Will the announced increase in the “dividend“ tax from 5 to 10% in 2026 have an effect, or will it turn out to be a defect… Dr. Ivelin Kichukov, tax lawyer, doctor of finance and chairman of the Bulgarian Tourism Association, spoke in front of FACTI.
- Mr. Kichukov, what do you think of the idea of increasing the dividend tax from 5% to 10%?
- The idea seems simple and sounds socially fair, but in reality it is economically counterproductive and long-term harmful. A dividend tax is not a reform, but a punishment for entrepreneurs – for people who create businesses, jobs and value. In the economy, such decisions rarely have a positive effect because they punish activity and success.
This is a signal to investors that the state is unpredictable and tax policy can change according to political pressure. Simply put - – – come to invest, but be prepared for us to raise your rates tomorrow“. Such decisions destroy trust, and trust is the most valuable currency in the economy. Bulgaria has been building an image of a stable and predictable country for over a decade - this step will compromise it.
- As a measure, it seems easy, but what does it mean for business?
- For business, this is a new blow at a time when it is already under serious pressure - inflation, increased social security contributions, staff shortages, an uncertain international situation. The dividend tax does not affect “oligarchs“, but mostly the owners of small and medium-sized enterprises – people who invest personal funds, labor and risk to provide salaries and pay taxes.
The doubling of the tax makes the distribution of profits meaningless and blocks capital that would otherwise return to the economy as investments in machinery, technology and new companies. Every country that wants growth stimulates the movement of capital. Instead, we stop it. And when capital stops moving, the economy loses its breath.
- What does this increase say about the investment climate in Bulgaria?
- It speaks of a lack of economic vision and a dangerous inconsistency. Investors are looking for predictability, not improvisation. When the state changes tax policy without analysis and without assessing the consequences, this is perceived as a political, not an economic decision.
Capital is extremely mobile - today it can be in Sofia, tomorrow in Thessaloniki or Bucharest. When neighbors offer lower taxes, better infrastructure and a stable environment, we cannot afford to become less competitive. This increase practically tells investors:
„Go elsewhere, we'll manage without you.“
And this is the most dangerous message an economy can send.
- I would like to ask you to explain with an example what raising the dividend tax from 5% to 10% means.
- Let's take an example: a company makes a profit of 100,000 leva. It pays 10% corporate tax - 10,000 leva, and is left with 90,000 leva. With the current dividend tax of 5%, the owners pay another 4,500 leva, and with 10% - 9,000 leva. The difference of 4,500 leva for every 100,000 leva in profit seems small, but on the scale of the economy, this is tens, even hundreds of millions less funds for investment.
This is capital that would otherwise be returned to the economy - for expansion, for start-ups, for new jobs. Raising the tax does not just take money from business - it takes away opportunities for future growth.
- How much money will come into the state from this increase?
- Very little. For 2025, revenues of about 174 million leva from this tax are planned. Even if they double, which is unlikely, it is about 340 million leva. This is less than two percent of the expected budget deficit, which will exceed 8 billion leva.
In other words - the effect on the budget will be cosmetic, but the effect on investments will be destructive.
The real problems are not in low taxes, but in inefficient public spending, weak control and corruption. Example: in many cities, property transactions are declared at tax assessments that are three to four times lower than the real prices. This alone damages the budget by billions.
- Let's explain what a dividend is?
- A dividend is the part of the profit that a company distributes to its owners after it has already paid its corporate tax. This is not a salary, but a reward for risk – for invested capital and entrepreneurial labor.
In developed economies, dividends are taxed at a lower rate because the state realizes that every investment is a risk and must be stimulated.
Low rates encourage people to invest, while high rates discourage them. In a country like Bulgaria, where capital is scarce, such a measure would freeze investment activity.
- The goal of this tax is to hit the “rich“ to make them pay more, or…?
- This is the biggest misconception. Dividend tax is not paid by “oligarchs“, but by normal company owners – engineers, traders, hoteliers, IT entrepreneurs. These are the people who invest, pay salaries and keep the economy moving.
The truly rich, who have offshore structures, will not even notice the change. They will transfer their capital to another country or use legal tax breaks. So instead of “a blow to the rich”, this will become a blow to the Bulgarian entrepreneur who pays everything here and works in the open.
- What will business do to avoid paying 5% more?
- Business is pragmatic and flexible. It will look for solutions. Some companies will simply stop distributing dividends and will keep their profits in the system to avoid double taxation. This will lead to the blocking of funds and reduce the turnover of capital.
Another part will move their companies to neighboring countries where the conditions are better - Romania, Greece, Cyprus, Estonia. This is already happening. Still others will find legal ways to withdraw profits - through licenses, consulting contracts, internal loans. And in the end, the state will end up with the same or even lower revenues.
- Can it happen that less money comes into the treasury?
- Yes, it is completely possible. History and economic theory prove it. After a certain level, any increase in taxes leads to a decrease in collection. This is the so-called Laffer curve effect.
When the tax becomes too high, entrepreneurs stop distributing dividends, investments shrink, and the economy loses momentum. The result is a smaller tax base and lower revenues. That is, by seeking more, the state receives less. This is a classic example of populism that harms the economy.
- What is the dividend tax in other EU countries and our neighbors?
- In Greece and Romania, the dividend tax is 5%. In Poland - 9% for small companies. In the Czech Republic - 15%, but with much higher investment incentives and access to capital markets. In Estonia, retained earnings are not taxed - there the state encourages companies to invest, and does not punish them when they do so in our country.
Bulgaria has been cited for many years as an example in the region with a predictable and reasonable tax policy. If we double the tax, we will lose this strategic advantage and send the wrong signal to investors. In the race for capital, even small differences decide the fate of entire economies.
- Is raising taxes relevant to more money in the budget?
- Absolutely not. Raising taxes does not automatically bring more revenue. The real problem is not in revenue, but in spending and management. Bulgaria is among the first countries in the European Union in terms of inefficient public spending.
If politicians and unions do not come to their senses, we will face a déjà vu of the 2009 crisis.
The solution is not to increase taxes, but to improve efficiency, digitize the administration, limit corruption and stimulate investment. Bulgaria does not have hundreds of years of accumulated capitalism like Western Europe. Bulgaria cannot even muster 70 years of real capitalism. If we punish capital now, we kill the future.