FOREIGN NATIONALS LEGAL STATUS
Legislative framework and general rules
The current Bulgarian legal system is dynamic, constantly improving, adopting the modern patterns which reflect the economic progress, the globalization and the directions of the political development.
The legal status of foreign nationals in Bulgaria is governed by the Constitution of the Republic of Bulgaria, the Foreign Nationals Act (effective 1998), the Regulation on the Application of the Foreign Nationals Act and the Ordinance on Issuing Visas. Generally, the Bulgarian legislation concerning foreign citizens is in compliance with the EU aquis communautaire related to immigration policy.
The Constitution of the Republic of Bulgaria provides for foreign nationals in Bulgaria to have all the rights and obligations accorded under Bulgarian law and international agreeŽments ratified by Bulgaria, except in respect of those rights and obligations, for which Bulgarian citizenship is required.
Ownership rights: Foreign citizens have the right to acquire ownership over land through registration of legal entity.
General legal information
GEOINFORM Legal Advisers are delighted to assist you and secure your purchase
SET UP A COMPANY
The types of commercial companies are exhaustively provided for in the Commerce Act and an investor may only choose from this list. In parŽticular, the types of commercial companies are:
- general partnership (SD)
- limited partnership (KD)
- partnership limited by shares (KDA)
- limited liability company (OOD) or sole-owner limited liability company (EOOD)
- joint-stock company (AD) or sole-owner joint stock
- company (EAD)
Registration Procedures
Under Bulgarian law commercial companies are incorporated by way of registration into the commercial register with the respective district court according to the place where the company's seat is to be located. The registration procedure takes normally one to two weeks following the date of filing of the required documents.
Limited Liability Company (OOD)
This type of company organization is the most widely used among investors because of the minimum capital requirements, the simplicity of the corporate governance system and the less administrative procedures of its operation. However, there are statutory required qualified majorities or unanimity for transfer of shares, acceptance of new shareholders and capital increase or decrease, which may decrease the flexibility of the company's operations. Two or more shareholders, or only one in the case of sole owner limited liability company (EOOD), may establish a limited liability company, or a sole owner limited liability company respectively. Shareholders in an OOD may be Bulgarian or foreign individuals or legal entities. The minimum content of the articles of association is provided for in the Commerce Act. The bodies of corporate governance in an OOD are the general meeting of the shareholders. The manager is empowered by law to manage and represent the company before third parties, if more than one manager is appointed, the managers shall manage and represent the company individually, unless the articles of association provide otherwise. In an EOOD, the sole owner of the capital exercises the powers of the general meeting of the shareholders and manages and represents the company before third parties, unless a manŽager is subsequently appointed. The minimum required capital for a limited liability company is BGN 5,000 (five thousand). It must be divided into shares of value not less than BGN 10 (ten), as any higher value must be divisible by 100. Shares are not materialized and are not tradable instruments. They may be transferred and succeeded, as transfer between shareholders is free, while transfer of shares to third parties requires a resolution of the general meeting of the shareholders. As a condition precedent to court registration, the company must have adopted its articles of association, the manager must have been appointed and at least 70% (seventy percent) of the capital must have been paid in. The payment of the remaining part may be deferred in time, but not longer than two years as of the registration date of the company.
OWNERSHIP OF REAL ESTATE
In accordance with our Civil law a foreigner or a foreign company can possess ownership of a building and own limited rights to land in Bulgaria. This applies also to the case when a foreigner or a foreign company inherit land as a legacy. In conformity with the Bulgarian law of succession he/she has to transfer the ownership over the land to a Bulgarian citizen no later than 3 years after inheriting the legacy. Therefore, the easy way for a a foreigner to be in possession of land in Bulgaria is to establish a company. A Bulgarian company can possess any kind of land. But attention must be paid to the most important fact that this land is not allowed to be agricultural. If the statute of the land is for agricultural needs, it has to be changed. Please ask for advice from your GEOINFORM Associate.
Direct acquisition of real estate in Bulgaria by a foreign company
In Bulgaria foreign companies can directly acquire buildings, premises within a building and limited property rights (e.g. a construction right, right of use), but not property on land.
Indirect acquisition of real estate in Bulgaria by a foreign company
Indirectly, foreign companies can acquire any type of real estate, including land, by registering a Bulgarian company to act as acquirer. It is possible for such a company to be 100% owned by the foreign investor.
The transaction
The general rule under Bulgarian law is that transactions involving real estate (e.g. a purchase, exchange, etc.) should be executed by a notary deed performed before a registered notary in the region where the real estate is located. After execution of the deed the notary is obliged, by law, to register the transaction in the Real Estate Registry in order to make the ownership title of the acquirer defendable against third parties.
Statutory costs and expenses
1. Transfer tax - 2% of the purchasing price.
2. Fee for registration in the Real Estate Register of 0.1% of the purchasing price.
3. Notary fee - according to the statutory Notary Tariff not more than BGN 3,000 (approx. Euro 1,550) per transaction. The tax may be shared between the parties or be just borne by one of them.
TITLE REVIEW (REAL ESTATE LEGAL DUE DILIGENCE)
Before purchasing real estate it is recommended that the buyer ensures verification of the ownership status of the targeted real estate, including that there is/are:
- a clean, valid and marketable ownership title held by seller.
- no lien or encumbrances over the property. The buyer should be fully aware as to whether there are any registered liens and/or encumbrances over the targeted real estate, e.g., mortgages
- no other registered rights in favour of third parties - if there are registered rental or lease agreements over the targeted real estate, then the buyer shall be bound by them until the expiration of their term;
- no court or restitution claims
- preliminary research and investigation
Visa
Prior to commencing any works, the investor may require that preliminary research and investigation be made in order to determine the most appropriate location and to estimate the legal admissibility and the expedience of the project. Though not a mandatory phase of the process, it is often necessary and useful for the investor to obtain in advance data on the site specifics (e.g. geological, seismic, hydrological, climatic and other conditions, existing structures and networks in and around the site), on the specific technical and zoning requirements affecting the project, etc. The scope of such preliminary research and the person(s) to whom it is assigned will vary depending on the type of project and the investor's requirements.
Visa (or PUP)
The Developer must, before commencing the design of the project, obtain from the respective* administrative body an excerpt from the detailed zoning plan covering the plot and the surrounding properties (visa = PUP), which marks the existing structures, the permitted boundaries, height, density, intensity and any other requirements to construction in the plot; the visa should be issued within 7-14 days of being requested.
Project design
Phases of designing - Project designs can be prepared in 3 steps (phases) with a different level of detail.
Į steps for the architectural plans and building licences in Bulgaria
1. Conceptual (Ideal) Project: the draft plans are deposited together with the application of regulation (to convert a piece of plot to a residential land = PUP) in order to get the Building Permit.
2. Technical Project: after receiving the Ideal Project, draft plans are finalised and deposited to receive the last revisions in order to receive the Technical Project. It usually takes 2-6 months to finalise the architectural plans; the revisions are rather interior details.
3. Execution (Working) Project: upon finalizing the Technical Project, the Developer in this phase can start coordinating all works within the project; construction team, electricians, carpentry, plumbing, common areas and landscaping etc.
Approval of the project design. Validity.
For the purpose of getting an approval, the investor must present to the competent authorities the design itself, the compliance evaluation report, an approval by the fire safety authorities, as well as preliminary agreements with the utility companies for connecting to the technical infrastructure networks. The prescribed term for approval is 7 days after submission of all required documents, and 1 month - in the event that the compliance evaluation was not made by a consultant. The approved project design serves as grounds for the issuance of a construction permit, for which the investor may apply simultaneously with the submission of the design for approval.
Construction permit - Construction works can only be carried out after a construction permit has been issued for them.
Required documents. Procedure. Validity.
Construction permits are issued to the investor on the basis of the approved project designs in all their phases (except for projects for which no such approval is required).
With its latest amendment of July 2003, IDA allowed a construction permit to be issued on the basis of an approved conceptual design only, provided that a preliminary compliance evaluation thereof has been made by a consultant. In such an event the detailed designs of the works (technical and/or execution) must be approved in the course of their execution.
The approved project design is an integral part of the construction permit.
NOTE: (1) A construction permit is issued for the works in their entirety, or for parts thereof (including separate floors of buildings), provided that they can be executed and used separately. (2) Changes in the project design after the issurance of the construction permit: Such changes are allowed only if they are not substantial, and are reflected in the "as-made" documentation.
Act 14 - completion of Skeleton
Act 15 - completion of Bricks & Plastering; The completion of construction is certified by executing a protocol (the so called "Act 15") which is signed by the investor, the designer, the contractor and the supervisor. Act 15 is the document evidencing the delivery and acceptance of the completed works between the contractor and the investor. With it, they certify that the works have been executed in compliance with the approved design, the "as-made" drawings, the legal requirements to construction works and the terms of the construction contract.
Based on Act 15, the supervisor prepares a final report on the execution of the works.
Upon inspection of the completed works and the relevant documents, the committee issues Protocol 16 for accepting or rejecting the works (the so called "Act 16"). Based on it, the Director of NCSD issues the operation permit.
VISAS INFORMATION
Visas
A short-stay visa allows a foreign citizen single or multiple entries into Bulgaria for up to 90 days within a period of six months. A long-stay visa allows a foreign national to enter into Bulgaria and thereafter to apply for a long-term or permanent residence permit. The validity of the long-stay visa is 6 (six) months and it allows its' holder to stay up to 90 days. All visa applications are to be submitted to the respective Bulgarian diplomatic missions and consular departments around the world.
Visa exemption rules
Citizens of some countries can enter Bulgaria without obtaining visas. EU citizens (with the exception of the Republic of Ireland and the United Kingdom) do not need visas for a stay of up to 90 days within each period of six months. Citizens from Australia, New Zealand, Japan, Ireland, UK, Canada, USA, Switzerland, etc., are allowed to stay in Bulgaria without visas for up to 30 days within each period of six months. The calculation of the period commences on the first day of arrival in Bulgaria as indicated in å foreign nationals international passport.
Residence permits
Residence permits are issued to foreign nationals entering Bulgaria who intend to stay in the country longer than three months. For certain foreign nationals (e.g. citizens of Australia, New Zealand, Japan, Ireland, UK, Canada, USA, Switzerland, etc) that period is one month. There are two types of residence permits: Long-term residence permits, up to one year, and Permanent residence permits, for an indefinite period of time.
BANKS, BANKING SYSTEMS AND INTERNATIONAL INSTITUTIONS
GEOINFORM always strives to offer the lowest capital outlay for our clients; your money will go further!
Bulgaria is a member of the International Monetary Fund. The national currency of the Republic of Bulgaria is the Bulgarian lev (BGL). After the introduction of a Currency Board Arrangement on July 1, 1997, the exchange rate is fixed by law at 1.95583 Levs per Euro. The Currency Act regulates transactions and payments between local and foreign persons, cross border transfers and payments, foreign exchange transactions in the course of business, transactions with precious metals and precious stones as well as their import, export and processing, import and export of leva and foreign exchange cash, the collection, maintenance and reporting of statistical information on Bulgaria's balance of payment and exercising of foreign exchange control. The Currency Act does not impose any restrictions as to the buying and selling of foreign currency and these activities may freely be done between licenced commercial banks and other persons, between commercial banks themselves and between the BNB and the commercial banks. There are no restrictions as to the amount of money which may be paid in cash neither are there restrictions as to the type of currency used for payment. Legal and natural, local and foreign persons are also entitled to have their own accounts opened with local banks in various currencies. For opening a bank account by an entity, banks in Bulgaria require a court of law resolution for registering the company, tax and statistical number of the company and in the case of a person opening it - an identity card/passport of the natural person. A signature of the person authorized to operate the bank account is to be provided to the bank. A notarized power of attorney will also be required in case a proxy of the person willing to open the bank account is going to open it. Foreign persons are entitled to transfer amounts abroad: income earned from investments, liquidation quota received upon termination of the investment; revenues from sale of the object of the investment, etc. Normally, upon the moment of remittance of the amount, the banks requite a document proving that the respective taxes, if any, have been paid in Bulgaria. Currency transfers and payment transfers abroad may be made through banks only after informing the bank of the purpose of the transfer. If a person wishes to transfer currency abroad exceeding BGL 25,000, that person, apart from declaring the reason for the transfer, should provide BNB with additional data and documents, which are determined by a regulation issued by BNB. Local and foreign persons may export currency in cash (in leva or foreign exchange currency) under the following conditions:
- amounts up to BGL 8,000 or their equivalent in other currency may be exported freely, no written declaration before the customs authorities is required;
- amounts between BGL 8,000 and BGL 25,000 or their equivalent in other currency, must be declared at the customs;
- amounts over BGL 25,000 or their equivalent in other currency, may be exported only after they have been declared through customs authorities whereby the declaring persons should point out the origin of the money exported.
The Banks
The banking sector is crucial for the proper functioning of the country's economy. For many years now Bulgaria has been publishing data on its macroeconomic stability. This data, in combination with the fiscal discipline of Bulgarian governments, enhance the confidence of the Bulgarian economy and has contributed to the high rate of economic growth over recent years.
The Central Bank
The Bulgarian National Bank (BNB) is the Central Bank of the Republic of Bulgaria.
Banking Sector Stability
The legal framework of the banking sector is meant to provide a high level of stability. This is an important prerequisite for the development of the economy overall. Therefore, the Banks Act, together with the BNB regulations and the Bank Deposits Guaranty Act form a modern framework providing for the necessary strict requirements for banking in Bulgaria.
Conclusion
A significant number of foreign banks are already present on the Bulgarian market. Most of these entered the Bulgarian market through the privatization process rather than through a licensing of a branch or subsidiary in Bulgaria. It is worth noting that the banking sector was one of the first sectors of the Bulgarian economy where privatization was completed successfully.
The banking system in Bulgaria makes stable progress. The trends currently observed are credit expansion, widespread banking cards, Internet banking development, etc. The robust legal framework and the development of the Bulgarian economy provide good business opportunities in the banking sector with equal conditions for both local and foreign investors. The Bulgarian bankŽing market still provides business opportunities for both future and existing banks.
BULGARIAN MORTGAGES
The Bulgarian mortgage market has been one of the fastest developing financial markets in Bulgaria in recent years. If one is considering purchasing a property in the country, Bulgarian mortgages are available for UK and Irish nationals /and non-UK nationals on a case basis/ for either home purchase or re-finance for home improvements. Mortgages for other purposes may be also considered.
Because of the strong demand, some of the larger international mortgage lenders enter the country and develop the market. Most banks have recently eased the requirements for mortgage loans and have launched a series of promotions in order to attract customers and increase their market share. When Bulgaria accepts the Euro, interest rates are expected to decline in line with the rest of the EU.
Bulgarian mortgages do not follow the same pattern as the UK. Usually standard repayment mortgages, where you repay both the capital and the interest, are normal practice. Two options are available for getting mortgages in Bulgaria:
- Provide a mortgage against a UK property and buy in cash
- Provide a mortgage against a Bulgarian property
TAXATION IN BULGARIA
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.
Depreciation
Land itself is not depreciable, although any immovable property affixed there to 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.
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 municipalities.
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. Owners also pay waste-collection fees.
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.
WHY INVEST IN BULGARIA?
- Freehold Properties
- Lowest property prices in Europe with big potential from full membership of E.U.
- Foreigners (mainly British, Irish, Dutch, Russians, Germans) buy property in Bulgaria for either investment, holiday home; potential market for relocation and retirement, or a combination of any of the above. Listed below, are the main reasons why Bulgaria appeals to all types of buyers.
For investors:
- Capital appreciation - property prices have been rising the last two years in resort locations over 25% per year.
- Low taxation: Corporate tax is 15% and Individual tax is 20%.
- Due to the EU accession Bulgaria has shown an amazing improvement and all services have been adapting to EU laws and regulations: Land registry / Banking system/
- Generally speaking, Bulgaria's geographical position has enhanced EU expansion and its four seasonal climatic conditions and magnificent natural beauty are key factors in the tourism industry ( currently one of the fastest growing tourist destiŽnations in Europe ) which inevitably push property prices up.
For holiday home and permanent home buyers:
- Magnificent nature, coastal and ski resorts.
- Low cost of living, activities and sport facilities.
- The climate - four seasons (Mediterranean climate by the coast and cool temperatures in summer in the mountains and snow days in winter); probably one of the most beautiful countries that one can enjoy, superbly picturesque, including long sandy beaches, mountains and ski resorts, cosmopolitan cities, traditional villages and restaurants, fascinating history and monuments, welcoming people, English is widely spoken as well as other European languages.
- Bulgarian hospitality.
- Black Sea Ports: Varna, Burgas.
- Airports: Sofia, Varna, Burgas.
- Visas For EU citizens - 30 days visa free regime.
- Roads Right hand drive; speed limits: residential areas - 50 km/h; country roads - 90 km/h; motorways - 120 km/h; electricity 220 V, 50 Hz
- Getting there:
- by air - 3 hours from London to Sofia then by car on the E80 to the ski resorts,
- direct flights to Varna and Bourgas for the coastal resorts.
- Tourism: Skiing in the mountains; summer resorts in the mountains and on the Black sea.
- Fastest growing tourist destination since 2003 (UK holiday makers: 66%).
- One of the fastest growing economies in Europe.
- Fast developing technological and infrastructure facilities, recently financed by the EU.
- Property prices have risen by 20% during the last 12 months and 30% close to the tourist resorts concentrate Property prices have risen by 20% during the last 12 months and 30% close to the tourist resorts.
- EU citizens do not require visas.
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