Liberal profession, sole trader or limited company: how each form is taxed

28 October 2026 · 9 min read · The Danak team

When you start working for yourself, the choice between a liberal profession, sole trader (ЕТ) and single-member limited liability company (ЕООД) determines not only how you will account for your income, but also how much you will pay in taxes and social security contributions, what declarations you will file and what accounting obligations you will have. Here is how each form is taxed.

Liberal profession: 10% tax and normative expenses

When you practise a liberal profession — as a consultant, lawyer, accountant, architect, designer, translator, programmer or in numerous other activities described in Art. 29 of the Personal Income Tax Act (ЗДДФЛ) — the tax on your income is 10%. The taxable base is formed as follows: from gross income you deduct normatively recognised expenses and social security contributions paid during the year.

Normatively recognised expenses

Normatively recognised expenses are a fixed percentage of income that the law accepts as an expense without requiring documentation of actual expenditure. In 2026 the percentage depends on the type of income:

25% for income from practising a liberal profession and for remuneration under non-employment relationships (Art. 29(1)(3) ЗДДФЛ);
40% for income from craft activities, legal practice as a lawyer and author or licence fees (Art. 29(1)(2) ЗДДФЛ);
60% for income from agricultural activities (Art. 29(1)(1) ЗДДФЛ).

You will find more on the categories and percentages in the article on normatively recognised expenses 2026.

As a self-insured person you choose an insurance income (осигурителен доход) between the minimum and maximum threshold. From 1 August 2026 the minimum monthly insurance income is 620.20 €, and the maximum 2,300 €. The total contribution burden is 27.8% of the chosen insurance income, distributed as follows:

14.8% for pension (for persons born after 1959);
5% for the universal pension fund;
8% for health insurance.

You may also add insurance for general sickness and maternity (3.5%), which covers sick pay and pregnancy benefits. How social security contributions for self-insured persons are calculated explains the steps in detail.

At the minimum insurance income of 620.20 € the monthly contribution (without sickness and maternity) is 172.42 €.

Advance tax and annual equalisation

During the year you file a declaration under Art. 55 ЗДДФЛ and pay advance tax for three quarters: by 30 April for the first, by 31 July for the second and by 31 October for the third. No advance tax is due for the fourth quarter.

After the end of the year — from 10 January to 30 April — you file an annual tax return under Art. 50 ЗДДФЛ. Then you recalculate the entire tax base, deducting all contributions paid during the year (both monthly and equalisation contributions at the year end), and determine the final tax. The advance tax paid is deducted, and you pay the difference by 30 April.

Example: monthly income of 1,500 € throughout the year

Let us see a concrete calculation for a person practising a liberal profession with 25% normatively recognised expenses, insuring on the minimum income, without sickness and maternity insurance.

Annual income: 18,000 €
Normatively recognised expenses (25%): 4,500 €
Contributions paid during the year: 1,933.66 €
Equalisation contributions at year end: 1,819.34 €
Total contributions: 3,753 €

Taxable base: 18,000 € − 4,500 € − 3,753 € = 9,747 €
Annual tax (10%): 974.70 €

The advance tax paid during the year is 870.87 €. The difference of 103.83 € is paid with the annual return.

Net remaining after tax and contributions: 18,000 € − 3,753 € − 974.70 € = 13,272.30 €

These are figures from Danak's calculator, which calculates all amounts according to the parameters for 2026 and shows the base, rate and legal basis for every contribution and every tax.

At higher income or when insuring on a higher insurance income the calculation changes. For example, at monthly income of 3,000 € and insuring at the minimum, 26,786.90 € remains annually after tax and contributions.

Sole trader (ЕТ): 15% tax on accounting profit

When you are registered as a sole trader, taxable income is formed according to the rules of the Corporate Income Tax Act (ЗКПО) — as accounting profit. This means you keep full accounting records, recognise actually incurred expenses against documents and form a financial result.

The tax rate on the annual tax base is 15%. The annual tax base is the taxable income reduced by the contributions paid for your account.

During the year you make advance payments at a 15% tax rate under the conditions and procedure of ЗКПО. The annual tax return under Art. 50 ЗДДФЛ is filed the following year, and the tax due is paid by the specified deadline.

Why is the sole trader's tax 15% and not 10%? The legislator explains this by the fact that the sole trader does not distribute a dividend additionally taxable at 5%, while the owner of a company pays 10% corporate tax plus 5% tax on the dividend upon withdrawal. In this way the 15% rate for a sole trader is comparable to the total burden with a limited company.

Social security contributions for a sole trader are also compulsory, but the specific rules for minimum and maximum insurance income under this form are not specified in the available sources. An accountant will explain how insurance income is determined in this case.

Limited company (ЕООД): 10% corporate tax plus 5% on dividends

When you establish a single-member limited liability company, the company is a legal entity and keeps full accounting records. The company's profit is taxed with corporate tax under ЗКПО — 10% (Art. 20 ЗКПО).

The annual tax return under Art. 92(1) ЗКПО is filed the following calendar year, and the corporate tax due is paid by the specified deadline.

When the owner of an ЕООД decides to withdraw part of the profit as a dividend, that amount is taxed with 5% withholding tax (Art. 194 ЗКПО). The company withholds the tax and pays it by the end of the month following the quarter in which the decision to distribute the dividend was taken.

In this way the profit that reaches the owner passes through two stages of taxation: first 10% corporate tax, then 5% on what remains.

Social security obligations depend on whether the owner of the ЕООД is appointed as a director with an employment contract or receives management remuneration. The details require consultation with an accountant.

Accounting, liability and other differences

A liberal profession does not require full accounting — it is sufficient to keep a record of income and issue a document for each income received. Sole traders and limited companies are traders within the meaning of the Commercial Act (Търговския закон) and are obliged to keep accounts under the Accounting Act (Закона за счетоводството). Whether you will need an external accountant or audit depends on the size of the activity and the form.

Property liability also differs. With a liberal profession and with a sole trader the natural person is liable with all their assets for obligations. With a limited company the company is a separate legal entity, and the owner is liable only up to the amount of their share — except in cases of commingling of assets or abuse.

The right to use a particular form also depends on the type of activity. Some regulated professions — such as lawyers or notaries — may be practised only as a liberal profession or in specific forms defined by their law. Commercial activity that does not fall within the list in Art. 29 ЗДДФЛ requires registration as a trader — a sole trader or company.

What the choice depends on

The choice between liberal profession, sole trader and limited company depends on a number of factors:

Type of activity: the law determines which activities may be practised as a liberal profession and which require registration as a trader.
Expected income and expenses: with a high proportion of real documented expenses, accounting profit may be more advantageous than normative expenses; with a low proportion of expenses the normative percentage may be more favourable.
Need to limit liability: if the activity carries serious risks, a separate legal entity offers protection that a natural person does not have.
Growth plans: if the activity will employ staff, use a complex organisation or attract investors, a company is the more suitable form.
Administrative burden: a liberal profession requires the least documentation and accounting; a limited company the most.

Each of these factors is assessed according to your specific circumstances. An accountant knows both your tax position and the nature of the activity, and can show you a real calculation for each form.

What to do now

If you are just starting, clarify with a professional which form suits your activity and your goals. If you are already working as a liberal profession, Danak's calculator will show you the exact calculation for contributions and tax according to your income and chosen insurance income — free and without registration. It tracks all deadlines for 2026 and shows the basis for every amount.

For sole traders and limited companies — where the tax base is formed according to accounting rules — the figures depend on your accounting records, and there the accountant is the person who calculates and declares.

Frequently asked questions

What is the difference in tax rate between a liberal profession, sole trader and limited company?

A liberal profession is taxed at 10% on income after normative expenses and contributions. A sole trader pays 15% on accounting profit. A limited company pays 10% corporate tax, and when the owner withdraws a dividend — an additional 5% on the dividend.

When is a liberal profession more advantageous, and when a sole trader or limited company?

There is no universal answer — it depends on the type of activity, expected income, the proportion of real expenses, the need to limit liability and the administrative burden you are prepared to take on. An accountant can calculate the real tax burden under each form according to your circumstances.

Can I change the form later?

Yes, you can move from one form to another — for example from a liberal profession to a limited company or vice versa. The procedure includes deregistration of the old registration, registration of the new one and notification to the National Revenue Agency (НАП) within 7 days. The tax consequences of the transition must also be considered with an accountant.

Must I keep accounting records as a liberal profession?

Full accounting is not necessary. You are obliged to keep a record of income and issue a document for each income received, but you do not have to keep a balance sheet or file accounting reports. Sole traders and limited companies are traders and keep full accounting under the Accounting Act.

Am I liable with my personal assets under each form?

With a liberal profession and with a sole trader the natural person is liable with all their assets. With a limited company the company is a separate legal entity, and the owner is liable only up to the amount of their share, except in cases of commingling of assets or abuse.