Bulgaria Touted as Tax Heaven - KPMG

Countries in Europe with flat tax (dark green) and countries considering the introduction of flat tax (light gree), according to Wikipedia.

Bulgaria is among the top ten countries in the world with the lowest effective rates and is preceded only by Hong Kong, tax havens like the Bahamas Islands and petro-states like Saudi Arabia, shows an analysis by KPMG consultancy.

Effective rates are derived by taking total income tax and/or social security over gross income prior to deductions. The data takes both the personal income tax rate and social security rates into account for employees earning USD 100,000 across 81 countries.

The survey shows that the majority of rate movement in 2010 comes from Europe. The highest personal income taxes in the world are still paid by citizens of the European Union (EU) where average rates went up by 0.3% over the past year.

The low flat tax initiatives of Eastern European governments fuelling the historic downward trend have stagnated. Estonia, which first created a flat tax in 1994 and intended to reduce the rate down to 18% by 2012, has since abolished its plan. In another example, Latvia increased rates, raising its flat tax from 23% in 2009 to 26% in 2010.

In Western Europe, the upward trend initiated by Ireland last year has spread as anticipated. While the top Irish rate went up by 1% in 2010, the UK dominated headlines with a 10% increase raising its top rate from 40% in 2009/10 to 50% in 2010/11 – the highest rate increase seen globally this year.

After the Europeans, the next highest taxes are paid by the people of the Asia-Pacific region, but the margin continues to spread.

As of 1 January 2008, Bulgaria introduced a 10%  flat tax applicable for all income levels,i.e., there is no non-taxable income threshold. It replaced the previous system, which combined several different tax rates - between 20 and 24%, depending on income.

The Bulgarian mandatory social security rate is 13% for an employee, while the rate is approximately 20.5% for an employer (depending on the industry in which the employer is involved as the employment accident fund varies accordingly between 0.4 and 1.1%).

The maximum insurable income is capped at approximately BGN 2,000 per month.

Depending on the circumstances, certain local taxes may apply: immovable property tax, inheritance tax, donation tax and vehicle tax.

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