Legal Expenses & Taxes

Since the introduction of the currency board in 1997 Bulgaria has been politically stable country with a developing economy and the preferential conditions and guarantees for foreign investors have generated excellent business opportunities and investment growth potential.Bulgaria has one of the most liberal foreign investment laws in the region regarding Bulgaria real estate, as well as the foreign investors.Foreign person can invest in properties in Bulgaria either directly or through a local entity. In case of direct investment the tax treatment of the foreign investors depends on whether or not their activities constitute a permanent establishment. The definition of permanent establishment under Bulgarian legislation is very broad: the mere fact that a foreign company owns and rents out property in Bulgaria (except where such activity is carried out through independent agent) may create a permanent establishment under domestic law. Different Bulgarian tax treaties usually contain one narrower definition of permanent establishment. If the activities of foreign person owning real property in Bulgaria do not constitute a permanent establishment, the person will be liable for only 15% withholding tax on the rentals and capital gains, unless even lower rate is applied under a double tax treaty.

Transfer Taxes:The transfer of property is subject to notary and municipal fees. The notary fees are paid on the higher of the market price or book value of the property at varying rates, with the maximum being BGN 3, 500. In addition, 2% of the market value of the property is paid to the municipality in which the real property is situated.

Local Taxes and Rates:The owner of building or plot is obliged to pay a real property tax. Whether the building is built on State or municipal plot, the value of the plot will also be included in the tax base. The tax is equal to 0.15% of the book value of the property. Arable land is exempt from local taxes. In addition to the real property tax, owners also pay waste-collection fees.

Value Added Tax:Transactions with land and lease of property for residential purposes are exempt from Value Added Tax (VAT). All other real estate transactions are subject to VAT at the uniform rate of 20%. The buyer/lessee is entitled to a VAT refund, provided that it is registered for VAT purposes.

Notary System

The Bulgarian property system uses Notaries and a Notary Act in order to transfer the ownership of buildings and/or land.

Upon completion of the property and prior to signing the Notary Act, the local municipal council conducts a tax evaluation of each property. This valuation represents the minimum value that must be reflected on the Notary Act. It is this value that at a minimum must appear on the Notary Deed in property transactions in Bulgaria.

Tax evaluation rates vary by region across Bulgaria but in general range from 25-50% of the full market value; this is however set to change in the coming months given the current tax valuations were set back in 1999.

Title Transfer Procedure and Expenses in Bulgaria

This section is aimed at helping foreign property investors to calculate the expected fees and expenses, connected with the transfer of title in Bulgaria.

The fees and taxes are legally set by local regulations and are in relation to the declared value in the notary deeds. The notary deed is the only legal title document. Buyers can appear in the notary office in person, or be represented by a representative, holding a legal Power of Attorney (PoA).

If the PoA is issued in a foreign country it has to be legalised in the country of issue.

It is worth knowing that, when appearing in front of the notary, the buyer, under the preliminary contract for purchase, may nominate other people as owners, as well. He can also exclude himself from the deed. If, in such cases, buyer is represented through PoA, then the PoA must clearly state the names of the other people nominated as owners with their exact passport data, addresses, citizenship and birthdates.