Bulgaria is set to join the broader European trend of incentivizing corporate research and development, with new tax benefits expected to take effect in 2026. Deputy Prime Minister and Minister of Innovation and Growth Tomislav Donchev confirmed the plan at a leading innovation summit in Sofia, describing it as a strategic step to reinforce the nation’s competitiveness. With Bulgaria currently among the few EU states offering no such benefits, the reform marks a decisive shift in industrial policy and could bridge longstanding gaps in innovation, financing, and scientific collaboration.

Bulgaria Aligns with EU Innovation Benchmarks

Speaking at the 5th South East European ITS Summit on October 2, Donchev told business leaders that the introduction of R&D tax breaks is not only overdue but necessary to send a powerful signal of state support to companies.

“The State must send a signal that spending on research and development is a priority,” Donchev said, stressing that those who invest more in innovation should be rewarded accordingly. The minister described the reform as the culmination of a decade-long debate with the Finance Ministry, indicating that negotiations had entered an advanced stage.

Such a move brings Bulgaria closer into alignment with the European Union, where R&D tax credits commonly range between 20% and 50% of qualifying expenditures. Without such measures, the country has been regarded as something of an outlier in the European innovation landscape.

Bulgaria’s Position in the Innovation Landscape

According to OECD data from 2023, Bulgaria stands out as one of the few EU countries that currently provides no fiscal incentives for research and development. The absence of state support has weighed down the country’s innovation performance compared to its peers.

The European Innovation Scoreboard 2025 categorizes Bulgaria as an “emerging innovator,” a status driven by underinvestment in research, insufficient integration between academia and business, and limited access to structured financing. Alarmingly, Bulgaria ranks 24th out of 27 EU members for innovation-related financial support. Government contributions toward business R&D are also far below European benchmarks, reaching only 2.2% of the EU average—the second lowest figure in the union.

This structural weakness has profound consequences for competitiveness. Without accessible funding mechanisms or tax relief, Bulgarian firms face higher barriers to scaling innovation compared to regional rivals, making it harder to retain talent, foster technology-driven growth, or attract investors who typically seek countries with supportive ecosystems.

Unlocking Innovation Infrastructure for Business

In tandem with the tax incentive plans, Donchev announced reforms designed to increase corporate access to laboratory resources. Within two weeks, millions of euros worth of digital research equipment, previously housed largely in Centers of Competence and Centers of Excellence for academic use, will be made available to business entities as well.

“The national innovation infrastructure has a terrible problem,” Donchev remarked candidly. “We have invested tens of millions in digital laboratory equipment available to universities, but businesses are unaware of it.”

The announcement underscores a broader issue: Bulgaria’s innovation ecosystem has been hindered not only by limited financial support, but also by a striking disconnect between universities and the private sector. By unlocking university equipment to businesses, the government hopes to close this gap, encouraging firms to leverage advanced resources without needing to invest heavily in standalone infrastructure.

Key Takeaways for Investors and Industry

Bulgaria’s commitment to launching R&D tax breaks in 2026 signals a new trajectory for the country’s economic model. For investors, this development has several implications:

Improved Competitiveness: A supportive tax regime positions Bulgaria to rival neighboring EU states, making it a more attractive investment destination.

Resource Utilization: Access to existing laboratory facilities reduces barriers to entry for innovative startups and small businesses with limited capital.

Potential Talent Retention: Enhanced collaboration between industry and academia could help curb brain drain and stimulate high-value job creation.

Regional Innovation Hub Ambitions: These moves indicate Bulgaria’s intent to reposition itself as a rising player in Southeast Europe’s innovation landscape.

Still, challenges remain. Bulgaria’s fragile innovation ecosystem has been decades in the making, and fiscal incentives alone may not close the gap. Success will depend on sustained public-private dialogue, transparent execution of fiscal reforms, and the ability to attract multinational partnerships that can embed research and development firmly into the country’s industrial base.

Broader Implications for Innovation and Investments in Bulgaria

Bulgaria’s policy shift arrives at a time when the EU is intensifying efforts to consolidate its global competitiveness in technology, particularly against North American and Asian peers. As industrial policy and state support become more central in geopolitical strategy, lagging European states are under growing pressure to raise their innovation performance.

By harmonizing its incentives with EU norms, Bulgaria addresses one of its long-standing structural shortcomings. More importantly, this demonstrates commitment to aligning with broader European strategic initiatives, ensuring that domestic companies can access opportunities arising from continental frameworks, partnerships, and investments.