Tax on natural persons’ income from employment relations (Labor contract)
Who pays tax on the income from employment relations:
The tax on the income from employment relations is due to be paid by the worker or the employee, but it is assessed, deducted and paid to the budget by the employer.
Employer is any local person, foreign person, carrying out activities through a permanent establishment or fixed premises within the territory of the country, as well as a trade representation under the Investment Promotion Act, who recruits natural persons under employment relations or is a party to a contract for provision of staff by a foreign person.
Employment relations are:
.......the legal relations with workers and employees under the Contract of employment;
.......the legal relations with civil servants and the legal relations between the Minister of Defense and the Minister of Interior or officials authorized by them, on one part and the employees of the respective ministries, on the other;
.......the legal relations with the members of the Supreme Judicial Council, the Inspector General and the inspectors at the Inspectorate of the Supreme Judicial Council, the judges, prosecutors, investigators and chief administrators and their deputies in the judicial authorities, public enforcement agents, recording magistrates and judicial officers under the Judicial System Act, as well as the legal relations under the Constitutional Court Act;
.......the legal relations between the Bulgarian Orthodox Church or another registered religion under the Act on the Religions, on the one hand, and the clergymen of the respective Church or religions on the other hand;
....... the legal relations with persons receiving income from any position which is elective by virtue of the law;
.......the legal relations related to recruitment of labour force by a foreign person, when the work is done within the territory of the country, as well as the legal relations related to recruitment of labour force of a local natural person by a foreign person, when the work is performed outside the territory of the country;
.......the legal relations between an employer and a Bulgarian or a foreign natural person, when these legal relations are established under a contract for provision of staff between the employer and a third person;
.......the legal relations under management and control contracts, including with the members of managing and controlling bodies of enterprises;
.......the legal relations, regardless of the grounds for establishing such, with partners and members of cooperatives, as well as with shareholders, holding more than 5% of the capital of the public liability company, for exercising personal labour in the companies and the cooperatives, in which they are partners, members of cooperatives or shareholders.;
…….the legal relations with the post graduates, who receive remuneration under a contract for education for acquiring a specialty according to the nomenclature of the specialties, determined following the procedures of Art. 181, para 1 of the Health Act.
How to assess the taxable income from employment relations:
The taxable income from employment relations comprises the labour remuneration and all other payments in cash and/or in kind made by the employer or at the expense of the employer with exception of the income, designated in the legislation as non-taxable.
How to assess the advance tax on income from employment relations:
The advance tax on income from employment relations is assessed by the employer monthly on the basis of the monthly tax base. The monthly tax base is assessed by deducting from the taxable income, calculated for the respective month, the mandatory social security contributions, deducted by the employer, which are at the expenses of the natural person, according to the procedure established by the Social Security Code and the Health Insurance Act, as well as the contributions for mandatory social security abroad. The monthly tax base for income from employment relations (exercised personal labour) of self-insured persons – partners, members of cooperatives and shareholders, holding more than 5% of the capital of the public liability company, is assessed by deducting from the taxable income, calculated for the respective month, the social security contributions paid in advance by the company, which in accordance with the Social Security Code and the Health Insurance Act, the self-insured person in obliged to pay at his/her own expenses.
The following is deducted from the monthly tax base:
.......the tax relief for persons with reduced working capacity;
.......the tax relief for personal voluntary social security and insurance contributions, when the amounts have been deducted by the employer upon payment of the income from employment relations.
The amount of the advance tax due is assessed, by deducting the tax reliefs from the monthly tax base and multiplying the result by 10% tax rate, while regarding the income received by seafarers – multiplying the result by 1%. „Seafarer” is a natural person, working under employment relation as a member of the crew of a ship, enlisted in the ship’s register of an EU Member State, regardless of the fact whether the person is on the shore or on board, who holds a certificate of qualification and/or certificate of complementary training, acquired in compliance with the procedures of the Ordinance under Art.87, para 1 of the Merchant Shipping Code.
The tax assessed is deducted by the employer upon the final payment of the taxable income, calculated for the corresponding month.
How to assess the annual tax on income from employment relations:
Not later than January 31st of the next tax year the employer shall calculate the annual tax base for the income from employment relations, deducting the yearly amount of the tax relief, and shall assess the annual amount of the tax, when by December 31st of the tax year he/she is an employer under principal employment relation of the worker or the employee. When assessing the annual tax base and the annual tax the employer shall not include the income from employment relations with partners, members of cooperatives and shareholders, holding more than 5% of the public liability company’s capital.
The annual tax base is reduced by the annual rate of:
.......the tax relief for persons with reduced working capacity;
.......the tax relief for personal voluntary social security and insurance contributions when the amounts have been deducted by the employer upon payment of the income from an employment relation;
.......the tax relief for personal social security contributions upon retirement;
.......the tax relief for donations when the amounts have been deducted by the employer upon payment of the income from an employment relation.
Should during the tax year the worker or the employee has or has had an contract of employment for additional work with another employer, or has had principal employment relation with another employer, the employer shall include the income received from the other employer upon calculation of the annual tax base and shall assess the annual amount of the tax, in case, the worker/employee provides a certificate from the other employer.
When the assessed annual amount of the tax exceeds the amount of the tax deducted from the worker/employee during the year, the balance is deducted from the person until January 31st of the next year.
When the assessed annual amount of the tax is lower than the tax deducted in advance, the employer shall refund the balance to the person not later than January 31st of the next year. The refunded amount shall be set off by the employer successively from the next payments to the state budget for taxes on income from employment relations of the person or other persons.
Terms for payment of the tax on the income from employment relations:
The tax, which the employer is obliged to deduct upon the advance and annual taxation of the income from employment relations shall be paid not later than the 10th day of the month following the month when the tax had been deducted.
The employers submit regularly to the National Revenue Agency an information about the income paid by them under employment relations and about the tax deducted on the said income. The Minister of Finance issues an Ordinance governing the terms, the contents, the order and the procedures for provision and storage of the information.
Where to pay the tax on the income from employment relations:
The tax on the income from employment relations is paid to the state budget on the account of the Territorial Directorate of the National Revenue Agency in accordance with the place of registration of the payer of the income.