Owing to Bulgaria’s ever-increasing popularity with property investors and its relatively recent accession into the EU, the buying process there is becoming easier and easier. The changes that EU membership has brought for property buyers, however, won’t take effect until 7 years into Bulgaria’s membership (i.e. 2014) meaning that foreign nationals cannot currently acquire freehold land directly (they may, however, own apartments, condominiums, etc). This means that foreigners wishing to purchase property in Bulgaria must still do so though the formation of a limited company which is a straightforward process and doesn’t really provide any bar to the buying process. In fact, acquiring property this way in Bulgaria is not unusual.
Once you have found the property you wish to purchase, you will need to make a verbal offer and negotiate the price. It is important to secure the services of an adept lawyer with good local knowledge to assist you in your transaction. Once this has been done, a preliminary contract is drafted and signed by both parties. At this stage you will also be expected to pay a 10% deposit to secure the property. This deposit it returnable should any problems be found with the property or its title or if the vendor withdraws from the sale, but will be lost if you pull out of the sale for reasons other than those mentioned. The title search will now begin as you begin to set up your limited company. Once the company has been set up and the title checks have proved satisfactory, a contract of purchase (notary act) is signed by both parties and you will pay the existing balance of the purchase price. The property is now yours.
Your agent or lawyer will be able to assist you in establishing a limited company but the outline below will give you an idea of what is involved. In order to register a Private Limited Company in Bulgaria, you will need to carry out the following:
1)Create a unique company name and reserve it.
2)Draft the Articles of Association or Memorandum of Association.
3)Appoint a Managing Director.
4)Deposit at least 70% of the authorised capital and obtain a bank deed confirming the deposit. The minimum foundation capital in Bulgaria is €2,605 (£1,930).
5)Register at the Commercial Register and then acquire any needed permits. Although your company registration is technically complete at this point, you will also need to register the company at the National Statistical Institute (in order to obtain a BULSTAT number) and also with the National Security Institute and the local tax office. The whole process will take between a few days and a few weeks. Additional costs to be paid are a 2% municipal tax, notary fees (expect to pay around 2% of the purchase price), legal fees of around 1%, and land registry fees of 0.1%.
Tax on the gross rental payable to non-residents is withheld at the source at 10% and deductions are not permitted. If you have purchased your property through the limited company route, however, the rental income for leasing real estate is taxable at a corporate income tax rate of 15%. Expenses from depreciation, maintenance, repairs, renovations, and interest from loans used to acquire the property however, are deductible from the gross income.
Capital Gains Tax in Bulgaria stands at 15% on the net gains received. Properties which have served as a primary residence for 3 years or more, however, are exempt from Capital Gains Tax. Capital gains on non-resident corporations are taxed as regular income at a rate of 15%. In both cases, the taxable gains are calculated by deducting the inflation-adjusted acquisition price or taxable value of the property for the purpose of real estate (whichever is higher) from the sales proceeds.
Property sold in Bulgaria is subject to 20% VAT (this is usually already included in the price although it is worth checking) although individuals and corporations who are VAT registered are entitled to a VAT refund. One further tax to be aware of in Bulgaria is Real Estate Tax. This is around 0.15% of the price of the property to be paid quarterly at the end of the months of March, June, September, and November. Alternatively, this can be paid in one installment in order to benefit from a discounted rate.
The Republic of Bulgaria operates as a parliamentary representative democratic republic. The Council of Ministers (the principal body of the executive branch) is chaired by the Prime Minister who receives the mandate of the President to form a cabinet. Executive power is exercised by the government. Legislative power is vested in both the government and the National Assembly. Since 1990, Bulgaria has been moving in the direction of its EU neighbours and is now considered a very ‘free country’. It finally joined the EU in January 1st 2007.
Although Bulgaria is expected to adopt the Euro by 2012, it still uses the Bulgarian Lev at present. Formerly twinned with the Deutsche Mark, the Lev is now pegged with the euro at the rate of 1.95583 leva - 1 euro. With the government undertaking a number of reforms, economic growth has accelerated in Bulgaria in recent times although this is expected to slow slightly owing to the increased strength of the Euro.
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