Seller's Handbook (Part 4): Sales Taxes – When and How Much Do You Owe to the State?

You sold the property, received the money, and paid the broker. Do you think it's all over? Don't rush. The National Revenue Agency (NRA) may have claims on your profits.

The sale of property is treated as income. In Bulgaria, the tax on this income is 10%, but the legislation has provided generous exemptions (loopholes) that you can take advantage of if you are patient.

This article will help you figure out if you owe tax and how to calculate it legally.

Illustration of the financial side of selling a property: the profit realized (the coins) and the need to calculate tax liabilities on it.

1. The Golden Rule: Only profits are taxed

The most important thing to understand is that tax is not due on the entire sales price, but only on the positive difference (profit).

The formula is:

$$(Sales\ price - Cost\ of\ acquisition) \times 10\% = Tax\ due$$

• Example:
  • You bought an apartment in Bansko in 2018 for 20,000 euros.
  • You are selling it today for 35,000 euros.
  • Your profit is 15,000 euros.
  • You owe 10% of 15,000 = 1,500 euros tax.

If you sell at a loss (at a price lower than you bought it at), you don't owe any tax.

2. When are you FULLY tax exempt?

The law (ZDDFL) exempts you from tax in three specific cases. If you fall into one of these groups, your profit is tax-free, no matter how large it is.

Case A: “The 3-Year Rule” (Primary Residence)

You don't owe tax if you sell a residential property within one calendar year, provided that they have passed more than 3 years between the date of purchase and the date of sale.

• Example: You bought the apartment on February 1, 2020. You can sell it tax-free after February 2, 2023.

Case B: “The 5-Year Rule” (Up to 2 properties)

You can sell up to two real estate properties (whether residential, villas, garages or land) tax-free if you owned them more than 5 years.

Case C: Property acquired by inheritance

This is the most commonly overlooked relief. If you have inherited property (not a donation, but an inheritance by law or a will), selling it is always duty free, regardless of when you sell it. Even if you sell it 1 month after the testator's death, you do not owe 10% tax.

Attention: For property received through Donation, the 3 and 5 year rules apply in full force!

3. How is the “Acquisition Cost” calculated?

If you do not fall into the above exceptions (for example: you bought for speculation and sell after 1 year), you must calculate the tax.

But what is the “acquisition cost” if you built the house yourself or received it as a donation?

• When purchasing: The price recorded in your notarial deed of purchase.
• During construction: The value according to the construction documents (Act 16, construction documents).
• When donating: The tax assessment of the property at the time of donation (this is the amount on which local taxes were paid at the notary).

Important discount: The law allows you to reduce profit by 10% statutory expenses before charging tax.

4. Specifics for foreign persons

If you are a foreign citizen (e.g. from the UK, Ireland, Israel) selling property in Bansko:

1. The tax is paid in Bulgaria: Since the property is on Bulgarian territory, the income is sourced from Bulgaria.
2. DTA (Double Taxation Agreements): Most countries have agreements with Bulgaria. This means that if you pay tax here, your country will deduct it from you so that you don't pay twice.
3. Mandatory registration: To pay the tax, you must have an official number from the National Revenue Agency or BULSTAT.

5. Deadlines for declaration

The tax is not automatically withheld at the notary. This is your responsibility.

• When: An Annual Tax Return is submitted (under Art. 50 of the Personal Income Tax Act).
• Deadline: To April 30 of the year following the year of sale.
  • Example: You sold the property in July 2024. You must file a return and pay the tax by April 30, 2025.

Next step: You already know all about money and documents. But what if you live in London or Sofia and don't have the opportunity to travel to Bansko for every step?

Read Part 5: Remote Selling – How to Sell Your Property Without Traveling