Myths and realities of investments in Bulgaria.

Bulgaria is a country that has been the focus of attention in recent years. Because it has created a legal framework that encourages offshore companies and foreign investment.

This country located in the center of Europe, despite being small in size. It has a wide territory for investments in any of its cities or towns. The most privileged investments are those that promote development and employment in that country.

But nevertheless this country has been the center of attention for multiple signs. Which are negative in nature such as bank corruption, accounting firms, loopholes in the law regarding penalties for computer and financial crimes.

So, if you decide to invest in this country, I recommend that you follow this investment closely, with trusted people, or that you make sure that everything is fine personally.

Based on that, in this post we will talk about myths and realities regarding investments in Bulgaria.

Advantages and disadvantages of investing in Bulgaria.

Before investing in Bulgaria, carefully analyze the next advantages and disadvantages that we are going to show you. Based on them you can make a better investment decision.

Advantages of investing in Bulgaria:

• Bulgaria has one of the lowest corporate tax rates in the European Union at 10%. In addition to that in some areas of that country that tax may have a rate of 0%, with certain conditions, which will be explained later.
• It has fiscal and territorial incentives for investments that generate development and new jobs.
• It has an agency called the Bulgarian Investment Agency. Which is in charge of granting money and investment aid to projects in Bulgaria, coming from foreign investment.
• Bulgaria has created laws that encourage the creation of offshore companies.
• To open companies in this country does not require as much capital.
• There is no impediment for foreigners from countries that belong to the European Union or not, that is, anyone can invest.
• It has one of the most attractive real estate markets in the world.

Disadvantages of investing in Bulgaria:

• Banking institutions in Bulgaria are characterized by not being transparent when it comes to charging bank fees for transfers. Be it transfers to Bulgarian banks and transfer from Bulgarian banks to foreign banks.
• Companies in Bulgaria cannot be opened online, it must be in person or with a proxy. Unless they are operators, the branches of foreign operators, non-profit entities and branches of foreign non-profit entities.
• The level of corruption in that country is high, in banking and personal data protection. It is a country that lacks controls on the protection of business and personal data.
• The accounting issue is quite precarious. Since physical financial statements must be brought before the competent authorities in that country and in the Bulgarian language. There are many consultancies that their services are not transparent or reliable.
• Investments in Bulgaria have to be closely monitored. These investments have to be monitored personally and on a regular basis.

Before investing in Bulgaria, have these information as data:

The information that we will provide below are economic indicators for Bulgaria. They will be shown to you so that you can see a general outline of the economic situation in that country.

• The currency: in Bulgaria the Leva (Lv) is used, its value is relatively lower than the euro, the currency of the currency is the BGN.
• Inflation: according to world data the inflation rate in Bulgaria is 3.1% for 2019.
• The Consumer Price Index: The CPI has an index of 4.2%, with an interannual rate of 8%, according to detailed information on the website of the newspaper Expansión.
• The Gross Domestic Product: was located for the year 2019 at € 60,675 million and a GDP per capita of € 8,680, these data were provided by the Expansión GDP newspaper.

In reference to these data previously exposed, we can analyze each indicator separately.

Regarding inflation, it is quite moderate, although it is a bit high for European countries. It is still considered healthy to invest, but with caution.

Considering the CPI, it is high by European standards, which indicates that it is not a country where the supply and demand for internal goods and services are in balance. Bulgaria is characterized by selling food and clothing at high prices, not being a producer, but an importer. In addition, that the standard of living is quite low since it has the lowest wages in Europe.

GDP is relatively low, since its productive indices do not fully satisfy domestic demand. That is why it is a country that attracts foreign investment to sustain itself. This GDP is typical in countries where the market focuses on a single healthy sector to invest, in the case of Bulgaria it is real estate.

With this information you can put together your business plan, if you decide to invest in Bulgaria. Despite the economic indexes they are not the most encouraging, in regards to European economic standards. You can still make investments using organizations that promote investment projects and take advantage of the aid and incentives that this country offers.

Profitable investments in Bulgaria

• The real estate market: this is the sector par excellence to invest in Bulgaria. Due to low home prices and low interest rates. Preferably, the ideal is to acquire already built properties, with new structures. Because they have a higher bank financing rate with mortgage loans and with a lower percentage of the buyer’s participation percentage. Furthermore, it is a sector with a growth rate of 6.3%, which is quite encouraging.
• Construction: This sector is the origin of the real estate market, it belongs in part to it, but in Bulgaria it separates a little. Because to build properties in Bulgaria, you must have a building permit, hire local people. But this type of project receives support in the area of ​​tax exemption, aid and investment by the Bulgarian state.
• Technology and development: The Bulgarian state is promoting investments in technology, to promote development in its country. Above all, technologies that safeguard information and automate registration processes, declarations, web portals. Because Bulgaria does not have specialized technology for that, but everything is quite manual and somewhat precarious. In addition to investments that improve Bulgaria’s healthcare and logistics system.

Incentives to invest in Bulgaria

Tax incentives:

Corporation tax:

The corporation tax rate is 10%. It is one of the lowest rates in the entire European Union. The purpose is to eradicate tax evasion and optimize the business climate to attract foreign investment.

Also, corporation tax will have a 0% rate in areas with high levels of unemployment, when the following conditions are met:

• When the tangible assets are totally within the administrative limits of the municipality, it presents a high unemployment rate.
• The company does not have liquid tax debts and liabilities for compulsory insurance payments.
• When taxes have been invested in the purchase of tangible and intangible long-term assets. Required to carry out the production activity, for a period of up to three years.
• When the value of the intangible assets of the initial investment does not represent more than 25% of the value of the long-term tangible assets of the initial investment.

In addition, the following are considered as incentives:

• The possibility that investment and development spending is attributed to profit and loss.
• Two-year accelerated depreciation for computers and new manufacturing equipment.
• 5% withholding tax on dividends and settlement fees (0% for tax residents of the European Union); and there are no restrictions regarding the repatriation of capital.

Value added tax:

The Law on Value Added Tax (VAT) establishes a tax on tax acquisitions of 20%, with the exception of accommodation in hotels and similar establishments, taxed at 9%.

The law provides for a VAT exemption on the import of equipment for investment projects executed within a two-year period.

When the investment amount is more than five million cams (2,556,739 million euros) for a period not exceeding two years, VAT will be 0%. With the creation of twenty new jobs, and with the ability of society to finance its project, the VAT rate will be 0%. The Bulgarian Surety Ministry is in charge of approving these projects.

Local incentives:

Sofia Capital:

The Sofia Investment Agency, which is part of the Municipality of Sofia, promotes local investments through a third certificate, apart from national ones. In this way, investments of up to one million euros also benefit from the reduction of administrative processes, individual services and the right to acquire municipal real estate without bidding.

State incentives granted by the Bulgarian Investment Agency:

These incentives are grants in the field of financing, consulting and monetary aid, for investments that have the following conditions:

• Investments must lie in the creation of a company, the expansion of an existing company or its activity, the diversification of new products or a major change in the process of the entity or economic activity.
• The investment must be oriented in: the manufacturing, technology, research and development, education, health and logistics sector. At least 80% of the company’s income is obtained from these sectors.
• The investment generates the creation of new jobs. For a minimum period of three years for SMEs and five years for large companies.
• The investment is held for at least five years for large companies and three years for SMEs.
• 40% of eligible or direct costs, be financed with own resources or through financing.
• The investment implies an increase in the number of employees in subsequent years.
• Fixed assets must be acquired new, or at market conditions by third parties independent of investors.

Visas in Bulgaria

Bulgaria has the great advantage that companies can be incorporated with all foreign capital (foreigners belonging to the European Union or not). Real estate can also be purchased without restrictions. Also, if you invest in Bulgaria as a foreigner, you can apply for a residence permit in that country.

In reference to entering and leaving Bulgaria, this country requests visas from very few countries.

Citizens belonging to the European Union and the European Economic Area only ask for identity document from their country of origin.

For these countries there is a visa exemption by Bulgaria, that is, it only requests a passport for citizens of: Andorra, Antigua and Barbuda, Argentina, Australia, Bahamas, Barbados, Belgium, Brazil, Brunei, Canada, Chile, Costa Rica, Cyprus , Czech Republic, El Salvador, Guatemala, Honduras, Hungary, Israel, Japan, the Republic of Korea, Malaysia, Malta, Mauritius, Mexico, Monaco, New Zealand, Nicaragua, Panama, Paraguay, San Marino, Seychelles, Singapore, Slovak Republic , Slovenia, Saint Kitts and Nevis, Uruguay, United States of America, Vatican City and Venezuela.

For the rest of the Bulgaria countries if they require a visa, the types of visa in Bulgaria are:

• Airport transfer visa (type A).
• Short-term residence visa (Type C).
• Long-term residence visa (Type D).

To apply for the visa in Bulgaria, you must submit an application to the Bulgarian Embassy in your country of residence, or to the corresponding Bulgarian embassy, if there is no Bulgarian embassy in your country.

To apply for a visa, they mostly request these documents:

• Valid passport (must expire at least three months after the planned date of departure from Bulgaria, must have at least two blank pages and have been issued in the last ten years).
• A photocopy of the passport data pages and airfare.
• An application form, attached with a color photograph, passport size (3.5 х 4.5).
• Proof of insured transportation for transit passage and a copy of these documents and or proof of the financial resources you have to continue the trip.
• Proof of the financial resources required for the maintenance of each transit step for a minimum of 50 euros (for each day of stay).
• A valid insurance policy and a copy of it issued by an insurance company licensed to operate in the territory of the European Union with a minimum amount of coverage of thirty thousand euros.

Types of companies in Bulgaria

Limited Liability Company (Druzhestvo s Ogranichena Otgovornost, OOD)

This is the most popular type of society in Bulgaria for foreigners. It is the simplest society in terms of structure. A minimum of one or two partners are required to open this partnership.

You need an administrator to run the company and can be of any nationality. The shares will form the share capital of the company, which can be established with a minimum of 2 BGN (two Bulgarian Leva), which is equivalent to one euro.

The acquired shares must be sold through a notarized contract, at the same price as they were purchased. Furthermore, shares can be transferred to third parties or between shareholders.

Joint-stock company (Aktisionerno Druzhestvo, AD)

This partnership can be used for asset protection, business transfer, and merger and acquisition processes, as well as, of course, to protect the anonymity of the owners.

It has two types of shares. Which one of them are ordinary shares grant the shareholder who owns them the right to one vote. While the preferential ones give right to complementary dividends or parts of the company in case of liquidation. Shares without vote may in no case represent more than 50% of the capital.

This company requires a Board of Directors made up of a minimum of three people.

The subscribed or total capital stock to open is a minimum of BGN 50,000 or € 26,000. It is not necessary to contribute all the capital stock at the beginning. The minimum to start the company registration procedures is € 7,250 (BGN 12,500). To contribute the rest, € 18,750, there is a maximum term of two years.

Regular Collective Society (Sabiratelno Druzhestvo or Sadruzhie, SD)

Requires a minimum of two (2) partners to open. There is no minimum capital. Joint and several liability by its shareholders.

Limited Partnership (Komanditno Druzhestvo, KD)

For its opening requires two partners. At least one limited partner and one limited partner. You don’t need minimal capital.

There are two types of responsibilities on the part of the partners:

• Liability of the limited partners is joint and unlimited.
• Liability of limited partners is limited to the capital contributed.

Limited Partnership Company by Shares (Komanditno Druzhestvo s Aktsii, KDA).

For its constitution and minimum operation it requires 3 limited partners and 2 limited partners. A minimum capital is required: 1,000,000 BGN (equivalent to 510,834 euros) (5,000,000 BGN in the case of opting for public subscription, equivalent to 2,554,170 euros).

There are two types of responsibilities on the part of the partners:

• Liability of the limited partners is joint and unlimited.
• Liability of limited partners is limited to the capital contributed.

Commercial representation office (CRO).

It should be clear that this is not a legal figure in Bulgaria, to generate income, since it is not subject to corporation tax. This figure is only open for activities such as promotions, demonstrations, advertising and services.

It can be registered by a foreign natural or legal person. This type of company is registered with the Bulgarian Chamber of Commerce and Industry.

Branch office.

It is about opening a branch of your company in Bulgarian territory, to carry out commercial activities.
 
A branch of a foreign company is not a fully independent legal entity, but it does have some degree of independence from the parent.

At a tax level, the foreign parent company will be subject to corporation tax. But only profits arising from the activity of the branch in Bulgarian jurisdiction will be taxed.

Steps to open a company in Bulgaria

Firstly, it must be clarified that companies cannot be opened online in Bulgaria, unless they are non-profit, you can verify the information on this portal.

It must be in personal physical form by the investors or with a lawyer who has granted you a power of attorney.

They have two options, they can set up a new company or acquire an existing one.

In the event of acquiring an existing company:

These types of companies, called Shelf Company are companies that are registered in the commercial register, but have never been operational. These companies do not have any type of obligations, assets, or debts and are available for sale.

One of the advantages of pre-existing companies is that it saves you paperwork and you do not have to wait, you can start operating from the first day.

However, the biggest benefit is that it is a company that has been registered for some time.

When acquiring the company you can change many of the company data, such as:

• Name of the company.
• Headquarters of the company (it is mandatory that it continues in Bulgaria).
• Type of registered activities of the company.
• The company administrator (s).

The process is the following:

1. You can verify the pre-existing company information in the Bulgarian BULSTAT registry.
2. Select the company that best suits your needs.
3. Draft the changes of the constitutive document regarding partners, name, assets (properties), types of activities and administrators. It has to be certified at the Bulgarian embassy in your country of origin or apostilled, legalized and translated in Bulgaria. (It depends on whether they go in person or send a lawyer empowered through a consultancy).
4. Deposit the minimum amount of capital stock to operate in the company’s pre-existing bank account. This can be in person or with a licensed attorney.
5. Make at the Mercantile Registry (ТR), personally or through a lawyer with power of attorney, through an agency, the necessary changes in the document. (Transfer of owners).
6. The administrator (s) of the company must register in the mandatory data protection registry.
7. As the company already has VAT registration and stamps, it is not necessary to process that.
8. If you are going to run your company directly, as an administrator, you will have to apply for a social security number in Bulgaria. You can apply at the National Social Security Institute (Национален осигурителен институт). (Tax is declared and paid in this body and social security is quoted).
9. The same day you can start trading.

In the event of opening a new society:

The registration of the company can be done in two ways, moving to Bulgaria or from your country of origin.

1. Choose the name of the company that will identify your company in the market, as well as before government institutions.
2. Drafting of the document establishing the company. It has to be certified at the Bulgarian embassy in your country of origin or apostilled, legalized and translated in Bulgaria. (It depends on whether they go in person or send a lawyer empowered).
3. To open the bank account for escrow, in a Bulgarian bank for the purposes of capital and the legal registration of the entity. This initial bank account is used only to deposit the capital stock necessary to register the company. Once the company has been registered, this bank account can no longer be used. In other words, it only serves for the registration process of the company.
   • If you go to Bulgaria personally to do the paperwork, the administrator of the company would have to go to Bulgaria and open a company bank account in which to transfer the initial funds of the company. You will also have to leave a sample of your signature in the charge of a Bulgarian notary.
   • If you stay in your country of origin, you will have to go to the Bulgarian embassy of Spain to certify some documents: on the one hand, the signature sample and your consent and the power of attorney to open and close the initial bank account, in addition to deposit in it the minimum necessary capital.
4. Deposit the minimum amount of money required for the share capital in the bank account, can be in cash or by transfer. Obtain a certificate indicating the bank account number for the escrow.
5. Registration of commercial address or registered office. Registering the address is the next mandatory step in the business setup process. The company must have a Bulgarian address, a business address certificate must be obtained.
6. Registration of the company in the Official Government Registry or Commercial Registry. Carry in a physical document: the name of the company, personal identification documents of the partners, the constitutive document, a certificate indicating the bank account number for the escrow, a business address certificate in Bulgaria (issued by the mayor’s office or town hall of the city where the company is located).
7. Register the company in the Bulgarian BULSTAT registry.
8. Obtain the tax identification number of the company. This is requested at the National Tax Agency (Националната агенция по приходите). (Tax is declared and paid in this agency and social security is quoted).
9. If you are going to run your company directly, as an administrator, you will have to apply for a social security number in Bulgaria. You can apply at the National Social Security Institute (Национален осигурителен институт).
10. Stamp / Seal Registration. Every newly registered business company needs an official seal that can be used to endorse its formal activities. Despite being a post-registration step, stamp registration basically has a mandatory function for the company established in Bulgaria.
11. The administrator (s) of the company must register in the mandatory data protection registry.
12. Thus the company is ready to operate, this process takes approximately 14 days.

Taxes in Bulgaria

Taxes in Bulgaria can be declared and paid through the portal of the National Tax Agency (Националната агенция по приходите). It should be noted that the declaration is made, but the payment, the agency’s website takes you to the link of the bank portal where you are going to deposit the payment.

The most important taxes collected are federal, and are made up of corporation tax, social security and value added tax. Bulgarian state taxes are administered by the National Revenue Agency. Local taxes are collected by the municipalities of each city and town in Bulgaria, where the company is established.

Among the most prominent taxes are:

• Corporation tax has a rate of 10% on company income.
• Social security has a flat rate of 12.5% on the value of the company’s total payroll.
• Value added tax rate is 20% on goods and services, but in areas of Bulgaria where the unemployment rate is high, the rate is 0%. The services associated with hotels, tax 9% of the profits from these operations.

The end of the fiscal year in Bulgaria is March 31. Tax forms must be sent to the National Revenue Agency, before the date indicated for corporation tax.
 
In reference to VAT and social security, they are declared monthly, the 14th of each month.

Accounting in Bulgaria is governed by International Financial Reporting Standards or International Accounting Standards accepted in the European Union. The physical and sealed financial statements must be presented to a local accountant in Bulgaria every year, it is presented in the Bulgarian language.

In addition, there are real estate taxes, local rates for public services, among others.

In conclusion, Bulgaria is a country that has made progress in promoting foreign investment, in terms of legislation, taxes and incentives. But it still needs to automate its processes and guarantee security to users regarding their data, since Bulgaria is a vulnerable country in this regard.

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