How to avoid double taxation between France and Bulgaria?.

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France and Bulgaria are bound by a double taxation convention signed in 1987. As a result, companies and individuals are allowed not to pay taxes in both countries. The convention avoids the so-called  “double taxation”, creating greater tax opportunities.

 This convention determines the tax residence of a natural person or a legal entity, that is to say, the country where the business or the citizen will be taxable, even though he is a resident of another country.  In summary, the essence is to avoid taxation in each of the countries for the same income.

Sometimes both countries are competent to collect the same income tax, which could lead to situations of double taxation.

 For example, you may have an income from one source country but reside in another. In order to reduce or eliminate this double taxation, the International convention provides a criteria that determines in which country you will be taxed: this is the so-called  “primary residence criteria”.

 The Convention thus makes it possible to define the country of taxation and therefore the principal residence of the natural or legal person according to certain criteria:

  • The state with which its personal and economic ties are the strongest (center of vital interests) in case if it is a natural person. If this center of vital interests cannot be determined, the matter should be referred to the competent authorities of both States and a decision should be made by mutual agreement;
  • The State where it has its seat of effective management if it is not a legal entity.

This applies only for certain taxes such as:

  • In Bulgaria: total income tax, income tax on single people, widowers, divorcees, childless couples and income tax.
  • In France: income tax and corporation tax.

Thus there are 2 methods to avoid double taxation:

The International Tax Convention Exemption Method

The international tax treaty with full exemption provides that income that has been taxed is not to be levied. In other words, the state of residence does not tax the income of the source state.

The method of imputation of the international tax convention.

Under the ordinary imputation method, both States may tax the income but the taxpayer of the State of residence may deduct from his tax a tax credit equal to the amount of tax paid in either State. This is the system used most often in France.

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