Moving from UK to Bulgaria as an IT Contractor: EOOD, IR35 Escape and 15% Total Tax

UK IT contractors inside IR35 face effective tax rates of approximately 47% in 2026 — and that figure worsens if they operate through a UK limited company at higher rate dividend tax. A Bulgarian EOOD (Дружество с ограничена отговорност с един собственик — a single-member limited liability company) compresses that burden to a combined 15%: 10% corporate income tax under Art. 20 ЗКПО and 5% dividend withholding tax under Art. 38(1) ЗДДФЛ. The 2015 UK-Bulgaria Double Tax Convention prevents double taxation across both jurisdictions. This guide covers every step of the transition: breaking UK tax residence cleanly under the Statutory Residence Test, forming an EOOD remotely from the UK, navigating the dual-residency overlap, and understanding the precise 2026 tax arithmetic.

Why UK Contractors Are Leaving After IR35 Reform and the 2024 UK Budget

The off-payroll working rules — commonly called IR35 — were extended to private sector clients in April 2021 under Chapter 8, Part 2 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003). Before that, contractors could self-certify their status. From April 2021, medium and large clients became responsible for determining whether an engagement falls inside IR35. Most risk-averse procurement teams default to inside-IR35 determinations, regardless of the contractor's actual working arrangements.

Inside IR35 means the contractor is treated as a deemed employee for tax purposes. The fee-payer deducts income tax under PAYE and employer's National Insurance before the contractor sees a penny. The October 2024 Autumn Budget — enacted in the Finance Act 2024 and effective from April 2025 — made this materially worse: employer NI rose from 13.8% to 15%, and the secondary NI threshold — the point at which employer NI kicks in — was cut from £9,100 to £5,000 per year.

The arithmetic for a contractor billing £150,000 inside IR35 in 2026/27

Take a senior IT contractor invoicing £150,000 to a UK client, inside IR35. Working through the 2026/27 figures:

Compare that with the Bulgarian EOOD route. On the same EUR-equivalent billing of approximately EUR 180,000 (using approximate 2026 rates):

Beyond IR35, the 2026/27 UK tax landscape compounds the problem. The personal allowance (£12,570) has been frozen since 2021/22 and remains frozen until at least 2030/31 — fiscal drag pulls progressively more income into the 40% and 45% bands every year without any statutory rate change. The UK additional rate kicks in at £125,140 with no personal allowance above that level. For a contractor earning above that threshold, every marginal pound inside IR35 is taxed at 45% income tax.

Running the numbers on your own billing? We'll model both structures for your income level — free, by email →

The 2015 UK-Bulgaria Double Tax Convention: What Contractors Need to Know

The UK and Bulgaria signed a new Double Tax Convention on 26 March 2015, replacing the 1987 treaty. The convention follows the OECD Model and has since been modified by the OECD Multilateral Instrument (MLI), which Bulgaria and the UK both signed. For a full technical breakdown, see our dedicated guide: The UK-Bulgaria Double Tax Treaty — Explained for Individuals and Companies.

For contractors, three provisions matter most:

Business profits (Article 7)

A Bulgarian EOOD's profits are taxable only in Bulgaria, provided the company does not carry on business in the UK through a permanent establishment. "Permanent establishment" under the DTT means a fixed place of business — an office, branch, or factory — in the UK. Remote contracting through the Bulgarian EOOD to UK clients does not, in itself, create a UK permanent establishment, provided the contractor is physically based in Bulgaria. If you frequently work from a UK office (including a client's office while in the UK), seek advice before assuming the permanent establishment test is clear.

Dividends (Article 10)

Dividends paid by the Bulgarian EOOD to a Bulgarian-resident shareholder are subject to Bulgaria's 5% withholding tax under Art. 38(1) ЗДДФЛ. Under the DTT, no additional UK tax applies to those dividends once the shareholder is non-UK resident, subject to the individual having properly broken UK tax residence under the Statutory Residence Test.

Tie-breaker clause (Article 4)

If, during the transition period, you are simultaneously a UK tax resident (under the SRT) and a Bulgarian tax resident (under Art. 4 ЗДДФЛ), the DTT resolves the conflict through a four-step tie-breaker. In order of priority: permanent home, centre of vital interests, habitual abode, nationality. Most contractors who have physically relocated to Bulgaria — closed or sub-let their UK home and established a Bulgarian rental or purchase — will resolve at step one (permanent home) in Bulgaria's favour. We advise on the tie-breaker position as part of our relocation package.

HMRC exit: P85 and final Self Assessment

Notifying HMRC of your departure is not legally mandatory, but failing to do so leaves your UK residency status ambiguous and delays any tax refund. The correct steps are:

1. Complete form P85 ("Leaving the UK — getting your tax right") online via HMRC's Government Gateway. This notifies HMRC of your departure date, your new address, and the basis on which you are leaving.
2. File your final Self Assessment return for the tax year of departure, reporting UK income from 6 April to your departure date. HMRC applies split-year treatment — dividing the tax year into a UK-resident period and an overseas-resident period — under Finance Act 2013, Sch. 45, Part 3.
3. Cancel any PAYE codes if you receive a UK salary. Notify HMRC that UK employment has ceased.
4. Retain evidence of departure: tenancy agreements, utility bill closures, Bulgarian address registration documents, flight records, and evidence of Bulgarian bank accounts. HMRC can request these if it later challenges your non-resident status.

For a detailed timeline of the split-year process, see our article: Leaving the UK in 2026: Split-Year Timeline and HMRC Checklist.

Need clarity on your specific departure date and HMRC obligations? Send us the details — we'll confirm the treaty position and exit checklist for your case →

Setting Up an EOOD Remotely as a UK National (Specimen + PoA, EUR 700–999+VAT)

An EOOD is the Bulgarian equivalent of a UK private limited company with a single shareholder. It is incorporated under the Търговски закон (Commerce Act) and registered in the Commercial Register maintained by the Registration Agency (Агенция по вписванията). UK nationals can form an EOOD without travelling to Bulgaria — the entire process can be completed remotely with two notarised documents and a Bulgarian-registered lawyer acting under power of attorney.

Documents required for remote formation

• Specimen signature: your signature, notarised before a UK notary public. The notarised document must then be apostilled by the Foreign, Commonwealth and Development Office (FCDO) under the 1961 Hague Convention on the Apostille. The apostille confirms the notary's authenticity and makes the document legally valid in Bulgaria.
• Power of attorney (PoA): a Bulgarian-language PoA authorising your Bulgarian lawyer to sign the Articles of Association (Учредителен акт), file the application with the Commercial Register, and act on your behalf during registration. The PoA is also notarised and apostilled in the UK.
• Copy of your passport: certified (notarised) copy.
• Declaration of circumstances under Art. 141, para. 8 of the Commerce Act (your lawyer prepares this).

Step-by-step formation process

1. Instruct us and choose a company name. We conduct a name check in the Commercial Register (name availability is immediate). You'll need a unique Bulgarian name — it can be in Latin or Cyrillic script.
2. Prepare and apostille the specimen signature + PoA in the UK. This typically takes 3–5 working days: notary appointment, then FCDO apostille via post or same-day courier service.
3. Send originals to Sofia. DHL or FedEx to our office. We accept courier delivery and confirm receipt.
4. We file the application. We draft the Articles of Association, prepare all Registration Agency filings, and submit electronically or in person. Standard processing: 3–5 business days. Expedited 24-hour registration is available for an additional state fee charged by the Registry Agency — see the costs table below for the current expedited fee range.
5. Receive your UIC and BULSTAT number. The EOOD receives a Unified Identification Code (ЕИК) from the Commercial Register and is simultaneously registered with the National Revenue Agency (НАП). You can start invoicing immediately.
6. Open a corporate bank account. Most Bulgarian banks require the director's physical presence for account opening, though some (including DSK Bank and Fibank) accept remote opening with certified documents for non-residents. We assist with the bank introduction. For a full guide, see our dedicated article on running costs and obligations of a Bulgarian EOOD.

Costs

The minimum share capital for an EOOD is approximately EUR 1 (BGN 2 equivalent at the fixed BGN 1.95583/EUR conversion rate) under the Commerce Act — effectively nominal. There is no substantive minimum capital requirement.

VAT registration

Your EOOD is not automatically VAT-registered. Under Art. 96 of the Закон за данък върху добавената стойност (ЗДДС — VAT Act), mandatory registration is triggered when taxable turnover exceeds approximately EUR 51,129 (BGN 100,000 at the fixed BGN 1.95583/EUR conversion rate) in the preceding 12 months. For B2B services to UK or EU clients, the reverse-charge mechanism under the EU VAT Directive applies, meaning your EOOD issues invoices without Bulgarian VAT and the client self-accounts. For most IT contractors, mandatory Bulgarian VAT registration is not required until turnover crosses the threshold.

UK Statutory Residence Test vs. Bulgarian 183-Day Rule — The Overlap Trap

The most dangerous phase of any UK-to-Bulgaria relocation is the transition period when both jurisdictions' domestic residency rules simultaneously apply. Understanding both tests precisely — and how the DTT tie-breaker resolves conflicts — is essential to avoiding double tax exposure.

The UK Statutory Residence Test (Finance Act 2013, Sch. 45)

The SRT determines UK residency through three sequential tests applied in order:

1. Automatic overseas tests: you are automatically non-UK resident if, for example, you were UK resident in none of the previous 3 tax years and spend fewer than 46 days in the UK, OR you were UK resident in 1 or more of the 3 previous tax years and spend fewer than 16 days in the UK in the current year.
2. Automatic UK tests: if not caught by automatic overseas tests, you are automatically UK resident if you spend 183+ days in the UK in the year, have a home in the UK (with no home abroad), or carry out full-time work in the UK.
3. Sufficient ties test: if neither automatic test resolves residency, the SRT counts your "ties" to the UK (family, accommodation, work, 90-day, country ties) against the number of days spent in the UK.

Bulgarian residency under Art. 4 ЗДДФЛ

Under Art. 4 of the Закон за данъците върху доходите на физическите лица (ЗДДФЛ — Income Tax Act), a natural person is a Bulgarian tax resident if they:

• Have a permanent address in Bulgaria (постоянен адрес); or
• Spend more than 183 days in Bulgaria in any 12-month period; or
• Are sent abroad by a Bulgarian employer or state authority; or
• Have their centre of vital interests (център на жизнени интереси) in Bulgaria — meaning their personal and economic ties are predominantly here (family, property, business interests, bank accounts).

The centre of vital interests test is particularly relevant for contractors who register an EOOD early in the year: even before reaching 183 days physically in Bulgaria, establishing a Bulgarian company, bank accounts, and a Bulgarian address shifts the centre of vital interests and can trigger Bulgarian tax residency from that point.

The overlap trap and the DTT tie-breaker

During the transition, a contractor may simultaneously be: (a) UK resident under the SRT in the year of departure (by virtue of prior years of UK residency and a late-in-the-year departure), and (b) Bulgarian resident under Art. 4 ЗДДФЛ (centre of vital interests from the date of EOOD registration). When this occurs, the DTT Article 4 tie-breaker determines treaty residency:

1. Permanent home: if you have vacated the UK property and established a Bulgarian rental or purchase, Bulgaria wins at step one.
2. Centre of vital interests: if you retain a UK property (even as a landlord), this test weighs personal and economic ties — Bulgarian EOOD, Bulgarian bank accounts, and Bulgarian physical presence typically prevail.
3. Habitual abode: the state where you spend more time.
4. Nationality: UK national → allocated to the UK as a last resort.

Not sure how the tie-breaker applies to your specific situation — rented UK flat, owned UK property, or UK property with a tenant? We'll assess your SRT position and DTT tie-breaker before you commit to a date →

Total Effective Tax: 10% CIT + 5% Dividend = 15% vs. UK 45%+

The Bulgarian EOOD's tax structure is straightforward and has remained unchanged since the 10% flat corporate tax rate was introduced in 2008. For a UK contractor relocated to Bulgaria as the sole EOOD director and shareholder, here is the full 2026 picture:

EOOD tax calculation (2026)

EOOD owner social security contributions

EOOD managers who are also shareholders must make social insurance contributions to the Bulgarian National Social Security Institute (НОИ) and the National Health Insurance Fund (НЗОК). Contributions are made on a monthly income declared by the owner, subject to a statutory minimum and maximum. The minimum social insurance threshold and exact contribution rates are updated annually by the НОИ. For current 2026 figures and how to structure your salary declaration to minimise contributions while maintaining pension entitlements, see our guide: EOOD Owner Social Security Contributions in Bulgaria (2026).

Social contributions are deductible business expenses for CIT purposes, further reducing taxable profit before the 10% CIT applies.

How to extract profits from your EOOD

There are two primary methods to receive money from your EOOD: salary (management remuneration) and dividends. Most contractors use a combination — a modest monthly salary (to fund social security entitlements) with the remainder distributed as dividends at the end of the financial year. For a full breakdown of how to structure distributions tax-efficiently, see our guide: How to Pay Yourself from a Bulgarian EOOD and Distributing Dividends from Your Bulgarian EOOD.

Deductible expenses

Business expenses that are ordinary and necessary for generating income are deductible under ЗКПО. For an IT contractor EOOD, typical deductible items include: software licences and subscriptions, co-working space or home office costs, professional development, equipment, accountancy fees, and travel directly related to client work. Personal expenses — meals, family holidays, gym memberships — are not deductible and trigger a 10% expense tax under Art. 204 ЗКПО if claimed incorrectly. Your accountant (mandatory annual financial statements are required for all EOODs) will manage this.