Adjust the EOOD salary

@ander123

Congratulations on having 100k of profits to get rid of. :-)

You are right on the basic numbers, there is a maximum base for social security calculations of around 1,700 euros. And above this, the salary is only subject to the 10% income tax (so effective tax rate for large sum of money like 100k euros pretty close to 10%). Whereas, with dividends the company pays 10% corporate tax on its profits, and then there's a 5% WHT when it's distributed to you. An effective tax rate of 14.5%. 10% is definitely less than 14.5%.

However, wildly fluctuating salary looks very irregular to me. And if salaries are taxed lower than dividends, then I'd guess the Bulgarian tax man would also think it was highly irregular, and purely done as a way to avoid the higher tax on dividends.

In particular, there is something called "hidden distribution of profits", which sounds like it would apply in this situation. Moreover, I'm pretty sure that dividends are a one-time deal based on the filing of your annual accounts, rather than something you can do whenever you feel like it. :-)

I think there are some exceptions to the WHT, so perhaps you need a multi-national corporate structure so you can send some dividends (and maybe even royalties too) off to some other sneaky corporate jurisdiction?

I think another common option is to pay a relatively small salary, but look very carefully at what you're allowed to include as part of your corporate expenses (as this reduces profitability and hence taxation). You could probably include your phones and other hardware, together with mobile phone plan, fancy company car, private health insurance and executive pension, flights and travel expenses. Private pensions can often be extremely generous tax-wise, so that's it far better to put 20k into a pension pot, rather than have it be profits and get hit with the 14.5%. I don't know exactly what's allowed, but I'd image it can be a pretty decent chunk.

I'd also guess, if your company is spinning off big chunks of cash, that you could spend them on something related to the business. For example, you could buy an office, rather than renting (or buy a very big office, have the corner suite for yourself, and sublet the other offices). Again, I don't know the exact Bulgarian rules, but this is a pretty common option as it keeps money in the company and increases its assets (which are your assets as it's a single-owner EOOD). But the tax implication is probably lower than making a bigger profit and paying 10% corporate tax on it. Additionally, I don't think you have to pay out all profits as dividends (and pay the WHT), you can perhaps keep some/all as retained earnings, until you figure out what to do with it.

Some jurisdictions are fine if you combine the above: buy a productive asset (e.g. very big office), but via your private pension scheme. Then pension owns the asset, and so it rents the offices out (to third parties) and your fancy corner office (at a high rent, to your EOOD). The rental income is tax-advantaged because it's a pension. And you keep your corporate expenses up by renting an expensive office.

In addition, it depends what your personal situation is. If you're still a German tax resident / payer, then you have to look at the implications of that in relation to your BG company.

My guess is that it's worth having a consult with a decent Bulgarian tax accountant. If your business is anything close to as profitable as you say, then that's a huge chunk of profits that you're producing. That justifies a bit of advance planning (both corporately and personally), with maybe a bit of multi-national structuring.

That s an interesting topic for me. Alas, I have had this idea to move my business to Romania and I greatly regretted it.

But Maybe Bulgaria, especially if I become tax resident there, could be an opnion...although bureaucracy and missing the simplicity of common law and services really scares me...these are systems that seem to be made just so they have an excuse to come and fine you for all your money.

@Yuri1976

I think it's very easy to relocate you, your tax residence, and your corporate structure to Bulgaria, if you chose to. And I very much doubt the Bulgarian system is one designed to vex you, and steal all your money. :-) You maybe just need a discussion with a sensible Bulgarian attorney/accountant who can advise on what's involved (and how to avoid trouble/fines).

@gwynj Thanks for the long answer

"However, wildly fluctuating salary looks very irregular to me. And if salaries are taxed lower than dividends, then I'd guess the Bulgarian tax man would also think it was highly irregular, and purely done as a way to avoid the higher tax on dividends."

isn't there something as a bonus which will be taxed the same as salary 10% to avoid hidden profit distribution qualification ?

thank you to warn me about hidden profit distribution as the fines are pretty hefty to definitly need to make sure nothing can fall into that.

I get conflicted idea from accountants so wanted to make sure. At the end you take the risk and not the accountant, so they seem to take this a bit lightly...

the company would be just trading it's own assets so there is no real expenses almost.

So from what you say it seems marginal 14.5% rate is more what to expect all tax included to get distribution (as 0 risks solutions)