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Comment by atxbcp | Hacker News Reader

The numbers in this article are wrong, especially the company vs individual chart: you'd only pay 16% tax with a company if you paid yourself in dividends. Past a certain threshold, with a company, the best option is to pay yourself a salary every month. Then your tax rate will be in the 11 - 15% range depending on your income.

source: I've got a company in Bulgaria

conclusion: coming to Bulgaria to pay less taxes can definitely be done, but hire a local accountant and get professional advice.

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In Romania you pay 7% tax for an LTD (dividend + corporate tax) and for up to 100k turnover you pay <2% as a consultant registered as a PFA (sole trader), or 10% as a non consultant but software engineer as a PFA. The cost of living is a bit higher than bulgaria but so is the standard of living (i.e.: I pay roughly 850 EUR rent pcm in Bucharest for a two bed flat, enjoy private health care and generally speaking a more decent living standard). Earn around 120k EUR per year and get to keep > 90% after tax as per above.

I was working with a Ukrainian guy for a few years, and he was always complaining about taxes and how he wanted to pay less. Eventually he told us he was paying an effective tax rate of 7% :D

Considering how tax money are being used in these countries, even 7% is too much. I don't mind taxes, but there's too much embezzlement so some dude in the parliament can buy lambos. An issue common to countries in the region, but less so in Poland or Romania.

What about 40+ per cent charged in South Europe countries?

Do you think they're all that better

These taxes we are debating here apply mainly to "contractors". In Romania there are incentives for permanent tech employees as well, getting closer to the 40% mark - a bit higher. Non tech seems like it's taxed more on par with northern europe (factoring in income tax, health care tax, and some other taxes idk much about).

I was under impression it was 1-3% profit tax + 5% dividend with an upper limit of 1 million euros? Or has that changed (again)?

Also, 850 pcm seems kind of high, at least compared to what I saw on olx.ro.

> I was under impression it was 1-3% profit tax + 5% dividend with an upper limit of 1 million euros? Or has that changed (again)?

Correct, but on average mine works out around 7% and I have almost 0 company expenses as I don't partake in dodgy wizardry.

> at least compared to what I saw on olx.ro.

one does _not_ rent property on OLX and there are only some areas that are desirable (i.e.: have to look and feel of central or western europe).

try imobiliare.ro and look around baneasa, floreasca, aviatiei, herastrau, or pipera (voluntari). prices vary but generally speaking a new building, parking included, security is in the range above.

> one does _not_ rent property on OLX and there are only some areas that are desirable (i.e.: have to look and feel of central or western europe).

Interesting. Why not? The apartments look pretty legit.

If you like them then there is no issue, but usually i find them of lower quality. Not saying there aren't decent apartments, but anything <650/700 is not great IMO. Also the areas I mentioned look and feel like a different country hence willing to pay more. No trying to be sure or demeaning sorry if i come across that way.

No, it's fine. I assumed that you meant that olx.ro was a scam or something. Only after I visited immobiliare.ro did I realize the difference in quality between their offerings.

There are some scams too around OLX, but the quality is indeed way below what you find on imobiliare as you can see. One of the other reasons is that expats usually use the latter, thus you are more likely to find better communities. In my building there are Spanish, Italian, Canadian, US, UK, Nigerian tenants among Romanians working either tech or blue collar. Plenty of cultural exchange and, naturally, beer tasting. However, it's still Romania and services are not something I am happy with, nor can i get used to the aggressive driving and generally speaking the occasional hostility (people just getting pissed off for no reason).

120k EUR per year is less than 5% of people in Bucharest and probably less than 1% country wide.

It is. Worth noting that I know no one among locals that are permanent employees to earn < 2500 EUR after tax. Pre-tax as a permanent that's 45-50k EUR a year (with some margin of error). That's for senior level devs with > 10 years of experience. Junior or mid is way less. BI/Data science or web dev. Game dev and other types of development are low paid, as in western europe. I had my first shock when Microsoft offered a salary of 70k + bens for someone from cluj napoca to relocate to London around 2014, and they flat out turned it out because cost of living adjusted they earned more in Cluj. Go figure that out. Tbh if you earn 2.5k in Romania after tax you are way way better off than someone earning 4k in London.

I know several people just out of college that earn 50k in Bucharest or Cluj, not after 10 years. The salaries increased a lot in the past 5 years, but still 120k is extremely rare, above director level for employee type of contracts.

That's impressive!

120k is a medium level contract in the UK, at least for my background, so I am technically speaking ... cheap.

In Romania, from what I gather, a director can mean a low level manager. Pretty soon the market will adjust and learn that they are not worth the money. CTO/CEO director levels, yes. Experienced Product Managers that actually drive the product, sure. But management that does nothing but crack the whip and demand to be addressed as "dumneavoastra" to inflate their egos are a dying breed.

people "just out of college" earn a lot more than someone with 20 years experience, in tech here. In fact, there is straight discrimination against people over 30 in many tech shops in the USA.

What about VAT? A turnover threshold in Romania is 88500€ (as quick google search suggests). How on earth are you keeping 90% when VAT is 19% there.

Asking for a friend :)

No need to ask for a friend :P as in other countries mentioned here, VAT for intra community (or in my case non EU / UK) trade there is no VAT. You do have to register as a VAT company but since there is none you charge there is none to pay. My daily rate is 450 GBP (500 EUR more or less) and that's it. No VAT added despite being a VAT reg company. There is nothing dodgy, it is by design. The country benefits by preventing a brain drain and keeping money in the country.

In my case since I work B2B and my clients are mostly B2B as well then VAT is not really cost to the other side. They just subtract VAT they pay to me from the VAT they need to pay.

VAT is a problem if you work with end users directly, they can't "subtract" it like that.

One (LTD or PFA) only has to pay VAT if they invoice Romanian companies. Otherwise, based on what's called "taxare inversă" (reverse taxing), the invoices won't contain VAT, so it doesn't have to be paid either, even if the commercial entity is a VAT paying one.

Could you elaborate? Of course I do have a local accountant, and if what you're saying is true, I am disappointed she didn't mention that; they just said, paying salary will end up being more expensive than dividends.

I'm not from Bulgaria but I think what was said is that you depending on profitability of your company you can pay out a part of the profit as a dividend (using the lower tax rate until the cutoff) and then the rest as a salary.

It's not one or the other. As a company owner you can use both the dividend and pay yourself a salary.

While I def agree that those are not mutually exclusive and I considered paying myself a salary, but paying a salary still involves a bunch of extra taxes, which end up being more than the dividend's 5%. At least that's what I had from my accountant, but I'd be happy to know details of how to make the combination of salary+dividends to require less taxes than just dividends.

By paying yourself with a salary via your company, you'd pay 10% revenue tax + health insurance (ЗО) + social insurance (ДЗПО, ДОО)... except the insurance part is capped on a maximum revenue of 3000 BGN or something like that... so as you make more money, your total tax rate converges to 10%. Take these numbers with a grain of salt because I'm no accountant, but I know for sure your accountant is wrong, because I know how much tax I pay, and that's close to 11.5% total.

Thanks, I'll research more into that.

In the meantime, I clarified in the article that as long as a company is concerned, the article only focuses on the dividends option, and added the link to your comment.

My math still can't show how this is true.

If we take a gross income of 20K BGN (which is not a bad income for a software engineer), then with dividends, net income will be roughly this:

  20000*0.9*0.95-710*(0.148+0.05+0.08) = 16902, which means taxes are 15.59%.

And if it all goes as a salary, then net is roughly this:

  20000*0.9-3000*(0.148+0.05+0.08) = 17166, which means taxes are 14.17%. It's lower than dividends, but still far from the 11.5% that you mentioned.

To get to 11.5%, the gross income has to be around 50K:

  50000*0.9-3000*(0.148+0.05+0.08) = 44166, so the taxes are around 11.67%.

Could you clarify in which range your gross income is, is it closer to 50K BGN than 20K BGN?

I guess there can be some bonuses which aren't taxed, and this way one could reduce the tax, but paying large bonuses to myself smells too much to me since it's clearly done just to pay less taxes.

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