Moldova has recently clarified certain requirements relating
to the taxation of dividends distributed during the period
2008-15 to residents of Bulgaria, in the context of the
applicable double tax treaty concluded between the two
countries in 1998.
According to the treaty, Bulgarian residents who hold at
least 51% of the capital of a dividend-distributing Moldavian
company are subject to a 5% withholding tax rate on those
dividends, whereas all other Bulgarian dividend-recipients (who
do not fulfil the capital ownership criteria) are subject to a
15% withholding tax rate.
The rates of taxation of dividends provided in the double
tax treaty between Bulgaria and Moldova are significantly lower
in comparison with those prescribed in the Tax Code of Moldova.
However, as is typically the case, the tax treaty is deemed to
prevail over the domestic legislation of Moldova and this has
been confirmed by the Moldavian State Tax Service.
Despite being given priority in the application of tax
treaties over domestic legislation, a resident of Bulgaria is
obligated to provide to the payer, before the date of payment
of income, a certificate of Bulgarian residence in order for
the treaty provisions to apply. As a result of omitting this
step, the income of a resident of Bulgaria will be subject to
withholding tax in accordance with the dispositions of the Tax
Code, which is charged at a rate of 15% (if related to profits
earned between 2008 and 2011) or 6% (if related to profits
earned between 2012 and 2015).
Additionally, the Bulgarian beneficial owner is required to
ask the Moldavian dividend-payer to claim back the overpaid
income tax on dividends if the Bulgarian residence certificate
is submitted in the same tax year, even after the payment of
income. In such cases, previously filed income tax forms will
need to be retroactively corrected.
Panayiotis Diallinas (firstname.lastname@example.org)
Eurofast Bulgaria Office
Tel: +359 2 988 69 75