Statutory rate without a valid treaty claim: 30%.
Rates on investment and other income
Treaty in effect generally from Jan. 1, 2009. Protocols in effect from: none listed. IRS country code BU.
| Income | 1042-S code | Treaty rate | Article |
|---|---|---|---|
| Interest paid by U.S. obligors, general | 01 | 5%gddjjz | 11(1)-(3) |
| Dividends paid by U.S. corporations, general | 06 | 10%ddmm | 10(2) |
| Dividends qualifying for the direct dividend rate | 07 | 5%ddmm | 10(2) |
| Royalties: industrial, commercial or scientific equipment | 10 | n/au | 12(2) / P5(7) |
| Royalties: know-how and other industrial royalties | 10 | 5% | 12(2) / P5(7) |
| Royalties: patents | 10 | 5% | 12(2) / P5(7) |
| Royalties: motion picture and television copyrights | 11 | 5% | 12(2) / P5(7) |
| Royalties: copyrights (including software, unless the treaty says otherwise) | 12 | 5% | 12(2) / P5(7) |
| Pensions and annuities | 15 | 0% (exempt)f | 17(1) |
| U.S. Social Security benefits (applies to 85% of the payment) | 15 | 30% | 17(2) |
"n/a" means the payment type is not covered by the royalty article: equipment leasing is business profits (no withholding without a permanent establishment) or other income. Superscript letters are the IRS's own conditions, listed at the end of this page.
Pay for personal services performed in the United States
Each row is an exemption the treaty gives, with the limits the IRS lists. All conditions in a row must be met; if any is not, the pay is withheld on at 30% (contractors) or under the wage rules (employees). Services performed entirely outside the United States are foreign-source and need no treaty claim.
| Code | Purpose | Maximum presence in U.S. | Required employer or payer | Maximum amount | Article |
|---|---|---|---|---|---|
| 17 | Independent personal services53 | See article | 7 | ||
| 18 | Dependent personal services81757 | 183 days | Any foreign resident | No limit | 14 |
| 42 | Public entertainment25 | No limit | Any U.S. or foreign resident | $15,000 p.a. | 16 |
| 19 | Teaching4 | 2 years | Any U.S. educational or research institution | No limit | 19(2) |
| 20 | Remittances or allowances45 | 2 years | Any foreign resident | No limit | 19(1)(a) |
| 20 | Compensation during study or training45 | 2 years | Any U.S. or foreign resident | $9,000 p.a. | 19(1)(b) |
How the payee claims these rates
- Individuals claim a reduced rate on interest, dividends, royalties or pensions in Part II of Form W-8BEN: treaty country, article, rate and any conditions. Most claims need a U.S. TIN or a foreign TIN on the form.
- Entities claim in Part III of Form W-8BEN-E, which also asks which limitation-on-benefits test the entity meets (the Bulgaria treaty's LOB provision is Article 21).
- Pay for services performed in the United States by an individual is exempted on Form 8233, not the W-8BEN, one form per tax year and per payer.
- The payer reports the payment on Form 1042-S with the income code shown above and chapter 3 exemption code 04 (exempt or reduced withholding under a tax treaty). From 2026 an exemption code is required whenever less than 30% is withheld.
The rate in a table is the most the United States may withhold under the treaty, not an entitlement. The payee has to be a resident of Bulgaria under the treaty, the beneficial owner of the income, and (for entities) meet the limitation-on-benefits article, and the payer has to hold a valid certificate before the payment. The IRS tables are a summary: check the article itself when the amount is material.
Questions payers ask
What is the U.S. withholding rate on dividends paid to a resident of Bulgaria?
10% on dividends generally and 5% on dividends qualifying for the direct dividend rate, under Article 10(2), if the shareholder documents the claim on a W-8BEN or W-8BEN-E. Without a valid claim the rate is 30%.
What is the U.S. withholding rate on royalties paid to a resident of Bulgaria?
5% on copyright and software royalties (income code 12), 5% on patent royalties and 5% on film and television royalties, under Article 12(2) / P5(7).
What is the U.S. withholding rate on interest paid to a resident of Bulgaria?
5% under Article 11(1)-(3), before considering the Code's own exemptions for portfolio interest and bank deposit interest.
Is a contractor from Bulgaria working in the United States exempt from U.S. withholding?
The treaty treats a contractor's fees as business profits (Article 7): they are exempt from U.S. tax unless the contractor has a permanent establishment in the United States. An individual claims the exemption on Form 8233.
Do we withhold on a contractor from Bulgaria who works only outside the United States?
No. Pay for services performed entirely outside the United States is foreign-source income: no withholding and no Form 1042-S. Keep the contractor's W-8BEN or W-8BEN-E on file.
The IRS notes behind the figures
Notes to the rates (IRS Table 1)
- f Includes alimony.
- g Exemption or reduced rate does not apply to an excess inclusion for a residual interest in a real estate mortgage investment conduit (REMIC).
- u If enterprise earns income from leasing of equipment in the conduct of a trade or business, covered by Business Profits article (net tax). If passive income from the leasing of equipment, and not in Royalty article, covered by the Other Income article, if any. In Pakistan payment for TV broadcasting rights are covered by the Royalty article but not rental income from motion picture films.
- z An exemption from tax or a reduced rate of tax may apply to interest that is paid to the government of a Contracting State or a political subdivision or local authority thereof. An exemption or reduced rate may also apply to certain other types of interest, including interest paid to certain banks or other financial institutions, interest derived on loans guaranteed or insured by the government of a Contracting State, and interest arising in connection with commercial credit for goods or services. Please refer to the interest article of the relevant treaty for specific information. Income Tax Treaties
- dd Amounts paid to certain pension funds that are not derived from the carrying on of a business, directly or indirectly, by the fund are exempt. This includes dividends paid by a REIT only if the conditions in footnote mm are met. For Sweden, to be entitled to the exemption, the pension fund must not sell or make a contract to sell the holding from which the dividend is derived within 2 months of the date the pension fund acquired the holding. The United States has competent authority arrangements (MAP) with some treaty jurisdictions (e.g. Netherlands and Switzerland) that describe which pension funds are eligible for the exemption. See the Competent Authority Arrangements page on irs.gov.
- jj The rate is 15% (10% for Bulgaria and Spain; 30% for Austria, Germany, and Switzerland) for contingent interest that does not qualify as portfolio interest. In general, contingent interest is interest that is determined with reference to (a) receipts, sales, income, profits or other cash flow of the debtor or a related person, (b) any change in the value of any property of the debtor or a related person, or (c) any dividend, partnership distribution, or similar payment made by the debtor or related person. For Sweden and Germany, contingent interest is covered by the dividends article of the treaty.
- mm The rate in column 6 applies to dividends paid by a regulated investment company (RIC) or real estate investment trust (REIT). However, that rate applies to dividends paid by a REIT only if the beneficial owner of the dividends is (a) an individual (or pension fund, in some cases) holding not more than a 10% interest in the REIT, (b) a person holding not more than 5% of any class of the REIT's stock and the dividends are paid on stock that is publicly traded, or (c) a person holding not more than a 10% interest in the REIT and the REIT is diversified.
Notes to the services table (IRS Table 2)
- 4 Does not apply to compensation for research work primarily for private benefit.
- 8 Does not apply to fees paid to a director of a U.S. corporation.
- 17 The exemption does not apply if the employee's compensation is borne by a permanent establishment (or in some cases a fixed base) that the employer has in the United States.
- 25 Exemption does not apply if gross receipts (including reimbursements) exceed this amount.
- 45 The time limit pertains only to an apprentice or business trainee.
- 53 Treated as business profits under Article 7 (VII) of the treaty.
- 57 Remuneration for employment exercised aboard a ship or aircraft operated in international traffic by a resident of a contracting State may be taxed in that State. Canada may tax the income from employment if the income is derived by a resident of Canada and the ship or aircraft is operated by a resident of Canada. If operated by a Luxembourg resident and Luxembourg fails to tax the income, such income shall be taxed in the State of which the employee is a resident. The income may be taxed in Tunisia only if the ship or aircraft is operated by an enterprise that is managed and controlled in Tunisia.
Transcribed from the IRS Tax Treaty Tables. Treaty texts and technical explanations: United States income tax treaties, A to Z.
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