Moldova has recently clarified
certain requirements related to the taxation of dividends
distributed during the period 2008-2015 to residents of Bulgaria,
in the context of the application of the double tax treaty
concluded between the two countries in 1998. According to the
treaty, Bulgarian residents who hold at least 51 % of the capital
of a dividend-distributing Moldavian company are subject to a 5%
withholding tax rate on those dividends, whereas all other
Bulgarian dividend-recipients (who do not fulfil the capital
ownership criteria) are subject to a 15% withholding tax rate.
The rates of taxation of dividends
provided by the double tax treaty between Bulgaria and Moldova are
significantly lower in comparison with those prescribed in the Tax
Code of Moldova. However, as is typically the case, the tax treaty
is deemed to prevail over the domestic legislation of Moldova and
this has been confirmed by the Moldavian State Tax Service.
Despite being given priority in the
application of tax treaties over domestic legislation, а
resident of Bulgaria is obligated to provide to the payer, before
the date of payment of income, a certificate of Bulgarian residence
in order to for the treaty provisions to apply. As a result of
omitting this step, the income of a resident of Bulgaria will be
subject to withholding tax in accordance with the dispositions of
the Tax Code which is rated at 15% (if related to profits earned
between 2008 and 2011) or 6% (if related to profits earned between
2012 and 2015).
Additionally, the Bulgarian
beneficial owner is entitled to ask the Moldavian dividend-payer to
claim back the overpaid income tax on dividends if the Bulgarian
residence certificate is submitted in the same tax year, even after
the payment of income. In such cases, previously filed income tax
forms will need to be retroactively corrected.
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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