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Buyers Guide
1. THE PROCESS OF BUYING PROPERTY IN BULGARIA 1.1. RESERVATION OF THE PROPERTY The first step is to formalise your offer on the property and remove it from the market, thus protecting your interest to purchase. Once the terms of the purchase have been discussed and the seller accepts the offer, a binding agreement is born which is sealed by signing a reservation contract and includes a deposit of between 1,500 and 3,000 to reserve the property prior to the exchange of private purchase contract. This reservation fee is fully refundable in case that the checks carried out by a lawyer unveil any legal obstacles which affect the buying process. 1.1a) The searching process Whilst the property is 'reserved' in your name, our local lawyer will carry out all the necessary searches and investigations of the property with the relevant authorities to ensure that the property you are purchasing is legal and free from any charges, debts or encumbrances. We will also ensure that the property has the necessary Title Deeds and that the vendors are the rightful owners. In the case of a new property, lawyer will ensure that the constructors are reputable and solvent and will obtain guarantees that the property will be constructed and delivered according to the agreed terms and conditions. In the case of the purchase of a plot of land, a survey of the land will be carried out in order to obtain its exact measurements and to identify its perimeters. This study will include details on whether the land can be built on legally, and whether it has the appropriate access points and surface. If you are buying the property and the allocated land or solely, it would be necessary to set up a limited liability company LLC (with the suffix OOD in Bulgaria). This is not necessary in case of buying only properties, apartments or off plan properties without land. In the case of setting up the LLC (OOD), your lawyer would take care of the whole process and any requirements related to the egistration. He would also carry out a survey of the land, informing on whether the land has been classified as regulated and including a detailed plan that will be included in your final title deed. We will guarantee in writing from our Law Firm that the searching process has been satisfactorily concluded. You will have a very accurate description and explanation about every single aspect of the property. 1.2. THE PRIVATE CONTRACT Once the searches are complete, and we are absolutely certain the property is legally declared in the best conditions to purchase; a Private Contract is drafted and signed by both parties. This private contract sets out all the details of the agreement, payment terms and completion date. During this stage the buyer puts down a non-returnable deposit which will be a percentage of the purchase price, less the holding deposit paid at the reservation 1.3. COMPLETION (Signing the title deeds) The property sale process is finalised before a Notary, with the buyer and seller signing the Deed of Sale (Title Deeds). The Notary is a public official whose role it is to identify the buyer and the seller, and ensure that all legal requirements have been met, and that the amount due to be paid has been settled. If you are unable to be present in the signing of the deeds, we can carry out all necessary procedures in your name by means of Power of Attorney. In fact, it is common practice of our firm to have a valid power of attorney from the beginning of all buying and/or selling operations. 1.3a) Taking possession of the property Immediately after the deeds have been signed, the buyer will receive the keys to the property, and can take possession of the property. 1.3b) Title deeds and property registration The property registration procedure entails the payment of all the taxes applicable to the property and the obtaining of the final register stamp for the Title Deeds, which guarantees the transfer of the property. This procedure is an important step, and takes place once the Title Deeds have been signed and you have taken possession of your property. The title deeds usually take around two to three months to be returned by the Land Registry office. The Notary will give us notice that the deeds are available for collection. 1.3c) Utilities Once the sale has been finalised, we will ensure that all the utility contracts for the property (electricity, water, rubbish collection, etc.) are in the name of the buyer. We will also arrange all bills to be paid by direct debit from your account if you wish. 2. BASIC NECESSARY FORMALITIES There are various basic formalities you must take into account when completing your property purchase process in Bulgaria: 2.1. POWER OF ATTORNEY To be your legal representative in Bulgaria it is essential that you sign a Power of Attorney on our behalf. With this Power, we are able to sign contracts, Deeds and all documentation related to your purchase process. We will draft the Power of Attorney to be signed, at your convenience, either in Bulgaria or through our London or Dublin offices. If you live in the U.K. or Ireland, we will be able to make the necessary arrangements for you to obtain the Power at the closest Notary to your home. We will also arrange for the Power to be stamped with the Apostille of The Hague making the Power is valid in Bulgaria. 2.2. BULGARIAN BANK ACCOUNT It is essential to have an account in a Bulgarian bank in order to contract utility services and to pay them by direct debit. We are able to open a bank account in Bulgaria on your behalf. 2.3. BULGARIAN WILL It is highly advisable that you bear in mind the Bulgarian Inheritance Tax, which is the tax to be paid in mortis causa property ownership transfers, and be aware of how to reduce its effects. In that sense, you have the chance of signing a Will over your new property in Bulgaria. This Will can be signed in the UK or Ireland. Through our London and Dublin offices we can make the necessary arrangements for you to obtain the Will at the closest Notary to your home. We will also arrange for the Will to be stamped with the Apostille of The Hague making it valid in Bulgaria. 3. TAXES IN BULGARIA The purchase of a property in Bulgaria, for both residents and non-residents, involves a series of fiscal obligations which must be met: 3.1. V.A.T. The Value Added Tax Act (VAT Act) currently in force is effective as from 1 January 2007. VAT is chargeable on the sale of brand-new real estate in Bulgaria and it comes up to a 20% of its value. However this is usually included in the purchase price of the property, so this should be taken into consideration when looking at the total cost of purchasing a property in Bulgaria. 3.2. A TAX FOR THE ACQUISITION OF REAL ESTATE It is payable once, when acquiring the property. The rate is 2% of the purchase price /or of the tax value if more/. It is paid before the Notary public certifies the deal. 3.3. 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 real estate is used for residential or commercial purposes. The rate for residential purposes is fixed by the local authorities. This tax is payable at the beginning of each year. These taxes are usually up to the equivalent of 50 per year, however can be lower in areas out with large cities. 3.4. WEALTH TAX: There is no wealth tax in Bulgaria. 3.5. CAPITAL GAINS TAX (Corporate Income Tax) Capital gains are usually taxed as income (10% on profits); however the following assets are exempt: The taxpayers main residence provided it has been his main residence for at least 3 years. Two properties which have not been the taxpayers main residence, if owned for at least five years. Any number of agricultural and forest estates, provided they have been owned for at least 5 years. Cars and other road vehicles, aircrafts and vessels owned for at least one year. Assets received by inheritance or gift. Certain types of movable property, including shares in Bulgarian quoted company. 3.6 INCOME TAX FOR INDIVIDUALS In Bulgaria there is no separate tax specifically levied on the sale of real estate assets like the Capital gains tax. Instead there is just one general income tax which is levied on profits derived from both real estates and any other income sources like rental activity, etc. An individual in Bulgaria is liable for tax on his income as an employee as well as on income as a self-employed person. Bulgarian law distinguishes between resident and non-resident taxpayers. RESIDENTS: irrespective of their citizenship, are deemed those persons who have their permanent domicile in Bulgaria or reside in the country more than 183 days in any 365 day period (in this case the individual becomes a resident taxpayer for the calendar year in which the 183-day threshold is exceeded). Resident taxpayers are taxed on their income within and out with Bulgaria. NON-RESIDENT: are liable only for their income derived from Bulgarian sources. The law provides for specific treatments of such types of income as royalty payments and technical services fees, interest payments, income received by independent contractors and freelancers, rentals, income of managers and board members, etc. Certain payments are deducted from taxable income as detailed below. In principle, the total annual income is taxed in accordance with an annual progressive scale, the highest marginal rate being 24%. Bulgarian Income Tax rates for an Individual -2006-: Tax Rate Taxable Income (BGL) 0 to 1,200 20% for the amount above 1,200 1,200 -1,500 60 + 22% for the amount above 1,500 1,500 3,600 522 + 24% for the amount above 3,600 3,600 and above. >From 2005, the following allowances are available against taxable income, depending on the number or children the taxpayer has: Num. Children Allowances 1 child BGL 360 2 children BGL 780 3 or more children BGL 1140 3.7. CORPORATE TAX The companies are liable for this tax on its income. Since 01.01.2007, standard corporate tax in Bulgaria is 10%. A special tax rate is applicable for companies dealing in insurance as well as companies engaged in games of chance and gambling. TYPES OF CORPORATIONS In Bulgaria, the following are accepted forms of corporation: 1) 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 BGL 5.000, with the minimum nominal value of BGL 10 a share. -At least 70% of the capital must be paid up front before registration. -The owners of the company are liable only for the amount of capital invested. -An annual shareholders' meeting must be convened at least once a year. -A director must be appointed for the company. 2) 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. 3)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 BGL 1. -The company must have a minimum registered capital of BGL 50,000. For banks, the minimum capital requirements are BGL 10 million. -At least 25% of the registered capital must be paid up front before registration. -The company is managed by a board of management, or at two levels by 'a supervisory board' and a 'board of management'. 4) 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. 3.8. DEDUCTION OF TAX AT SOURCE Taxation of Employee An employer is obligated to deduct tax at source from an employee and to make additional contributions to social security. Bulgaria Social Security In 2007 with regards to salaried employees, the social security rates are: Employer 65% Employee 35% Other deductions: 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 -10%. -Royalties -the standard rate of tax deducted at source -10%. -Payments to company managers and directors -10% deduction at source. Comment: Tax deducted at source in respect of foreign residents is subject to the Double Taxation Prevention Treaty. 3.9. INHERITANCE AND GIFTS TAX The Bulgarian Law distinguishes between residents and non residents. RESIDENTS: are liable to pay inheritance tax on property in both Bulgaria and overseas. NON-RESIDENT: are liable to pay inheritance tax only on properties in Bulgaria. In both cases, it is the recipient who pays the tax. >From 2005, inheritances received by the surviving spouse and direct relatives will be exempt. Brothers, sisters, nieces and nephews who inherit will pay inheritance tax at 0.7% on amounts received above BNG 250,000. All other beneficiaries pay inheritance tax at rates up to 20%. Gifts tax is payable at fixed rates depending on the relationship between the donor and the beneficiary. Spouses and direct line inheritors are exempt. Gifts between brothers and sisters are taxable at 0,7%, and 5% for all other beneficiaries. 3.10. REPORTING DATES AND PAYMENT -The tax year in Bulgaria is the year ending on December 31st . -A limited company files an annual report by March 31st. An individual must file an annual report by April 30th . -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. With this guide, we do not intend to replace the need for the specialised and personalised attention you will receive from one of our qualified professionals if you decide to use our services when buying in Bulgaria. Our aim is to provide a general step-by-step guide to the important issues that you must keep in mind in this important and sometimes delicate process, in order to guarantee a safe transaction, with no unexpected surprises.
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