What is a Branch in Bulgaria?
A branch is not a separate legal entity from its parent company but operates as an extension. It is wholly owned and controlled by the parent company, typically operating under the same name. There are no capital requirements for establishing a branch, and only private individuals can be part of its management.
Accounting and Financial Reporting of Branches in Bulgaria
The financial results of a branch are usually consolidated with those of the parent company. The branch’s performance is reported as part of the parent company’s financial statements. Branches must comply with local accounting and reporting requirements, similar to limited companies. Obligations include filing a monthly VAT declaration and annual statements by the end of June for the previous year’s business activities, with corrections accepted until September of the current year.
When is it Useful to Set Up a Branch?
Branches are particularly useful for sales operations of a parent company based in a high-tax jurisdiction. For example, a Dutch company can outsource its sales to a Bulgarian branch, benefiting from Bulgaria’s 10% flat corporate tax rate on sales. The profits from the branch can then be paid out as dividends to the parent company, providing a tax-efficient solution for international business operations.
Closing a Branch in Bulgaria
Dissolving a branch in Bulgaria can be completed in a relatively short timeframe, often within a single day, not including the time required to draft the necessary liquidation documents. This process is much simpler and faster compared to the lengthy procedure required for closing a limited company.
Should I Consider Setting Up a Subsidiary Instead?
Unlike branches, a subsidiary is a separate legal entity, distinct from the parent company. It has its own legal identity, which allows it to enter into contracts, own property, and be sued independently of the parent company. The parent company’s liability is generally limited to the amount of its investment in the subsidiary.
While branches are fully owned and controlled by the parent company, subsidiaries can be either wholly or partially owned. In cases of partial ownership, the parent company may not have full control over the subsidiary.
Accounting and Financial Reporting of Subsidiaries in Bulgaria
A subsidiary can be structured as a limited company or a joint stock company. It maintains its own accounting records and financial statements, separate from those of the parent company. A subsidiary is taxed as a separate entity in the country where it operates, and its profits are subject to local corporate tax rates. The parent company is not directly responsible for the subsidiary’s tax obligations, though it may be subject to taxation on dividends or other income received from the subsidiary, depending on the tax laws of the parent company’s home country. Dividend payments between companies in different EU member states are subject to a 0% dividend tax rate.
Setting up a subsidiary can offer more flexibility and independence for your business operations in Bulgaria, while also providing legal and financial protections distinct from those of the parent company.
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