Guide to buying or starting a business in Bulgaria

Why set up a company in Bulgaria?
Foreign individuals cannot own land in Bulgaria and despite the country’s EU membership in January 2007, will not be able to do so until 2014. A legal loophole currently allows foreigners to set up a Bulgarian company which can then buy the land. To do this you will need to use a local lawyer to set up the company, do the deal for you and you will have to retain their services on a permanent basis to maintain the company for you. You will also need to use an accountancy company to submit annual tax returns, since the land is considered an investment. The good news is that although you have to pay the initial capital (approx 5000levs) into a bank account, you can subsequently withdraw it once the registration process is over. If you are buying an apartment and there is no land included in the deal then you can buy it outright as an individual and don't need to establish a company. Fees paid to the lawyer and courts to establish a company can range from 400 – 1000 euro.

How to set up a company in Bulgaria
The two most popular form of legal companies in Bulgaria are a joint stock company (AD) and a limited liability company (OOD), though the law also provides for: sole trader operations (ET), joint ventures, branches and holdings.. All have to be registered with the district court which is a process that usually takes 2 to 3 weeks. The first two types of company restrict the liability of the shareholders to the amount of their share in the capital of the company, which means that the AD and OOD are the most preferred forms for doing business by both locals and foreigners. Whilst in an OOD the shares are attributed to individuals and can only be transferred with a court decision and by entering in the Commercial Register, the shares of an AD are not individually named and can be sold or transferred without informing the court. An AD may issue registered, bearer's and preference shares. Both paper-backed and book-entry shares may be issued. An AD is managed by the general meeting of shareholders, and the board of directors or supervisory board and management board.

An OOD’s annual financial statements need not be audited by a CPA unless the company happens to meets certain requirements under the Bulgarian Accountancy Act, whereas all ADs have to have their annual financial statements audited by a CPA. Individuals can also establish both types of companies. In these cases the one-man limited liability company is called an EOOD and the one-man joint stock company is called an EAD. EOODs and EADs are regarded as local legal entities even when the sole owner of the capital is a foreign physical or legal person. These forms are widely used by foreigners to acquire ownership over land in Bulgaria, since foreign individuals are not allowed to own land at present.

In any of these cases you should use a reputable legal advisor to handle the whole process for you, from choosing the company name to registering the company with the court and all the subsequent compulsory registrations with tax authorities, National Insurance Institute, etc., all of which have to be done within strict deadlines and carry hefty fines if they are not adhered to!

Process for setting up a company

The process for setting up a company is as follows:

• Check the company name is free and reserve it;
• Produce Articles of Association;
• Pay in to the bank at least 70% of the obligatory company capital for an OOD (the total capital being 5000 levs); or 25% for an AD (the total capital being 50,000 levs);
• Submit the application to form the company together with the proof you have paid the capital to the district court;
• The company becomes active when it is published in the State Gazette (2 or 3 weeks later);
• Registration with the National Statistical Institute to receive a BULSTAT identification number must be done within 14 days;
• Registration with the National Insurance Institute (NOI) within 7 days;
• Registration with the local tax authority must be done within 14 days;
• Any bank accounts that are opened in the company name must also be registered with the tax authority within 14 days.

Taxation for companies and businesses

Company Taxation
Corporate tax has been reduced to 15% for 2005. If the current government carries on for another term this may well be reduced further, but if the Socialist Party gets in it will not be reduced and may even be increased in subsequent years. In December 2003, Parliament provided that licensed special investment purpose companies will be exempt from corporate tax. Companies setting up in areas with high employment also pay 0% tax.

The tax year runs from 1st January to 31st December and company tax returns must be in by 31st March. Taxes must be paid within 15 days of submitting the declaration. Monthly advance tax payments are obligatory and calculated on the basis of the previous year’s declared profit. The amount paid in April is then the difference between the advance tax paid and the actual profit declared.

Dividends are taxed at 15% at the source (the paying company or partnership), which is the final tax on this kind of income (except when the dividends are distributed to local commercial companies). Stock dividends are not taxable.

VAT
VAT is currently 20% and although a reduction has been rumoured there are no firm plans. The Socialist Party has said that if it wins the June 2005 elections it will reduce VAT on some products, namely those of primary importance. V.A.T is declared and paid on a monthly basis, the last deadline being the 14th of each month. There are hefty fines for late submission and payments.

Personal Income Tax
Bulgarian tax residents are all individuals who have their permanent domicile in the country, spending more than 183 days in any 365-day period ending within the calendar year in question. The annual taxable base is the sum of all taxable incomes received during the calendar year, deducted by: incomes taxed with a final tax, mandatory and voluntary national insurance, pension, health insurance, unemployment fund contributions, as well as the premiums paid in on account of the persons under life insurance contracts and "Life" assurance, if connected with an investment fund; statutory deductions applicable only to non-employment contracts (e.g. 35 per cent of the gross income for services contracts; 10 per cent for management fees); tax relief on donations not exceeding 10 per cent of the taxable income after other statutory deductions have been made - not applicable to employment income; there are no tax deductions related to personal allowances for spouses and dependants.

The annual income tax declaration is due by April 15 each year, and must be paid within 30 days of the submission of the tax declaration. Wages paid under a labour contract are taxed on a monthly basis and adjusted on an annual basis by applying the annual scale below. Income Received by Civil Contractors and Freelancers is subject to a 20 per cent advance tax, but between 35 and 50 per cent of the gross income is tax deductible. The pre-paid tax is set off against the final annual tax obligation.

See more about taxes and personal tax here.