The purchase of a property in Bulgaria as a non-resident, or as a resident, involves a series of fiscal obligations, which must be met.
The Value Added Tax Act (VAT Act) currently in force has been in effective from 1 January 1999. The VAT legislation in many aspects follows the provisions of the Sixth VAT Directive. VAT is chargeable on the sale of real estate in Bulgaria, but this is usually included in the purchase price of the property. This is something to be analysed in detail for the total cost of purchasing a property.
Tax On Real Estate
Owners of real estate in Bulgaria are liable to pay an annual tax on the value of their real estate. The rate varies depending on whether the intended use is residential or commercial.
The local authorities fix the rate for residential purposes. This tax is payable at the beginning of each year. These taxes are usually up to the equivalent of €150 per year.
Inheritance & Gift Tax
The Bulgarian Law distinguishes between residents and non-residents.
Residents: are liable to inheritance tax on property they own in both Bulgaria and overseas.
Non-Resident: are liable to inheritance tax only on properties they own in Bulgaria.
In both cases, it is the recipient who pays tax.
From 2005, inheritances received by the surviving spouse and direct relatives are exempted.
Brothers, sisters, nieces and nephews who inherit pay an inheritance tax at 0.7% on amounts received above 250,000 BGL.
All other beneficiaries pay inheritance tax up to 20%.
Companies are liable for Corporation tax on its profits. From 2005, standard corporation tax in Bulgaria is 15%.
A special tax rate is applicable for companies dealing in insurance as well as companies engaged in games of chance and gambling.
Types Of Companies
In Bulgaria, the following are accepted forms of incorporation:
A limited liability company (with the suffix ood)
- At least 1 shareholder or more is required to set up the company. The shareholders may be individuals or companies.
- The minimum share capital is 5.000 BGL, with the minimum nominal value 10 BGL a share.
- At least 70% of the capital must be paid up before registration.
- The owners of the company are only liable for the amount of capital invested.
- A shareholders’ meeting must be convened at least once a year.
- A director must be appointed for the company.
A liability company with a single shareholder (with the suffix eood)
- This is an OOD company owned by one individual, who may be a foreign resident.
- The single shareholder may serve also as a director of the company.
A consolidated company (with the suffix ad)
- At least 1 shareholder or more is required to set up the company.
- The minimum share value is 1 BGL.
- The company must have a minimum registered capital of 50,000 BGL. For banks, the minimum capital requirements are 10 million BGL.
- At least 25% of the registered capital must be paid up before registration.
- A board of management, or a dual level ‘supervisory board’ and ‘board of management’, manages the company.
A consolidated company with a single shareholder (with the suffix ead)
- The company is owned and controlled by a single shareholder.
- It is compulsory to file an annual balance sheet with the tax authorities.
Deduction of tax at source
Taxation of Employee
An employer is obligated to deduct tax at source from an employee and to make additional social security contributions.
Bulgaria Social Security
In 2006 with regards to salaried employees, the social security rates are:
Tax must be deducted at source from the following payments on the basis of the following:
- Dividend – The standard deduction is 7%.
- Interest – the standard rate of tax deducted at source – 15%.
- Royalties – the standard rate of tax deducted at source – 15%.
- Payments to company managers and directors – 15% deduction at source.
Comment: Tax deducted at source in respect of foreign residents is subject to the Double Taxation Prevention Treaty.
Reporting & Due Dates
- The tax year in Bulgaria is the year ending on December 31.
- A limited company files an annual report by March 31. An individual must file an annual report by April 15.
- Companies that finished the previous year with a profit pay 12 monthly advance payments in the following year.
- New companies make 4 quarterly advance payments.