Company registration in Bulgaria: EOOD, OOD or freelance?

A practical guide to choosing a legal form for your IT business

Once you've validated your business idea and have your first clients, the time comes for an important decision – what legal structure should you operate under? The choice between a single-member LLC (EOOD), a limited liability company (OOD), or working as a freelancer can significantly impact the taxes you pay, the administrative burden you face, and your business growth opportunities.

In this article, we will examine each option in detail through the prism of IT entrepreneurship, with specific examples and practical advice from Bulgarian companies that have gone this path.

When is the right time to register?

Many budding entrepreneurs wonder when exactly they should register a company. Here are the clear signals:

Register a company immediately if:

• You have a first client who wants an invoice
• You plan to apply for funding or grants
• You want to hire employees
• You work with international clients (especially from the EU)
• Your annual income will exceed 50,000 leva

You can wait if:

• You are still testing your idea without real revenue.
• You are working on an MVP without paying customers.
• Your income is below 25,000 leva per year (you can use patent tax)

Option 1: Freelance

What is it?

Working as a freelancer means that you perform services as an individual. In the IT sector, this includes programming, design, consulting, and other intellectual services.

Advantages:

• Easy registration – you submit a declaration to the NRA to start a business
• Minimum accounting reporting – keep a book of income and expenses
• Recognized expenses 25% – automatically, without documents
• No minimum capital – you start immediately
• 10% profit tax – one of the lowest in the EU

Disadvantages:

• Personal responsibility – you are responsible with your personal property
• More difficult to attract investors – you cannot offer shares
• Restrictions on hiring employees – more complex administration
• Image – some corporate clients prefer to work with companies

Taxes and social security contributions 2025:

Example of income 5,000 BGN/month (60,000 BGN/year):

• Recognized expenses (25%): 15,000 BGN
• Taxable income: 45,000 BGN
• Tax (10%): 4,500 BGN
• Social security contributions (minimum): ~4,800 BGN/year
• Net in your pocket: ~50,700 BGN/year

When is it appropriate?

• You work alone as a developer or designer
• You have 1-3 long-term clients
• You don't plan on hiring a team anytime soon.
• You want maximum flexibility with minimum administration

Illustrative example: Georgi, a freelance developer from Sofia, works with US startups through platforms like Upwork. If he earns, for example, $4,000 monthly as a freelancer, he would pay approximately 15% total in taxes and social security contributions (thanks to the 25% recognized expense deduction), which leaves him with more funds to invest in training and equipment.

Option 2: EOOD (Single-member limited liability company)

What is it?

EOOD is the most popular form of small business in Bulgaria. You are the sole proprietor, but the company is a separate legal entity.

Advantages:

• Limited liability – you only risk the company's capital
• Professional image – better accepted by corporate clients
• Flexibility – easy conversion into an LLC if necessary
• 10% corporate tax – lowest in the EU
• Reinvestment opportunity – the profit remains in the company

Disadvantages:

• Double taxation – 10% corporate + 5% with dividend
• More complex accounting – an accountant is needed (200-400 BGN/month)
• Minimum capital – 2 leva (symbolic, but must be paid)
• Annual financial statements – mandatory publication in the Commercial Register

Registration procedure:

Option 1: Online (recommended)

1. Electronic signature – 60-120 BGN for 2 years
2. Filling out an application via portal.registryagency.bg
3. Fee: 110 BGN
4. Deadline: 1-3 business days

Option 2: Through a notary

1. Deed of incorporation at a notary – 50-100 BGN
2. Depositing capital into a bank – 2 BGN minimum
3. Filing in the Commercial Register – 110 BGN
4. Deadline: 3-5 business days

Taxes and expenses:

Example of income 10,000 BGN/month (120,000 BGN/year):

• Expenses (salaries, office, services): 70,000 BGN
• Profit before taxes: 50,000 BGN
• Corporate tax (10%): 5,000 BGN
• Profit after taxes: 45,000 BGN

If you withdraw as a dividend:

• Dividend tax (5%): 2,250 BGN
• Net in your pocket: 42,750 BGN

If you are paid on an employment contract:

• You can optimize by combining salary and dividends
• You benefit from the standard tax breaks for all citizens

When is it appropriate?

• You have a stable income of over 5,000 BGN/month
• You work with corporate clients
• You plan to hire 1-2 people
• You want to separate business from personal finances

Typical scenario: Maria founded an EOOD for her digital marketing agency. She started on her own, but after 6 months she plans to hire an assistant. The EOOD form allows her to easily conclude an employment contract and apply for European funding under programs such as "Innovation and Competitiveness".

Option 3: OOD (Limited Liability Company)

What is it?

An OOD is like an EOOD, but with two or more partners. This is the preferred structure for startups with multiple co-founders.

Advantages:

• Shared risk and responsibility – between partners
• Easier attraction of investments – you can offer shares
• Possibility of different share classes – for investors
• Greater trust – from partners and customers

Disadvantages:

• Potential conflicts – between partners
• More complex management – decisions of a general meeting are needed
• More difficult to exit – sale of shares requires consent
• Same taxation – as in EOOD

Key questions when establishing:

Distribution of shares:

• 50/50 – avoid! Leads to blocking if you disagree
• 51/49 – clear control, but minority protection
• 40/40/20 – balanced with an arbitrator
• Vesting period – shares are acquired gradually (4 years)

Company contract – be sure to include:

• Decision-making procedure
• Rights and obligations of partners
• Exit conditions (buy-back clauses)
• Prohibition of competitive activity
• Dispute resolution

Practical advice: Vesting and Cliff

Vesting scheme (recommended for startups):

• 4 years total period
• 1 year cliff (waiting period)
• After the first year – 25% of the shares
• The remaining 75% – evenly over 36 months

Example with a vesting scheme: With two co-founders with 50% shares each and a 4-year vesting period with a 1-year cliff – if one leaves after 6 months, he gets nothing (cliff period). If he leaves after 2 years – he keeps only 37.5% of his initial shares. This protects the company from early departure of a co-founder.

Real successful example: Payhawk, one of the most successful Bulgarian fintech companies, was founded as an OOD by Hristo Borisov and Boyko Karadjov. The structure allows them to easily attract investments – they have raised over $235 million in funding to date. Vesting schemes and proper share structuring are key to attracting international investors.

Tax regimes and reliefs for the IT sector

General tax advantages in Bulgaria

Bulgaria offers some of the lowest taxes in the EU, making the country attractive for IT businesses:

• 10% flat tax on income – lowest in the EU
• 10% corporate tax – also the lowest in the EU
• Freelance: 25% recognized expenses without documents
• Tax-free: Food vouchers up to 200 BGN/month

Tax optimization when reinvesting

If you reinvest the profit in:

• New equipment and software licenses
• Research and Development (R&D)
• Production assets
• Technological renewal

You don't pay dividend tax on the reinvested amount (you save 5%)

VAT registration for IT companies

Mandatory for:

• Turnover over 50,000 BGN for the last 12 months
• Deliveries to the EU (different thresholds by country)

Voluntary registration – advantages:

• You are reclaiming VAT on purchases
• A more serious image
• Required for some corporate clients

Voluntary registration – disadvantages:

• Monthly statements-declarations
• More complex accounting
• 20% more expensive services for end customers

Comparison table

Criterion	Freelance	Ltd.	Ltd.
Register now	1 day, free	1-3 days, 110 BGN	1-3 days, 110 BGN
Minimum capital	0 BGN	2 lv.	2 lv.
Accounting/month	50-100 BGN	200-400 BGN	250-500 BGN
Profit tax	10%	10% + 5% dividend	10% + 5% dividend
Insurance	~400 BGN/month min.	According to salary	According to salary
Personal responsibility	Full	Limited	Limited
Attracting investments	Impossible	Difficult	Easy
Administrative burden	Minimum	Medium	Higher

Practical steps to get started

Week 1: Preparation

• [ ] Choose a name (check in the Commercial Register)
• [ ] Prepare incorporation documents
• [ ] Get an electronic signature (if you register online)
• [ ] Open a bank account for the capital

Week 2: Registration

• [ ] Deposit the capital (for EOOD/OOD)
• [ ] Submit documents to the Commercial Register
• [ ] Register with the NRA (automatically for new companies)
• [ ] Order a company seal (40-60 BGN)

Week 3: Operationalization

• [ ] Open a company bank account
• [ ] Hire an accountant or accounting firm
• [ ] Register for VAT (if applicable)
• [ ] Set up the billing system

Week 4: Getting Started

• [ ] Issue the first invoice
• [ ] Sign an employment contract (with yourself for an EOOD)
• [ ] Register with the National Social Security Institute as an insurer.
• [ ] Submit a notification of an employment contract to the NRA

Common mistakes and how to avoid them

Mistake 1: Registering without a clear business model

Solution: Validate your idea first. Don't rush into an OOD if you don't have a co-founder.

Mistake 2: 50/50 distribution in an OOD

Solution: Always have an odd distribution or a clear dispute resolution mechanism.

Mistake 3: Mixing personal and business finances

Solution: Separate bank account and card from day 1. Keep clear records.

Mistake 4: Forgetting about vesting for partners

Solution: Include vesting clauses in the articles of association. Protects against early exit.

Mistake 5: Choosing the wrong accountant

Solution: Look for an accountant with experience in the IT sector. They know the specifics of international payments, software services, and working with platforms like PayPal, Stripe, Wise.

Useful resources and contacts

Institutions:

• Commercial register: portal.registryagency.bg
• NRA: nap.bg (has chat support!)
• NSSI: noi.bg

Accounting firms specializing in IT:

• Many large companies offer startup packages
• Prices: 200-500 BGN/month for EOOD
• Look for recommendations in the DEV.BG community

Legal consultants:

• Free consultations at Startup Factory
• Pro bono programs for startups
• Specialized law firms in technology law

Banks with good conditions for startups:

• Most large banks have startup programs
• Free service for the first year
• Online account opening

Conclusion

The choice of legal form is not irreversible – you can switch from one form to another as your business develops. The most common path is:

Freelance → EOOD → OOD (upon investment)

The important thing is to start with a form that fits your current needs without overcomplicating things. Remember – Telerik started as four friends with an OOD and minimal savings. Payhawk started with a 5-day MVP. Enhancv initially helped people manually.

Success does not depend on the legal form, but on solving real problems for clients. But the right choice can save you thousands of levs in taxes and a lot of headaches.

Are you ready for the next step? In the next article, we'll look at how to organize the first 100 days of your startup - from hiring your first employee to building workflows.

This is the second article in the series "Practical Guide for IT Entrepreneurs" by BIC Innobridge. Next week: "The First 100 Days: Roadmap for the New IT Startup"

Free consultation: BIC Innobridge offers a free 30-minute consultation on choosing a legal form and taking the first steps in entrepreneurship.

For contact:
BIC Innobridge
tel: +359 (0)82 825 875
email: info@innobridge.org