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This article is also available in German: Firma in Bulgarien, Wohnsitz in Deutschland: Steuern & Geschäftsleitung
You live in Germany and are thinking about founding a company in Bulgaria? That is possible in principle — but registration in the Bulgarian Commercial Register does not by itself decide where your company, and you personally, end up paying tax. This article sets out the two questions that have to be answered separately, how the double taxation treaty (DTT) between Germany and Bulgaria works, and what founders should watch for.
The short answer: you can found a Bulgarian company while living in Germany. That does not automatically mean the company is taxed only in Bulgaria. What matters includes the place of effective management, your own tax residence, where you actually do your work, and whether there is real economic substance in Bulgaria.
This article is an orientation. A binding assessment of your own case has to come from qualified tax advisers for the German and the Bulgarian side of the facts.
Content updated on 19 July 2026. Start in BG is not a licensed tax adviser in Germany or Bulgaria — this article does not replace individual advice from licensed advisers in both countries.
Most articles on this subject start straight at "10 % corporate income tax in Bulgaria" — and skip a question that has to be settled first. There are two distinct levels, and they need to be looked at separately:
| Level | Core questions |
|---|---|
| The Bulgarian company | Where is the place of effective management? Where are the central business decisions actually taken? Is there a permanent establishment or economic substance in Bulgaria? |
| The founder as an individual | Where is your residence? Where is your personal work actually performed? How are salary, dividends and other payments treated? |
Only once both levels are settled can anyone say seriously where the company and where you personally are liable to tax. The 10 % Bulgarian corporate income tax applies to a company that is genuinely resident there — not automatically to every Bulgarian company, regardless of who runs it from where.
Under German law a corporation — including a Bulgarian OOD — can become subject to unlimited German corporate income tax if either its seat or its place of management is in Germany (§ 1(1) KStG). The German Fiscal Code defines the place of management as the centre of top-level business direction (§ 10 AO) — that is, where the decisions governing day-to-day business are actually made, not necessarily where the company is registered.
If a Bulgarian OOD is registered in Sofia but is in fact run entirely from Germany — because the managing director takes every significant decision from a desk in Munich, say — the German tax office can argue that the place of management is in Germany. The consequence would be unlimited tax liability of the company in Germany, whatever the Bulgarian register entry says.
Where both Germany and Bulgaria can assert residence for the same company, the double taxation treaty comes into play as well: there too, the place of effective management is an important criterion for resolving that dual residence.
Germany and Bulgaria signed a new double taxation treaty on 25 January 2010 (source), replacing an earlier agreement from 1987. It governs the taxation of income and capital between the two states and was supplemented by an amending protocol of 21 July 2022 (source). That protocol has been in force since 13 December 2023 and its provisions apply from 1 January 2024.
Alongside the avoidance of double taxation, the protocol places greater weight on preventing tax evasion and avoidance. Most notably it introduces a principal purpose test (PPT) aimed at excluding abusive arrangements (source) — more on that in the section on economic substance below.
Once it is clear which state has the taxing right for a given class of income, the treaty provides two methods for avoiding actual double taxation:
Whether and where your case becomes a tax risk depends heavily on where you live, where you actually work and where business decisions are made. The overview below sorts four typical situations — it does not replace a case-by-case assessment, it shows which questions to settle first.
| Situation | Likely risk | What has to be clarified |
|---|---|---|
| You live and work predominantly in Germany; all significant decisions are taken from there | High risk of German tax liability for the company | Place of management, possible German permanent establishment, payroll, personal residence |
| You live in Germany but run a real team and/or an office in Bulgaria | Depends on the case | Who takes which decisions, documentation, operational responsibilities on the ground |
| You move your residence and run the business mainly from Bulgaria | Stronger connection to Bulgaria | Whether the move is real, remaining German ties, exit-tax and personal tax questions |
| An existing German company opens a Bulgarian arm | Structural review needed | Subsidiary vs. branch, transfer pricing, permanent establishment, management, VAT |
In none of these constellations does the outcome follow from a single fact. "Can", "in certain circumstances" and "to be checked case by case" are deliberate wordings here. A binding classification always requires qualified advisers to look at the actual facts.
The amended protocol makes treaty benefits conditional on a structure not having been set up principally to obtain a tax advantage (the principal purpose test). A textbook example of treaty shopping: a holding company in a third country sets up a Bulgarian OOD with no staff and no physical office, which holds shares in a German company — with the aim of routing dividends onward to the third country at only 5 % withholding tax. Structures like that no longer fall under the treaty benefits, and Germany may withhold the full rate.
For the far more common question — a founder living in Germany running a real Bulgarian company — this is not an abuse scenario. It is about being able to show credibly that genuine economic substance exists in Bulgaria. Relevant indicators can include:
No single feature decides the case. An office, a bank account or a Bulgarian registered seat on their own do not replace an overall assessment of how the company is actually run.
Even if the company itself is cleanly resident in Bulgaria, the second level remains: how are payments to you personally treated?
If you draw a salary from your OOD, under German income tax law that is in principle employment income subject to German income tax for as long as your residence is in Germany. The treaty allocates the taxing right to Bulgaria for the portion of the salary attributable to work actually performed in Bulgaria — evidenced, for instance, by time records, travel plans, an office lease, employment or client contracts, boarding passes, hotel invoices or an activity log. Germany exempts that portion, with progression. For the portion performed from a home office in Germany, the taxing right generally stays with Germany.
If the Bulgarian company distributes profits as a dividend, Bulgaria levies 5 % withholding tax unless the conditions for a reduction under Article 10 of the treaty are met (among them a minimum holding of 10 %). In Germany the dividend is generally subject to 25 % capital gains tax plus solidarity surcharge and, where applicable, church tax. Withholding tax already paid in Bulgaria can be credited against the German tax.
If a founder genuinely moves to Bulgaria and registers there, they normally become tax resident in Bulgaria — with the consequence that worldwide income is in principle taxed there. Since 2023 Bulgaria applies the credit method rather than the exemption method to German-source income (rental income, for example, which remains taxable in Germany). The substance principle applies here too: if the move exists only on paper, Germany can still assert a claim. Documenting where your centre of life actually is matters.
Before founding, it is worth agreeing the following points with German and Bulgarian specialists:
Simply founding a company is no longer enough to benefit from Bulgarian taxation on a lasting basis. If you are planning to found in Bulgaria or already have a company there, you should know the treaty rules and design the structure accordingly.
Yes, that is possible in principle and common in practice. For the formation itself you need neither residence nor a residence permit in Bulgaria. What matters for later taxation is where the company is actually run and where you personally perform your work.
No, not on its own. A registered address without actual management and substance on the ground can lead Germany to treat the company as taxable there. The 10 % applies to a company genuinely resident and managed in Bulgaria.
Under § 10 AO it is the centre of top-level business direction — where the governing business decisions are actually taken. That can differ from the seat shown in the register.
Not necessarily, but moving is one of the clearest ways to establish real substance and personal residence in Bulgaria. Without a move, management, place of work and documentation need a more careful review.
In principle where you are resident — unless you can show the work was actually performed in Bulgaria. Bulgaria then has the taxing right for that portion, and Germany exempts it with progression.
Bulgaria normally levies 5 % withholding tax. In Germany dividends are subject to 25 % capital gains tax plus solidarity surcharge; the Bulgarian withholding tax is credited against it.
It depends on the business model. What counts includes who takes decisions, where contracts are negotiated, whether local staff perform substantive tasks and where administration is kept. No single feature is enough — the overall picture decides.
In particular the intended place of management, a possible German permanent establishment, controlled-foreign-company taxation under the Foreign Tax Act, personal residence, and the planned structure for salary and dividends.
Before you found anything, settle where your company will actually be run, what substance your business model needs, and which German and Bulgarian specialists should be involved. We are not advisers and do not sell formation services — what we can give you is the material to arrive at that conversation prepared.
Not sure whether founding here fits you at all? Start with the two-minute eligibility check, or look at what formation actually costs. If you intend to found from abroad, our article on remote company formation has the detail. For a broader view of the Bulgarian tax system, see Bulgarian taxes. And when you get to choosing who does the work, the provider comparison lists what each firm charges and discloses.
Want to go deeper?
Our book "Start in Bulgaria" is a practical step-by-step guide to company formation, with template documents and accounts from founders who have done it.
The statements this page relies on, each labelled with where it comes from. The superscript number refers to the source list below.
One statement is still awaiting a check against its primary source.
Where your Bulgarian company's profits are ultimately taxed depends on your tax residence, the place of effective management and the applicable double taxation treaty - and that is assessed by the tax authority of your country of residence.1, 2, 3
The tax authority of your country of residenceDeciding body
Assesses your personal tax liability, the place of effective management and how the double taxation treaty applies. That assessment is not made by Bulgaria.
No public address - this source is either us, or a body that decides case by case.
National Revenue Agency (NRA)Authority
Responsible for corporate income tax, personal income tax, VAT registration and social-security contributions.
Open source →Accounting and legal partnersProfessional partner
Specialist input from our accounting and legal partners. A partner's assessment is not an official ruling and does not replace advice on your individual case.
No public address - this source is either us, or a body that decides case by case.
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