You receive a €2,000 fee, but your tax isn't €200 - it's around €108. Why? The answer lies in statutory recognised expenses - a mechanism that automatically reduces your tax base by 25% (or more for certain professions). This means that as a freelancer with a freelance profession, you only pay tax on a portion of your income, without having to prove actual expenses with invoices.
Here we'll focus specifically on statutory recognised expenses - what they are, which percentages apply to different activities, and how they reduce your taxes.
Formula: Gross income − Statutory recognised expenses (25/40/60%) = Taxable income
What you'll learn
- What statutory recognised expenses are and why they exist
- Which professions use 25%, 40%, or 60% statutory recognised expenses
- How your taxable income is calculated
- Common mistakes and misconceptions to avoid
- Answers to the most frequently asked questions
Disclaimer
This article is for informational purposes only and does not replace professional advice. If you have questions, reach out to us at support@effortless.tax or consult with an accountant of your choice.
What are statutory recognised expenses
Statutory recognised expenses are a percentage of your income that the state automatically deducts before calculating your tax. The idea is simple - it is assumed that part of the money you earn goes towards costs related to your work. That is why you do not pay tax on the entire amount, but only on what remains after the deduction.
Why they exist
Imagine having to keep every receipt for the coffee you drink while working, for the electricity in your home office, or for the software you use. Companies keep accounts and document every expense down to the last cent. For you as a self-employed professional or an individual with additional income, this would be an enormous administrative burden.
That is why the Personal Income Tax Act (bg: ЗДДФЛ) offers an easier path. Instead of proving your actual expenses, the law automatically recognises a fixed percentage for you. This is regulated in Art. 29, para. 1 of the Personal Income Tax Act.
How it works in practice
When you declare your income, statutory recognised expenses are deducted first. The remainder is your taxable income - social security contributions are calculated on this amount. After deducting social security contributions, you are left with the tax base, on which the tax is charged.
Let us say you earned €5,000 as a freelance programmer. With 25% statutory recognised expenses:
- Deducted expenses: €1,250
- Taxable income: €3,750
- Social security contributions and tax are calculated on these €3,750
The big advantage
The best part is that you do not need invoices, receipts, or any documents to use statutory recognised expenses. For advance tax, you apply the appropriate percentage to your income yourself. In the annual tax declaration, you group your income by type and the system calculates the expenses automatically.
Percentages for different activities
Not all self-employed individuals pay the same tax. The state recognises that different activities have different costs, and has therefore set different percentages of statutory recognised expenses depending on the type of work.
Statutory recognised expenses for professional activity
This table covers income from freelance professions, civil contracts, and other work-related activities:
| Percentage | Type of activity | Examples |
|---|---|---|
| 60% | Farmers (unprocessed products) | Grain producers, fruit growers, vegetable growers |
| 40% | Farmers (processed products) | Production of cheese, wine, honey |
| 40% | Lawyers | From 01.01.2023 (previously 25%) |
| 40% | Copyright and licensing fees | Writers, composers, photographers |
| 40% | Performing artists | Musicians, actors, dancers |
| 40% | Craftspeople | Tailors, carpenters (if not paying flat-rate tax) |
| 25% | Self-employed professionals | Programmers, consultants, translators, accountants |
| 25% | Notaries and private bailiffs | Despite being legal professions, they remain at 25% |
| 25% | Civil contracts | Non-employment relationships |
Statutory recognised expenses for other income
Beyond work-related activity, statutory recognised expenses also apply to certain other types of income:
| Percentage | Type of income | Notes |
|---|---|---|
| 10% | Rental income | Renting out real estate |
| 10% | Sale of real estate | Apartments, houses, land, limited property rights |
| 10% | Sale of financial assets | Stocks, shares, cryptocurrencies (from 01.01.2024) |
Important for financial assets: From 2024, profits from stocks, shares, and cryptocurrencies (outside EU-regulated markets) are first reduced by 10% statutory recognised expenses, then taxed at 10%. For example: €1,000 profit → €90 tax.
What these percentages mean in practice
If you work as a self-employed professional such as a programmer, consultant, or translator, you are entitled to 25% statutory recognised expenses. This means the state automatically assumes that one quarter of your income goes towards work-related expenses.
With 40% statutory recognised expenses, the situation is even more favourable. This category includes lawyers, creative professions, and craftspeople. If you receive licensing fees for the use of your software, books, or music, you also benefit from this higher percentage.
Farmers - a special case
Farmers benefit from the highest percentages. When selling unprocessed produce (fruit, vegetables, grain), expenses are a full 60%. If you process your produce (making wine, cheese, or jam), the percentage is 40%.
Civil contracts
If you work under a civil contract without being registered as a self-employed professional, you are also entitled to 25% statutory recognised expenses. This applies to all non-employment relationships.
How taxable income is calculated
Statutory recognised expenses are deducted from your gross income before social security contributions and tax are calculated. This means you pay on a smaller amount.
With €2,000 monthly income and 25% statutory recognised expenses, your taxable income is €1,500 (€2,000 - €500). With 40% statutory recognised expenses on the same amount, your taxable income would be €1,200.
Relationship with insurable income
Your taxable income after statutory recognised expenses is also your insurable income - social security contributions are calculated on this amount. However, there are limits: for 2026, the minimum insurable income is €550.66, and the maximum is €2,111.64.
In practice, this means:
- If your taxable income is below €550.66, contributions are calculated on €550.66.
- If your taxable income exceeds €2,111.64, contributions are calculated only on €2,111.64.
In short: thanks to statutory recognised expenses, with €2,000 monthly income you pay around €108 in tax instead of €200 - saving nearly €92 per month. If you want to see the full calculation step by step, check out From gross to net for freelancers.
Common mistakes and misconceptions
Statutory recognised expenses seem simple in theory, but in practice many people make mistakes. Here are the most common misconceptions and how to avoid them.
Mistake 1: Trying to deduct actual expenses separately
Many freelancers think they can use both statutory recognised expenses and deduct their actual expenses for office space, equipment, or software. Their logic is: "I'm paying for a laptop and internet - why can't I declare them?"
The truth: As a self-employed professional, you're only entitled to statutory recognised expenses. You cannot choose between statutory and actual expenses, nor can you combine them. The state gives you a fixed percentage and that's it.
If your actual expenses regularly exceed 25% of your income, consider whether an EOOD might be more suitable for you. With a company, you can deduct all documented expenses.
Mistake 2: Confusing statutory recognised expenses for tax and for social contributions
Some people think that statutory recognised expenses only reduce income tax. So they calculate their social contributions based on their full income.
The truth: Statutory recognised expenses reduce both the tax base and the insurable income. Social contributions are calculated on income after deducting statutory recognised expenses. If your income is €1,000, contributions are calculated on €750 (with 25% statutory recognised expenses), not on €1,000.
Mistake 3: Using the wrong percentage for your activity
This mistake is especially common among people who work under different contracts. The same programmer may be entitled to different percentages depending on the contract.
- For licensing already created works (software, photos, music): 40% statutory recognised expenses
- For creating works to order or providing services (consulting, maintenance): 25% statutory recognised expenses
The key difference is whether you receive payment for the right to use something already created (40%) or for the actual creation/service (25%).
Mistake 4: Thinking you need invoices for statutory recognised expenses
Many people diligently collect invoices for office supplies, internet, phone bills and keep them in a folder "for taxes".
The truth: As a self-employed professional, these invoices aren't used for tax purposes. Statutory recognised expenses are automatic - no documentation is required. The National Revenue Agency (NRA) doesn't ask you what you bought with that 25% or 40%.
Of course, it's good practice to keep invoices for your own records. But don't stress if you've lost one - it doesn't affect your taxes anyway.
Conclusion
Statutory recognised expenses are one of the most useful tools for any self-employed professional in Bulgaria. Instead of collecting invoices and proving actual expenses, the state automatically deducts a fixed percentage from your income. This means lower taxable income, fewer taxes and social security contributions, and most importantly - no unnecessary paperwork.
Frequently asked questions
No, you don't. Statutory recognised expenses are automatically deducted from your tax base - no documentation is required to claim them. Unlike an EOOD (Bulgarian limited liability company), where you need to document every expense with an invoice, as a self-employed professional you simply deduct the corresponding percentage (25% or 40%) from your gross income. This is one of the main advantages of this tax regime - you save time and effort on keeping accounting records.
No, there's no such option. For income from self-employment and civil contracts, the law only provides for statutory recognised expenses. There's no option to declare actual expenses, even if they exceed 25%. If your actual expenses regularly exceed the statutory amount, you might consider registering an EOOD. With a company, you can deduct all documented expenses, but this comes with more administrative burden.
You apply the corresponding statutory recognised expenses percentage to each type of income separately. For example, if during the year you have €1,000 from consulting services (25% statutory recognised expenses) and €500 from software licensing fees (40% statutory recognised expenses), you calculate the tax base separately for each income source. In your annual tax return, these incomes are entered in different appendices according to their nature.
The key is the nature of the income. If you receive payment for the right to use a work you've already created (software licensing fees, music royalties, fees for publishing photos), this is a copyright payment with 40% statutory recognised expenses. However, if you're hired to create something new on commission, this is a service with 25% statutory recognised expenses. In practice, many contracts are mixed - part for creation (25%) and part for transfer of rights (40%).
Yes, they do. For income from non-employment arrangements (civil contracts), 25% statutory recognised expenses also apply. This applies regardless of whether you're registered as a self-employed professional or not. The only difference is that with a civil contract, the client withholds and remits the advance tax and social contributions, while as a self-employed professional this is your responsibility.
