Bulgaria, US Sign Agreement on Avoiding Double Taxation

02/22/2007

Bulgaria and the United States of America signed on Feb. 23, 2007 an agreement for avoiding double taxation between the two countries. The document was signed by Bulgaria's Minister of Finance Plamen Oresharski and the U.S. Deputy Secretary for the Department of Treasury, Robert M. Kimmitt.

"This is an important event for the development of our relations. Signing this agreement will bring serious growth of US investments in Bulgaria," Kimmitt said, underlining this is the first of a kind agreement between the two countries. It will bring financial advantages to the Bulgarian financial environments and to US business, Minister Oresharski said. The treaty will substantially lighten the tax burden over dividends of trans-border trade, provides for special mechanisms that will keep it safe from violations by citizens of third countries. The document also includes clauses on exchange of any kind of financial information between the two countries.

The treaty on the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income generally reduces but does not eliminate, the rates of taxation on cross-border dividend, interest and royalty payments, the U.S. government said on its website. However, the treaty generally eliminates withholding when cross-border dividends are paid to pension funds, and when cross-border interest is paid to the government of the other country or a financial institution resident in the other country.

In addition, the treaty contains provisions preventing so-called treaty shopping, which is the inappropriate use of a tax treaty by third-country residents. The treaty also contains provisions for the exchange of information between the two countries, including bank information.

The list of tax breaks available to residents of either state now includes a reduction from 10% to 5% of tax on copyright and licensing royalties and a tax exemption for cases when the beneficial owner of the dividends is a pension fund that is a resident of either state; a 5% tax on the gross amount of the dividends if the beneficial owner is a company that owns directly at least 10 percent of the voting stock of the company paying the dividends; 10% of the gross amount of the dividends in all other cases. U.S. companies shipped goods worth $490.5 mln to Bulgaria last year while Bulgarian exports to the U.S. topped $438.9 mln.

AmCham has lobbied actively and successfully for the re-launch of negotiations on a US - Bulgaria DTT since 2003. Several rounds of negotiations between US Treasury and Bulgarian Ministry of Finance took place during 2005 and 2006. On October 7, 2003 AmCham presented its position paper on the matter at the meeting with US Treasury in Washington D.C. The document has been a result of extensive discussion in the Chamber. It was prepared with the assistance of Ernst & Young Bulgaria, KPMG, Deloitte and Borislav Boyanov & Co. and supported by individual letters written to Secretary of Treasury from American Standard, AbC.R.O., BAEF, Bristol-Myers Squibb, Citibank, Coca-Cola HBC Bulgaria, Curtis/Balkan EBRD, Earnst&Young Bulgaria, Entergy, Hilton Sofia, Michigan Magnetics.

The Treaty should go for ratification by the U.S. Senate and the Bulgarian Parliament later this year and will come into force as of January 2008.

Texts of the treaty in ENG and BG: 2007 TADT.pdf, TADT in_BG