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Bulgaria-Norway

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New Tax Treaty between Bulgaria and Norway has Entered into Force

According to a recent update from the Norwegian Ministry of Finance, the new income tax treaty with Bulgaria entered into force on 30 July 2015. The treaty, signed 22 July 2014, replaces the 1988 income and capital tax treaty between the two countries.

Taxes Covered

The treaty covers Bulgarian personal income tax, corporate income tax and patent tax, and covers the following Norwegian taxes:

  • National tax on income;
  • County municipal tax on income;
  • Municipal tax on income;
  • National tax relating to income from the exploration for and the exploitation of submarine petroleum resources and related activities and work, including pipeline transport of petroleum produced; and
  • National tax on remuneration to non-resident artistes

Residence

When a person, other than an individual, is a considered resident of both Contracting States, the competent authorities of both States will determine its residence for treaty purposes through mutual agreement. If no agreement is reached, the person will not be considered a resident of either State for the purpose of claiming any benefits provided by the treaty.

Service PE

A permanent establishment will be deemed constituted when an enterprise of one Contracting State furnishes services in the other State through one or more individuals present in that other State for the same or connected project for an aggregate period of 183 days or more in any 12-month period.

Withholding Tax Rates

  • Dividends - 5% if the beneficial owner is a company directly holding at least 10% of the paying company's capital, otherwise 15%
  • Interest - 0% on interest paid in respect of a loan granted, insured or guaranteed by a governmental institution for the purposes of promoting exports; in connection with the sale on credit of any industrial, commercial or scientific equipment; or in respect of any loan granted by a bank; otherwise 5%
  • Royalties - 5%

Limitation on Benefits

The beneficial provisions of Articles 10 (Dividends), 11 (Interest) and 12 (Royalties) will not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims or other rights in respect of which the dividends, interest or royalties are paid was to take advantage of those Articles by means of that creation or assignment. The limitation is included in each of those Articles.

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

  • Gains from the alienation of immovable property situated in the other State;
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
  • Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other State

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Offshore PE

Article 20 (Offshore Activities) of the treaty includes the provision that a permanent establishment will be deemed constituted if an enterprise resident in one Contracting State carries on offshore activities in the other State in connection with the exploration or exploitation of the seabed or subsoil or their natural resources situated in that other State, if such activities continue for a period or periods aggregating more than 30 days in any 12-month period.

In determining if the 30-day period is exceeded, substantially similar activities of an associated enterprise are considered.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Effective Date

The treaty applies from 1 January 2016. However, Article 26 (Assistance in the Collection of Taxes) will not apply until written confirmation is provided by Bulgaria that it is able to provide such assistance.

The 1988 income and capital tax treaty between the two countries will terminate and cease to have effect from the date the new treaty has effect.

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