Since it has emerged from behind the Iron Curtain, Bulgaria through its government has worked to bring that nation into the mainstream of international commerce. However, and with that said, Bulgaria remains in a period of transition when it comes to some commercial matters. This particularly is the case when it comes to the ownership of real estate by a foreign national within the borders of Bulgaria.
At the present time, the Bulgarian national constitution actually prohibits foreign nationals from directly owning land in Bulgaria. With that said, the governmental leaders in Bulgaria are in the process of changing the country’s constitution to allow for the direct ownership of land in Bulgaria by foreign individuals. The proposed constitutional changes likely will not be in effect until 2014 or 2015.
Understanding that a foreign national cannot directly own land in that country at the present time, this does not mean that a foreigner cannot own property in Bulgaria “indirectly.” In other words, if a person is interested in owning land in Bulgaria, there is an additional step that he or she will need to take in advance of making such a purchase and of assuming such ownership of real property.
Keep in mind that if a foreign national is interested only in purchasing an apartment — to which no land will be involved, to which any land outside of the apartment unit will be conveyed to the foreign national — direct ownership is, in fact, permissible.
If a person is interested in buying or investing in land in Bulgaria, and if that person is not a Bulgarian citizen, he or she will need to establish what is known as a Bulgarian Limited Company through which land in Bulgaria can be purchased and legally owned. In order to set up or establish a Bulgarian Limited Company, a person will need to plan on spending just under one thousand Euros. In most instances, a qualified real estate agent in Bulgaria should be able to offer this service to a foreign national.
Once this Bulgarian Limited Company has been established, the hunt for land/property to purchase can begin in earnest. At the time that a piece of property has been identified that a person is interested in buying, an oral offer to purchase is made to the seller. If the seller orally accepts a buyer’s offer, the next step in the purchasing process is the preparation and signing of what is known as a preliminary contract.
Customarily, in Bulgaria, at the time the preliminary contract is executed, a 10% deposit is placed or made by the buyer. Generally speaking, the deposit is non-refundable unless the seller withdraws from the contract or cannot, in the end, provide a clear conveyance of the property in question to the buyer. In other words, if the buyer pulls out of the deal, he or she will lose his or her deposit money.
In Bulgaria, perhaps more so than in many other countries in Europe and elsewhere in the world, it is imperative that a very thorough title search be undertaken. In addition, an independent survey of the property subject to the sale should be taken to ensure that the legal description of the property is, in fact, correctly stated. Unfortunately, Bulgaria has somewhat of a reputation of being a country in which titles to real property and survey descriptions are rather muddled in more than a few instances.
Once the title to the real estate is deemed clear, and once all other inspections and evaluations have been completed, the time will arrive for the signing of the final contract. This must take place in the office of a notary public. When the final contract is signed, all state and municipal taxes will need to be paid as well as the remaining balance due and owing on the real estate. After the final payment is made, the deed will be transferred into the buyer’s name, which in the case of a foreign national will be the Bulgarian Limited Company.
How to Buy Property in Bulgaria
We’ve broken the process down into a few simple steps – follow these and you’ll soon be the proud owner of a new property in Bulgaria!
1. Find your property
OK this is the fun bit – with the right local real estate agency, you can find an amazing range of Bulgarian property on offer from budget apartments in Bansko to grand residences. If the property seems cheap by UK standards, it may indicate that it:
- Requires significant refurbishment.
- Is built in an older style
- It’s located in a remote area
- Only has an outside toilet
Many new developments, especially on the coast, are sold “off plan” which means that they are currently under construction. You need to ensure that the relevant terms and conditions are included in the preliminary contract – ask your legal advisor for assistance.
2. Set up a limited company:
Foreigners are permitted to buy buildings in Bulgaria but not land. If you are not a Bulgarian national, we recommended setting up a limited company that will then own both the real estate and the buildings on the land. If you are buying an apartment, it may not be necessary to form a limited company – check with the property agent whether a direct purchase is permitted.
While this law is expected to change when Bulgaria enters the EU in 2007, it is also the reason why Bulgarian property is currently so inexpensive compared with other European countries.
What is a limited company?
As shareholder in a limited company you are liable for the company’s financial commitments up to the value of your share in the company’s registered capital ie: if the company incurs any expenses or debts your liable is limited to the full amount of your investment in the company.
Who can set up a limited company?
Essentially anyone can form a limited liability company in Bulgaria – you do not have to be Bulgarian to do so. This enables foreign nationals to purchase Bulgarian property indirectly.
How do I set up a limited company?
Before signing any agreement you should agree with all the other shareholders what commercial activities the company will be involved with and agree the structure of the company.
Once you have all agreed on the nature of the business, the relevant documents for incorporation will be prepared by your legal advisor and signed by all the shareholders.
Next you will need to open a dedicated company bank account to collect all share capital.
The minimum share capital necessary to form a limited company is 5000 leva, of which a minimum of 70% (3500 leva) is required at the time of registration. As well as your share capital you will be required to pay administration costs for the registration. Don’t forget you will still have the money in the company.
Your limited company will officially exist as soon as it is added to the Commercial Register of the district court, in the region where the company will be based.
This entry is made as soon as the district court make a decision to permit the incorporation of your company.
When you submit your registration application you will need to provide the following documentation:
Proof that each shareholder has paid into the company at least one third of the total amount of his or her financial interest, amounting to no less than 10 leva.
- Proof that at least 70 per cent of the registered capital has been paid.
- Articles of incorporation
- A memorandum relating to the appointment of directors
In order for any law to take effect, all Bulgarian legislation has to be published in the official Bulgarian state newspaper, the Bulgarian State Gazette. Publication of your company’s entry in the commercial register is a public declaration of your formation.
Finally, you will need to register your company with the National Tax Register Authority to complete the process of formation.
Following registration, once you have paid your entire share capital you can withdraw funds from the company to make your property purchase.
Now you’ve formed your company you can get on with buying your property.
3. Make sure you know about the taxes
In Bulgaria, as with pretty much everywhere else, property transactions are subject to tax. It’s important that you factor these charges into your financial planning.
- Corporate tax (15% in 2005) is the only direct tax on the transfer of property. Because you are buying the
property with your company you are liable for corporate tax.
- Notary fees are payable on the transfer – rates vary but the maximum is around BGN3500.
- Municipal fees of 2% of market value are also payable on completion.
- Capital Gains Tax
- There is no Capital Gains Tax on the profit when your company sells the property.
- Local taxes and rates
- Property tax is payable by anyone who owns a building or building plot. This is charged at 0.15% of the list
value of the property.
- If the building is on a municipal or State-owned plot, the value of the plot will also be included when tax is
- Local taxes are not payable on arable land
- All building owners must also pay fees for waste collection
- Value Added Tax
VAT of 20% is payable on all real estate transactions except with land and lease of property is for residential use.
The buyer or lessee can claim a VAT refund provide they are registered for VAT.
4. Put down a deposit on your property
Once you’ve found the property you want, you will need to place a deposit to reserve it. The deposit is usually 10% of the selling price and is refunded on completion of your purchase.
At this you will usually pay a commission to the property agent who will then take the property off the market while you begin the purchase. Check with the property agent regarding their fees and the terms and conditions they apply.
5. Sign an initial contract of sale
When the property agent receives all their cleared funds their solicitors will draft an initial contract, which contains details of all the relevant terms and conditions, monies paid and any other information relating to the property transaction.
Once this contract is signed, searches are carried out to make sure that the titles deeds are valid, that any relevant licenses and permissions are taken into consideration, that any debts on the title are brought to light, and that the terms of the final contract are agreeable to both buyer and vendor.
6. Sign the Notary Act
The last step in the buying process is to sign the Notary Act – essentially an official declaration that you have agreed to buy the property. At this point any state and municipal taxes must be paid and any outstanding balance of monies must be paid to the vendor.
The title deed of the property is then transferred into your company name.
Congratulations – you’re now the owner of a Bulgarian property!