Is managing payroll in Bulgaria slowing your business expansion? With a 10% flat income tax, mandatory social security contributions (32.70%-33.40% of gross salaries, capped at BGN 4,130 monthly), and strict labor regulations—including 40-hour workweeks, 20 days of annual paid leave, and minimum wage requirements (BGN 750 in 2025)—compliance demands meticulous attention. 

This guide demystifies key components: tax deductions, health insurance breakdowns, Bulgaria’s three-phase payroll process, and permanent establishment risks. Learn to align with average salaries (BGN 2,547 in 2025), ensure accurate worker classification, and avoid costly penalties. 

Discover strategies to optimize payroll efficiency in a market where missteps can disrupt growth, reputation, and operational continuity. 

Understanding the core components of payroll in Bulgaria 

Expanding into Bulgaria demands precise payroll compliance. A multinational firm once incurred a 15% penalty for miscalculating contribution rates, emphasizing the need for accuracy. This guide breaks down three pillars: the 10% flat tax, social security obligations, and reporting deadlines. These elements shape workforce costs in a market where labor expenses grew 8% yearly since 2020. 

Bulgaria’s system blends simplicity with regulatory nuance. For cross-border payroll teams, mastering local specifics via resources like the complexities of payroll administration across borders is essential. Let’s explore the key components. 

The 10% flat tax on personal income 

Bulgaria shifted to a 10% flat tax in 2020, applying uniformly to salaries, bonuses, and benefits. Employers withhold this tax before net salary disbursement. Three major deductions apply: 

• Charitable donations up to 1,200 BGN/year 
• Voluntary pensions capped at 2,400 BGN/year 
• Family benefits: 6,000 BGN deduction per child 

For example, a parent with two children can reduce their taxable income by 12,000 BGN annually. Residents face global income liability, while non-residents pay tax only on Bulgarian-sourced income. Annual filings of Form 1 (tax) and Form 6 (contributions) through the NRA’s portal are mandatory. 

Understanding social security and health contributions 

Total social charges range from 32.70-33.40%, split between employers (18.92-19.62%) and employees (13.78%). These apply to gross salaries up to the 4,130 BGN monthly cap (2025). Coverage includes maternity leave, unemployment, and pensions, with higher employer shares for high-risk professions. Maternity benefits, for instance, cover 90% of average earnings for 410 days, provided the employee has 12 months of prior insurance. 

Contribution breakdown and reporting deadlines 

Bulgarian Social Security & Health Contributions Breakdown (2025) 

Payroll teams must submit Declaration 1 (tax) and Declaration 6 (contributions) by the 25th of each month. Late filings incur 0.05% daily interest penalties. Annual adjustments to caps, like the 2025 rise from 3,000 to 4,130 BGN, highlight the need for agile payroll systems. Employers should establish quarterly reviews of NRA announcements to adapt to legislative changes affecting total employment costs, which average 28% above gross wages. 

Key Employment Regulations Impacting Your Payroll In Bulgaria 

Working hours, overtime, and minimum wage 

Bulgaria’s labor code mandates a 40-hour workweek, with annual overtime capped at 150 hours. Overtime pay increases by 50% for regular days, 75% for non-official holidays, and 100% for official public holidays. Certain industries, like healthcare or manufacturing, face stricter limits—for example, night shifts cannot exceed 20 monthly overtime hours. The 2025 minimum wage—1,077 BGN (€551) monthly—rose 15.4% from 2024. According to Eurostat, this positions Bulgaria as the EU’s lowest minimum wage, yet with a +11% annual growth since 2015, affecting 13% of workers earning ≤105% of the minimum. Employers must factor these costs into payroll planning, as non-compliance risks fines up to €5,000 or criminal charges for repeated violations. 

Mandatory leave policies in Bulgaria 

All employees accrue at least 20 working days of paid annual leave, which must be monetized if unused at termination. Key policies include: 

• Annual Paid Leave: 20 working days/year, prorated for part-time roles. 
• Sick Leave: First 3 days paid by employers at 70% gross salary; the National Social Security Institute covers subsequent days at 80-90% (higher for work-related injuries). Employers must use standardized forms for NSI reporting, with medical certification required for absences exceeding 7 days. 
• Maternity Leave: 410 days (≈14 months) of 90% compensation based on the previous 24 months’ insured income. Fathers may access 7 days of paternity leave, though this is less commonly utilized. 
• Official Public Holidays: 15 paid days annually, including New Year’s, Orthodox Easter, and Labor Day (May 1). 

Employers must document leave accruals meticulously to avoid disputes. For example, sick leave requires medical certification for absences over 7 days, with employers using standardized forms for NSI reporting. 

Employee contract termination and final settlement 

Bulgarian law prohibits “at-will” employment. Termination requires formal notice (1–6 months) and strict documentation. Employers must provide: 

• Social security contribution certificate (proof of NRA compliance) 
• Completed employment record book for future verification 
• Final salary payment (within the next pay cycle) plus unused leave compensation 

Severance applies to layoffs due to restructuring: up to six months’ salary for employees with 10+ years’ tenure. Protected categories (pregnant employees, those on parental leave) require Labour Inspectorate approval. For policy frameworks, consult essential HR policies. 

Non-compliance risks significant penalties. Employers must report terminations to the National Revenue Agency within 7 days. For collective redundancies (e.g., 10+ employees in 30 days), employers must notify the State Employment Agency 30 days in advance. Post-termination, eligible employees receive 60% of their average daily pay (€18–€85.71) for 4–12 months, depending on tenure. For instance, those with 12–18 months of service receive 4 months of benefits, while those with over 15 years get 12 months. 

Advanced payroll strategies and local economic context 

The three-phase payroll process explained 

Managing payroll in Bulgaria requires a structured approach to ensure compliance with local regulations. The process can be broken down into three distinct phases, each critical for accurate compensation delivery. 

1. Pre-payroll phase: This involves gathering all necessary data for the pay period, including new hire information, attendance records, overtime hours, approved leave, and any bonuses or deductions. Accurate data collection prevents costly errors. 

2. Calculation phase: Here, gross pay is determined before statutory deductions like income tax (10%) and social security contributions (32.70–33.40% total) are applied. This phase defines net pay, which must align with Bulgaria’s strict payroll laws. 

3. Post-payroll phase: This includes salary disbursement, distribution of payslips, tax payments to the National Revenue Agency (NRA), and generating internal accounting reports. Timely submission of monthly declarations (Form 1 and 6) before the 25th of the following month is mandatory. 

Failure to execute any phase correctly risks non-compliance penalties, emphasizing the need for precision in each step. 

Average salaries and cost of living: a practical overview 

Understanding Bulgaria’s labor market requires more than minimum wage figures. Recent data from Trading Economics shows the average monthly salary reached 2,547 BGN in June 2025—a 9.3% annual increase driven by labor shortages and public sector raises. This metric provides critical context for payroll planning compared to the minimum wage of 750 BGN. 

When comparing salaries to living costs, businesses must consider: 

• Rent: A one-bedroom apartment in city centers averages 806.57 BGN/month, while three-bedroom units reach 1,373 BGN. 
• Groceries: Monthly food expenses for a family of four exceed 1,200 BGN, covering essentials like milk (11.72 BGN/gallon) and chicken (6.07 BGN/lb). 

This disparity between income and expenditure underscores why average salary benchmarks matter for competitive compensation strategies. 

Mitigating permanent establishment risks 

Foreign companies operating in Bulgaria face a hidden liability: creating a permanent establishment (PE) unintentionally. Under Bulgaria’s Corporate Income Tax Act (CITA), a PE arises when: 

• A fixed place of business exists (e.g., offices, warehouses, or construction sites operated for 6–12 months). 
• Dependent agents regularly negotiate contracts on the company’s behalf. 
• Durable commercial transactions occur within Bulgaria without proper structuring. 

Such scenarios trigger corporate income tax obligations on attributable profits, alongside mandatory registration with local trade registries. Companies often overlook risks from misclassified workers or improperly structured contracts—a critical error costing up to 10% of annual payroll budgets, as highlighted in risks that payroll providers sometimes ignore. Proactive legal reviews and payroll audits remain essential safeguards. 

Streamlining Your Payroll in Bulgaria for Compliance and Efficiency 

The Challenge of Staying Compliant 

Managing payroll in Bulgaria demands precise adherence to evolving tax, labor, and social security regulations. Employers must calculate and remit a 10% flat income tax, 18.92–19.62% employer social contributions, and 13.78% employee contributions—all while meeting strict deadlines (e.g., payments due by the 25th of the following month). Non-compliance risks hefty fines, legal disputes, or reputational damage. 

Maintaining accurate records for up to 50 years and submitting monthly forms like Declaration 1 (social security) and Declaration 6 (income tax) adds complexity. For foreign companies, navigating language barriers and Bulgaria’s tri-annual minimum wage adjustments compounds administrative strain. 

Why Partnering with a Local Expert Is Your Best Strategy 

Outsourcing payroll to a local expert eliminates these risks. A trusted partner ensures compliance with Bulgaria’s three-pillar social security system, timely tax filings, and precise handling of mandatory benefits like annual leave (20+ days) and sick pay. This approach safeguards against penalties while freeing internal teams to prioritize growth. 

• Guaranteed Compliance: Experts stay updated on legislative changes, protecting you from fines and legal issues. 
• Time and Cost Savings: Reduces administrative burdens and eliminates the need for in-house payroll hires. 
• Risk Mitigation: Manages complex issues like worker classification and permanent establishment risks. 
• Focus on Growth: Lets you concentrate on strategic goals instead of administrative tasks. 

For businesses lacking a Bulgarian legal entity, partnering with an expert in HR outsourcing services ensures seamless payroll management. These providers handle everything from salary calculations to GDPR-compliant data processing, leveraging local expertise to turn compliance into a competitive advantage. 

Navigating Bulgaria’s payroll requires mastery of tax compliance, social contributions, and labor laws. Local expertise ensures compliance, mitigates permanent establishment risks, and streamlines processes. Outsourcing saves time and costs, letting businesses focus on growth while experts handle tax and social contributions. Secure compliance today.

Frequently Asked Questions (FAQ) 

What is the payroll tax in Bulgaria? 

The payroll tax in Bulgaria primarily refers to the 10% flat personal income tax (PIT) applied to all employment income, including salaries, bonuses, and benefits. Employers are responsible for withholding this tax from employees’ gross salaries before disbursing net pay. Notably, mandatory social security and health contributions are deducted from gross income before PIT is calculated, ensuring compliance with the National Revenue Agency (NRA) requirements. Employers must submit withheld taxes to the NRA by the 25th of the following month. 

How much is monthly salary in Bulgaria? 

The average monthly gross salary in Bulgaria ranges from 1,300 to 1,500 BGN, translating to approximately 660–760 EUR. After deductions (10% income tax and 13.78% employee social contributions), the net salary typically falls between 1,000 and 1,200 BGN (510–610 EUR). The statutory minimum wage is 933 BGN monthly (as of 2024), with higher earnings in sectors like IT and finance. Urban areas like Sofia report salaries 20–30% above national averages. 

Is 1500 euro a good salary in Bulgaria? 

A 1,500 EUR net salary would place an individual well above Bulgaria’s average, considering the net average is 510–610 EUR. This amount enables a comfortable lifestyle in most regions, though Sofia or coastal areas may require careful budgeting. Key factors include housing costs (e.g., 800 BGN for a 1BR apartment in Sofia) and sector-specific standards, as highly skilled professionals in IT or finance often earn significantly more. 

What is the tax rate in Bulgaria for salaries? 

Bulgaria applies a flat 10% personal income tax (PIT) to all salary components, including base pay, bonuses, and benefits. This rate is among Europe’s lowest. Additionally, employees contribute 13.78% of gross income to social security and health insurance, while employers cover 18.92–19.62% of these mandatory contributions. The combined total (32.70–33.40%) funds pension plans, healthcare, and unemployment benefits. 

What is the employer cost in Bulgaria? 

Employers in Bulgaria bear 18.92–19.62% of an employee’s gross salary for social security contributions, in addition to the base salary. This percentage varies slightly based on industry risk profiles. For example, a 1,500 BGN gross salary would incur approximately 284–300 BGN in employer social contributions. These costs, combined with labor regulations and mandatory benefits, form the total employment expense, which remains competitive compared to Western European countries. 

How much do employees pay for payroll taxes? 

Employees contribute 13.78% of their gross salary toward social security and health insurance, with no additional income tax beyond the 10% flat rate. For a 1,500 BGN salary, this equals 207 BGN monthly for social contributions. This covers healthcare, unemployment, and pension programs. The simplicity of Bulgaria’s system—no progressive tax brackets—makes it predictable for both employees and payroll administrators. 

What is the most paid job in Bulgaria? 

Highly skilled professions dominate the top salary brackets: IT specialists (software developers, cybersecurity experts), specialized medical professionals, engineers (electrical, mechanical), financial managers, legal consultants, and aviation personnel. These roles often exceed 3,000–5,000 BGN gross monthly, particularly in multinational corporations or Sofia-based firms. Executive and managerial positions in tech or logistics also command premium compensation, reflecting market demand for expertise. 

Is Bulgaria a cheap country to live in? 

Bulgaria remains one of Europe’s most affordable countries. A 1-bedroom apartment in Sofia averages 806 BGN (410 EUR) monthly, while groceries for a single person cost roughly 600–800 BGN. Utilities (electricity, heating, water) average 200–300 BGN. Dining out is inexpensive, with budget meals starting at 20 BGN. However, expats should note that while costs are low, salaries align with this affordability, making relative purchasing power a key consideration. 

Do they speak English in Bulgaria? 

English is a second language in Bulgaria, taught in schools since the 1990s. Urban areas and younger generations (under 35) demonstrate stronger proficiency, particularly in Sofia, Plovdiv, and Varna. In business contexts, English is commonly used in international companies, though smaller firms and government interactions require Bulgarian. Professional sectors like IT, finance, and tourism have higher English fluency, while rural regions rely more on native language skills.