Sole LLC (EOOD) or Freelance Registration in Bulgaria: Key Legal and Tax Differences

As an entrepreneur, you already know how crucial it is to choose the right way to set up your business activity. Regardless the country you are relocating, this has a huge role when you are starting your business in Bulgaria. Several factors are essential and needed for consideration while choosing between opening a Sole Limited Liability Company (EOOD) or doing business as a freelancer in Bulgaria. Each type of structure carries its own benefits and obligations so you should choose depending on your needs and long-term objectives of doing business. Be a company owner looking to scale up or a digital nomad in need of flexibility, this comparison will help you make the right decision.

I. Liability and Legal Protection

A great difference occurs between a Sole LLC (EOOD) and freelancer registration when considering the level of liability protection that one gets. This is maybe one of the main aspects that should be considered when deciding the right structure of conducting business in Bulgaria.

Sole Limited Liability Company in Bulgaria (EOOD)

An EOOD provides limited liability, whereby the owner’s personal assets are completely separated from any business liabilities. In the event of debts or other legal issues, your liability will be limited to the extent of the company’s share capital, which is in a minimum amount of EUR 1 in Bulgaria but might be set higher according to your preference. This is worth considering where the nature of one’s business involves financial risks or substantial contracts or where one is likely to receive big clients.

Freelancers / Self-employed

As a freelancer your liability is not limited to a company shares and you are responsible with your whole property for your business activity obligations. This will, in essential form, translate to your personal assets not being shielded from the business liabilities. In case the business runs into financial troubles or litigation problems, you may be held personally liable for all debts and obligations. This would be great for low-risk activities but can open you up to higher personal risks if your work involves larger clients or contracts.

II. Taxation

There are some similarities, but the taxation structure is also different between EOODs and freelancers. With the company there is more documentation which should be accounted and declared properly on regular basis.

Sole Limited Liability Company in Bulgaria (EOOD)

• Corporate Tax: EOODs are liable for 10% corporate income tax on profits. However, any profits that the owner, who is a Bulgarian tax resident, withdraws from the business as dividends are also subject to a 5% dividend tax.
• Social Security Contributions: The owner of the EOOD has to pay social security and health insurance on a declared salary in case he or she is acting as a managing director. If the manager is another person, the obligation still stands in most cases. In general, social security obligations for EOODs are more complicated.
• Value-added tax: EOODs should be registered for VAT if the 12-months turnover is higher than 100,000 BGN (€51,130), but the threshold constantly grows higher. For many businesses, and especially for those working with international clients, VAT registration is recommended to be made on a voluntary basis due to the possibility of charging 0% for selling in the EU and reclaiming VAT on expenses made for maintaining your business.

Freelancers / Self-employed

• Individual Income Tax: For tax purposes, freelancers are considered Individuals paying taxes under the personal income taxation system and thus are subject to 10% income tax rate on their net income. For tax purposes the net income is calculated by deducting legally recognised expenses that primarily constitute 25% of the income but may go high to almost 40% for some professions. It really depends what activity you are conducting as a freelancer in Bulgaria.
• Social Security Contributions: It is a must for the self-employed individuals to pay insurance and health contributions for the income declared. There are some exceptions which are mostly for EU citizens paying social security contributions in another EU country. Regardless of the above, these payments are generally easier when compared to EOOD structure particularly where the freelancer has less documentation when it comes to declaration of incomes and expenditures.
• Value Added Tax (VAT): In accordance with the law, freelancers must also obtain VAT registration in case the turnover exceeds 100 000 BGN but it is also common to register from the beginning voluntarily for VAT, particularly in the case of persons who have dealings with European or foreign clients.

III. Administrative Obligations

Each of the business forms has administrative requirements to be performed on a continuous basis however the range of the obligations differs. For the freelancers, the process is easier and more straightforward which may be the perfect option for the commencement of a new business activity with low operational costs and tight initial structure.?

Sole Limited Liability Company in Bulgaria (EOOD)

• Accounting and Reporting: Bulgarian companies must keep accurate books of account and file annual returns as well as Annual financial statements with the Bulgarian Commercial Register. This includes preparation of balance sheets, profit and loss accounts and appropriate accounting records in line with the legislation of Bulgaria. An accountant is always needed because such work is complex and really important to be done properly.
• Ongoing Filings: Apart from annual financial statements, monthly VAT declaring (where EOODs are VAT registered) and employee social security contributions (incl. for the owner) is mandatory
• Compliance: In EOOD Structure, the corporate governance policies are more rigidly enforced, thus creating additional administrative support costs as the corporate body expands.

Freelancers / Self-employed

• Simplified Reporting: In relation to the EOODs, freelancers are subject to fewer administrative burdens. They are required to file an annual tax return declaration before the Bulgarian National Revenue Agency (NRA) – stating their earnings and expenditures. This is a straightforward process, and many freelancers typically prefer to do the bookkeeping on their own or may just go for a cheaper accountant.
• VAT Reporting: In case, they are also VAT registered, freelancers are obliged to present monthly VAT returns like in the case of EOODs. Nonetheless, their total administrative burden is still lighter because there are no corporate accounts that have to be filed.
• Minimal Inconveniences and Cost Efficiency: For the simple reason that, those who work as freelancers are afforded more liberty and very limited compliance costs, such a structure is appropriate for persons whose business activities do not involve a lot of complication. It is also evident that the costs spent on running a freelance activity in Bulgaria are less than those of operating with Sole LLC (EOOD).

IV. Scalability and Flexibility

The flexibility and ability to scale the business will be completely different in an EOOD and as a freelancer. As you may assume, scalability would be one of the main benefits when it comes to company formation in Bulgaria.

Sole Limited Liability Company in Bulgaria (EOOD)

• Scalability: Incorporating a company in Bulgaria is suitable for Growth Strategy. You can hire employees, larger projects can be executed, issuance of investments is possible, and a wide range of business deductions is allowed. Another thing is, formed companies are given a higher degree of recognition, which may be helpful in getting bigger projects in the presence of foreign customers, or using credit facilities, for example.
• Administrative Burden: There are a lot of benefits of the EOODs, but the structure of the company as well as its operations has strict limits on flexibility. In this case, the obligations of both administration and legislation increase with the growth of the business and the company could come under increased examination from tax and other authorities. The process of liquidation of the registered company in Bulgaria is also time consuming and costly process, which involves many stages with legal time-frames.

Freelancers / Self-employed

• Maximum flexibility: Freelancers enjoy maximum flexibility – few bureaucratic procedures, the ability to manage one’s own business and the very nature of freelance work. This reason makes freelancing a model that is more attractive for digital nomads, creative, and individual service providing specialists.
• Limited Growth: However, the freelance model has its disadvantages and one of the is the scalability. The absence of proper business form could mean loss of possibilities of getting on bigger contracts or going abroad. If you are growing within your field significantly, chances are that you will probably have to move and open a director’s office or shareholding company, so as to cater for such growth. Don’t worry on that, it could be relative fast process.

V. Long Term Considerations

It is also worth weighing the long term benefits and costs of each structure, when determining the future of a business that is to be established in Bulgaria. It really depends on entrepreneurs future goals and vision for the business activity conducted in Bulgaria.

An limited liability company in Bulgaria creates a better base for the business in the long view. It is best for visionary businesspersons who wish to construct a business that is stable, scalable and able to deal with operability complexities with time. Considering that limited liability, the company registration and the ability to appoint workers easily comes into play, an EOOD is a sensible option for individuals who seek to widen their scope. Forming a company in Bulgaria means that you have a long-term plans for your business activity here and want to eventually expand it even further with the time.

As for how and where to seek earnings in the simplest form, though, freelancers are never in short supply, and one will always find the market. However, they often outgrow this business model and need to expand. Freelancers usually turn to the idea to register a company in Bulgaria as soon as they grow their business but it requires further development or they want to limit personal liability.

Whether you want to establish a Limited Liability Company in Bulgaria or seek registration as a freelancer is a question that depends upon business model, risk appetite and aspirations. If you want to understand more about the pros and cons of setting up your business in Bulgaria, you can reach out to us on our contact form on the website or on our email.