CONVENTION BETWEEN 

 THE GOVERNMENT OF THE UNITED STATES OF AMERICA 

 AND THE GOVERNMENT OF THE REPUBLIC OF BULGARIA 

FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE 

PREVENTION OF FISCAL EVASION 

WITH RESPECT TO TAXES ON INCOME 

The Government of the United States of America and the Government of the Republic 

of Bulgaria, desiring to conclude a Convention for the avoidance of double taxation and the 

prevention of fiscal evasion with respect to taxes on income, have agreed as follows:
 

 

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CHAPTER I

SCOPE OF THE CONVENTION 

Article 1 

GENERAL SCOPE

1. This Convention shall apply only to persons who are residents of one or both of the 

Contracting States, except as otherwise provided in this Convention. 

2. This Convention shall not restrict in any manner any benefit now or hereafter accorded: 

a) by the laws of either Contracting State; or 

b) by any other agreement to which the Contracting States are party. 

3. a) Notwithstanding the provisions of subparagraph b) of paragraph 2 of this 

Article: 

i) for purposes of paragraph 3 of Article XXII (Consultation) of the General 

Agreement on Trade in Services, the Contracting States agree that any 

question arising as to the interpretation or application of this Convention 

and, in particular, whether a taxation measure is within the scope of this 

Convention, shall be determined exclusively in accordance with the 

provisions of Article 24 (Mutual Agreement Procedure) of this 

Convention; and 

ii) the provisions of Article XVII (National Treatment) of the General 

Agreement on Trade in Services shall not apply to a taxation measure 

unless the competent authorities agree that the measure is not within the 

scope of Article 23 (Non-Discrimination) of this Convention. 

b) For the purposes of this paragraph, a “taxation measure” is a law, regulation, 

rule, procedure, decision, administrative action, or any similar provision or action, 

relating to taxation. 

4. a) Notwithstanding any provision of this Convention except paragraph 5 of this 

 Article, a Contracting State may tax its residents (as determined under Article 4 
 

 

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 (Resident)), and by reason of citizenship may tax its citizens, as if this Convention had not 

 come into effect. 

b) Notwithstanding the other provisions of this Convention, a former citizen or 

long-term resident of the United States may, for the period of ten years following the 

loss of such status, be taxed in accordance with the laws of the United States. This 

paragraph shall apply only in respect of income from sources within the United States 

(including income deemed under the domestic law of the United States to arise from 

such sources). 

5. The provisions of paragraph 4 shall not affect: 

a) the benefits conferred by a Contracting State under paragraph 2 of Article 9 

(Associated Enterprises), paragraphs 1 and 2 of Article 17 (Pensions, Social Security 

Payments, Annuities, Alimony, and Child Support), and Articles 22 (Relief From 

Double Taxation), 23 (Non-Discrimination), and 24 (Mutual Agreement Procedure); 

and 

b) the benefits conferred by a Contracting State under Articles 18 (Government 

Service), 19 (Students, Trainees, Teachers and Researchers), and 26 (Members of 

Diplomatic Missions and Consular Posts), upon individuals who are neither citizens of, 

nor have been admitted for permanent residence in, that State. 

6. An item of income derived through an entity that is fiscally transparent under the laws 

of either Contracting State shall be considered to be derived by a resident of a Contracting State 

to the extent that the item is treated for purposes of the taxation law of such Contracting State 

as the income of a resident. 

Article 2

TAXES COVERED 

1 This Convention shall apply to taxes on income imposed on behalf of a Contracting 

State irrespective of the manner in which they are levied. 

2. There shall be regarded as taxes on income all taxes on total income, or on elements of 
 

 

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income, including taxes on gains from the alienation of movable or immovable property, but 

excluding social security taxes. 

3. The existing taxes to which this Convention shall apply are: 

a) in the case of Bulgaria: 

 i) the personal income tax; and 

 ii) the corporate income tax. 

b) in the case of the United States: the Federal income taxes imposed by the Internal 

Revenue Code (but excluding social security taxes), and the Federal taxes imposed on the 

investment income of foreign private foundations. 

4. This Convention shall apply also to any substantially similar taxes that are imposed after the 

date of signature of this Convention in addition to, or in place of, the existing taxes. The competent 

authorities of the Contracting States shall notify each other of any changes that have been made in 

their respective taxation or other laws that significantly affect their obligations under this 

Convention. 

CHAPTER II 

DEFINITIONS 

Article 3

GENERAL DEFINITIONS 

1. For the purposes of this Convention, unless the context otherwise requires: 

a) the term “Bulgaria” means the Republic of Bulgaria and, when used in a 

geographical sense, means the territory and the territorial sea over which it exercises its 

State sovereignty, as well as the continental shelf and the exclusive economic zone over 

which it exercises sovereign rights and jurisdiction in conformity with international law; 

b) the term "United States" means the United States of America, and includes the 

states thereof and the District of Columbia; such term also includes the territorial sea 

thereof and the sea bed and subsoil of the submarine areas adjacent to that territorial sea, 

over which the United States exercises sovereign rights in accordance with international 
 

 

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law; the term, however, does not include Puerto Rico, the Virgin Islands, Guam or any 

other United States possession or territory; 

c) the terms "a Contracting State" and "the other Contracting State" mean Bulgaria 

or the United States, as the context requires; 

d) the term "person" includes an individual, a company, and any other body of 

persons; 

e) the term "company" means any body corporate or any entity that is treated as a 

body corporate for tax purposes according to the laws of the state in which it is 

organized; 

f) the terms "enterprise of a Contracting State" and "enterprise of the other 

Contracting State" mean respectively an enterprise carried on by a resident of a 

Contracting State, and an enterprise carried on by a resident of the other Contracting 

State; 

 g) the term “enterprise” applies to the carrying on of any business; 

 h) the term “business” includes the performance of professional services and of 

other activities of an independent character; 

i) the term "business profits" also includes income from the performance of 

professional services and of other activities of an independent character; 

j) the term "international traffic" means any transport by a ship or aircraft, except 

when such transport is solely between places in a Contracting State; 

k) the term "competent authority" means: 

i) in Bulgaria: the Minister of Finance or an authorized representative; and 

ii) in the United States: the Secretary of the Treasury or his delegate; 

l) the term "national" of a Contracting State means: 

i) any individual possessing the citizenship of that State; and 

ii) any legal person, partnership or association deriving its status as such 

from the laws in force in that State; 

 m) the term “pension fund” means any person established in a Contracting State that 
 

 

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is: 

i) generally exempt from income taxation in that State; and 

ii) operated principally to administer or provide pension or retirement 

benefits or to earn income for the benefit of one or more such arrangements. 

2. As regards the application of this Convention at any time by a Contracting State any 

term not defined therein shall, unless the context otherwise requires, or the competent 

authorities agree to a common meaning pursuant to the provisions of Article 24 (Mutual 

Agreement Procedure), have the meaning which it has at that time under the law of that 

State for the purposes of the taxes to which this Convention applies, any meaning under the 

applicable tax laws of that State prevailing over a meaning given to the term under other laws 

of that State. 

Article 4

RESIDENT 

1. For the purposes of this Convention, the term "resident of a Contracting State" means any 

person who, under the laws of that State, is liable to tax therein by reason of his domicile, 

residence, citizenship, place of management, place of incorporation, or any other criterion of a 

similar nature, and also includes that State and any political subdivision or local authority 

thereof. This term, however, does not include any person who is liable to tax in that State in 

respect only of income from sources in that State. 

2. The term “resident of a Contracting State” includes: 

a) a pension fund established in that State; and 

b) an organization that is established and maintained in that State exclusively for 

religious, charitable, scientific, artistic, cultural, or educational purposes, 

notwithstanding that all or part of its income or gains may be exempt from tax under the 

domestic law of that State. 

3. Where, by reason of the provisions of paragraph 1, an individual is a resident of both 

Contracting States, then his status shall be determined as follows: 
 

 

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a) he shall be deemed to be a resident only of the State in which he has a permanent 

home available to him; if he has a permanent home available to him in both States, he 

shall be deemed to be a resident only of the State with which his personal and economic 

relations are closer (center of vital interests); 

b) if the State in which he has his center of vital interests cannot be determined, or 

if he does not have a permanent home available to him in either State, he shall be 

deemed to be a resident only of the State in which he has an habitual abode; 

c) if he has an habitual abode in both States or in neither of them, he shall be 

deemed to be a resident only of the State of which he is a national; 

d) if he is a national of both States or of neither of them, the competent authorities 

of the Contracting States shall endeavor to settle the question by mutual agreement. 

4. Where by reason of the provisions of paragraphs 1 and 2 of this Article a person other 

than an individual is a resident of both Contracting States, the competent authorities of the 

Contracting States shall by mutual agreement endeavor to determine the mode of application of 

this Convention to that person. In the absence of a mutual agreement by the competent 

authorities of the Contracting States, the person shall not be considered a resident of either 

Contracting State for the purposes of claiming any benefits provided by this Convention. 

 

Article 5 

PERMANENT ESTABLISHMENT 

1. For the purposes of this Convention, the term "permanent establishment" means a fixed 

place of business through which the business of an enterprise is wholly or partly carried on. 

2. The term "permanent establishment" includes especially: 

a) a place of management; 

b) a branch; 

c) an office; 

d) a factory; 

e) a workshop; and 
 

 

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f) a mine, an oil or gas well, a quarry, or any other place of extraction of natural 

resources. 

3. A building site or construction or installation project, or an installation used for the exploration of natural resources, constitutes a permanent establishment only if it lasts or the activity 

continues for more than six months. 

 4. Notwithstanding the preceding provisions of this Article, the term "permanent 

establishment" shall be deemed not to include: 

a) the use of facilities solely for the purpose of storage, display or delivery of goods 

or merchandise belonging to the enterprise; 

b) the maintenance of a stock of goods or merchandise belonging to the enterprise 

solely for the purpose of storage, display or delivery; 

c) the maintenance of a stock of goods or merchandise belonging to the enterprise 

solely for the purpose of processing by another enterprise; 

d) the maintenance of a fixed place of business solely for the purpose of purchasing 

goods or merchandise, or of collecting information, for the enterprise; 

e) the maintenance of a fixed place of business solely for the purpose of carrying 

on, for the enterprise, any other activity of a preparatory or auxiliary character; 

f) the maintenance of a fixed place of business solely for any combination of the 

activities mentioned in subparagraphs a) through e), provided that the overall activity of 

the fixed place of business resulting from this combination is of a preparatory or 

auxiliary character. 

5. Notwithstanding the provisions of paragraphs 1 and 2, where a person -- other than an agent 

of an independent status to whom paragraph 6 applies -- is acting in a Contracting State on behalf 

of a enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent 

establishment in the first-mentioned Contracting State in respect of any activities which that person 

undertakes for the enterprise, if such a person: 

a) has and habitually exercises in that State an authority to conclude contracts in the 

name of the enterprise, unless the activities of such person are limited to those mentioned 
 

 

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in paragraph 4 which, if exercised through a fixed place of business, would not make this 

fixed place of business a permanent establishment under the provisions of that paragraph; 

or 

b) has no such authority, but habitually maintains in the first-mentioned State a stock of 

goods or merchandise belonging to the enterprise from which such person regularly fills 

orders or makes deliveries on behalf of the enterprise, and additional activities conducted 

in that State on behalf of the enterprise have contributed to the conclusion of the sale of such 

goods or merchandise. 

6. An enterprise shall not be deemed to have a permanent establishment in a Contracting 

State merely because it carries on business in that State through a broker, general commission 

agent, or any other agent of an independent status, provided that such persons are acting in the 

ordinary course of their business as independent agents. 

7. The fact that a company that is a resident of a Contracting State controls or is controlled 

by a company that is a resident of the other Contracting State, or that carries on business in that 

other State (whether through a permanent establishment or otherwise), shall not constitute either 

company a permanent establishment of the other. 

8. Subject to the provisions of paragraph 4, where an enterprise of a Contracting State 

provides services in the other Contracting State, if that enterprise is found not to have a 

permanent establishment in that other Contracting State by virtue of the preceding paragraphs 

of this Article, that enterprise shall be deemed to provide those services through a permanent 

establishment in that other State if and only if: 

a) those services are performed in that other State by an individual who is present 

in that other State for a period or periods aggregating 183 days or more in any twelve 

month period, and, during that period or periods, more than 50 percent of the gross 

active business revenues of the enterprise consists of income derived from the services 

performed in that State by the individual; or 

b) the services are provided in that other State for an aggregate of 183 days or more 

in any twelve month period with respect to the same or connected project for customers 
 

 

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who are either residents of that other State or who maintain a permanent establishment 

in that other State with respect to which the services are provided. 

CHAPTER III 

TAXATON OF INCOME 

Article 6 

INCOME FROM IMMOVABLE PROPERTY (REAL PROPERTY)

1. Income derived by a resident of a Contracting State from immovable property (real 

property), including income from agriculture or forestry, situated in the other Contracting State may 

be taxed in that other State. 

2. The term "immovable property (real property)” shall have the meaning which it has under 

the law of the Contracting State in which the property in question is situated. The term shall in any 

case include property accessory to immovable property (real property), including livestock and 

equipment used in agriculture and forestry, rights to which the provisions of general law respecting 

landed property apply, usufruct of immovable property (real property) and rights to variable or 

fixed payments as consideration for the working of, or the right to work, mineral deposits, sources 

and other natural resources. Ships and aircraft shall not be regarded as immovable property (real 

property). 

3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, 

or use in any other form of immovable property (real property). 

4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable 

property (real property) of an enterprise. However, the provisions of paragraphs 1 and 3 shall 

not apply if the beneficial owner of the income referred to in paragraph 1 or 3, being a resident 

of a Contracting State, carries on a business in the other Contracting State through a permanent 

establishment situated therein and the immovable property (real property) in respect of which 

the income is paid is effectively connected with such permanent establishment. In such case, the 

provisions of Article 7 shall apply. 
 

 

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5. However, as long as a resident of the United States is not entitled under Bulgarian law 

to make an election to compute the tax on income from immovable property (real property) 

situated in Bulgaria on a net basis as if such income were business profits attributable to a 

permanent establishment in Bulgaria, the Bulgarian tax permitted to be charged under 

paragraph 1 shall not exceed 10 percent of the gross amount of the income. 

Article 7 

BUSINESS PROFITS 

1. The business profits of an enterprise of a Contracting State shall be taxable only in that 

State unless the enterprise carries on business in the other Contracting State through a permanent 

establishment situated therein. If the enterprise carries on business as aforesaid, the business 

profits of the enterprise may be taxed in the other State but only so much of them as are attributable 

to that permanent establishment. 

2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State 

carries on business in the other Contracting State through a permanent establishment situated 

therein, there shall in each Contracting State be attributed to that permanent establishment the 

business profits that it might be expected to make if it were a distinct and independent 

enterprise engaged in the same or similar activities under the same or similar conditions.

3. In the determination of the profits of a permanent establishment, there shall be allowed as 

deductions expenses which are incurred for the purposes of the business of the permanent 

establishment, including executive and general administrative expenses so incurred, whether in the 

State in which the permanent establishment is situated or elsewhere. 

4. No business profits shall be attributed to a permanent establishment by reason of the mere 

purchase by that permanent establishment of goods or merchandise for the enterprise. 

5. For the purposes of the preceding paragraphs, the business profits to be attributed to the 

permanent establishment shall be determined by the same method year by year unless there is good 

and sufficient reason to the contrary. 
 

 

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6. Where business profits include items of income that are dealt with separately in other 

Articles of this Convention, then the provisions of those Articles shall not be affected by the 

provisions of this Article. 

Article 8 

INTERNATIONAL TRAFFIC 

1. Profits of an enterprise of a Contracting State from the operation of ships or aircraft in 

international traffic shall be taxable only in that State. 

2. For purposes of this Article, profits from the operation of ships or aircraft include, but 

are not limited to: 

a) profits from the rental of ships or aircraft on a full (time or voyage) basis; and 

b) profits from the rental on a bareboat basis of ships or aircraft if the rental income is 

incidental to profits from the operation of ships or aircraft in international traffic. 

3. Profits of an enterprise of a Contracting State from the use, maintenance, or rental of 

containers (including trailers, barges, and related equipment for the transport of containers) 

used for the transport of goods or merchandise shall be taxable only in that Contracting State, 

except insofar as those containers or trailers and related equipment are used for transport solely 

between places within the other Contracting State. 

4. The provisions of paragraphs 1 and 3 shall also apply to profits from participation in a 

pool, a joint business, or an international operating agency. 

Article 9

ASSOCIATED ENTERPRISES 

1. Where: 

a) an enterprise of a Contracting State participates directly or indirectly in the 

management, control or capital of an enterprise of the other Contracting State; or 
 

 

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b) the same persons participate directly or indirectly in the management, control, or 

capital of an enterprise of a Contracting State and an enterprise of the other Contracting 

State, 

and in either case conditions are made or imposed between the two enterprises in their 

commercial or financial relations that differ from those that would be made between 

independent enterprises, then any profits that, but for those conditions, would have accrued to 

one of the enterprises, but by reason of those conditions have not so accrued, may be included 

in the profits of that enterprise and taxed accordingly. 

2. Where a Contracting State includes in the profits of an enterprise of that State, and taxes 

accordingly, profits on which an enterprise of the other Contracting State has been charged to 

tax in that other State, and the other Contracting State agrees that the profits so included are 

profits that would have accrued to the enterprise of the first-mentioned State if the conditions 

made between the two enterprises had been those that would have been made between 

independent enterprises, then that other State shall make an appropriate adjustment to the 

amount of the tax charged therein on those profits. In determining such adjustment, due regard 

shall be had to the other provisions of this Convention and the competent authorities of the 

Contracting States shall if necessary consult each other. 

Article 10

 DIVIDENDS

1. Dividends paid by a company that is a resident of a Contracting State to a resident of the 

other Contracting State may be taxed in that other State. 

2. However, such dividends may also be taxed in the Contracting State of which the 

company paying the dividends is a resident and according to the laws of that State, but if the 

dividends are beneficially owned by a resident of the other Contracting State, except as 

otherwise provided, the tax so charged shall not exceed: 
 

 

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a) 5 percent of the gross amount of the dividends if the beneficial owner is a 

company that owns directly at least 10 percent of the voting stock of the company 

paying the dividends; 

b) 10 percent of the gross amount of the dividends in all other cases. 

This paragraph shall not affect the taxation of the company in respect of the profits out of which 

the dividends are paid. 

3. a) Subparagraph a) of paragraph 2 shall not apply in the case of dividends paid by a 

U.S. Regulated Investment Company (RIC) or a U.S. Real Estate Investment Trust 

(REIT). In the case of dividends paid by a RIC, subparagraph b) of paragraph 2 and 

paragraph 4 shall apply. In the case of dividends paid by a REIT, subparagraph b) of 

paragraph 2 and paragraph 4 shall apply only if: 

i) the beneficial owner of the dividends is an individual or a pension fund, 

in either case, holding an interest of not more than 10 percent in the REIT; 

ii) the dividends are paid with respect to a class of stock that is publicly 

traded and the beneficial owner of the dividends is a person holding an interest 

of not more than 5 percent of any class of the REIT’s stock; or 

iii) the beneficial owner of the dividends is a person holding an interest of 

not more than 10 percent in the REIT and the REIT is diversified. 

 b) The rules of subparagraph a) shall also apply to dividends paid by companies 

 resident in Bulgaria that are similar to the U.S. companies referred to in this 

 paragraph. Whether companies that are residents of Bulgaria are similar to the U.S.

 companies referred to in this paragraph will be determined by mutual agreement of 

 the competent authorities. 

c) For purposes of this paragraph, a REIT or similar company referred to in 

paragraph 3 b) shall be "diversified" if the value of no single interest in real property 

exceeds 10 percent of its total interests in real property. For the purposes of this rule, 

foreclosure property shall not be considered an interest in real property. Where a REIT 

or such similar company holds an interest in a partnership, it shall be treated as owning 
 

 

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directly a proportion of the partnership's interests in real property corresponding to its 

interest in the partnership. 

4. Notwithstanding paragraph 2, dividends shall not be taxed in the Contracting State of 

which the company paying the dividends is a resident if: 

a) the beneficial owner of the dividends is a pension fund that is a resident of the 

other Contracting State; and 

b) such dividends are not derived from the carrying on of a trade or business by 

such pension fund nor from an associated enterprise other than a person referred to in 

subparagraph a). 

5. For purposes of this Article, the term "dividends" means income from shares or other 

rights, not being debt-claims, participating in profits, as well as income that is subjected to the 

same taxation treatment as income from shares under the laws of the State of which the payer is 

a resident. 

6. The provisions of paragraphs 1 through 4 shall not apply if the beneficial owner of the 

dividends, being a resident of a Contracting State, carries on business in the other Contracting 

State, of which the payer is a resident, through a permanent establishment situated therein, and 

the holding in respect of which the dividends are paid is effectively connected with such 

permanent establishment. In such case the provisions of Article 7 (Business Profits) shall 

apply. 

7. A Contracting State may not impose any tax on dividends paid by a resident of the other 

State, except insofar as the dividends are paid to a resident of the first-mentioned State or the 

dividends are attributable to a permanent establishment in the first-mentioned State, nor may it 

impose tax on a corporation's undistributed profits, except as provided in paragraph 8, even if 

the dividends paid or the undistributed profits consist wholly or partly of profits or income 

arising in that other State. 

8. a) A company that is a resident of one of the States and that has a permanent 

establishment in the other State or that is subject to tax in the other State on a net basis 

on its income that may be taxed in the other State under Article 6 (Income from 
 

 

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Immovable Property (Real Property)) or under paragraph 1 of Article 13 (Capital Gains) 

may be subject in that other State to a tax in addition to the tax allowable under the 

other provisions of this Convention. 

 b) Such tax, however, may be imposed: 

i) on only the portion of the business profits of the company attributable to 

the permanent establishment and the portion of the income referred to in the 

preceding sentence that is subject to tax under Article 6 (Immovable Property 

(Real Property)) or under paragraph 1 of Article 13 (Capital Gains) that, in the 

case of the United States, represents the dividend equivalent amount of such 

profits or income and, in the case of Bulgaria, is an amount that is analogous to 

the dividend equivalent amount; and 

 ii) at a rate not in excess of 5 percent. 

Article 11 

INTEREST 

 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State 

may be taxed in that other State. 

 2. However, such interest may also be taxed in the Contracting State in which it arises and 

according to the laws of that State, but if the beneficial owner of the interest is a resident of the 

other Contracting State, the tax so charged shall not exceed 5 per cent of the gross amount of the 

interest. 

3. Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State 

shall be taxable only in the other Contracting State if: 

a) the interest is beneficially owned by that other Contracting State, a political 

subdivision or local authority thereof, or the central bank of that other Contracting State 

or any institution wholly owned by that Contracting State; 

b) the interest is beneficially owned by a resident of that other Contracting State 

with respect to debt-claims guaranteed, insured or indirectly financed by the 
 

 

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Government of that other Contracting State, a political subdivision or local authority 

thereof, or the central bank of that other Contracting State or any institution wholly 

owned by that Contracting State; 

c) the interest is beneficially owned by a resident of the other Contracting State that 

is a financial institution (including, for example, a bank or an insurance company), 

unless the interest is paid as a part of a back-to-back loan or an arrangement that is 

economically similar to and has the effect of a back-to-back loan; or 

d) the interest is beneficially owned by a pension fund that is a resident of that 

other Contracting State, provided that such interest is not derived from the carrying on 

of a business, directly or indirectly, by such pension fund. 

4. The term "interest" as used in this Article means income from debt-claims of every 

kind, whether or not secured by mortgage, and whether or not carrying a right to participate in 

the debtor's profits, and in particular, income from government securities and income from 

bonds or debentures, including premiums or prizes attaching to such securities, bonds or 

debentures, and all other income that is subjected to the same taxation treatment as income 

from money lent by the taxation law of the Contracting State in which the income arises. 

Income dealt with in Article 10 (Dividends) and penalty charges for late payment shall not be 

regarded as interest for the purposes of this Convention. 

5. The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the 

interest, being a resident of a Contracting State, carries on business in the other Contracting 

State, in which the interest arises, through a permanent establishment situated therein, and the 

debt-claim in respect of which the interest is paid is effectively connected with such permanent 

establishment. In such case the provisions of Article 7 (Business Profits) shall apply. 

6. Interest shall be deemed to arise in a Contracting State when the payer is a resident of that 

State. Where, however, the person paying the interest, whether a resident of a Contracting State or 

not, has in a Contracting State a permanent establishment in connection with which the indebtedness 

on which the interest is paid was incurred, and such interest is borne by such permanent 

establishment, then such interest shall be deemed to arise in the State in which the permanent 
 

 

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establishment is situated. 

7. Where, by reason of a special relationship between the payer and the beneficial owner or 

between both of them and some other person, the amount of the interest, having regard to the 

debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the 

payer and the beneficial owner in the absence of such relationship, the provisions of this Article 

shall apply only to the last-mentioned amount. In such case the excess part of the payments 

shall remain taxable according to the laws of each State, due regard being had to the other 

provisions of this Convention. 

8. Notwithstanding the provisions of paragraph 1: 

a) interest arising in the United States that is contingent interest of a type that does 

not qualify as portfolio interest under United States law may be taxed by the United 

States but, if the beneficial owner of the interest is a resident of Bulgaria, the interest 

may be taxed at a rate not exceeding 10% of the gross amount of the interest; 

b) interest arising in Bulgaria that is determined with reference to receipts, sales, 

income, profits or other cash flow of the debtor or a related person, to any change in the 

value of any property of the debtor or a related person or to any dividend, partnership 

distribution or similar payment made by the debtor or a related person may be taxed in 

Bulgaria, and according to the laws of Bulgaria, but if the beneficial owner is a resident 

of the United States, the interest may be taxed at a rate not exceeding 10% of the gross 

amount of the interest; and 

c) Interest that is an excess inclusion with respect to a residual interest in a real 

estate mortgage investment conduit may be taxed by each State in accordance with its 

domestic law. 

9. Where interest expense is deductible in determining the income of a company that is a 

resident of a Contracting State, being income which: 

a) is attributable to a permanent establishment of that company situated in the other 

Contracting State; or 

b) may be taxed in the other Contracting State under Article 6 (Immovable Property 
 

 

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(Real Property)) or paragraph 1 of Article 13 (Capital Gains); 

and that interest expense exceeds the interest paid by that permanent establishment or paid with 

respect to the debt secured by immovable property (real property) situated in that other 

Contracting State, the amount of that excess shall be deemed to be interest arising in that other 

Contracting State and beneficially owned by a resident of the first-mentioned Contracting State. 

That deemed interest may be taxed in that other Contracting State at a rate not to exceed the 

rate provided for in paragraph 2, unless the company is described in paragraph 3 in which case 

it shall be exempt from such taxation in that other Contracting State. 

Article 12 

ROYALTIES

 1. Royalties arising in a Contracting State and paid to a resident of the other Contracting 

State may be taxed in that other State. 

 2. However, such royalties may also be taxed in the Contracting State in which they arise 

and according to the laws of that State, but if the beneficial owner of the royalties is a resident 

of the other Contracting State, the tax so charged shall not exceed 5 per cent of the gross 

amount of the royalties. 

3. The term "royalties" as used in this Article means: 

a) payments of any kind received as a consideration for the use of, or the right to 

use, any copyright of literary, artistic, scientific or other work (including 

cinematographic films and films, tapes or other means of image or sound reproduction 

for radio or television broadcasting), any patent, trademark, design or model, plan, 

secret formula or process, or for information concerning industrial, commercial or 

scientific experience; and 

b) gain derived from the alienation of any property described in subparagraph a), to 

the extent that such gain is contingent on the productivity, use, or disposition of the 

property. 
 

 

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4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the 

royalties, being a resident of a Contracting State, carries on business in the other Contracting 

State through a permanent establishment situated therein and the right or property in respect of 

which the royalties are paid is effectively connected with such permanent establishment. In 

such case the provisions of Article 7 (Business Profits) shall apply. 

5. Royalties shall be deemed to arise in a Contracting State when the payer is a resident of 

that State. Where, however, the person paying the royalties, whether he is a resident of a 

Contracting State or not, has in a Contracting State a permanent establishment with which the 

right or property in respect of which the royalties are paid is effectively connected, and such 

royalties are borne by such permanent establishment, then such royalties shall be deemed to arise 

in the State in which the permanent establishment is situated. Where the person paying the 

royalties is not a resident of either Contracting State, and the royalties are not borne by a 

permanent establishment in either Contracting State, but the royalties relate to the use of, or the 

right to use, in one of the Contracting States, any property or right described in paragraph 3, the 

royalties shall be deemed to arise in that State. 

6. Where, by reason of a special relationship between the payer and the beneficial owner or 

between both of them and some other person, the amount of the royalties, having regard to the 

use, right, or information for which they are paid, exceeds the amount which would have been 

agreed upon by the payer and the beneficial owner in the absence of such relationship, the 

provisions of this Article shall apply only to the last-mentioned amount. In such case the 

excess part of the payments shall remain taxable according to the laws of each Contracting 

State, due regard being had to the other provisions of this Convention. 

Article 13 

CAPITAL GAINS

1. Gains derived by a resident of a Contracting State that are attributable to the alienation 

of immovable property (real property) situated in the other Contracting State may be taxed in 

that other State. 
 

 

21

2. For the purposes of this Article the term "immovable property (real property) situated in 

the other Contracting State" shall include: 

a) immovable property (real property) referred to in Article 6 (Income from 

Immovable Property (Real Property)); 

b) where that other State is the United States, a United States real property interest 

as defined under U.S. law; and 

c) where that other State is Bulgaria, 

i) shares, including rights to acquire shares, other than shares regularly traded 

on an established securities market, deriving more than 50 percent of their value 

directly or indirectly from immovable property (real property) referred to in 

subparagraph a) of this paragraph situated in Bulgaria; and 

ii) an interest in a partnership or trust to the extent that the assets of the 

partnership or trust consist of immovable property (real property) situated in 

Bulgaria, or of shares referred to in clause i) of this subparagraph. 

3. Gains from the alienation of movable property forming part of the business property of a 

permanent establishment which an enterprise of a Contracting State has in the other Contracting 

State, including such gains from the alienation of such a permanent establishment (alone or with 

the whole enterprise), may be taxed in that other State. 

4. Gains derived by an enterprise of a Contracting State from the alienation of ships or 

aircraft operated or used in international traffic or movable property (personal property) 

pertaining to the operation or use of such ships or aircraft shall be taxable only in that State. 

5. Gains derived by an enterprise of a Contracting State from the alienation of containers 

(including trailers and related equipment for the transport of containers) used for the transport 

of goods or merchandise shall be taxable only in that State, unless those containers or trailers 

and related equipment are used for transport solely between places within the other Contracting 

State. 

6. Gains derived by a resident of a Contracting State from the alienation of shares of a 

company that is a resident of the other Contacting State may be taxed in that other State if the 
 

 

22

alienation of such shares occurs within 12 months of the date that such shares are acquired and 

if the recipient of the gain, at any time during the 12-month period preceding such alienation, 

had a participation, directly or indirectly, of at least 25 percent in the capital of that company. 

This paragraph, however, shall not apply with respect to the alienation of shares of stock of 

public companies, traded on an established securities market. 

7. Gains described in paragraph 3 of Article 12 (Royalties) shall be taxable only in 

accordance with the provisions of Article 12 (Royalties). 

8. Gains from the alienation of any property other than property referred to in paragraphs 1 

through 7 shall be taxable only in the Contracting State of which the alienator is a resident. 

Article 14 

INCOME FROM EMPLOYMENT

1. Subject to the provisions of Articles 15 (Directors' Fees), 17 (Pensions, Social Security 

Payments, Annuities, Alimony, and Child Support) and 18 (Government Service), salaries, 

wages, and other remuneration derived by a resident of a Contracting State in respect of an 

employment shall be taxable only in that State unless the employment is exercised in the other 

Contracting State. If the employment is so exercised, such remuneration as is derived 

therefrom may be taxed in that other State. 

2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a 

Contracting State in respect of an employment exercised in the other Contracting State shall be 

taxable only in the first-mentioned State if: 

a) the recipient is present in the other State for a period or periods not exceeding in 

the aggregate 183 days in any twelve month period commencing or ending in the taxable 

year concerned; 

b) the remuneration is paid by, or on behalf of, an employer who is not a resident of 

the other State; and 

c) the remuneration is not borne by a permanent establishment which the employer 

has in the other State. 
 

 

23

3. Notwithstanding the preceding provisions of this Article, remuneration described in 

paragraph 1 that is derived by a resident of a Contracting State in respect of an employment as a 

member of the crew of a ship or aircraft, or as other personnel regularly employed to serve 

aboard a ship or aircraft operated in international traffic shall be taxable only in that State. 

Article 15 

 DIRECTORS' FEES

Directors' fees and other compensation derived by a resident of a Contracting State for 

services rendered in his capacity as a member of the board of directors (including the managing 

board or supervisory board or a functionally similar body) of a company that is a resident of the 

other Contracting State may be taxed in that other Contracting State. 

Article 16 

ENTERTAINERS AND SPORTSMEN

1. Income derived by a resident of a Contracting State as an entertainer, such as a theater, 

motion picture, radio, or television artiste, or a musician, or as a sportsman, from his personal 

activities as such exercised in the other Contracting State, which income would be exempt from 

tax in that other Contracting State under the provisions of Articles 7 (Business Profits) or 

Article 14 (Income from Employment) may be taxed in that other State, except where the 

amount of the gross receipts derived by such entertainer or sportsman, including expenses 

reimbursed to him or borne on his behalf, from such activities does not exceed fifteen thousand 

United States dollars ($15,000) or its equivalent in Bulgarian currency for the taxable year 

concerned. 

2. Where income in respect of personal activities exercised by an entertainer or a 

sportsman in his capacity as such accrues not to the entertainer or sportsman himself but to 

another person, that income may, notwithstanding the provisions of Articles 7 (Business 

Profits) and Article 14 (Income from Employment), be taxed in the Contracting State in which 

the activities of the entertainer or sportsman are exercised, but only in cases in which the 
 

 

24

contract pursuant to which the personal activities are performed 

a) designates (by name or description) the entertainer or sportsman; or 

b) allows the other party to the contract (or a person other than the entertainer, 

sportsman or the person to whom the income accrues) to designate the individual who is 

to perform the personal activities. 

Article 17 

PENSIONS, SOCIAL SECURITY PAYMENTS, ANNUITIES, 

ALIMONY, AND CHILD SUPPORT 

1. Pensions and other similar remuneration beneficially owned by a resident of a 

Contracting State shall be taxable only in that State. 

2. Notwithstanding paragraph 1, payments made by a Contracting State under provisions 

of the social security or similar legislation of that State to a resident of the other Contracting 

State or to a citizen of the United States shall be taxable only in the first-mentioned State. 

3. Annuities derived and beneficially owned by an individual resident of a Contracting 

State shall be taxable only in that State. The term "annuities" as used in this paragraph means a 

stated sum paid periodically at stated times during a specified number of years, or for life, under 

an obligation to make the payments in return for adequate and full consideration (other than 

services rendered). 

4. Alimony and payments for the support of a child, paid by a resident of a Contracting 

State to a resident of the other Contracting State shall be taxable only in the first-mentioned 

Contracting State. However, such payments shall not be taxable in either Contracting State if 

the individual making such payments is not entitled to a deduction for such payments in 

computing taxable income in the Contracting State of which he is a resident. The term 

“alimony” as used in this Article means periodic payments, made pursuant to a written 

separation agreement or a decree of divorce, separate maintenance, or compulsory support. 

5. Where an individual who is a resident of one of the States is a member or beneficiary of, 

or participant in, a pension fund that is a resident of the other State, income earned by the 
 

 

25

pension fund may be taxed as income of that individual only when, and, subject to the 

provisions of paragraphs 1 and 2 of this Article, to the extent that, it is paid to, or for the benefit 

of, that individual from the pension fund (and not transferred to another pension fund in that 

other State). 

 

Article 18 

GOVERNMENT SERVICE

1. Notwithstanding the provisions of Articles 14 (Income from Employment), 15 

(Directors’ Fees) and 16 (Entertainers and Sportsmen): 

a) Salaries, wages and other remuneration, other than a pension, paid to an 

individual in respect of services rendered to a Contracting State or a political 

subdivision or local authority thereof shall, subject to the provisions of subparagraph b), 

be taxable only in that State; 

b) such remuneration, however, shall be taxable only in the other Contracting State 

if the services are rendered in that State and the individual is a resident of that State 

who: 

i) is a national of that State; or 

ii) did not become a resident of that State solely for the purpose of rendering 

the services. 

2. Notwithstanding the provisions of paragraph 1 of Article 17 (Pensions, Social Security 

Payments, Annuities, Alimony, and Child Support): 

a) any pension paid by, or out of funds created by, a Contracting State or a political 

subdivision or a local authority thereof to an individual in respect of services rendered 

to that State or subdivision or authority (other than a payment to which paragraph 2 of 

Article 17 applies) shall, subject to the provisions of subparagraph b), be taxable only in 

that State; 

b) such pension, however, shall be taxable only in the other Contracting State if the 

individual is a resident of, and a national of, that State. 
 

 

26

3. The provisions of Articles 14 (Income from Employment), 15 (Directors' Fees), 16 

(Entertainers and Sportsmen) and 17 (Pensions, Social Security Payments, Annuities, Alimony, 

and Child Support) shall apply to salaries, wages and other remuneration, and to pensions, in 

respect of services rendered in connection with a business carried on by a Contracting State or a 

political subdivision or a local authority thereof. 

Article 19 

STUDENTS, TRAINEES, TEACHERS AND RESEARCHERS

1. a) Payments, other than compensation for personal services, received by a student 

or business trainee who is, or was immediately before visiting a Contracting State, a 

resident of the other Contracting State, and who is present in the first-mentioned State 

for the purpose of his full-time education at a college, university or other recognized 

educational institution of a similar nature, or for his full-time training, shall not be taxed 

in that State, provided that such payments arise outside that State, and are for the 

purpose of his maintenance, education or training. The exemption from tax provided by 

this paragraph shall apply to a business trainee only for a period of time not exceeding 

two years from the date the business trainee first arrives in the first-mentioned 

Contracting State for the purpose of training. 

b) A student or business trainee within the meaning of subparagraph a) shall be 

exempt from tax by the Contracting State in which the student or trainee is temporarily 

present with respect to income from personal services in an aggregate amount equal to 

$9,000 or its equivalent in Bulgarian currency annually. The competent authorities shall, 

every five years, adjust the amount provided in this subparagraph. 

 c) For purposes of this paragraph, a business trainee is an individual: 

i) who is temporarily in a Contracting State for the purpose of securing 

training required to qualify the individual to practice a profession or professional 

specialty; or 

ii) who is temporarily in a Contracting State as an employee of, or under 
 

 

27

contract with, a resident of the other Contracting State, for the primary purpose of 

acquiring technical, professional, or business experience from a person other than 

A) that resident of the other Contracting State, and 

B) a person related to such resident of the other Contracting State. 

2. An individual who is a resident of a Contracting State at the beginning of his visit to the 

other Contracting State and who is temporarily present in the other Contracting State for the 

purpose of teaching or carrying on research at a school, college, university or other recognized 

educational or research institution shall be exempt from tax in the other Contracting State, for a 

period not exceeding two years from the date of the individual's arrival in that other State. This 

paragraph shall not apply to income from research if such research is undertaken not in the 

public interest but primarily for the private benefit of a specific person or persons. 

Article 20 

OTHER INCOME

1. Items of income beneficially owned by a resident of a Contracting State, wherever 

arising, not dealt with in the foregoing Articles of this Convention shall be taxable only in that 

State. 

2. The provisions of paragraph 1 shall not apply to income, other than income from 

immovable property (real property) as defined in paragraph 2 of Article 6 (Income from 

Immovable Property (Real Property)), if the beneficial owner of the income, being a resident of 

a Contracting State, carries on business in the other Contracting State through a permanent 

establishment situated therein and the income is attributable to such permanent establishment. In 

such case the provisions of Article 7 (Business Profits) shall apply. 
 

 

28

CHAPTER IV 

LIMITATION ON BENEFITS 

Article 21 

LIMITATION ON BENEFITS 

1. Except as otherwise provided in this Article, a resident of a Contracting State that 

derives income from the other Contracting State shall not be entitled to the benefits of this 

Convention otherwise accorded to residents of a Contracting State unless such resident is a 

"qualified person" as defined in paragraph 2. 

2. A resident of a Contracting State shall be a qualified person for a taxable year if the 

resident is: 

a) an individual; 

b) a Contracting State, or a political subdivision or local authority thereof; 

c) a company, if: 

i) the principal class of its shares (and any disproportionate class of shares) 

is regularly traded on one or more recognized stock exchanges, and either 

A) its principal class of shares is primarily traded on one or more 

recognized stock exchanges located in the Contracting State of which the 

company is a resident; or 

 B) the company's primary place of management and control is in the 

 Contracting State of which it is a resident; or 

ii) at least 50 percent of the aggregate vote and value of the shares (and at 

least 50 percent of any disproportionate class of shares) in the company is owned 

directly or indirectly by five or fewer companies entitled to benefits under clause 

i) of this subparagraph, provided that, in the case of indirect ownership, each 

intermediate owner is a resident of either Contracting State; 

d) a person described in paragraph 2 of Article 4 of this Convention, provided that, 

in the case of a person described in subparagraph a) of that paragraph, more than 50 

percent of the person's beneficiaries, members or participants are individuals resident in 
 

 

29

either Contracting State; or 

e) a person other than an individual, if: 

i) on at least half the days of the taxable year, persons who are residents of 

that Contracting State and that are entitled to the benefits of this Convention 

under subparagraphs a), b), c) i) or d) own, directly or indirectly, shares or other 

beneficial interests representing at least 50 percent of the aggregate voting power 

and value (and at least 50 percent of any disproportionate class of shares) of the 

person, provided that, in the case of indirect ownership, each intermediate owner 

is a resident of that Contracting State, and 

ii) less than 50 percent of the person's gross income for the taxable year, as 

determined in that person’s State of residence, is paid or accrued, directly or 

indirectly, to persons who are not residents of either Contracting State entitled to 

the benefits of this Convention under subparagraph a), subparagraph b), clause 

i), of subparagraph c), or subparagraph d) of this paragraph in the form of 

payments that are deductible for purposes of the taxes covered by this 

Convention in the person’s State of residence (but not including arm’s length 

payments in the ordinary course of business for services or tangible property). 

3. A company that is a resident of a Contracting State shall also be entitled to the benefits 

of the Convention if: 

a) at least 95 percent of the aggregate voting power and value of its shares (and at 

 least 50 percent of any disproportionate class of shares) is owned, directly or indirectly, 

 by seven or fewer persons that are equivalent beneficiaries; and 

b) less than 50 percent of the company’s gross income, as determined in the 

 company's State of residence, for the taxable year is paid or accrued, directly or 

 indirectly, to persons who are not equivalent beneficiaries, in the form of payments (but 

 not including arm's length payments in the ordinary course of business for services or 

 tangible property), that are deductible for the purposes of the taxes covered by this 

 Convention in the company's State of residence. 
 

 

30

4. a) A resident of a Contracting State will be entitled to benefits of the Convention 

with respect to an item of income derived from the other State, regardless of whether the 

resident is a qualified person, if the resident is engaged in the active conduct of a trade 

or business in the first-mentioned State (other than the business of making or managing 

investments for the resident’s own account, unless these activities are banking, 

insurance or securities activities carried on by a bank, insurance company or registered 

securities dealer), and the income derived from the other Contracting State is derived in 

connection with, or is incidental to, that trade or business. 

b) If a resident of a Contracting State derives an item of income from a trade or 

business activity in the other Contracting State, or derives an item of income arising in 

the other Contracting State from a related person, the conditions described in 

subparagraph a) shall be considered to be satisfied with respect to such item only if the 

trade or business activity carried on by the resident in the first-mentioned Contracting 

State is substantial in relation to the trade or business activity carried on by the resident 

or such person in the other Contracting State. Whether a trade or business activity is 

substantial for the purposes of this paragraph will be determined based on all the facts 

and circumstances. 

c) In determining whether a person is "engaged in the active conduct of a trade or 

business" in a Contracting State under subparagraph a) of this paragraph, activities 

conducted by persons connected to such person shall be deemed to be conducted by 

such person. For the purposes of this subparagraph, a person shall be connected to 

another if one possesses at least 50 percent of the beneficial interest in the other (or, in 

the case of a company, at least 50 percent of the aggregate vote and value of the 

company's shares or of the beneficial equity interest in the company) or another person 

possesses, directly or indirectly, at least 50 percent of the beneficial interest (or, in the 

case of a company, at least 50 percent of the aggregate vote and value of the company's 

shares or of the beneficial equity interest in the company) in each person. In any case, 

for the purposes of this subparagraph, a person shall be considered to be connected to 
 

 

31

another if, based on all the relevant facts and circumstances, one has control of the other 

or both are under the control of the same person or persons. 

5. A resident of a Contracting State that is neither a qualified person pursuant to the 

provisions of paragraph 2 nor entitled to benefits under paragraph 3 or, with respect to an item 

of income, under paragraph 4 of this Article shall, nevertheless, be granted benefits of the 

Convention if the competent authority of the other Contracting State determines that the 

establishment, acquisition or maintenance of such person and the conduct of its operations did 

not have as one of its principal purposes the obtaining of benefits under the Convention. 

6. For purposes of this Article: 

 a) the term "recognized stock exchange" means: 

i) the NASDAQ System owned by the National Association of Securities 

Dealers, Inc. and any stock exchange registered with the U.S. Securities and 

Exchange Commission as a national securities exchange under the U.S. Securities Exchange Act of 1934; 

ii) the Bulgarian Stock Exchange – Sofia, and any other stock exchange 

licensed to trade securities and financial instruments under the Bulgarian law; 

 iii) any other stock exchange agreed upon by the competent authorities; 

b) the term "principal class of shares" means the ordinary or common shares of the 

company, provided that such class of shares represents the majority of the voting power 

and value of the company. If no single class of ordinary or common shares represents 

the majority of the aggregate voting power and value of the company, the "principal 

class of shares" are those classes that in the aggregate represent a majority of the 

aggregate voting power and value of the company; 

 c) the term "disproportionate class of shares" means any class of shares of a 

company resident in one of the Contracting States that entitles the shareholder to 

disproportionately higher participation, through dividends, redemption payments or 

otherwise, in the earnings generated in the other State by particular assets or activities of 

the company; 
 

 

32

 d) a company's "primary place of management and control" will be in the 

Contracting State of which it is a resident only if executive officers and senior 

management employees exercise day-to-day responsibility for more of the strategic, 

financial and operational policy decision making for the company (including its direct 

and indirect subsidiaries) in that State than in any other state and the staff of such 

persons conducts more of the day-to-day activities necessary for preparing and making 

those decisions in that State than in any other state; 

e) an “equivalent beneficiary” is a resident of a member state of the European 

Union or of a European Economic Area State or of a party to the North American Free 

Trade Agreement but only if that resident: 

i) A) would be entitled to all the benefits of a comprehensive 

convention for the avoidance of double taxation between any member 

state of the European Union or European Economic Area State or any 

party to the North American Free Trade Agreement and the State from 

which benefits of this Convention are claimed under provisions 

analogous to subparagraph a), b), clause i) of subparagraph c) or 

subparagraph d) of paragraph 2 of this Article, provided that if such 

convention does not contain a comprehensive limitation on benefits 

article, the person would be a qualified person under subparagraph a), b), 

clause i) of subparagraph c) or subparagraph d) of paragraph 2 of this 

Article if such person were a resident of one of the states under Article 4 

(Resident) of this Convention; 

B) with respect to income referred to in Article 10 (Dividends), 11 

(Interest), or 12 (Royalties) of this Convention, would be entitled under 

such convention to a rate of tax with respect to the particular class of 

income for which benefits are being claimed under this Convention that 

is at least as low as the rate applicable under this Convention; or 
 

 

33

ii) is a resident of one of the Contracting States and is a qualified person by 

reason of subparagraph a), b), clause i) of subparagraph c) or subparagraph d) of 

paragraph 2 of this Article; 

f) with respect to dividends, interest or royalties arising in Bulgaria and 

beneficially owned by a company that is a resident of the United States, a company that 

is a resident of a member state of the European Union will be treated as satisfying the 

requirements of subparagraph e) i) B) of this paragraph for purposes of determining 

whether such United States resident is entitled to benefits under this paragraph if a 

payment of dividends, interest or royalties arising in Bulgaria and paid directly to such 

resident of a member state of the European Union would have been exempt from tax 

pursuant to any directive of the European Union, notwithstanding that the income tax 

convention between Bulgaria and that other member state of the European Union would 

provide for a higher rate of tax with respect to such payment then the rate of tax 

applicable to such United States company under Article 10 (Dividends), 11 (Interest), or 

12 (Royalties) of this Convention; 

g) with respect to paragraph 2, the shares in a class of shares are considered to be 

regularly traded on one or more recognized stock exchanges in a taxable year if the 

aggregate number of shares of that class traded on such stock exchange or exchanges 

during the twelve months ending on the day before the beginning of that taxable year is 

at least six percent of the average number of shares outstanding in that class during the 

twelve-month period. 

CHAPTER V 

RELIEF FROM DOUBLE TAXATION 

Article 22 

RELIEF FROM DOUBLE TAXATION

1. In the case of Bulgaria, double taxation will be relieved as follows: 

 a) where a resident of Bulgaria derives income which in accordance with the 
 

 

34

provisions of this Convention may be taxed in the United States, Bulgaria shall, subject to 

the provisions of subparagraphs (b) and (c) of this paragraph, exempt such income from 

tax; 

b) where a resident of Bulgaria derives dividends, interest or royalties which in 

accordance with the provisions of Articles 10 (Dividends), 11 (Interest) or 12 (Royalties) of 

this Convention may be taxed in the United States, Bulgaria shall allow as a deduction from 

the tax on the dividends, interest or royalties of that resident an amount equal to the tax paid 

in the United States. Such deduction shall not, however, exceed that part of the tax, as 

computed before the deduction is given, which is attributable to such dividends, interest or 

royalties derived from the United States; 

c) where in accordance with any provision of this Convention income derived by a 

resident of Bulgaria is exempt from tax in Bulgaria, Bulgaria may nevertheless, in 

calculating the amount of the tax on the remaining income of such resident, take into 

account the exempted income. 

2. In accordance with the provisions and subject to the limitations of the law of the United 

States (as it may be amended from time to time without changing the general principle hereof), 

the United States shall allow to a resident or citizen of the United States as a credit against the 

United States tax on income: 

a) the income tax paid or accrued to Bulgaria by or on behalf of such resident or 

citizen; and 

b) in the case of a United States company owning at least 10 percent of the voting 

stock of a company that is a resident of Bulgaria and from which the United States 

company receives dividends, the income tax paid or accrued to Bulgaria by or on behalf 

of the payer with respect to the profits out of which the dividends are paid. 

For the purposes of this paragraph, the taxes referred to in paragraphs 3 a) i) and ii) and 4 of 

Article 2 (Taxes Covered) shall be considered income taxes. 

3. For the purposes of applying paragraph 2 of this Article, an item of gross income, as 

determined under the laws of the United States, derived by a resident of the United States that, 
 

 

35

under this Convention, may be taxed in Bulgaria shall be deemed to be income from sources in 

Bulgaria. 

4. For the purposes of applying the preceding paragraphs of this Article, where the United 

States taxes, in accordance with paragraph 4 of Article 1 (General Scope), a citizen, or a former 

citizen or long-term resident, of the United States who is a resident of Bulgaria: 

a) Bulgaria shall take into account for the purposes of computing the credit to be 

allowed under paragraph 1 only the amount of tax, if any, that the United States may 

impose on income under the provisions of this Convention that is derived by a resident 

of Bulgaria who is neither a citizen, nor a former citizen nor long-term resident, of the 

United States; 

b) for purposes of computing the United States tax on income referred to in 

subparagraph a), the United States shall allow as a credit against the United States tax 

the Bulgarian tax after the credit referred to in that subparagraph; the credit so allowed 

shall not reduce the portion of the United States tax that is creditable against the 

Bulgarian tax in accordance with that subparagraph; and 

c) for the exclusive purpose of allowing the credit by the United States provided for 

under subparagraph b), income referred to in subparagraph a) shall be deemed to arise in 

Bulgaria to the extent necessary to allow the United States to grant the credit provided 

for in subparagraph b). 

CHAPTER VI

SPECIAL PROVISIONS 

Article 23 

NON-DISCRIMINATION

1. Nationals of a Contracting State shall not be subjected in the other Contracting State to 

any taxation or any requirement connected therewith that is more burdensome than the taxation 

and connected requirements to which nationals of that other State in the same circumstances, in 

particular with respect to residence, are or may be subjected. This provision shall also apply to 
 

 

36

persons who are not residents of one or both of the Contracting States. However, for the 

purposes of United States taxation, United States nationals who are subject to tax on a 

worldwide basis are not in the same circumstances as nationals of Bulgaria who are not 

residents of the United States. 

2. The taxation on a permanent establishment that an enterprise of a Contracting State has 

in the other Contracting State shall not be less favorably levied in that other State than the 

taxation levied on enterprises of that other State carrying on the same activities. 

3. The provisions of paragraphs 1 and 2 shall not be construed as obliging a Contracting 

State to grant to residents of the other Contracting State any personal allowances, reliefs, and 

reductions for taxation purposes on account of civil status or family responsibilities that it 

grants to its own residents. 

4. Except where the provisions of paragraph 1 of Article 9 (Associated Enterprises), paragraph 

7 of Article 11 (Interest), or paragraph 6 of Article 12 (Royalties) apply, interest, royalties, and 

other disbursements paid by a resident of a Contracting State to a resident of the other Contracting 

State shall, for the purpose of determining the taxable profits of the first-mentioned resident, be 

deductible under the same conditions as if they had been paid to a resident of the first-mentioned 

State. Similarly, any debts of a resident of a Contracting State to a resident of the other Contracting 

State shall, for the purpose of determining the taxable capital of the first-mentioned resident, be 

deductible under the same conditions as if they had been contracted to a resident of the firstmentioned State. 

5. Enterprises of a Contracting State, the capital of which is wholly or partly owned or 

controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be 

subjected in the first-mentioned State to any taxation or any requirement connected therewith 

that is more burdensome than the taxation and connected requirements to which other similar 

enterprises of the first-mentioned State are or may be subjected. 

6. Nothing in this Article shall be construed as preventing either Contracting State from 

imposing a tax as described in paragraph 8 of Article 10 (Dividends) or paragraph 9 of Article 

11 (Interest). 
 

 

37

7. The provisions of this Article shall, notwithstanding the provisions of Article 2 (Taxes 

Covered), apply to taxes of every kind and description imposed by a Contracting State or a 

political subdivision or local authority thereof. 

Article 24 

MUTUAL AGREEMENT PROCEDURE

1. Where a person considers that the actions of one or both of the Contracting States result 

or will result for such person in taxation not in accordance with the provisions of this 

Convention, it may, irrespective of the remedies provided by the domestic law of those States, 

and the time limits prescribed in such laws for presenting claims for refund, present its case to 

the competent authority of either Contracting State. 

2. The competent authority shall endeavor, if the objection appears to it to be justified and 

if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement 

with the competent authority of the other Contracting State, with a view to the avoidance of 

taxation which is not in accordance with the Convention. Any agreement reached shall be 

implemented notwithstanding any time limits or other procedural limitations in the domestic 

law of the Contracting States. 

3. The competent authorities of the Contracting States shall endeavor to resolve by mutual 

agreement any difficulties or doubts arising as to the interpretation or application of the 

Convention. They also may consult together for the elimination of double taxation in cases not 

provided for in the Convention. In particular the competent authorities of the Contracting 

States may agree: 

a) to the same attribution of income, deductions, credits, or allowances of an 

enterprise of a Contracting State to its permanent establishment situated in the other 

Contracting State; 

b) to the same allocation of income, deductions, credits, or allowances between 

persons; 

c) to the same characterization of particular items of income; 
 

 

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d) to the same characterization of persons; 

e) to the same application of source rules with respect to particular items of 

income; 

f) to a common meaning of a term; and 

g) to advance pricing arrangements. 

4. The competent authorities also may agree to increases in any specific dollar amounts 

referred to in the Convention to reflect economic or monetary developments. 

5. The competent authorities of the Contracting States may communicate with each other 

directly for the purpose of reaching an agreement in the sense of the preceding paragraphs. 

Article 25

EXCHANGE OF INFORMATION AND ADMINISTRATIVE ASSISTANCE

1. The competent authorities of the Contracting States shall exchange such information as 

may be relevant for carrying out the provisions of this Convention or of the domestic laws of 

the Contracting States concerning taxes of every kind imposed by a Contracting State insofar as 

the taxation thereunder is not contrary to the Convention, including information relating to the 

assessment or collection of, the enforcement or prosecution in respect of, or the determination 

of appeals in relation to, the taxes covered by the Convention. The exchange of information is 

not restricted by paragraph 1 of Article 1 (General Scope) or Article 2 (Taxes Covered). 

2. If specifically requested by the competent authority of a Contracting State, the 

competent authority of the other Contracting State shall provide information under this Article 

in the form of depositions of witnesses and authenticated copies of unedited original documents 

(including books, papers, statements, records, accounts, and writings). 

3. Any information received under this Article by a Contracting State shall be treated as 

secret in the same manner as information obtained under the domestic laws of that State and 

shall be disclosed only to persons or authorities (including courts and administrative bodies) 

involved in the assessment, collection, or administration of, the enforcement or prosecution in 

respect of, or the determination of appeals in relation to, the taxes referred to above, or the 
 

 

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oversight of the above. Such persons or authorities shall use the information only for such 

purposes. They may disclose the information in public court proceedings or in judicial 

decisions. 

4. In no case shall the provisions of the preceding paragraphs be construed so as to impose 

on a Contracting State the obligation: 

a) to carry out administrative measures at variance with the laws and administrative 

practice of that or of the other Contracting State; 

b) to supply information that is not obtainable under the laws or in the normal 

course of the administration of that or of the other Contracting State; 

c) to supply information that would disclose any trade, business, industrial, 

commercial, or professional secret or trade process, or information the disclosure of 

which would be contrary to public policy (ordre public). 

5. If information is requested by a Contracting State in accordance with this Article, the 

other Contracting State shall use its information gathering measures to obtain the requested 

information, even though that other State may not need such information for its own purposes. 

The obligation contained in the preceding sentence is subject to the limitations of paragraph 4 

but in no case shall such limitation be construed to permit a Contracting State to decline to 

supply information because it has no domestic interest in such information. 

6. In no case shall the provisions of paragraph 4 be construed to permit a Contracting State 

to decline to supply information because the information is held by a bank, other financial 

institution, nominee or person acting in an agency or fiduciary capacity or because it relates to 

ownership interests in a person. 

Article 26 

MEMBERS OF DIPLOMATIC MISSIONS AND CONSULAR POSTS

 Nothing in this Convention shall affect the fiscal privileges of members of diplomatic 

missions or consular posts under the general rules of international law or under the provisions of 

special agreements. 
 

 

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CHAPTER VII 

FINAL PROVISIONS 

Article 27 

ENTRY INTO FORCE 

1. The Contracting States shall notify each other, through diplomatic channels, when their 

respective requirements for the entry into force of this Convention have been satisfied. This 

Convention shall enter into force on the date of receipt of the later of these notifications. 

2. The provisions of the Convention shall have effect in both Contracting States: 

a) in respect of taxes withheld at source, on income paid or credited on or after the 

first day of January in the calendar year next following the year in which this Convention 

enters into force; 

b) in respect of other taxes on income, for any taxable period beginning on or after the 

first day of January in the calendar year next following the year in which this Convention 

enters into force. 

Article 28 

 TERMINATION 

1. This Convention shall remain in force indefinitely but either of the Contracting States may 

terminate the Convention through the diplomatic channel, by giving to the other Contracting State 

written notice of termination not later than June 30th of any calendar year. 

2. In such event the Convention shall cease to have effect in both Contracting States: 

a) in respect of taxes withheld at source, on income paid or credited on or after the 

first day of January in the calendar year next following the year in which the notice 

has been given; 
 

 

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b) in respect of other taxes on income, for any taxable period beginning on or after the 

first day of January in the calendar year next following the year in which the notice 

has been given. 

IN WITNESS WHEREOF, the undersigned, being duly authorized thereto by their 

respective Governments, have signed this Convention. 

DONE at Washington in duplicate, in the English and Bulgarian languages, both texts 

being equally authentic, this twenty-third day of February, 2007. 

FOR THE GOVERNMENT OF FOR THE GOVERNMENT OF 

THE UNITED STATES OF AMERICA: THE REPUBLIC OF BULGARIA: