Tag Archives: Maintenance of property in Bulgaria

EU Citizens Are Allowed To Buy Land for Residential Purposes in Bulgaria in Their Name

The regime of ownership of land plots for residential purposes was changed in Bulgaria in the beginning of 2012. Now citizens and companies of all EU and EEA countries are allowed to own residential land in their name without the need to register a Bulgarian company. The change happened after the expiration of the 5-year moratorium which was allowed by the Treaty of Accession of Bulgaria to the EU.

The change of the legislation applies to plots of land which fall into the settlement borders – towns, villages and hamlets – and which are often referred to as regulated plots of land. The regime for ownership of land with different status such as agricultural plots and forests is not changed and foreign individuals and companies will not have the right to possess such plots until the end of 2013.

For all other foreign persons, who are not citizens of EU or EEA countries, the overall restrictions to buy land in Bulgaria are still valid, which means that they need to register companies.

As this is a new regulation of the market, there are some differences in the procedures in the various regions of the country.

If you own property in Bulgaria through a company and would like to understand the particulars, please contact us to discuss your situation and advise you about your options.

Bulgarian Tax Review

Bulgarian Tax Review

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 between 0.1 and 4.5 per mil of the tax evaluation and is set by each municipal council for the particular municipality.

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 50 euros and for a rural property would not be more than 20 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 10%. 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 10% of the amount calculated as per above rule.

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 if you have owned it for more than three years; (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 rate is10% based on the income reduced by any social payment made.

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 5% 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.

Paying Utility Bills and Taxes Online

Paying Utility Bills and Taxes Online

Although paying utility bills is a straightforward thing to do it can be very time consuming. In cases when you live away from your property during most of the year it would be also difficult to monitor and you may need to engage someone to help with this.

There are alternatives which help to save time and hassle. Most banks offer direct debit service to pay utility bills however in most cases you receive the information about the payments made some time after it has been completed and have to have online banking to check the balance in your account.

Instead you could easily pay for various services through the electronic payments system ePay. The ePay.bg site which has also English language version is user-friendly and offers variety of services.

To make payments through ePay.bg you need to have a Bulgarian debit or credit card and to register your card for payments within ePay. Please note that you will have to complete the initial process of registration whilst you are in Bulgaria as you will need to confirm through a local ATM machine.

The first step is to obtain a debit or credit card from a local bank. On the home page of ePay you will find a link to a list of banks which cards are valid for payment on ePay.bg.

Next you have to create your account within the ePay system which is free of charge. This is easy to complete as you will be guided by the system with instructions for each step.

Once you create your account you can enter the details of your bank card. For security reasons you will be asked to confirm your desire to pay online through an ATM machine. For this purpose you will receive a message with details of the procedure which will contain security code valid for limited time. Then you just need to go to an ATM machine with the card you have registered on ePay and enter your code.

After you confirm through the ATM you have the option to set a list of utility bills you will pay online. There is a long list of utility companies and other merchants registered with ePay. A link to the list can be found on the home page. For each utility bill you will have to choose the supplier and then enter your customer number. All electrical, telephone and gas bills plus most water, heating, internet and cable operator bills can be paid through ePay. For each utility service you can request from the system to send you an email alert when a new bill is received in your account. Alternatively you can just log-in once a month and order the outstanding bills to be paid. The system keeps record of each payment which you can print out at any time. In addition it is easy to pay taxes or transfer money to any Bulgarian bank account from your card.

For each payment of utility bills you will be charges as for withdrawing money from your debit/credit card through an ATM (typically 0,20-0,50 levs). If you make payments to bank accounts you will be charged by the bank which issued the card with same rate as for a normal money transfer.

You have to remember that the ePay system will not pay your bills automatically but you would need to confirm that the payments should be made. In addition you should check the balance of your card account and transfer sufficient money to cover your bills.

Home Utilities and Services for Property in Bulgaria

Home Utilities and Services for Property in Bulgaria

Home utilities are important issue for those who are planning to moving to Bulgaria and for owners who rent out their property. With this article we will try to give you an idea of the prices and rules related to the major services – electricity, gas, water and land-line phones.

Electricity

For decades Bulgaria was one of the major exporters of electricity to most of the Balkan countries due to the existence of a large nuclear power station in Kozludui, on the river Danube which had produced cheap energy, together with several major thermoelectric power plants. Due to political pressure from the EU Bulgaria had to close four of the six nuclear reactors by end of December 2006 and thus the capacity of the country’s electrical production was reduced significantly. As a result Bulgaria’s exports were reduced to minimum and the prices of the electricity increased by more than 10% in June 2007 and another increase is expected in just few months.

For many years electricity in Bulgaria was supplied by the state. Now some of the major thermoelectric power stations are privately owned together with the middle and low voltage infrastructure which was privatised in 2006 (now owned by a German, Austrian and Czech companies). Thus the electricity bill will be one of your major spendings especially in the winter months when it is cold and in the hottest summer weeks when the use of air-conditioners is common.

The current prices per kilowatt for the households in Bulgaria are as follows:

  • Day zone – EUR 0.12 per kWh
  • Night zone – EUR 0.08 per kWh

The night zone runs from 22.00-06.00 during the winter and 23.00-07.00 during the summer. You would need to have a clock installed in order to use the night hours discount. Otherwise you would only be registered for a single tariff. You can apply and pay for a change to the dual tariff system at any time.

There are no standing charges although the new owners of the electrical companies are negotiating with the government a minimum charge to be paid for each electric metre which has not been accepted.

The electricity supply in Bulgaria is delivered to homes at 220/240 volts with a frequency of 50 hertz. This means that most imported electrical appliances should work in Bulgaria. The plugs are of the two-pin type fittings (unlikely the three pin fittings used in the UK) which means you will have to either fit a new two pin fitting to your cable or use an adaptor. The best option is probably to stick with the UK fitting and to use an adaptor because the two pin types do not incorporate overload protection.

Interruptions to the power supply are surprisingly common in Bulgaria including the main cities. In the cities the reason is generally some upgrading operation in the system. In many of the villages the low-voltage infrastructure is above the ground (on high electric poles) and thus a heavy rain, snow or thunder storm often leads to power cuts. You should keep a good supply of candles or other independent light sources to see you through these frustrating occurrences.

When you buy a property you should ensure that all existing electrical bills (and others) have been paid on the property since the liability stays with the property. The next step is to have the bills transferred into your name or the name of the company through which you bought the property.

Bills in Bulgaria should be paid on a monthly basis. If the meter is located inside the property a representative from the electrical company will need to enter the property. If there is nobody to let them in then an estimate will be made. Bills can be paid direct in the offices of the electrical company and in the post offices but it is best to arrange payment through your bank. The procedure to execute this task varies between the banks and the different electrical companies so please check with the relevant parties. You may decide to leave payment in the care of an agent or property management company. If this is the case then you will need to arrange with them access to funds in order to arrange the payments. The average monthly bill for a family of four people in the summer would be 30-50 euros but in the winter it could be much more if you have electrical heating system.

Communal Central Heating

Central heating is only available in the cities and not all their quarters are included in the central heating network. It is supplied by local companies which are often owned by the municipalities and were subsidised in the past. The cost for the central heating has been increased a lot during the recent years as the government stopped to pay subsidies and the infrastructure is old and in need of modernisation.

The cost for central heating for an average apartment in the winter months would be between 60 and 120 euros which includes hot-water supply. There are standing charges which can be significant especially if you do not use your property.

Gas

Bulgaria imports nearly all its gas from Russia. The network is limited to some of the cities but is expanding. The cost of piped gas is lower than electricity but the cost for the installation should also be considered. Some people still use gas bottles mainly for cooking purposes. Bottles can be bought from petrol stations or delivered direct from suppliers.

As with electricity bills you should ensure all central heating and gas bills are paid prior to completion. The same general guidelines apply for them as for electricity when it comes to changing the name on the bill.

Wood

Wood is still a very popular source of energy in Bulgaria and in particular in rural areas. Wood is considerably cheaper than any other fuel source. One chopped cubic meter of wood costs EUR 40 (wood is generally cheaper to buy during the summer months). A property of 150 sq m would consume between 10 and 15 cubic metres over the winter. The problem with wood it is messy to use and the burner needs stocking at least twice a day. Often the mayor in any village is your best contact point to source wood. The wood comes in large pieces and you can employ someone to chop it up and stack it in the store for a small amount of money. Avoid using suppliers that quote unusually cheap prices per tonne of work. These people are probably operating illegally and taking wood from unauthorized locations which is leading to the depletion of Bulgaria’s forest population.

Oil

This fuel source is not so popular in Bulgaria but is more convenient than wood in the rural areas. Again it is delivered in bulk. Although it is cheaper than electricity to run the initial instalment costs are higher than other heat systems.

Water

Water supplies in Bulgaria are metered. If your house is not already connected to the mains water supply make sure that you get a quotation for connecting the property prior to committing to the purchase. Piped water supply coverage in Bulgaria is extensive however there are some instances in more remote rural areas where supply of water is dependent on wells. If your property only has water supplied through a well one should get an expert in to check whether it is fit for domestic consumption. In some instances rural properties have both a piped water supply and a well. In this instance the well should really only be used for gardening purposes or filling a swimming pool.

Despite considerable investment in upgrading the system not all rural areas are well serviced by water and shortages and stoppages are common place. Even in some of the cities supplies can be cut off for up to 2 days in cases of major problems with the supply network! So keep an emergency supply of bottled water.

Telephone

The main land-line telephone service provider in Bulgaria is Vivacom. In Sofia and some other large cities there are other suppliers of telecom services such as Coool, Orbitel and Nexcom.

In Bulgaria the telephone line and number is registered to a person living at an address. When you buy a property the seller will have to either close the number down or take it with them to a new address. Therefore you will have to apply to open a new line through the telecom company when you buy the property. This involves taking proof of ownership of the property and your ID if the property is owned by an individual and company papers if the property is owned by a company. The process takes about a month and costs about 40 euros. Prior to agreeing to connect your property the telecom company will have to carry out a technical check to ensure that there is capacity in the local junction box to add your new number. The standing charge for the private phone service is about 7 euros per month and includes a small number of local calls.

Vivacom offer an array of telephone (and internet) services so check carefully which package suits your requirements. National call costs are in line with other countries but international calls tend to be more expensive. Public telephone booths can be found in all the towns but take only phone cards which can be purchased from specialist outlets.

‘Buying a Property – Bulgaria’ Book

‘Buying a Property – Bulgaria’ Book

Stephane Lambert, Director of Stara Planina Properties

We would just like to draw to your attention the release of our book Buying a Property – Bulgaria, Anderson and Lambert (2008, Cadogan Guides). The book uncovers the best places to buy, from the coast to the mountains to Sofia- gives the lowdown on visas, job-hunting and education – covers the details of finding a property: choosing types of accommodation, renovating and security – offers specialist advice on mortgages, taxes, surveys and conveyancing – helps with the challenges of settling-in: learning the language, the law and the culture.

By way of background both myself and Andy Anderson (directors of Stara Planina Properties) graduated from Oxford Brookes University in Urban Planning and worked in London and overseas before taking up posts with the United Nations in Bulgaria in 1998 as advisors to the Beautiful Bulgaria Project. The project was started to renovate historic buildings across the country and improve the urban environment through job creation. Later we set up the business Stara Planina Properties to help other Brits purchase and renovate houses in Bulgaria. Since then we appeared on Channel Four’s ‘A Place in the Sun’, ITV’s ‘I Want That House’, and Real Estate TV as experts in the Bulgarian property market. We have also contributed numerous articles to many leading newspapers and magazines.

It was a great pleasure and privilege to be afforded the opportunity to contribute to the understanding of the process of buying a property in Bulgaria but more importantly of day to day living both negative and positive.

Taking Care of Your Affairs in Bulgaria While Living Abroad

Taking Care of Your Affairs in Bulgaria While Living Abroad

Many foreigners have purchased property in Bulgaria during the last decade and most of them live in their home country and only visit for few weeks every year. Recently we have come to a number of cases when people have not had anyone to look after their affairs locally which resulted in problems for them when it came to selling property, transferring their company or in case of other events.

What are the issues related to your property and Bulgarian company which need attention regularly?

Checking property condition and normal maintenance. If you are not visiting for longer periods you may need someone to check your house or apartment, air it, check for leakages, cut the grass, etc. Properties which have been neglected are more likely to become target for criminals and are loosing some of their value even without incidents. You may engage a neighbour or a specialist company depending on the particular situation. There is always a way to find someone to look after your property and this is important in the long run. Security and alarm system can be one decision but again you have to have a local contact to react to the alarm and to communicate with the police or security company.

Insurance. It is essential to have a property insurance to cover your property for the basic risks. Insuring the property is easy especially if one has the information about the offers of the different companies. Some insurers are less cooperative than others and it is good to have this point in mind when choosing between the offers.

It is important to have someone to check your house regularly as insurance companies may not accept your claim if they are not informed about an insurance event within certain time after its occurrence. Remember that renewing the insurance is not done automatically.

In case of a robbery you have to have a authorised representative to file a complaint in the police and submit your documents to the insurance company. You need a protocol from the police in order to claim money from the insurance company for damages caused by a robbery. Bear in mind that most insurers will cover the risk of burglary if there is an alarm system installed.

Paying utility bills. You may need to pay bills whilst away and this can be done electronically (read more information here) or by a local representative. In any case it is a bad surprise to arrive during the weekend and find the electricity cut off for unpaid bills. Then it will take a few days from your holiday to sort the problem.

Paying annual property taxes. This is simple but takes time and has to be done each year by law. The taxes include annual council tax and garbage collection fee which is also paid to the local municipality. The payment has to be made either with one payment (deadline is 30 April and you will receive a 5% discount) or in four instalments (deadlines are 30 April, 30 June, 30 September and 30 November).

Company accounts. Those who have purchased their properties through a Bulgarian company must remember or have an appointed representative to look after their company affairs. Preparation of annual company accounts and submission of tax declaration, accounting and statistics report are the obligations you have no matter whether your company is trading or not. Some people say that filing a zero declaration is enough but this is not true. A company which has assets has depreciation costs as a minimum and most probably you will have other costs which may be deducted from your profit when selling one day. If the accounts are not prepared, it is likely for you to face problems with the tax authorities when it comes to selling your property or if they decide to check your accounts. The accounts have to be prepared and tax report submitted by 31 March each year for the period from 1 January till 31 December of the previous year.

According to the Bulgarian Accounting Law the annual report must be signed by a qualified accountant who is responsible for its contents together with the company managers.

There are cases when changes of legislation require submission of documents to the tax or municipal authorities within certain period. Having someone to have your company on the list and warn you if you need to complete some procedure (or, indeed, complete it for you) is valuable thing which will save you the worry.

We at Stara Planina Properties and our sister company Bulgarian Property Management have the dedication to take away from you the hassle which some of the above issues involve when you try to deal with them from abroad. Let us know if you wish to receive details on any of the above issues.