Not with well-trained personnel from Bulgaria - even without establishment of a company
Bulgaria offers many advantages in terms of taxation within the European Union. Thanks to a flat tax rate for corporation and income tax of 10 %, the Eastern European country is extremely attractive for companies wishing to set up a business abroad. There is even no trade tax at all. The Bulgarian economy has been growing steadily in recent years. Low entrepreneurial costs for rent and personnel are an additional incentive.
"But what many German companies do not know: In order to hire well-trained employees from Bulgaria, entrepreneurs do not have to immediately establish a local branch or company," explains Dr. Maya Neidenova, Managing Director of InterGest Bulgaria.
One example illustrates this exceptional opportunity in recruiting: a German provider of internet services established learning software and apps for school students during the Corona crisis. The company could expand further, but there is a shortage of skilled workers in the field of software programming. In this situation, the company is helped by its connections to Bulgaria. Here, the provider finds well-trained programmers. And best of all: because the job descriptions also allow for remote work and are mostly in English, the new employees can work from Bulgaria.
That's what Bulgaria offers: first hire staff - then check the establishment of a local company
"This is the big advantage: it is possible in Bulgaria to hire the staff directly from the German company - and according to the advantageous Bulgarian labour, tax and social security legal provisions," emphasises Dr Maya Neidenova. "This is feasible without having to immediately set up a company in Bulgaria. In this way, the company can expand its team with skilled workers without having to make major investments in the establishment and maintenance of a subsidiary."
In concrete terms, this means for the German software provider: He can register for tax purposes as a foreign employer in Bulgaria and conclude employment contracts according to Bulgarian labour and social security and tax law. This is possible with the low income tax rate of 10 % and the corresponding Bulgarian social security and health insurance rates.
"This is the most cost-effective way and first step to prepare for the establishment of a subsidiary in Bulgaria," Dr Maya Neidenova elaborates. "First of all, there are only wage costs, costs for monthly payroll and reporting to the tax office, which are prepared and submitted from Bulgaria. In addition, a Bulgarian contract for occupational health must be concluded."
Sales activities and renting business premises also possible without founding a company
For the German software company, it is still important to clarify the legal issues regarding labour law in Bulgaria. In the first step, this is done by power of attorney through a Bulgarian lawyer whom local contacts have recommended. Now the work with the Bulgarian employees can begin. Of course, the company hopes for the desired reduction in workload that will make expansion possible. Then it wants to look into setting up a local subsidiary.
"But even if business premises are rented, it is not yet mandatory to set up a permanent establishment, which would lead to taxation and accounting in Bulgaria",explains Dr Maya Neidenova. "The Bulgarian Investment Act allows for the registration of a so-called 'commercial agency'. This is a 'passive representative office' with the Bulgarian Chamber of Commerce and Industry. These representative offices are not allowed to carry out any economic activities in Bulgaria. This legal construct is often used for sales activities when all contractual matters are handled via Germany and the local employees only initiate the conclusion of contracts. The simple procedure for payroll accounting also applies to these Bulgarian sales employees of German companies. For the 'passive representative office', only a simplified annual financial statement has to be prepared - including the wage costs incurred and additional expenses in Bulgaria."
Do you have any queries about doing business in Bulgaria or are you planning to set up a company there?
Contact us!
InterGest Bulgaria
Dr. Maya Neidenowa
Tel.: +359 2 948 6920
E-Mail: maya.neidenowa
intergest.com
