Al Hathaway Decision Guide · Bulgaria 2026
Freelancer vs Bulgarian Company: Which Structure Fits Your Work in 2026?
The right answer depends on more than two tax rates. Compare the full cash result, social security, real expenses, liability, administration and how you intend to use the profit.
A free profession is not automatically cheaper, and a company is not automatically more professional. For an eligible consultant or creator with few actual costs, the statutory expense deduction can make the free-profession route attractive. A Bulgarian EOOD can be more suitable when the business needs limited liability, documented expense deductions, retained profit, employees, partners or a structure that can grow beyond one person.
Start with eligibility
“Freelancer” is not a single Bulgarian legal form
Freelancer is a business description, not a complete tax classification. In Bulgaria, an individual may operate as a person exercising a free profession, as a craftsperson, as a sole trader, through a company, or under another arrangement. The activity itself matters.
Personal professional activity
The statutory definition covers listed professions and other individuals who carry on comparable professional activity for their own account, are not registered as sole traders and are self-insured. Qualifications or regulated-profession rules may also apply.
Separate legal person
An EOOD is a limited-liability company with one shareholder. It enters contracts, owns assets, invoices customers and keeps its money separately from the owner.
Do not choose the tax treatment before classifying the activity
Online sales, organised trading, an agency with subcontractors or another business carried on in a commercial manner may not fit the free-profession model merely because the owner works alone or uses the word “freelancer”.
The complete picture
Free profession and EOOD compared side by side
| Question | Free profession | Bulgarian EOOD |
|---|---|---|
| Legal person | No. The individual carries on the activity personally. | Yes. The company is legally separate from its shareholder. |
| Registration | Usually BULSTAT registration and notification of self-insured activity. | Incorporation in the Commercial Register, followed by the relevant tax, insurance and operational registrations. |
| Income-tax model | 10% personal income tax on the applicable annual tax base. | 10% corporate tax on adjusted accounting profit; a further 5% tax generally applies when profit is distributed as a dividend to an individual. |
| Expenses | Most free professions use a statutory expense percentage instead of deducting their actual business costs. | Documented business expenses may reduce taxable profit when recognised under accounting and corporate tax rules. |
| Social security | The person is normally self-insured and subject to annual equalisation. | The owner’s work or management must be structured correctly; self-insurance, personal-labour remuneration or a management contract can produce different results. |
| Access to money | Business receipts belong to the individual, subject to keeping proper records and reserving funds for liabilities. | Company cash is not personal cash. Money reaches the owner through lawful grounds such as remuneration, reimbursement, loan repayment or dividend. |
| Liability | No separate limited-liability shield for the activity. | Limited liability in principle, but not protection from every tax, management, guarantee or misconduct exposure. |
| Administration | Usually lighter, although invoices, registers, tax declarations and insurance filings remain necessary. | Double-entry bookkeeping, annual financial statements, corporate filings and formal profit-distribution decisions. |
| Growth | Works best where the activity remains genuinely personal. | Usually better suited to staff, partners, investment, retained profit, transferable ownership and a business brand. |
Tax is a base, not only a rate
How the taxable amount is calculated
Revenue less statutory expenses
For many free professions, 25% of the gross income is treated as statutory expenses. Certain categories have a different percentage. The tax base is then reduced by the qualifying mandatory insurance contributions before the 10% personal income tax is calculated.
Accounting profit adjusted for tax
The company starts from accounting profit and applies the adjustments required by the Corporate Income Tax Act. Corporate tax is 10%. If after-tax profit is later distributed to an individual shareholder, the dividend is generally subject to 5% final tax.
A free profession can receive a 25% statutory deduction even when its actual costs are much lower. That can be economically valuable. But where actual costs are high, the company may produce a more realistic tax base because qualifying documented expenses are recognised individually.
Why the statutory deduction matters
If an eligible consultant earns €40,000 and has only €3,000 of real business costs, a 25% statutory deduction represents €10,000 before the insurance adjustment. A company does not receive that automatic €10,000 deduction; it starts from its actual documented costs. This does not settle the final choice, because social security, accounting costs, remuneration and profit distribution still have to be included.
Often the decisive cost
Social security can reverse the headline tax comparison
A self-employed professional normally pays advance contributions on a chosen monthly base within the statutory limits and then performs annual equalisation against the relevant income. In 2026, the applicable minimum and maximum bases changed during the year, so a reliable comparison must be month-specific.
| Issue | Free profession | EOOD owner |
|---|---|---|
| Why contributions arise | Because the individual begins and performs registered self-employed activity. | Because the owner performs personal work, manages the company under a chosen legal basis or carries out another insurable activity. |
| Advance base | Chosen between the statutory monthly minimum and maximum. | Depends on the legal basis: self-insurance, management remuneration or another arrangement. |
| Annual equalisation | Normally linked to income from the self-employed activity, subject to the statutory rules and ceilings. | Company profit and dividend are not automatically the owner’s self-insurance base; personal work and other insurable income require separate analysis. |
| Main risk | Budgeting only for minimum monthly contributions and ignoring the annual adjustment. | Assuming the shareholder can actively work without choosing and documenting a correct insurance basis. |
Dividend is not remuneration for current work
A working owner cannot solve the legal and insurance position simply by calling every withdrawal a dividend. Dividends require distributable profit and a formal distribution decision; work and management must have their own lawful basis.
Cash discipline
Whose money is in the bank account?
This is one of the largest practical differences. A free professional and the business are the same legal person. An EOOD and its shareholder are not.
Remuneration
The company can pay properly documented remuneration for management or personal labour, with the corresponding tax and insurance treatment.
Expense reimbursement
A genuine company expense paid personally may be reimbursed when supported by the required documents and business purpose.
Dividend
Dividend comes from distributable after-tax profit following the necessary annual or interim accounting and corporate steps. It is not an informal monthly salary.
Retained profit changes the result
If the owner needs nearly all earnings for personal living costs, both tax layers and the method of remuneration matter immediately. If a company can retain profit for equipment, marketing, staff or working capital, the dividend layer may be deferred until a lawful distribution is made.
Separate analysis
VAT obligations can arise under either structure
Choosing an EOOD does not create a universal VAT advantage, and choosing a free profession does not remove VAT obligations. In 2026, the national mandatory-registration threshold is €51,130 of annual turnover in Bulgaria under the applicable rules. Separate triggers may apply below that amount.
Foreign services received
Advertising, software, hosting, marketplace or other services supplied from abroad can require registration and self-charging under Article 97a, depending on the facts.
EU business clients
Supplying qualifying general-rule B2B services to a business customer in another EU member state can also trigger Article 97a registration and VIES reporting.
VAT registration for freelancers in Bulgaria · Article 97a explained
Three business profiles
What the decision looks like in practice
Solo consultant
Eligible personal services, few real costs, no employees, limited contractual risk and most earnings needed personally. The statutory expense deduction may be valuable.
Growing digital studio
Subcontractors, software, advertising, equipment, retained profit and plans to hire. Actual expense deductions and business separation become more important.
Online shop
Stock, product liability, logistics, consumer obligations, payment providers and material operating costs. This is generally a commercial operation rather than a personal free profession.
A company is not a tax costume
The legal form should match the real operation. A one-person company can still be perfectly appropriate, but it must have separate accounts, defensible expenses, correctly documented owner payments and a real compliance process.
Decision framework
Six questions that usually reveal the better structure
- Does the activity qualify as a free profession? Classify the real activity before comparing calculations.
- How large are the genuine annual business costs? Compare them with the available statutory expense percentage.
- How much cash must be withdrawn personally? Model remuneration, insurance and dividends, not only company profit.
- Will profit be reinvested? Retained cash for growth can strengthen the company case.
- Is there contractual, product or operational risk? Consider liability, insurance and customer expectations.
- Will the activity add people, partners or investors? A separate legal entity is usually easier to scale and transfer.
The calculation should also include accounting fees, bank and platform charges, VAT recovery, foreign-client obligations and the cost of changing structure later.
Avoidable errors
Common mistakes when choosing
- Comparing only the 10% personal tax with the 10% corporate tax.
- Ignoring annual social-security equalisation for a free profession.
- Treating the company bank account as the owner’s personal wallet.
- Assuming every remote or creative activity qualifies as a free profession.
- Using dividends as a substitute for correctly structured work or management.
- Choosing a company for “prestige” without budgeting for bookkeeping and annual compliance.
- Choosing a free profession because it looks simpler while the activity is already commercial, team-based or high-risk.
- Waiting for the standard VAT threshold while Article 97a or another trigger has already arisen.
Frequently asked questions
Freelancer versus company in Bulgaria
Is a free profession always cheaper than an EOOD?
No. It can be attractive where the statutory expense deduction exceeds real costs, but final social security and the person’s full income position matter. A company may perform better where actual costs are high or profit is retained.
Can every freelancer register as a free profession?
No. The legal definition, nature of the activity, qualifications and commercial characteristics must be checked. “Freelancer” is not itself a sufficient classification.
Does an EOOD pay only 10% tax?
The company pays 10% corporate tax on its adjusted taxable profit. Owner remuneration can carry personal tax and social security, and a dividend distributed to an individual is generally subject to 5% final tax.
Can the owner withdraw company money whenever needed?
Not as personal money without a lawful basis. Withdrawals should correspond to remuneration, reimbursed expenses, a valid loan relationship, dividend or another properly documented transaction.
Which structure is better for foreign clients?
Foreign clients do not automatically determine the form. Customer expectations, contracts, liability, payment platforms and VAT rules all matter. Both structures can invoice abroad.
Does registering a company avoid self-insurance?
Not automatically. An owner who works in or manages the company needs a correctly structured insurance basis. The result depends on the activity and legal arrangement.
Can I start as a free profession and create a company later?
Yes, where the initial activity qualifies. The transition should be planned: contracts, invoices, assets, receivables, VAT position, platform accounts and customer communications may all need to move to the new entity.
Official sources and further reading
- National Revenue Agency: Free professions.
- National Revenue Agency: Starting a business as an individual.
- National Revenue Agency: Corporate income tax.
- National Revenue Agency: Final taxes, including dividends.
- National Social Security Institute: Self-employed persons.
- National Revenue Agency: VAT registration.
Compare the structures using your real numbers
Al Hathaway can model the tax, social-security and cash-flow consequences of free profession and company structures using your activity, costs, clients and withdrawal plans.
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