The double tax agreement (DTA) between the UK and Bulgaria which was signed on 26 March 2015 entered into force on 15 December 2015. The agreement takes effect in Bulgaria from 1 January 2016 and in the UK from 1 January 2016 for withholding tax; for corporation tax from 1 April 2016; and for income tax and capital gains tax from 6 April 2016. The agreement generally follows the provisions of the OECD Model.
Under the provisions of the agreement the withholding tax on dividends cannot exceed 5%; however the maximum withholding tax rate is 15% where the dividends are paid out of income derived directly or indirectly from immovable property by an investment vehicle that distributes most of this income annually and where the income is exempt from tax.
The withholding tax on dividends is reduced to zero if the recipient of the dividend is the beneficial owner and is a company resident in the other state (other than an investment vehicle as above) or a pension scheme.
The maximum withholding tax on interest is limited to 5% and is reduced to zero if it arises from a credit sale of equipment, merchandise or services; a loan granted by a financial institution; a pension scheme; a government, subdivision or local authority of a contracting State; or where one company directly holds at least 10% of the capital of the other company for at least one year before the interest is paid or where both companies are held by a third company which directly holds at least 10% of the capital of both companies for at least one year before the interest is paid.
In the case of royalty payments the maximum withholding tax is 5%.