Bulgaria

The economy of Bulgaria functions on the principles of the free market, having a large private sector and a smaller public one. Bulgaria is an industrialised upper-middle-income country according to the World Bank,and is a member of the European Union (EU), World Trade Organization (WTO), Organization for Security and Co-operation in Europe (OSCE) and Organization of the Black Sea Economic Cooperation (BSEC). The Bulgarian economy has experienced rapid growth in recent years reaching estimated gross domestic product (GDP) of $162.68 billion (PPP, 2018 est.), GDP per capita of $23,207 (PPP, 2018 est.), and average gross monthly salary of 1281 leva (655 euro) (April, 2019).The national currency is the lev (plural leva), pegged to the euro at a rate of 1.95583 leva for 1 euro. The lev is the strongest and most stable currency in Eastern Europe.

Bulgaria is a country in the Balkans on the western side of the Black Sea. It is surrounded by Romania to the north, Serbia to the northwest, the Republic of Macedonia to the southwest, Greece to the south, and Turkey to the southeast.

Doing Business in Bulgaria?

When it comes to running a business, Bulgaria provides a very productive environment to do so. Doing business in Bulgaria is advantageous for a multitude of reasons, including it’s dynamic outsourcing market, well-educated and multilingual workforce, good infrastructure, and the fact that it has the lowest tax rates in the EU. 

In addition to Bulgaria being named as the best outsourcing destination, the Bulgarian government has introduced a specific program known as the Innovation Strategy for Smart Specialisation of the Republic of Bulgaria. This comprehensive strategy focuses on 4 specific areas of innovation:

• Advanced engineering and clean technologies
• The biochemical and wellness arena
• Information and communications
• Creative and recreative industries

Bulgaria is a civil law jurisdiction and its primary civil and commercial legislation is based on German, French and Italian laws. Due to Bulgaria's membership of the EU, its legislation is influenced by and harmonised with EU law.

Are there any restrictions on foreign investment (including authorisations required by central or local government)?

There are no restrictions on foreign investment or foreign shareholders. Foreign investors are considered equal to local investors in all aspects, including shareholder participation. Additional requirements and specific restrictions apply to companies registered in jurisdictions with preferential tax regimes and any parties related to such companies under the regulations of the Economic and Financial Relations with Companies Registered in Preferential Tax Treatment Jurisdictions, the Persons Controlled Thereby and Their Beneficial Owners Act. In a limited number of sectors, restrictions on business activities carried out by foreign nationals can be imposed where licensing regimes apply, such as in relation to:

• National security.
• Tobacco processing.
• Medical research

Are there special legal rules for foreign buyers in Bulgaria?

As a general rule, investments by foreign entities are governed by the same provisions that are applicable to Bulgarian investors. Therefore, all investor-friendly provisions applicable to Bulgarian companies apply likewise to foreign investors. Furthermore, if an international agreement provides for more favourable provisions towards entities from certain countries, the latter have priority over the local Encouragement of Investments Act (EIA). Similarly, restrictions on investments also apply on an equal footing to Bulgarian and foreign entities. By way of example, such restrictions apply to companies which are in the process of liquidation or in bankruptcy proceedings.

Reporting requirements.

A company's annual financial statements must be submitted, for announcement, to the Commercial Register at the Recording Agency by 30 June of the year following the year for which there is information in the financial statements.

In accordance with the Commission Regulation (EC) No 1628/2006, there are investment restrictions towards certain sectors – the same indicated in the said Regulation (for production of products in the coal and steel industry, the shipbuilding and synthetic fibres sectors, fisheries and aquaculture). Furthermore, there are investment restrictions for investors from countries which treat Bulgarian investors in a discriminatory manner. These countries are listed in the Council of Ministries’ official list.

Tax incentives may apply in certain circumstances, including:

• Partial granting of the CIT due for performance of agricultural activities.
• Additional tax deductions for hiring of long-term unemployed, handicapped, or elderly persons.
• Granting back of up to 100% of the CIT due for investment in regions with high unemployment.

Withholding tax.

The taxable income for calculating withholding tax includes seven types of income when accrued to a non-resident entity:

• capital gains resulting from transactions with real estate,
• capital gains from disposal of financial assets issued by the State/municipalities or resident entities (there is an exemption for capital gains resulting from disposal of shares on a regulated Bulgarian/EU/EEA market),
• dividends and liquidation quotas,
• income from renting out movable property or real estates,
• interest, royalties, franchising and factoring fees,
• service fees and remuneration for the use of rights (except for the actually received rights); penalties or damage fees (with the exception of insurance compensation) accrued to entities having tax residence in low tax jurisdictions,
• technical and management services fees.

The withholding tax rates are as follows:

1. 5% on the gross amount of dividends and liquidation quotas (0% for distributions to EU/EEA entities)
2. 5% on interest and royalties accrued to related party legal entities residing in the EU (under several conditions). Starting from the first of January 2015, Bulgaria has to implement the EU Interest and Royalties Directive: 0% withholding tax on interest and royalties paid to an associated company of another member state.
3. 10% on the gross amount of all other taxable income