Legal Guide

LEGAL AND FINANCIAL REQUIREMENTS AND OBLIGATIONS FOR FOREIN INVESTORS IN BULGARIA’S REAL ESTATE MARKET

Foreign investments

Not unlike most other European nations, Bulgarian legislation has the basic characteristics of the continental law system regarding property acquisition.

1. Foreign persons:

• Un-registered legal entities in Bulgaria;
• Partnerships which are registered abroad that are not considered legal persons
• Foreigners who hold permanent residence abroad

2. Foreign investments in property can only be made by:

• Acquiring titles to buildings;
• Acquiring limited property rights on real estates:
• the right of use (usus);
• license for construction (superficie); and
• the servitude

II. The state’s intervention in Bulgaria’s incoming investments

1. Guiding Principle: Foreign investments are treated equally with the domestic investments.

2. Investment encouragement in accordance to type of investment:

a. category of investments:

• 1st type – above BGN 70 million;
• 2nd type – from BGN 40 million – to BGN 70 million;
• 3rd type – from BGN 10 million – to BGN 40 million.
b. incentives:

• The Individual administrative servicing in shortened terms;
• Investment data;
• State and/or government assistance

III. Foreign persons whishing to acquire real estate

1. Universal principle: Foreign nationals cannot freely acquire ownership of land. This can only be achieved through ex lege inheritance whereby the estate gained through inheritance must be transferred no later than 3 years following the acquisition.

2. Recent revisions in Bulgaria’s Constitution with respect to the accession of the Republic of Bulgaria to the EU (SG, issue 18 dated 2005, in force as of 01.01.2007):

• EU citizens are permitted to acquire land only after the termination of the suspended seven-year period which was provided
• Non-EU citizens may acquire land only if an international treaty allows such a transaction

3. The only parties permitted to acquire any type of land in Bulgaria are physical and legal individuals of Bulgaria. Once the seven-year transitional period following the accession of Bulgaria to EU expires, foreign individuals as well as companies whitch are based in the EU may own land. Foreign individuals as well as companies can only own land if they are permanent residents. By establishing a local company, one can bypass this restriction.

IV. Necessary paperwork needed by foreign persons before acquiring lands:

1. Guiding principle: any company registered in Bulgaria will be placed under the status of a “local person” regardless of the foreign staff registered with that company. That company is then spared the limitations of acquiring any type of estate if so wished.

Those permitted to establish a local company are any foreign natural persons or legal entities. While the investor is only permitted to establish such a company under the Bulgarian Commercial Act of 1991, no restrictions will be applied regarding the amount or the percentage of the assets that may be owned by foreigners.

A new company may open an unlimited number of bank accounts in any currency if it wishes so and can be founded within a period of one month. Once formed, a company may act freely with its resources.

2. Companies falling under Bulgaria’s legal system:

• General Partnership;
• Limited Partnership;
• Limited Liability Company (including Sole Owner Limited Liability Company);
• Any Joint-Stock Company;
• Partnership Limited by its Shares.
• Advised and manageable corporate forms:
• Limited Liability Company; and
• Joint-Stock Company

3. Registration process of LLC (Limited Liability Company):

An LLC can be established by one or several members as long as each member’s liability for the obligations of the company is restricted to his/her respective contribution to the equity capital of the whole company. One or more managing directors will represent the limited liability company and the minimum amount of equity capital stands at BGN 5000 (or approximately EUR 2,500)

Authority:	District court of its headquarters
Minimum authorized capital:	BGN 5, 000
Timeframe:	1 month

4. Registration process of a Joint-Stock Company:
A private or public company is distinguished as one which is limited by shares. As with an LLC, a Joint-Stock company may be founded by one or several shareholders (or “members”). Certain business activities such as insurance, banking, or social insurance are permitted only in the realm of a company limited by shares. “Dematerialized” shares of the company might by issued by the company while the liability of each shareholder will be in accordance to that member’s contribution to the equity capital of the company. The company is managed by a board of directors or by a managing board and its minimum equity capital must stand at no less than BGN ?(approximately EUR 2500)

V. Procedure for acquiring real estate

1. Participating parties in the procedure:


• Parties – Seller and Buyer;
• Real estate agencies/ Brokers;
• Legal counsel – legal representative of the respective parties;
• Each of the parties may call on a proxy to represent it. That proxy must be authorized by POA.
• Notary Public;
• Land Registrar.

2. Procedural stages or real estate acquisition:


• Examining the condition of the real estate;
• Reserving the estate by signing a preliminary agreement
• Obtaining all necessary documents before the signing of the final Notary Deed;
• Signing of the final Notary Deed in front of a Notary Public before the sale and purchase;
• Registering the signed Notary Deed with the Land Register.

3. Additional registrations necessary for the transaction:


• Registering the acquisition with the office of the National Revenue Agency within two months of the acquisition;
• Foreign persons must register with the BULSAT REGISTER within no more than 7 days.

4. Taxes and fees involved in the acquisition of real estates:

• Local tax – 2 % on either the official tax evaluation or the agreed sale price; the higher of the two
• Notary fee – determined as per a Tariff – will not exceed EUR 1,500;
• Land Register fee – 0, 1% on either the official tax evaluation or the agreed sale price; the higher of the two

5. VAT on Real Estates:


a. Transactions exempt from VAT:

• Acquisition through Purchase of land;
• Institution of limited property rights on land;
• Purchase of an older building and the adjoining lands thereto.
b. Transactions not exempts by VAT:

• Purchases of city plots;
• Establishing limited property rights on urban plots;
• Purchase of new buildings and the adjacent parts thereto.

With the exception of land purchase, the VAT on property purchase generally stands at 20%

6. Securities involved with financing the transaction:

Guiding principle: Foreign persons who have provided acceptable security to the bank are entitled to receive loans as do local individuals.

a. Various securities: mortgages, pledges over cash, securities, going concern, etc.

• The mortgage stands as the most frequent type of security of the loan in real estate acquisition
• Mortgage can be recognized through:
• the estate, based on the transaction;
• any other estates.

Loans of up to 35 years will be granted for up to 80% of the estate’s value with the average interest rate fluctuating from 6.5% to 7.5%
Banks are willing to lend money up to 80% of the estate’s value. The average interest rates fluctuate around 6,5% -7,5 %. Loans are granted for various terms reaching up to 35 years.

VI. Bulgaria’s tax rates- 2007

VAT	20 %
Corporate income tax	10 %
Personal Income Tax	Income tax rates start after BGN 2,400 of one’s annual income and range from 20% to 24%, the highest applying to an annual income of over BGN 7,200
Withholding tax

* Nowadays, Bulgaria has recently signed Conventions aimed at preventing double taxation with other UE member countries.