SAFE OFFICE LTD, Varna, Bulgaria

 

The Buying Process

 

There is a choice of two types of company you may register, either a Limited Liability Company or a Sole Proprietor Limited Company. 

 

•  A Limited Liability Company is formed by 2 or more shareholders. Shares in the company are distributed between these shareholders, and although normally divided equally, say between husband and wife, this decision is entirely up to you.

 

•  A Sole Proprietor Limited Company is formed when an individual solely owns the whole assets of the company. In this case there are no other shareholders or partners. However it is possible to add shareholders and to change the registered address at a later date. (In choosing this option, please be aware that the Inheritance Laws in Bulgaria differ from those of, say USA and UK and you should seek legal advice regarding a writing a will in your own country).

 

To form the company the following documents are required, and will be arranged by your Solicitor:

 

•  An article of association /Constitutive deed;

•  Minutes of the General meeting of the company for setting up a company;

•  Notarised consent and signature specimen;

•  Declarations pursuant to Art. 142 of the Commercial Act;

•  Declarations pursuant to article 13, Para 4 of the Commercial Register Law;

•  Minutes of the General meeting of the company containing a resolution to purchase real estate in the Republic of Bulgaria and appointing an attorney to take the appropriate actions regarding the purchase. 

 

When setting up a company in Bulgaria you will need to open a personal account at a local bank. You can open it in Euros or in Bulgarian Lev (LV), this bank account will be used for money transfers relating to property purchases. It does not need to be a business bank account even though you are buying the property through a company. The minimum deposit required to open this account is 2 Lev (LV). Once the company is registered, you can withdraw the balance and close the account if you wish, however, we would advise clients that they might like to leave the account open so it can be used for direct debits, internet banking, etc in the future. Now the company is setup, you are ready to start the process of buying property in Bulgaria and as this is a one-time procedure, you may now use your Bulgarian Limited Company to buy as many properties as you desire anywhere in Bulgaria. As a registered company, you are legally obliged to file an annual return, but if the company is not actively trading (i.e. for Bulgarian property ownership only), this is reasonably cheap and easy to do.

 

Bulgarian Property Taxes

 

Historically Bulgaria property sales included the common practice of under-declaring the actual value of a property on the title deed in order for both the seller and the buyer to save on property taxes. This lower value cannot be below the ‘tax valuation ’assessed by the tax authority but is usually considerably lower than the sale/purchase price.

 

Although this can appear beneficial to both parties at the time of purchase, it can actually work against the buyer at the point of any future sale of the property because the difference between the theoretical purchase price and sale price stated on the title deeds would be greater than the difference between the actual purchase price and the sale price. This would give rise to a greater perceived profit and hence greater capital gains tax liability. 

 

There are taxes to be paid on all property transactions resulting in a profit made by a company. Private individuals may sell one property every three years, without the need to declare the profit for tax. 

 

As it is still very much in the seller’s interest to under-declare the value, it is up to the buyer to specifically request the full valuation to be entered on the title deeds. This will usually cost a little extra in up-front taxes, but it should be more than compensated for at the time of sale.

 

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Additional Costs/Fees to be Paid

 

When buying property in Bulgaria, in addition to the price of the property the following costs/fees should be taken into consideration:

 

•  The usual fee charged for setting up a Limited Company is Euro 395.00.

•  Our agency fee is 3% of the purchase price, subject to a minimum of Euro 695 (Please note: In Bulgaria it is standard practice for the buyer to pay agency fees).

•  Notary, stamp, court fees and property tax (legal fees) are approx 4%–5% of the declared deed value. This fee is paid directly to the Notary Public.

•  Solicitor fees the same as the Notary fees at 4%–5% of the declared deed value, paid directly to the solicitor.

•  Company accounting (annual tax return) approximately Euro 200.

•  Registering utility contracts (water, electricity, etc) usually charged at Euro 25 per contract.

 

Our industry-specific services:

• Local tax structuring – sale and lease back transactions, lease incentives, rental contracts, financing and refinancing etc.

• Tax due diligence reviews, on the spot investigations, etc.

• Structuring advice for VAT exempt real estate investors, rental contract structuring in order to avoid post-acquisition repayments of recovered input VAT, etc.

• Real estate transfer tax advice – structuring possibilities to manage the transfer tax liability, etc.

• Advice on tax beneficial holding company locations, financial structures, repatriation and exit strategies.

• Due diligence review of target company to be acquired for the purpose of purchasing real estate.

• Due diligence prior to purchase of real estate property.