Useful Tips Before Buying Property In Bulgaria
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Legal Information
Bulgaria has one of the most liberal foreign investment laws in the region regarding real-estate, as well as foreign investors. According to the constitution and legislation foreign persons and companies can invest in real estate in Bulgaria either personally or through a local legal entity. Note that foreigners, as persons, can buy buildings but can't buy land. Only Bulgarian citizens and legal entities (including such with foreign owner) can obtain ownership on land. There are no legal restrictions on the size of the property. Of course there are and some restrictions like: is forbidden agricultural land to be sold to foreigners, also if the land is in restricted area a government permission might be required.
Non-residents can purchase real-estate in Bulgaria as:
- Persons - when they would like to buy a flat, house, villa or limiter ownership rights (the right of use, the right to build etc)
- Company - when they would like to purchase real estate with land. Also, they can establish a joint-venture with existing local company, a new venture, to acquire a company through privatisation or to make a portfolio investment.
* We expect that the law will change within few years as Bulgaria expects entry into the EU.
How to register a company?
Setting up a company in Bulgaria is very easy. You have to register a LLC which takes between 2 and 4 weeks. The company doesn't need to operate but it is simply a tool to purchase the property with the land. The company should be registered with the court, the tax authorities, the statistics and with the Social Security Institute.
Papers that should be given to the buyer after completion of the purchase:
- The final Notary Deed, notarized and stamped by the registration judge and the registration office. (Note that the final Notary Deed is signed only after completion of the building in case of off-plan developments)
- Advisable: seller's title documents, all tax receipts, water receipts, electricity receipts etc paid up to date.
* Note that after the Notary Deed it takes about 3 working days to register the deed.
Residential Permit
EU member citizens can stay in Bulgaria for up to 90 days without having a visa within each period of 6 months. If one wishes to stay in the country for more than 90 days within each period of 6 months she/he should apply for a permission to the authorities for Administrative Control of Foreign Persons of the Ministry of Internal Affairs of the Republic of Bulgaria or such person should reapply for a long-term Bulgarian visa at an Embassy of the Republic of Bulgaria.
The Bulgarian residency gives all rights of a Bulgarian citizen except the right of voting. Obtaining a Bulgarian residency you will be able to buy land and other properties without any limitations and you will be able to enter and leave the country as many times you like without needing a visa.
To obtain a permanent residence one must spend 5 years in the country under the long-term stay conditions. A long term stay permit is valid for 1 year and is re-issued every year. During that time you are issued a Bulgarian Identity Card. After 5 years under long-term permit one can apply for a permanent residence.
To get the first year long-term permit you need to present the following documents:
- A valid D-type Visa. You can apply for it in any Bulgarian embassy. More information about D Type visa for British citizens can be obtained at www.bulgarianembassy.org.uk
- A proof of national insurance or social security in the country of residence (such document can be issued from your local national insurance office).
- Minimum 3 000 BGN (approx. 1000 GBP) deposit in a personal bank account in Bulgaria.
All applicants must have clean crime records and must not be subject of criminal proceedings, otherwise applications will be rejected.
Taxation
A foreign investor can invest in properties in Bulgaria either directly or through a local entity. In the case of a direct investment, the tax treatment of the foreign investors depends on whether or not their activities constitute a permanent establishment. The definition of a permanent establishment under Bulgarian law is very broad: the mere fact that a foreign company owns and rents out property in Bulgaria (except where such activity is carried out through an independent agent) may create a permanent establishment under domestic law. The various tax treaties entered into by Bulgaria usually contain a narrower definition of permanent establishment. If the activities of a foreign person owning real property in Bulgaria do not constitute a permanent establishment, the person will be liable for only 15% withholding tax on the rentals and capital gains, unless an even lower rate is applied under a double tax treaty.
Basis of taxation
The taxation of a local entity or a foreign entity which constitutes a permanent establishment is as follows.
Rental income
The basis of the taxable income of a company, investing in Bulgarian real property is the gross income derived from the property less tax-deductible, property-related expenses and depreciation. Such expenses include repairs, maintenance, renovation and similar costs and interest on loans used for the acquisition of the property. A Municipal Tax at a rate of 10% of profits is due. This is then deductible in calculating taxable profits which are subject to a flat corporate tax rate of 25%.
Depreciation
Land itself is not depreciable, although any immovable property affixed thereto is, provided that it is used for the business activities of the company and is booked as a fixed asset. Depreciation for tax purposes is at a rate of 4% per annum, and is usually calculated using the straight-line method. Real estate acquired for purpose of re-selling it is considered as "investment property". As such, it is non-depreciable and is subject to annual revaluation to the market value. In practice, it is often unclear in which situations a property should be treated as an "investment property" rather than as a fixed asset.
Loss carry-forward
Tax losses can be carried forward for a five-year period. Losses cannot be offset against profits from previous years.
Capital gains
Capital gains are treated as ordinary income subject to corporate income tax.
Transfer taxes
Apart from corporate tax, no other direct taxes are levied on the transfer of real property. The transfer is, however, subject to notary and municipal fees. The notary fees are paid on the higher of the market price or the book value of the property at varying rates, with the maximum being BGN 3, 500. In addition, 2% of the market value of the property is paid to the municipality in which the real property is situated.
Local taxes and rates
The owner of a building or a plot is obliged to pay a real property tax. Where a building is built on a State or municipal plot, the value of the plot will also be included in the tax base. The tax is equal to 0.15% of the book value of the property. Arable land is exempt from local taxes. In addition to the real property tax, owners also pay waste-collection fees.
Value Added Tax
Transactions with land and lease of property for residential purposes are exempt from Value Added Tax (VAT).
All other real estate transactions are subject to VAT at the uniform rate of 20%. The buyer/lessee is entitled to a VAT refund, provided that it is registered for VAT purposes.
Banking & Legal
Description of the Banking System
Bulgaria is predominantly a cash economy but recently the use of debit and credit cards is increasing. The increase is mainly due to two factors, one being that many state organizations have started crediting monthly salaries to the debit cards of their employees, the other is that many banks issue a debit card with the provision of other services like loans and deposits. Development of services for consumers, such as debit cards, started within the last couple of years, while personal checks are almost unknown and unused as a method of payment. Payment by debit cards is accepted in some of the retail chain of shops and gas stations and is gaining popularity. Checks and credit cards are used mainly by foreigners.
The Bulgarian National Bank (BNB) operates independently of the government and reports directly to the Parliament. The BNB regulates the banking system, but, under the Currency Board Arrangement, has no discretion in setting monetary or exchange rate policy.
There are 34 commercial banks in Bulgaria ; twenty eight are fully licensed and authorized to engage in international transactions and six are branches of foreign banks. Foreigners hold approximately 73% of the total banking capital.
