1 - In Bulgaria's, LLC's are considered opaque corporations, not fiscally transparent pass-through entities or sole proprietorships.
A US LLC is considered a real corporation from the Bulgarian perspective: The LLC does not pass its income to the Bulgarian tax resident and personal income tax does not apply.
Instead, the owner makes distributions from the company to himself and they should be declared as profit dividends which are taxed at 5 percent in Bulgaria (The distribution amounts do not︀ have to match the LLC income, profits can be reinvested at corporate level)
2 -︁ In Bulgaria, CFC management and control rules do not apply to natural persons. If you︂ are a tax resident in Bulgaria and you control a US LLC then the USLLC︃ will still be considered as a foreign corporation.
Country of incorporation and location of actual︄ trading offices and income generation matters, not management/control. Following conditions need to be taken into︅ account for this to apply:
- The offshore corporation (US LLC) needs to have some︆ actual substance/business activity. You are not allowed to evade yearly Bulgarian capital gains tax (simple︇ management of assets) by putting your passive real estate or long-term stock portfolio's behind a︈ zero tax offshore structure.
- The business income can not be generated in Bulgaria (this︉ is somewhat equivalent to the ECI condition that also makes the US LLC untaxed in︊ the USA at the pass-through income level. It is unrelated to management and control location︋ of the tax resident).
- In extension to the above, you should not register trading︌ offices in BG. Having a Permanent Establishment may transform the US LLC into a Bulgarian︍ company because actual work/income generation would be considered in BG.
In summary:
You can set︎ up offshore companies as a natural personal and tax resident in Bulgaria as long as️ the company is not active or generating income in BG.
The offshore corporation pays its tax in country of incorporation and/or location of income generation and you as a natural person declare the personal dividends in Bulgaria and will be taxed at 5 percent on them.
More specifically, for a Pass-through disregarded SMUSLLC, you get 0 foreign corporate tax (non-existent) and 0 USA income tax without USA ECI and then you pay 5 tax on your personal (local BG) dividend payouts.
Consider the following:
Bulgaria basically doesn't care about foreign corporations, they consider it none of their business if it has nothing to do with︀ Bulgaria. They only tax the income (in this case dividend) of their own tax residents,︁ both natural persons and local corps.
This is the correct and logical way to handle︂ things imo and how it should always be: Corporations pay tax where they generate income︃ and/or where they are incorporated and a person pays personal tax wherever they live and︄ receive social benefits from their government..
People from high tax Western countries have been conditioned︅ to believe that it is "normal" and correct that their country completely absorbs offshore companies︆ that have no business in their own country just because one of the controllers lives︇ there. That's a racketeering scam.
However, at the corporate level things are also different now:︈
If a Bulgarian corp has an offshore subsidiary in a low (or no tax) jurisdiction︉ then the offshore corp will be taxed extra in Bulgaria so that the 10 profit︊ tax at parent (BG) level is matched.
This was a recent adjustment under pressure of︋ the EU control structures (obviously). However, the change does not apply when a natural person︌ controls the CFC so it is better to hold the offshore company directly or you︍ will end up with BG CIT indirectly.
