v11i3 Genova

Eastern European countries are becoming increasingly important for German medium-sized enterprises, with Bulgaria emerging as a relevant investment destination. Against this background, this thesis examines whether direct investment in Bulgaria provides tax advantages compared to domestic business expansion in Germany, focusing on the quantification of tax burden differences. Three forms of direct investment are analysed: a permanent establishment, a partnership, and a corporation. Based on an analysis of relevant tax frameworks in both countries and the applicable tax treaty, a five-year Monte Carlo simulation covering profit and loss scenarios is conducted to assess industry-independent tax effects of a Bulgarian direct investment compared to a domestic expansion. The results show that investment in Bulgaria is generally more tax-efficient, particularly when structured as a permanent establishment (average tax benefit: 26.83% in profit scenario). In loss periods, however, the foreign investment leads to a higher tax burden than the domestic case. The analysis underlines Bulgaria’s tax potential for German medium-sized companies while emphasizing realistic tax planning and company- and location-specific factors in cross-border investment decisions.