General
Bulgaria is a politically stable country, and the introduction of a currency
board in 1997 stabilised the country's economy. However, as is the case
elsewhere in Central and Eastern Europe, legislation, including that governing
real estate, is volatile and subject to frequent change. A foreign investor
can invest in properties in Bulgaria either directly or through a local
entity. Only Bulgarian-resident individuals and entities can acquire title
to land, while non-residents may acquire only buildings and limited rights
(e.g., leasehold and construction rights) to land. In some limited cases,
acquisition of immovable property by non-residents requires prior permission
of the Ministry of Finance. Foreign investors are guaranteed full repatriation
of profits resulting from an investment in Bulgaria. The transfer abroad
can be made only after the bank effecting the transfer is presented a certificate
proving payment of all Bulgarian taxes due.
Investing through a local entity versus direct investment
As indicated above, a foreign investor can invest in properties in Bulgaria
either directly or through a local entity. In the case of a direct investment,
the tax treatment of the foreign investors depends on whether or not their
activities constitute a permanent establishment. The definition of a permanent
establishment under Bulgarian law is very broad: the mere fact that a foreign
company owns and rents out property in Bulgaria (except where such activity
is carried out through an independent agent) may create a permanent establishment
under domestic law. The various tax treaties entered into by Bulgaria usually
contain a narrower definition of permanent establishment. If the activities
of a foreign person owning real property in Bulgaria do not constitute a
permanent establishment, the person will be liable for only 15% withholding
tax on the rentals and capital gains, unless an even lower rate is applied
under a double tax treaty.
Local taxes and rates
The owner of a building or a plot is obliged to pay a real property tax.
Where a building is built on a State or municipal plot, the value of the
plot will also be included in the tax base. The tax is equal to 0.15% of
the book value of the property. Arable land is exempt from local taxes.
In addition to the real property tax, owners also pay waste-collection fees.
