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Apartment purchase | Company set-up | Tax summary

Apartment purchase

  1. To buy an apartment in Bulgaria, you don’t need to register a Ltd company as this is valid only when you are buying land or a house. For the apartments you are actually buying the right to build (not the land) that’s why company formation is not required. There is no reason to worry about that, as once you’ve bought the apartment you will have legal document for ownership – Notary deed which is not limited in the time and is issued by legal Notary, practicing in the area where is the property.
  2. Once you’ve chosen the apartment that you like, the standard way to reserve it is by putting 1000 EUR reservation fee which takes the property off the market. The reservation fee is not refundable, but is deductable from the first payment
  3. Once the apartment has been reserved, your passport details and home address is required so that a preliminary contract can be made. In this contract is described everything regarding your purchase – apartment number and price, amounts and dates of payments and also penalties – for you, if you are late with the payment or for the developer if there is delay with the building process. Our solicitor will help you in this process by checking all the papers for the building, documents of ownership and also check the preliminary contract and advise you whether everything is in order or something needs to be changed.
  4. Usually 1 month after the reservation you will need to transfer the first payment for the apartment into a bank account in Bulgaria.
  5. As all the property prices in Bulgaria are in EUR (as the rate is fixed with the LEV and it is 1.95583 BGN for 1 EUR), a EUR payment will be required for your apartment. We can advise you about how to get the best rate if you have GBP and need to change them into EUR and send to Bulgaria.
  6. Once the building where is the apartment is finished (if you are buying off-plan) and all the payments are made, the property will be transferred into your name in the local Notary. For this also you will need a solicitor to prepare all the papers needed and the Notary deed. DO NOT agree to a percent of the purchase price when the solicitor is acting on your  behalf in order to purchase apartment.
  7.  After the deal you will need to register the property in the Local Tax department so that you are registered as the new legal owner. Also according to the Bulgarian Law you will need to register in the Bulgarian Statistics Institute (BULSTAT) and take a BULSTAT card. You need to do this within 7 days after the purchase. This service also is included in the cost that our solicitor is charging.
IMPORTANT!

Please, also note than in Bulgaria there is a Tax estimation price /similar to ratable value in UK/ which is usually several times lower than the purchase price. Because of various reasons (saving on taxes and VAT) most vendors prefer that this lower price rather than the real sale price is written in title deeds. Due to this practice, it is good to ask on each individual offer how it’s being transferred.

Apartment purchase | Company set-up | Tax summary

Company set-up

If you are a foreigner interested in buying land in Bulgaria, you must register a Trade Company. In Bulgaria it is forbidden a foreigner to buy land as an individual. This limitation will cease after 2014.

The procedure of registration as a legal person is the following:

  1. You have to pay taxes and present the necessary documents in the court ( for Bourgas it is Bourgas City Court ). You can register a company in every court. No matter where the registration is done, your company will have the right of operate in the whole country.
  2. We recommend you to use a solicitor to do all the paper work for you. Ask for a fixed price for all solicitor’s services, do not agree on per hour charge. If you are a trader you can be the sole owner of the capital and sole representative of it. Your company can have more than one partner in order to do business together as a LTD company. It is considered as a trade company from the day of the entry in the trade register of the Court. The company should also be registered with the National Statistics Institute ( BULSTAT ), the National Social Insurance Institute ( NOI ) and the TAX authorities.
  3. You have to deposit 5000 BGN ( 1785 GBP ) in your company account as a prove that you have some capital to start and run a business. This money can be released after you company is set up. You can use it as a payment for your new property.
  4. After all this you will receive original documents confirming that the company is registered according to all Bulgarian laws. Before the deal you have to sign a protocol, declaring the intention to buy a particular property. Our solicitor will charge fixed price per transaction, no matter what the purchase price is. DO NOT agree to a percent of the purchase price when the solicitor is acting on your company’s behalf in order to purchase land plots or houses with plots. After the deal you will need to register the property in the Local Tax department so that you are registered as the new legal owner. This service also is included in the cost that the solicitor is charging.
  5. The difference between EOOD ( Single person limited company ), OOD ( Multiple person limited company ) and Sole Trader ( ET ) is that the Sole Trader is responsible for his duties regarding the business liabilities but if your company is LTD ( = EOOD or OOD ), each partner is responsible only to the extent of their share in the total capital. We recommend LTD.
  6. The procedure of registering your company will take up to 10 working days. 
  7. Leave all this in the solicitor’s hands and enjoy your holiday or just comfortably sit on the sofa in front of the TV at home.   
  8. If you are not coming to Bulgaria at all, our Manchester office will assist you in every step of the company set up and purchase process.                                                                         
IMPORTANT!

Please, also note than in Bulgaria there is a Tax estimation price /similar to ratable value in UK/ which is usually several times lower than the purchase price. Because of various reasons (saving on taxes and VAT) most vendors prefer that this lower price rather than the real sale price is written in Title deeds. Due to this practice it is good to ask on each individual offer how it’s being transferred.

Tax summary: Bulgaria

General - Bulgaria is a politically stable country and the introduction of a currency board in 1997 helped for the stabilization of the country's economy. A foreign investor can invest in properties in Bulgaria either directly or through a local entity. Only Bulgarian- resident individuals and entities can acquire only buildings and limited rights to land. Sometimes acquisition of immovable property by non- residents requires a permission of the Ministry of Finance. The transfer of your profit abroad can be made only if the bank doing the transfer is presented a certificate proving payment of all Bulgarian taxes due.

Investing through a local entity versus direct investment - In the case of a direct investment, the tax treatment of the foreign investors depends on whether or not their activities are a permanent establishment. A permanent establishment means: the mere fact that a foreign company owns and rents out property in Bulgaria (except where such activity is carried out through an independent agent) may create a permanent establishment under domestic law. If the activities of a foreign person owning real estate in Bulgaria don't constitute a permanent establishment, the person will be liable for only 15% withholding tax on the rentals and capital gains, unless an even lower rate is applied under an interstate Double Tax Treaty

Basis of taxation -The taxation of a local entity or a foreign entity constituting a permanent establishment is:

Rental income - The basis of the taxable income of a company which invests in Bulgarian real estate is the gross income derived from the property less tax- deductible , property- related expenses and depreciation. These expenses include repairs, maintenance, renovation and similar costs and interest of loans used used for the acquisition of the property. A municipal tax at a rate of 10% of profits is due.

Depreciation - Land itself isn't depreciable. Depreciation for tax purposes is at rate 4% per annum. Real estate acquired for purposes of re- selling is considered as “investment property”. That is why it is no depreciable and is subject to annual revaluation to the market value.

Loss carry - forward- Tax losses can be carried for a five year period. Losses can't be offset against profits from previous years.

Capital gains - They are treated as ordinary income subject to corporate income tax.

Property transfer taxes - the transfer is subject to notary and municipal fees. The notary fees are paid on the higher of the market price or the tax value of the property at varying rates. 2% of the market value of the property is paid to the municipality where the property is located.

Local taxes and rates - The owner of a building or a plot is obliged to pay a real estate tax. The tax is equal to 0.15% of the tax value of the property. Arable land is exempt from local taxes. Owners pay waste- collection tax from 0.5 to 0.15% of the tax value depending on the region.

Value Added Tax (VAT )- Transactions with land and lease of property for residential purposes are exempt from VAT. All others are subject to VAT at the uniform rate of 20%. If you are buying property from an individual you pay no VAT.

Financing the property - A registration wit the Bulgarian National Bank is required for loans granted by non- residents to Bulgarian entities. Where the debt financing exceeds the equity financing, deductibility of interest is subject to limitation. If the interest costs exceed the allowable limit, the excess is non- deductable. The interest cost non- deducted in a given year can be deducted in the subsequent tax period.