2024-03-24 09:54:00
Many Bulgarians who receive income from Germany will be affected by changes in the double taxation agreement between the two countries, tax consultants warn. The changes are effective from January 1, i.e. will affect the taxation of income received this year but which will be declared in 2025.
Seasonal workers who work for several months in Germany will be among the most affected. Until that moment, they were usually exempt from taxation in both countries, since in Germany their income does not exceed the tax-free minimum, and in Bulgaria the agreement provides for exemption from taxation. Therefore, these persons did not submit a tax return to the NRA, and the revenue agency did not pursue this violation, due to the lack of tax effect.
However, the situation for them is changing significantly. The income of Bulgarian seasonal workers in Germany will now be effectively taxed in Bulgaria, if this has not been done in Germany. They should know that the tax offices of the two countries automatically exchange information about income from employment relationships, which means that the NRA can exercise control.
The double taxation agreement with Germany was signed in 2010. The two countries note that since then there have been significant changes in the field of international taxation, initiated by the G-20 countries and the Organization for Economic Co-operation and Development (OECD). related to counteracting the narrowing of the tax base and the shifting of profits.
The most significant change, with the greatest practical effect, according to tax consultants, is the shift from “progressive relief” to “ordinary tax credit”.
The “exemption with progression” method provides for the income received abroad to be exempted from taxation in Bulgaria (exclusion from the tax base), regardless of whether these incomes are effectively taxed in the country of source. This method is easier for administration and more favorable to taxpayers.
With the tax credit method, the focus is on the tax paid abroad, which is deducted from the tax payable in Bulgaria. It is more fiscally oriented as it ensures efficient taxation.
The change in the approach to avoiding double taxation will also lead to a higher administrative burden for taxpayers, who must provide documents on the income received and the amount of tax withheld abroad. There will also be more work and costs for the tax administration because they will have to carry out checks.
Only for pensions and for income from civil service, for which the agreement stipulates that they will be taxed only in Germany, the previous method of “exemption with progression” will continue to be applied, i.e. not to be declared in Bulgaria, writes “Sega”.
The NRA is expected to publish clarifications on how the new agreement will be applied, what Bulgarians who work and receive income in Germany should know, how to declare these incomes in our country and what documents they should submit to the tax authorities.