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August 2007, 04/08/2007

Bulgarian Tax Review

Since the beginning of 2007 and Bulgaria joining the EU there have been some important changes in the tax system which concern citizens of other EU countries. Here we try to give a brief summary of the taxes payable by foreign citizens.

Under Bulgarian law it is responsibility of the individuals to fill in a tax return each year when they have any taxable income whilst all companies have the obligation to submit annual tax returns each year regardless of their activities. The tax offices in Bulgaria are not always very helpful so you should seek professional assistance.

Local Property Taxes (similar to UK's Community Charge)

The property tax is paid annually to the local municipality based on property tax evaluation which is determined according to tax criteria and the information provided by the owner in a declaration that is submitted not later than 2 months after the acquisition of the property. Each property has a file with the local tax office which is being updated in case of changes in the state of the property based on owner's declaration. The tax charged is 1.5 per mil of the tax evaluation.

In addition to the property tax you are required to pay a refuge fee which is often higher than the property tax. The rate of the refuge fee is decided by the local municipal council and in some of the smallest villages there might not be such fee. Both taxes come as one bill. The taxes are payable in four instalments and you can receive a 5% discount if you pay the bill in full by the end of April.

The property tax of an average centrally located apartment in the bigger cities would rarely exceed 30 euros and for a rural property would not be more than 10 euros per year. The municipal refuge fees would also depend on the location and would not be more than 100 euros per year for an average centrally located apartment in the bigger cities and 30 euros per year in the villages.

Taxes Payable by Non-Resident Individuals from renting and selling a property

Income of non-resident owners (individuals) from lease of real estate is subject to 10% withholding tax in Bulgaria. If the lessee is a Bulgarian legal entity the tax is withheld and remitted to the budget by the lessee on behalf of the non-resident lesser. If the lessee is an individual the tax should be paid by the non-resident owner of the real estate within 30 days as of the date on which the rent has been paid by the lessee.

If you sell your property as an individual non-resident owner you must pay 10% withholding tax on the difference between the selling or tax evaluation whichever is greater and the purchase price. However since January 2007 EU citizens are not required to pay the 10% withholding tax (1) if they sell one residential immovable property, regardless of the date of acquisition of the said property, in any one year and (2) if they sell up to two immovable properties as well as any number of agricultural and forest properties, provided that more than five years have elapsed between the date of acquisition and the date of sale or exchange.

Taxes Payable by Resident Individuals

This is a just brief summary of the complicated laws relating to individual's income tax. Taxes are paid to the national government. The tax returns must be completed by the middle of April in the year following the year to which they relate. If your total income is subject to any of the permitted exemptions you need not fill a tax return unless you are running a business or are self- employed.

Tax on income from the renting a property. 20% of the income from rent go towards costs and the remaining 80% of the income are taxable. The rate of tax is between 20% and 24% with untaxable amount of 200 Bulgarian levs. This tax should be paid up to the 15th of the third month following receipt of the income. If for example the rent is paid on the 2nd of January then the tax should be paid by the 15th March of that year.

Income from sale of property. The tax base for the sale of property is the difference between the selling price and the purchase price reduced with 10% for costs. The income tax payable is based on tables but the tax rates in 2007 are between 20% and 24% with untaxable amount of 2400 Bulgarian levs.

As for the non-resident individuals there are important exemptions that apply to EU citizens when it comes to selling property that mean you are not required to pay tax if you receive income from the sale of: (1) one residential immovable property regardless of the date of acquisition of the said property in any one year; (2) up to two immovable properties as well as any number of agricultural and forest properties provided that more than five years have elapsed between the date of acquisition and the date of sale or exchange; (3) property that you have received as an inheritance.

Taxes on the employment income are payable by the employer who is responsibile to deduct the income tax and pay it to the government on a monthly basis. This tax is paid together with the social and health insurance payments. The tax rates in 2007 are between 20% and 24% with untaxable amount of 200 Bulgarian levs per month.

Recently the Bulgarian government announced plans to introduce a flat rate of 10% for income tax for individuals. Whilst this is still under discussion it will change the tax situation a lot for those who reside to Bulgaria permanently.

Taxes Payable by Companies

Under Bulgarian legislation in force non-resident companies and individuals are allowed to set up Bulgarian entities without any restrictions. Bulgarian entities owned by foreign shareholders are allowed to acquire any kind of real estate in Bulgaria including land.

The rate of corporate tax is 10%. The tax is levied on the basis of the profit of the company as per its profit and loss account, adjusted with certain non-deductible items. After-tax profit of the Bulgarian company may be distributed as a dividend to the shareholder/s; alternatively these profits can remain within the company.

If the money from profit is taken out of the company it is done so as dividends. As per the Corporate Income Tax Act dividends are subject to 7% withholding tax in Bulgaria. Withholding tax will not be due in Bulgaria in the situation where the shareholders in the Bulgarian company are tax residents of an EU country and:

  • The shareholders are not considered tax residents of a third state on the grounds of a Double Tax Treaty;
  • The shareholders are payers of corporate income tax in their state of residence and are not entitled to any tax exemptions, tax holidays, etc.;
  • The non-residents hold at least 15% of the shares in the Bulgarian company distributing the dividends for an interrupted period of at least two years.

Most people register a company simply to own a property in Bulgaria and have no interest in maintaining any links with Bulgaria once they have sold their property. In this instances when you come to sell your property you can either sell the asset (i.e. the property) and then liquidate your company or you can sell the shares in the company to the buyer. The price of the shares would of course reflect the price that you want to sell the property for. If you are intending to continue some activities in Bulgaria then you should not liquidate your company when you sell any of its assets. If you do liquidate your company you will be required to pay profit and dividend tax as outlined above.

Value Added Tax

The current rate of the Value Added Tax is 20%. If you buy a property as an individual or as a company from a VAT registered company you will have to pay 20% VAT and the seller then passes on this VAT to the government.

Companies are obliged to register for VAT if the value of their sales is equal or grater than BGN 50,000 in any 12-month period but a company can choose to register even with nil revenue. Once a company becomes VAT-registered it is obliged to charge 20% VAT on all taxable deals. The company should prepare and file monthly VAT ledgers on which bases the tax liability is determined. The tax is due by the 14th of the following month.

VAT charged to the buyer of the real estate will not be recoverable at the point of purchase unless the buyer is registered for VAT. However, the above VAT may be recovered by the buyer of the real estate even if their VAT registration is affected after the date of the purchase of the real estate, provided that the property is still owned by the buyer at the date of their VAT registration.

Bulgaria has Double Taxation Agreements with most of the European countries including the UK. If, for example, your income is chargeable to tax in Bulgaria and in the UK, a double charge is prevented by one of the following exempting the income from tax in one of the countries or allowing a credit in Bulgaria or in the UK for the tax paid in the other country on the same income. In any case it might be useful to familiarise yourselves with the treaty relevant to your domicile and Bulgaria in order to avoid future problems.

Prior to joining the EU in 2007 the general consensus was that you were better off owning a property through a company because the tax levels were lower than owning as an individual. The tax levels now depend on whether you are tax resident in Bulgaria. If you are resident and expect to receive constant income from your property through rent you could be better off registering a company since the tax rate for companies is lower than residential individual tax persons. If you are non-resident as an individual (if possible) you are probably better off buying as an individual since the tax levels are comparable but you now have the added bonus of being able to sell one property per year without tax.

Pirin Chalets - an Exclusive Collection of 4-Bedroom Ski Chalets

In June in Bansko the first meeting took place between the municipal authorities and the investors appointed for development of Dobrinishte ski zone. The work on the general designs of the new zone is under way. The zone will complement the existing Bansko ski zone with new ski facilities just outside Dobrinishte.

Pirin Chalets is an exclusive new development situated on one of the sunniest slopes of the Pirin Mountains just outside Dobrinishte, 6 km from Bansko. The chalets have four bedrooms but the interior space can be designed to owner's specification and split into 2 two-bedroom apartments. To maximize the panoramic views, each chalet has been designed with the bedrooms on the ground floor and the living area on the upper floor.

Specifications of the chalets include:

  • 176 sq m living area
  • 4 bedrooms, 3 bath/shower rooms, south facing balcony and veranda
  • Central heating system
  • Fully fitted kitchen including dishwasher, washing machine, tumble dryer, fridge, freezer, hob & oven
  • Log fire
  • Fully fitted bathrooms
  • LCD flat screen TV, satellite TV, Internet and phone connections
  • Ski locker room
  • Private landscaped garden and private parking
  • Price for property with the above specifications - EUR 1,200 per sq m
Each chalet is built with 20 cm of external insulation significantly reducing heat loss and fuel usage. Sustainable materials have also been used. Please check the pictures of the ready house and contact us for more information about the project.

THE SIX BULGARIAN MEDICS SENTENCED TO DEATH IN LIBYA RETURNED HOME

After more than eight years in prison the five Bulgarian nurses and the Palestinian doctor who were sentenced to death in Libya returned home on July 24, 2007. Valia, Valentina, Snejana, Kristiana, Nasya and the Palestinian doctor Ashraf were sentenced to death for intentionally infecting with HIV more than 400 children in a Libyan hospital in Bengasi although several world-renown scientists have proved that the infection was caused by poor hygiene and the contamination happened in 1997 - more than a year before the Bulgarians were hired to work there. Earlier in July the death sentences were changed to life imprisonment thus making the extradition of the medics to Bulgaria possible. After the six medics stepped on home soil they were welcomed by their families, government officials and greeted by thousands of people.

Crucial role in the return of the Bulgarian medics played French first lady Cecilia Sarkozy and European External Relations Commissioner Benita Ferrero- Waldner who took the medics back to Sofia after 48- hour negotiations with Libyan officials as well as the German and British governments who paved the way to the successful outcome during the German presidency of the EU in the first half of 2007.

As a result of the Bulgarians' return home the Cabinet has decided to write off the debt Libya owes to Bulgaria and the equivalent sum of money to be paid to the Benghazi International Fund raised to help the families of the infected children.

Bulgaria's GDP growth projected at 6.7 per cent for 2007

Bulgaria's GDP growth was 6.7% for the second quarter of 2007 according to the Sofia Centre for Economic Development (a non-governmental think tank in the economic policy area established in 1997) quoted by the SofiaEcho.com. The GDP growth was 6.2% in the first quarter and is predicted to be over 6% for 2007. At the same time there was increase in the employment rate but the the growth rate of labour productivity slowed down according to the same source.

The Bulgarian Government expect GDP growth above 6% for the next couple of years when the rate was 6.2% in 2005 and 6.6% in 2004.

Veliko Tarnovo - Host of International Summer Events

From July 21 till August 4 Veliko Tarnovo hosts the 10th International Folklore Festival. Participants from 25 countries from all over the world have performed to the guest and citizens of Veliko Tarnovo. Each day of the festival folklore groups from two participant countries have given a 30 minute performance illustrating best their country's folklore and culture.

Another traditional event is the International Summer Seminar for Bulgarian Studies from July 30 until August 18. It is the 30th seminar and 125 participants from Bulgarian and 40 other countries will gather to improve their language skills by different practical exercises and specialist lectures on the modern Bulgarian language, ancient Bulgarian, Bulgarian literature, Bulgarian history and culture, Bulgarian ethnography, environmental issues, religion, demography and inter-ethnic affairs.

The participants will also pass a course in Bulgarian singing and dancing, watch Bulgarian films, meet with Bulgarian writers, musicians and artists. The programme of the seminar also includes visits to museums and art exhibitions and day trips to historic and natural landmarks in the area.

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