Useful
INVESTING IN BULGARIA
Bulgaria is a favorable and attractive destination for investors worldwide because the country is a member of the European Union since 2007 and a NATO member since 2004. It successfully provides macroeconomic and financial stability for years. Bulgaria has ensured the EU’s most favorable taxes and legislation, free movement of capital as well as absence of restrictions on after-tax repatriation of profits. The said conditions as well as the strategic geographic position as a bridge between Europe and Asia and the excellent labor force conditions secure the country’s position as on of the most attractive business destinations. It also provides Europe’s lowest operational costs. There are different options for governmental support, tax and social security concessions.
The laws of Bulgaria establish the principle of national treatment of foreign investments, by virtue of which foreign investors have the right to carry out economic activity in the country under the same conditions that apply to Bulgarian investors, except in the cases provided for in the law. More specifically, this principle extends to the entire economic and legal sphere upon implementation of business activity.
Favorable legislation in terms of business organization and operation.
Bulgarian legislation regulates two principal forms of business organisations: commercial corporations and co-operatives. They differ in their form of legal organisation and in the manner of appointing liability. The Commerce Act makes exhaustive provisions for the following types of commercial corporations:
General partnership; Limited partnership; Limited liability company incl. Single-member limited liability company; Joint-stock company; Partnership limited by shares.
Other forms of business organisation according to Bulgarian law are: Sole trader; Wholly owned subsidiary; Trade representation office; Co-operative.
Among the forms of organisation listed above, the most widespread in practice are limited liability companies and joint-stock companies, in which the members or the shareholders, as the case may be, incur limited liability for the obligations of the company.
A limited liability company may be formed by one or more individual and\or legal entities that shall be liable for the company’s obligations with their contributions to the company’s registered capital. Each partner is entitled to take part in the management of the company, in the distribution of profits, to be informed of the company’s affairs, to review the company’s books and to liquidation proceeds. The partners must pay up or contribute their interests, take part in the management of the company, provide assistance for the carrying out of its activities, as well as carry out the resolutions of the general meeting. Each partner is to have a company interest in the company’s assets the amount of which is to be determined in proportion to its interest in the registered capital, unless otherwise agreed. Companies’ bodies are: the general assembly and the manager/s. all substantive and organizational issues are responsibility and prerogative of the general meeting. The manager/s’ responsibilities are to organize and direct the activities of the company. This body convenes the general meeting and execute its decisions, hence its executive origin.
A Joint-stock company is a corporation whose capital is divided into shares. The liability of shareholders for the obligations of the company is limited to the extent of the participating interest they hold in the capital. A joint-stock company may be incorporated by one or more individuals or legal entities, and in case the capital is owned by a single person, a single-shareholder joint-stock company is formed.
The capital of a joint-stock company is divided into shares of identical nominal value. The shares are securities and they could be traded on the stock exchange. Either registered shares or bearer shares may be issued. Both types of shares may be preference. The articles of association may also lay down other conditions for their transfer. Decisions in a joint-stock company are made by a majority vote.
The managing body comprises board of directors (one-tier system), or the supervisory board and the managing board (two-tier system). The members of the board of directors, the supervisory board and managing board are to be elected for up to a five-year term of office, unless a shorter term is provided for in the Articles of Association. Provided by the Articles of Association, a director may be a legal entity. Board members shall have equal rights and obligations, regardless of any internal division of functions among them and the provision of management and representation rights to any of them.
In the Two Tier System the joint-stock company is managed by a managing board which acts under the control of a supervisory board. The members of the managing board are to be appointed by the supervisory board, which shall determine their remuneration and shall have the right to recall them at any moment. In the One Tier System the company is managed and represented by a board of directors that consists of minimum three and maximum nine directors.
Both organizations about can exist in the shape of a joint venture – a corporation with the participation of resident and non-resident persons. No restrictions are imposed on the percentage of the foreign participating interest. The corporation must be incorporated in one of the forms of Commercial Corporation exhaustively listed in the Commerce Act:
The taxation environment is one of the best in the European Union.
According to the Corporate Income Tax Act (CITA), all legal entities and unincorporated associations, which carry out economic activity in Bulgaria, are subject to the levy of capital gains tax at the rate of 10%. For the purposes of this Act, the unincorporated associations are treated as equivalent to legal entities. Resident legal entities (incorporated under the Bulgarian law, the companies incorporated under Council Regulation (EC) No 2157/2001 and the co-operative societies incorporated under Council Regulation (EC) No 1435/2001, where their registered office is situated in the country and they are entered in a Bulgarian register) are liable to tax in respect of the profits and income accruing to them from all sources both inside and outside Bulgaria. Non-resident legal entities are subject to capital gains taxation only in respect of their economic activity in Bulgaria.
The personal income tax in the country is at flat 10% rate.
The tax withheld at source is levied on any dividends and liquidation shares in favour of non-resident legal entities, with the exception of instances where the dividends accrue to a non-resident legal entity through a permanent establishment in the country; any resident legal entities which are not merchants,
This tax is final and is withheld by the resident legal entities which distribute dividends or shares in a liquidation surplus. The rate of tax is 5%.
The Value Added Tax is 20%. There exists at 2-year VAT exemption for imports of equipment for investment projects over € 5 million, creating at least 50 jobs.
In terms of customs legislation as from the date of the accession of Bulgaria to the European Union, the customs authorities apply directly the Community legislation, which lays down common procedures, tariff and non-tariff measures upon export and import of goods to and from third countries in respect of the EU as well as identical customs control instruments.
Bulgarian legislation establishes liberal arrangements for repatriation of capital and of profit after payment of the taxes due. Foreign investors are free to purchase foreign exchange and to transfer it abroad. The same right is also enjoyed by foreign nationals who work in Bulgaria in respect of their labor remunerations, as well as by foreign nationals who have been granted a long-term residence permit and who are registered as sole traders, co-operative members or general partners, upon presentation of a document on fees paid.
Macroeconomic and financial stability
In terms of macroeconomic and financial stability Bulgaria provides environment deprived of currency risk as the local currency is pegged to the European Union currency Euro. Its investment grade credit rating is provided by the major rating agencies. In the circumstances of a global economic and financial recession qualitative and quantitative indices such as GDP growth rate, inflation rate, and unemployment rate vary however the international credit rating agencies announce promising information, for instance:
- Global Competitiveness Report for 2004-2005: Bulgaria holds 59th place among 104 countries, about all the indicators for the complex competitiveness grade of a highly improved economy;
- For the last 5 years, credit rating of Bulgaria improved 5 times. In 2004, Bulgaria managed to climb in the Investment Rating Level ranking in S&P’s and Fitch scales. S&P gave Bulgaria an investment grade rating “BBB” in October 2005, while Fitch raised the country’s credit rating to “BBB” in August 2005. In March 2006 Moody’s credit rating evaluation of Bulgaria revised as stable.
Excellent technical skills of the workforce.
Bulgaria provides skilled and qualified labor force at competitive cost. The average monthly wage for 2008 is deemed to be 261 EUR – the lowest in Eastern and Central Europe. The country has also strong traditions in the food producing sector.
Lowest operating cost in Eastern Europe.
| Gross monthly wage, average, Q3 2009, EUR | 298 | |
| Average nominal monthly wage growth rate, yoy % ch., Q3 2009 | 11.6 | |
| Social security, unemployment and health care contributions as % of monthly salary, 2009 | 18.10 paid by the employer | |
| Office prime rent in Sofia, Q4 2009, EUR/sq m/month | Class A 10-16 | |
| Office purchase price in Sofia – City center, Q4 2009, EUR per sq m | Class A 1180 – 4500 | |
| Office purchase price in Sofia – Business Park Mladost, Q4 2009, EUR per sq m | Class A 690 – 1850 | |
| Prime rent for contemporary industrial space, Q4 2009, EUR/sq m/month | 3 – 5 | |
| Costs of rough construction, 2009, EUR per sq m | ||
| Industrial construction | 350-450 | |
| Office building construction | 400-700 | |
| Water charges for industrial use in Sofia (potable water supply, sewage, purification), as of 1 January 2009, incl. VAT, EUR per m3 | 0.84-1.01 | |
| Electricity prices per kWh including VAT, as of 01 July 2009, EUR | ||
| Electricity for companies with less than 50 people personnel and annual revenue of up to BGN 19.5 million, medium and low voltage (price depends on the supplier) | medium voltage | low voltage |
| 3 tariff-reading | ||
| peak electricity | 0.098-0.106 | 0.120-0.147 |
| day electricity | 0.061-0.067 | 0.079-0.087 |
| night electricity | 0.031-0.038 | 0.050-0.059 |
| 2 tariff-reading | ||
| day electricity | 0.078-0.085 | 0.102-0.106 |
| night electricity | 0.031-0.038 | 0.050-0.059 |
| 1 tariff-reading | 0.076-0.076 | 0.096-0.100 |
Good opportunities for infrastructure subsidy for larger investments, industrial land at preferential terms and strong government support with customized service package.
There exists different governmental incentives for investments such as information services and shortened administrative services, individual administrative services, preferential treatment upon acquisition of a right of ownership and limited real rights over real estate – private state or private municipal property, financial support for vocational training of employees for the needs of the investment project, infrastructure support to the borders of the investment project site, state support for priority investment projects meeting one or more of the following criteria:
- the volume of the investments to be at least three times the threshold amount for Class A certification (above 16 million EUR)
- creating jobs in high-tech activities or in undeveloped regions
- construction of industrial zones or technology parks
Industrial goods traded duty free between Bulgaria and the EU, EFTA, CEFTA and Turkey
Property prices in Bulgaria are relatively low compared to the other East European Countries that have recently joined EU like Hungary, Poland and Czech Republic.