A new trend is emerging in one of the top business outsourcing
destinations in Europe.
Bulgaria has made a name for itself as one of the top
outsourcing destinations in Europe. The quality of local
employees and their fluency in languages also rates the country amongst the best locations globally for
establishing outsourcing centres.
The relatively low costs for maintaining an office in Bulgaria
and favourable salaries are well known and appreciated. Employees
working in Bulgaria's outsourcing industry (particularly the IT
sector) afford a quality of life well above the average, and thanks
to low everyday living costs, the country also attracts non-EU
citizens (Ukraine, Macedonia, Serbia and from elsewhere).
A new trend in outsourcing
Outsourcing is quite a significant part of the actual operations
of many international companies that consequently have sizeable
hubs and centres in Bulgaria. Other companies elect to outsource
internal functions on a cost-plus basis where the local entity
works as a separate enterprise. These companies do business in
Bulgaria through their business centres and offices, and this
business leads to the set-up of local branches and entities; these
are involved in core business functions.
Another trend has now emerged. Companies are externally sourcing
(or considering to in the near future) internal administrative
functions that are supporting their core businesses, but without
registering a branch or an entity in Bulgaria.
For example: the foreign entity is setting up
an office but has no place of business in Bulgaria. It is also
becoming more common to hire local personnel without establishing
an office. Such non-establishment presence is legally acceptable
providing the personnel hired in Bulgaria are not involved in the
core business operations of the foreign entity. Rather, they should
have supportive administrative functions, and they should also be
small in terms of total employee numbers.
This approach provides opportunities for even small and
medium-sized enterprises looking to decrease some of their costs
without negatively affecting the quality of any work.
TMF Bulgaria is pleased to see these foreign companies (many
from the UK) are satisfied with the offices they have established
in Bulgaria. After testing the environment with one or two
employees they often grow to around 20 employees within a couple of
years. The staff hired in Bulgaria provide the foreign business
with the remote support that would have otherwise been provided in
its country of establishment; just at a lower cost.
Considerations for outsourcing administrative functions
In these supportive, administrative-only circumstances, the only
registration companies must complete in Bulgaria is as an employer.
This simple process allows them to hire staff under Bulgarian
labour agreements, and to further act as an employer by paying the
monthly social and health security instalments as well as salary
If at some point a decision to close the local admin/support
office is made, the procedure to effect this is not as burdensome
as it would have been if a separate legal entity or a branch was
registered with the local trade register.
Registration as an employer should not trigger corporate
taxation as the companies' presence in Bulgaria is not related
to the core business of the entity, instead it's related to the
provision of supportive functions to the foreign entity's
business (mainly backing the companies in their day-to-day
administrative work). These functions are essential for the correct
performance of business tasks, but are not the business itself.
In order to make sure that this requirement is met and that
corporate tax is not in fact due in Bulgaria, it is of course best
to seek tax advice before setting up an office.
There is no obligation for appointment of a local representative
guaranteeing the entity's compliance with the local social
security rules, it is always the entity (being registered as
employer) that is responsible for the declaration and payment of
social security contributions and employees' taxes related to
the labour relationships. This is why – also considering the
specifics of local payroll legislation and the fact that all
reports should be in Bulgarian – we do suggest that foreign
employers hiring in Bulgaria make use of a professional services
provider, supporting the employer in the payroll process.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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