What global businesses need to know about payroll in Bulgaria

Did you know that the GDP of Bulgaria is now around seven times what it was at the turn of the millennium? That it has the lowest average full-time salary of any country in the European Union? And that its income tax and corporation tax rates are just 10%?

Bulgaria hasn’t quite had the same economic success as other Eastern European countries since the fall of communism, despite joining the EU along with neighbor Romania in 2007. This is perhaps why its tax rates are so low and its approach to payroll is so straightforward: it makes for a business climate where foreign operations can drive great value, whether dealing in services or heavy industry.

There are a few complications around doing business in Bulgaria, not least that the Bulgarian language uses the Cyrillic alphabet. But with the right knowledge and expertise in place, none of these challenges are insurmountable. Read on to learn all about employment law and running payroll in Bulgaria.

Getting Started

It is strongly recommended to set up your Bulgarian business entity with the support and expertise of a local lawyer, and a payroll partner, so that you can deal with all the requirements without complications.

A lawyer will help you draft the articles of incorporation, and get them notarized. With this completed, you can then set up a Bulgarian bank account (the minimum capital is a nominal €1), and then get the business signed up to the commercial register. Once this is completed, you can register for VAT and employment agreements with the National Revenue Agency, and submit details of your premises with local authorities for any sector-specific licenses you may require.

Employment Considerations

Employees working in Bulgaria are subject to a written contract with the employer to establish a valid work agreement. This contract is then filed with the National Revenue Agency within three working days. The contract must include the name of the person being hired for the job, the job description, contract date and expected start date, length of employment, payment amount, schedule, details about vacation, sick leave, and more. Foreign workers are entitled to the same rights as Bulgarian citizens and are generally covered by the same tax and workplace laws.

At eight hours per day and 40 per week, working hours in Bulgaria are in line with many other European countries. Work beyond this is considered overtime, which is limited to three hours per day, six per week, 30 per month, and 150 per year. Overtime work should be paid at 150% of normal salary, rising to 175% at weekends and 200% on public holidays.

Although the statutory notice period in Bulgaria is only 30 days, it’s much more common for 90 days to be specified in employment contracts. Probation periods vary between three and six months.

Compensation & Severance

As is the case in many European countries, the national minimum wage in Bulgaria has been revised upwards at a sustained rate in recent years. As of the start of 2024, it stands at BGN 933 per month (approx. £410; $520; €480), which means it has more than doubled in just seven years. It’s therefore critical to monitor political activity in Bulgaria closely, in case further increases are made in the next few years.

There isn’t a statutory requirement to pay bonuses in Bulgaria, but it is a common gratuity that many employers voluntarily offer, and that many employees have come to expect.

Standard severance pay for a terminated employee is four months’ salary, increasing to six months for those with at least ten years of service. This reduces to one month in case of redundancy, and two months in the case of retirement.

Tax and Social Security

In line with its neighbor Romania, Bulgarian income tax is levied at a flat rate of 10%, without any personal allowance or exempt bracket. Corporation tax is also levied at a flat rate of 10%, while the VAT rate is 20% (with a reduced rate of 9% for a number of tourism-related services).

There are three types of social security contributions in Bulgaria:

• Main social security: 13.72% employer, 10.58% employee – only applicable to the first BGN 3750 earned per month  (approx. £1650; $2100; €1900)
• Health insurance: 4.8% employer. 3.2% employee
• Work accidents/occupational illness: 0.4-1.1% employer

Holidays and Leave

Employees in Bulgaria are given 20 working days of paid leave each year, once they have been with their employer for four months. Bulgaria has 15 days of public holidays each year, and it is common for holidays that fall on weekends to generate a day off in lieu on the following Monday.

Bulgaria is an extremely generous country when it comes to maternity leave, which totals 410 days. This starts 45 days before the due date, and is paid by social security at 90% of normal salary. After six months, mothers who want to go back to work can transfer the leave to the father if they so wish. Alongside this, there is also a paternity leave entitlement of 15 days from when mother and baby leave hospital; this is also paid by social security at 90%. 

Parental leave is divided into two types, with the separation point being the child’s second birthday. Before this, either parent can take time off for any of their first three children, and be paid BGN 780 per month (approx. £340; $430; €400) by social security, as long as the child is not in formal childcare. After this, up to six months of unpaid parental leave can be taken by either parent, until the child turns eight; this can be taken in installments of at least one week in duration.

Employees also get two days paid leave if getting married, or if attending a family funeral.

In Summary

It’s easy to see why so many foreign businesses are interested in running an operation in Bulgaria: low taxes, a simple approach to payroll, EU membership, and relatively low wages (even if they are increasing). To make sure you stay compliant as things change in the future, make sure you partner with a global payroll provider who is up-to-date with the latest evolutions in Bulgarian payroll and employment law.

This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.