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Bulgaria: Treaty analysis: Bulgaria and UK sign new double taxation agreement


Petar Varbanov

On March 26 2015, the Republic of Bulgaria and the United Kingdom of Great Britain and Northern Ireland signed a new Treaty for the Avoidance of Double Taxation (DTT) which will replace the DTT signed in 1987. The new treaty will introduce rules which differ considerably from the provisions now in force.

Scope of taxation

The existing taxes to which the new convention will apply are taxes on interest, royalties and gains from the transfer of shares and interests.


Income derived by a resident of one contracting state situated in the other contracting state may be taxed in that other state. If the subject is considered a resident of both states, certain tie-breaker rules apply.

Pursuant to the new DTT, the source country may tax interest income, but if the beneficial owner of the interest is a resident of the other contracting state, such tax shall not exceed 5%. The same rule and withholding tax rate will apply to income from royalties. The new DTT introduces taxation of the gains acquired by a resident of one contracting state from the transfer of shares and comparable interests deriving more than 50% of their value directly or indirectly from immovable property situated in the other contracting state, in that other state (that is, where the property is situated). This rule does not apply to trading of shares on a stock exchange.

Double taxation and tax avoidance

Double taxation in Bulgaria will be eliminated through deducting an amount equal to the amount of tax paid on the respective income in the UK but not through exempting the income from taxation in Bulgaria.

Per the treaty, each of the contracting states will notify the other state of the completion of the procedures required by its law for the bringing into force of the DTT. The new DTT will enter into force on the date of the later of these notifications and will be effective from January 1 of the calendar year following that during which the DTT enters into force.

Petar Varbanov (


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