Global Minimum Tax (Pillar Two) and Bulgaria: What Small Business Owners Need to Know in 2026

The Short Answer: You're Almost Certainly Not Affected

If you run a Bulgarian EOOD generating EUR 50,000 to EUR 500,000 in annual revenue, here's the bottom line: the Global Minimum Tax (Pillar Two) does not apply to you. Not today. Not in 2026. Almost certainly not ever in its current form.

Pillar Two targets multinational enterprise (MNE) groups with consolidated annual revenue of at least EUR 750 million. That's three-quarters of a billion euros. To put this in perspective: if your EOOD earns EUR 200,000 per year, you would need to multiply your revenue by 3,750 times before Pillar Two becomes relevant.

Yet the headlines generate confusion. "Global Minimum Tax threatens low-tax countries." "Bulgaria's 10% rate under pressure." It's understandable why small business owners worry. This article cuts through the noise, explains what Pillar Two actually is, confirms why it doesn't affect your business, and identifies the tax risks you should actually be paying attention to.

What Is the Global Minimum Tax (Pillar Two)?

The Global Minimum Tax is an initiative of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). Agreed by over 140 jurisdictions, it establishes a minimum effective tax rate of 15% on the profits of the world's largest multinational groups.

The goal is straightforward: prevent large multinationals from shifting profits to low-tax or zero-tax jurisdictions to achieve effective tax rates well below what their home countries consider reasonable. Think of companies like Apple routing profits through Ireland, or Google using a "Double Irish" structure. Pillar Two is designed to put a floor under those arrangements.

The Legal Framework

• OECD GloBE Model Rules (December 2021): The foundational framework establishing the 15% minimum rate, the calculation methodology, and the operating rules
• EU Directive 2022/2523 (December 2022): The EU's transposition of the GloBE rules into binding EU law. All EU member states — including Bulgaria — were required to implement it into national legislation
• OECD Administrative Guidance: Ongoing clarifications and technical guidance on implementation details, safe harbors, and transitional rules

Who Does Pillar Two Actually Apply To?

This is the most important section in this article. Pillar Two applies exclusively to:

• Multinational enterprise (MNE) groups — meaning groups with entities or permanent establishments in at least two different jurisdictions
• With consolidated annual revenue of at least EUR 750 million in at least two of the four fiscal years immediately preceding the tested year

Both conditions must be met. A purely domestic Bulgarian company — no matter how large — is not an MNE group. And an MNE group with EUR 500 million in consolidated revenue is below the threshold.

The EUR 750 Million Threshold in Context

To appreciate how far removed this is from the typical Innovires client:

How Pillar Two Works: The Three Mechanisms

For those who want to understand the mechanics — even if they don't apply to you — Pillar Two operates through three interlocking rules:

1. Income Inclusion Rule (IIR)

The IIR is the primary rule. It operates at the parent company level. If a multinational's subsidiary in a given country is taxed at an effective rate below 15%, the parent company's home country imposes a top-up tax to bring the effective rate to 15%.

Example: A German parent company owns a Bulgarian subsidiary. The Bulgarian subsidiary earns EUR 10 million and pays 10% Bulgarian corporate tax (EUR 1 million). The effective rate is 10%, which is below 15%. Under the IIR, Germany would impose a top-up tax of 5% (EUR 500,000) on the German parent — bringing the total effective rate on those Bulgarian profits to 15%.

2. Undertaxed Profits Rule (UTPR)

The UTPR is a backstop. It applies when the parent company's home country has not implemented the IIR (or is itself a low-tax jurisdiction). In that case, other countries in the group can collect a share of the top-up tax by denying deductions or imposing equivalent adjustments.

3. Qualified Domestic Minimum Top-up Tax (QDMTT)

The QDMTT is the most strategically important rule for countries like Bulgaria. It allows a low-tax jurisdiction to impose the top-up tax itself, rather than letting the parent's home country collect it via the IIR.

The logic is simple: if the top-up tax is going to be collected regardless, Bulgaria would rather keep that revenue domestically than let Germany, France, or the Netherlands collect it. A QDMTT gives Bulgaria first priority over the top-up tax amount.

Bulgaria's Implementation of the Directive

As an EU member state, Bulgaria was required to transpose EU Directive 2022/2523 into national legislation. Bulgaria has done so, implementing the IIR and UTPR as required by the directive.

The QDMTT Question

The QDMTT is optional under the directive — member states may choose to implement it but are not required to do so. Bulgaria may implement a QDMTT as a strategic measure. The rationale is compelling:

• Without a QDMTT: If a large multinational operates in Bulgaria at an effective rate below 15%, the top-up tax is collected by the parent's home country (e.g., Germany collects the 5% difference). Bulgaria sees no benefit
• With a QDMTT: Bulgaria itself collects the top-up tax, keeping the revenue domestically. The multinational pays the same total amount either way — the question is only which country collects it

For Bulgaria, implementing a QDMTT is a matter of fiscal sovereignty: ensuring that revenue from in-scope multinationals operating in Bulgaria stays in Bulgaria rather than being transferred to higher-tax EU member states through the IIR mechanism.

What This Does NOT Mean

• It does not mean Bulgaria's 10% corporate tax rate is increasing
• It does not mean any additional tax for businesses below the EUR 750M threshold
• It does not affect domestic-only companies, regardless of size
• It does not change Bulgaria's existing tax treaties or EU directive benefits

Why Your Bulgarian EOOD Is Safe

Let's be explicit. If you own a Bulgarian EOOD — or any Bulgarian company that is not part of a multinational group with EUR 750 million+ in consolidated revenue — here is exactly what changes for you under Pillar Two:

Nothing.

The Simple Math

Your Bulgarian EOOD continues to benefit from:

• 10% corporate income tax — the EU's lowest flat rate, fully compliant with EU law
• 8% dividend tax on distributions to individual shareholders (5% withholding to non-residents, subject to treaty reductions)
• 0% participation exemption on dividends received from EU/EEA subsidiaries
• EU Parent-Subsidiary Directive benefits for intra-group dividend flows
• 70+ double taxation treaties for cross-border income optimization

Does Pillar Two Affect You? Quick Checklist

What Could Change in the Future?

While Pillar Two in its current form is irrelevant to SMEs, the broader trend of international tax harmonization is worth monitoring. Here's what's on the horizon — and what is not.

Possible Future Developments

• Lowering of the EUR 750M threshold: Some academic and political discussions have floated the idea of eventually lowering the threshold. However, there is no concrete proposal at the EU or OECD level to do so. The threshold was deliberately set at EUR 750M (matching the Country-by-Country Reporting threshold) to exclude SMEs, and any change would require unanimous agreement among the OECD Inclusive Framework members
• EU-level domestic minimum tax: Some EU institutions have discussed whether a minimum effective tax rate should apply to all businesses, not just large MNEs. This remains in the realm of political discussion, not legislation. Any such proposal would require unanimous approval from all 27 EU member states — and countries like Bulgaria, Ireland, and Hungary have historically blocked tax harmonization efforts
• Increased reporting obligations: The more realistic near-term change is expanded reporting requirements (DAC6, DAC7, DAC8) that increase transparency across borders. These already affect SMEs in some cases

What Is NOT Happening

• Bulgaria is not planning to increase its 10% corporate tax rate
• There is no EU directive requiring domestic minimum tax rates for SMEs
• The OECD has not proposed extending Pillar Two to smaller businesses
• Bulgaria's EU membership and Eurozone accession do not require tax rate alignment with other member states

The Real Tax Risks for Small Businesses in Bulgaria

Pillar Two is not your concern. But these issues are. If you operate a Bulgarian EOOD with international clients, cross-border income, or related-party transactions, these are the areas where tax authorities are actively scrutinizing:

1. Transfer Pricing Scrutiny

If your Bulgarian EOOD transacts with related parties in other countries — management fees, intercompany loans, IP licensing, shared services — all prices must be at arm's length. The Bulgarian NRA and foreign tax authorities increasingly exchange information and challenge non-arm's-length pricing. This applies regardless of your company's size.

2. Substance Requirements

A Bulgarian company must have genuine economic substance: a real office, employees or a manager who makes decisions in Bulgaria, local bank accounts, and documented business activity. A company that exists only on paper — with no employees, no office, and a director who never visits Bulgaria — risks being disregarded by foreign tax authorities, which would tax the income directly at the beneficial owner's level.

3. Controlled Foreign Company (CFC) Rules

If you are a tax resident of a country that applies CFC rules (Germany, France, the UK, and most EU member states), your home country may attribute your Bulgarian company's income to you personally if certain conditions are met. This is an ATAD requirement that applies to holding structures and operating companies alike.

4. DAC6 and DAC7 Reporting

DAC6 requires intermediaries (including tax advisors and lawyers) to report cross-border arrangements that meet certain hallmarks to tax authorities. DAC7 requires digital platforms to report seller information. These reporting obligations can affect businesses of any size and may trigger follow-up inquiries from tax authorities.

5. Domestic Compliance

The most common problems for small business owners in Bulgaria are mundane but costly:

• Missing the annual tax filing deadline (June 30 for corporate tax returns via Form 1010)
• Incorrect social security contributions
• Failing to register for VAT when exceeding the BGN 166,000 threshold
• Inadequate documentation for salary vs. dividend planning

Bulgaria's 10% Rate in Context

Despite the noise around global minimum taxes, Bulgaria's competitive position in 2026 remains strong:

Bulgaria's 10% rate is:

• The lowest flat rate in the EU (Hungary has 9% but applies a local business tax that raises the effective rate)
• Fully compliant with EU law — there is no EU minimum corporate tax rate requirement
• Stable and predictable — Bulgaria has maintained 10% since 2007, with no political movement to change it
• Complemented by the Euro — since Bulgaria adopted the Euro on January 1, 2026, there is no longer currency risk for Eurozone-based businesses operating through a Bulgarian entity

Cutting Through the FUD

Let's address the most common misconceptions we hear from clients:

"Bulgaria will have to raise its tax rate to 15%"

False. Pillar Two does not require countries to raise their domestic rates. It allows other countries to collect a top-up tax on large MNEs. Bulgaria's 10% rate is a sovereign decision, protected by EU treaties, and applies fully to domestic businesses and SMEs.

"My EOOD will eventually be caught by this"

Extremely unlikely. The EUR 750M threshold was chosen to match the existing Country-by-Country Reporting threshold and targets only the world's ~3,000 largest multinationals. There is no credible proposal to lower it to levels that would affect SMEs.

"Low-tax countries are being punished"

Misleading. Countries with rates below 15% can implement a QDMTT to capture the top-up tax themselves. The country keeps the revenue — it's the multinational that pays more, not the country's domestic businesses. Bulgaria's low rate remains a competitive advantage for attracting SMEs, entrepreneurs, and mid-market businesses.

"I should move my company to a country with a rate above 15% to be safe"

Counterproductive. If Pillar Two doesn't apply to you (and it almost certainly doesn't), moving to a higher-tax jurisdiction means paying more tax for no benefit. Bulgaria's 10% rate remains one of the most competitive in the world for businesses below the EUR 750M threshold — which is virtually all businesses.

Frequently Asked Questions