the two contracting states. 

A resident is to be considered any person who, under the laws of the contracting state, is liable to tax therein by reason of their domicile, residence, place of incorporation, place of management or any other criterion of a similar nature. The term ‘resident’, however, does not include any person who is liable to tax in that state in respect only of income or capital gains from sources in that state.

Where, in accordance with these criteria, a person is considered a resident of both contracting states, certain tie-breaker rules apply, which are different for individuals and for persons other than individuals. 


The new DTT revokes the withholding tax (WHT) exemption for interest in the source country, which is provided for in the currently applicable DTT. Pursuant to the new DTT, the source country may tax this interest, but if the beneficial owner of the interest is a resident of the other contracting state, the tax shall not exceed 5%.

The new DTT still provides for some exceptions where interest shall nevertheless be exempt in the source country.


The new DTT with the United Kingdom also revokes the WHT exemption in the source country provided for in the currently applicable DTT. Under the new rules, the source country may also tax the income from royalties. The WHT so charged, however, shall not exceed 5% if the beneficial owner of the royalties is a resident of the other contracting state.

The definition of ‘royalties’ is narrowed, whereby payments for the use of or the right to use industrial, commercial or scientific equipment and the related technical services are excluded from the definition.

Gains from the transfer of shares and interests

The new DTT introduces taxation of the gains acquired by a resident of a contracting state from the transfer of shares and comparable interests, deriving more than 50% of their value directly or indirectly from immovable property situated in the other contracting state, in the latter state (i.e. where the property is situated). This rule does not apply for shares in which there is substantial and regular trading on a stock exchange.

Elimination of double taxation and tax avoidance 

Under the new DTT, the double taxation in
Bulgaria shall be eliminated through deducting an amount equal to the amount of
tax paid on the respective income in the United Kingdom (tax credit method) and
not through exempting the income from taxation in Bulgaria (tax exemption

New provisions are introduced with respect to dividends, interest and royalties, pursuant to which no DTT relief shall be available where the main purpose or one of the main purposes is to take advantage of the DTT provisions. 

Other amendments

The new DTT introduces other amendments as well, for example in relation to:

  • Definition of permanent establishment (PE) and determining of PE’s profits 
  • Dividends (although the taxation remains unchanged in the general case)
  • Pensions 
  • International transport 
  • Income from employment. 

Criteria for associated enterprises which are not foreseen in the currently applicable DTT are introduced with the new one. 

It is also envisaged that the two contracting states shall lend assistance to each other in the collection of revenue claims. 

The definitions of some basic terms are also amended and new definitions are introduced. 

Entry into force and application

Each of the contracting states shall notify the other of the completion of the procedures required by its law for the bringing into force of the DTT. The new DTT shall enter into force on the date of the later of these notifications and shall thereupon have effect in Bulgaria as follows:

  • In respect of taxes withheld at source, for amounts paid or credited on or after1 January of the calendar year next following that in which the DTT enters into force; 
  • In respect of other taxes, for taxable years beginning on or after 1 January of the calendar year next following that in which the DTT enters into force.  

We should note that the statements for presence of grounds for application of the currently applicable DTT with the United Kingdom issued by the Bulgarian revenue authorities will no longer apply for income under long-term agreements, accrued in periods for which the new DTT shall apply. 

If you perform transactions with the United Kingdom of Great Britain and Northern Ireland, we would advise you to contact a representative of the Tax Department of KPMG in Bulgaria for a consultation on the treatment of the income and the application of the new DTT.

© 2023 KPMG Bulgaria OOD, a Bulgarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

KPMG International Cooperative (“KPMG International”) is a Swiss entity.  Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.



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