|Money laundering – through banks, real estate, nominees or other schemes – is a crime according to Bulgarian Criminal Code as it is all over the world. In connection to this in 2018 Bulgaria launched a new Law on Measures Against Money Laundering which totally repealed the previous one in force. The new law fully complies with European standards and in particular with Directive (EC) 2015/849 on the Prevention of the Use of the Financial System for Money Laundering or Terrorist Financing. The changes are mainly related to the imposition of new obligations to those who are defined as “obliged entities” – these are all natural and legal persons, who are committed to the observance and implementation of the anti-money laundering and anti-terrorist financing measures referred to in the same law.|
One of the main obligations under the new Bulgarian Anti-Money Laundering Act is related to all companies, including branches of foreign commercial companies registered in Bulgaria. When entering into business relations with their clients / contractors obliged entities must apply measures for comprehensive check of their client, including identification of the beneficial owner of their clients – legal entities. By virtue of this law “a client” is any natural or legal person or other legal entity that enters into business relations or performs a random business transaction with an obliged person. In case a client appears not personally, but through a nominee, in order to be able to perform this identification, the obliged person must consult the relevant Bulgarian register (Trade Register, BULSTAT register) as well as to obtain an official document (contract, certificate or other) showing who the beneficial owner is.
The new Anti-Money Laundering Act requires that legal entities submit to the relevant public register (Commercial Register, BULSTAT Register) a specific declaration about their beneficial owner. The declaration is required to be presented by the legal representative / the manager of the company. It is this particular declaration and its submission that is a subject of the most discussions. At first glance, it appears that all companies must submit a declaration to the relevant registry, regardless of the form of their company. But as you read the law, you can see that this declaration is not necessarily needed for natural persons. This means that a Ltd. company, which has a natural person registered as the sole owner of the capital, is not obliged to declare and prove again that this person is the real owner of the respective commercial company. This is not the case, however, if the owner of the company is not a physical person, but another legal entity, whether Bulgarian or foreign. In this case the respective national public register does not show directly who the primary beneficial owner is and therefor the submission of a declaration in this case is mandatory.
When it comes to a Limited Liability Partnership, the obligation for declaration of the actual owner is more logical as there are at least two partners (natural or legal persons). For a company in which we have, for example, two associate natural persons holding 50% of the capital each there isn’t a obligation for declaration of a beneficial owner as the names of both are disclosed and are visible in the register. When there are more partners – physical persons in the association, some of which hold less than 25% of the capital, the latter shall not be declared as beneficial owners. If the minority partners with shareholding less 25 % are legal entities, however, their beneficial owners should be declared regardless of the fact that their share is minoritary.
Along with the declaration of a beneficial owner, the new law introduces another obligation for all Bulgarian companies. Every company shall declare a contact person (sort of AML officer) for communication with tax and state authorities which person must be permanently residing in Bulgaria. This is a practical problem for all Bulgarian companies founded by foreign shareholders. Additional difficulty to foreign company owners will be the fact that the contact person must express his consent by a special notary certified statement. Upon giving such statement, a number of obligations will arise for the contact person, such as an obligation to receive, dispose of and provide appropriate and accurate information and data about the beneficial owners. The contact person can be fined between BGN 100 to BGN 1,000 for non-fulfillment of this obligation, and in case of a repeated violation – the fine shall be from BGN 200 to BGN 2,000.
According to the new law, the deadline for filing the declaration of the beneficial owner and contact person of the legal entity is February 1, 2019. However, information appeared in the media that this period may be extended as the Regulation on Application of Anti-Money Laundering Measures is not ready yet and some of the forms have not been published. For the moment, however, there is no clear and accurate information whether this will happen.
That is not the case, however, when a partner decides to leave the company voluntarily. Shareholders may request to terminate their participation in the limited liability company any time. Quite naturally, in most cases, a shareholder who wants to leave the company may not find support from other partners about his withdrawal and they could disagree with the leaving partner. But that does not mean that one person must be bound with a company in Bulgaria forever.
Termination of participation in a Bulgarian limited company is a potestative right of each shareholder, that is, a partner always has the right to leave a company. This is a unilateral act, which does not need to be preceded by a special permission given by the General Meeting of Shareholders. The partner can exercise this right by submitting a written request for termination of his participation in the company, the peculiarity being that the request should be filed at least 3 months before the date of the withdrawal. This request plays the role of a notice of withdrawal and the expiration of the three-month period has an automatic terminating effect of the shareholding.
In order to produce the necessary effect, the resignation request should come to the knowledge of the company. The best way to ensure this is to send it in the form of a notary invitation, as the date of the delivery of this invitation is duly certified by a public notary.
Upon the expiration of the resignation notice period, and after the partner loses his/her capacity of a shareholder, the company has the obligation to record accordingly the change in the circumstances in Bulgarian Commercial Register.
In case the partner who has left the company has been also a manager (director) of the company, the General Meeting of the Shareholders should appoint a new manager, because it is not possible for a Bulgarian limited company to remain without a managing / representing person. Moreover, if a company remains without a registered manager for more than 3 months, a liquidation procedure may be initiated for this company by a Bulgarian prosecutor.
It is therefore undisputed that regarding the internal relationship between the partner and the company the partner ‘s withdrawal takes effect from the moment of the expiration of the 3-month period. That is not the case, however, regarding third parties who are not part of the company. For them any changes in respect of the company have effect from the moment of their entry in the Commercial Register as third parties cannot monitor the processes within the company. For that reason, it is to the best interest of the leaving partner, his withdrawal to be registered in the Commercial Register as soon as possible. Although the law does not contain explicit provisions in this regard, the permanent court practice accepts that the leaving partner has the right to request the announcement of his/her leaving himself, in case the company does not do so.
The draft Withdrawal Agreement between the UK government and the EU envisages that British citizens will keep the right to live and work in the country where they reside at the time of the withdrawal. Both parties confirm that this has been surely agreed and further amendments in this section of the Withdrawal Agreement are not expected. Moreover, the negotiators agreed that there shall be a transitional period of 21 months (from 29 March 2019 until the end of 2020) before UK leaves the EU completely. So, according to the last draft of the Withdrawal Agreement, UK citizens residing on the basis of EU law before the end of the transitional period will maintain the residence rights they currently enjoy, under the currently applicable conditions and limitations. This protection includes also rights which are in the process of being obtained: citizens will be able to acquire the right to permanent residence after five years of lawful residence, even if the five-year period is completed after the end of the transition period. So, if you are a British citizen trading with EU partners, travelling around Europe or you are self -employed, providing services to EU clients, or you simply need to lower your taxes, and you wish to become a Bulgarian (tax) resident benefiting from current EU laws and the rights they give, you have a little time to do it.
What does it mean to be a Bulgarian resident for tax purposes?
That means that all your world income will be taxed in Bulgaria. For example, if you receive income in a country where income tax is 40 % but you are considered as Bulgarian residence for tax purposes, you are entitled to declare this income in Bulgaria and pay as per Bulgarian tax system. Please note that this rule does not refer to property taxes – property taxes are paid in the country where the property is located.
How one can be sure that there will be no double taxation?
Bulgarian National Revenue Agency issues a tax residency certificate which you show to tax authorities in other countries where you generate the income and they will no longer chase you to pay taxes in these countries and all your income will be taxable only here.
What is necessary to obtain such certificate?
EU laws give an opportunity a person to be considered tax resident of the country where his centre of economic interest is. To show that Bulgaria is your centre of economic interest you need to do the following:
Bulgarian citizenship by investment
Buy Bulgarian citizenship by buying government bonds
Fast track Bulgarian citizenship – straightforward and financed options
Bulgarian citizenship by investment has never been easier to obtain following 2017 latest amendments to the Foreigners in the Republic of Bulgaria Act and to the Bulgarian Citizenship Act, adopted by the National Assembly. These amendments allow non-EU citizens to practically buy Bulgarian citizenship by investing certain own or loaned amounts in the economy of the country. Current legislation offers various Bulgarian citizenship ‘for sale’ options depending on the size and type of the made investment.
The easiest and most secure fast track Bulgarian citizenship option is buying government bonds. Purchase of government bonds of nominal value BGN 1 000 000 (EUR 511 292) grants directly Bulgarian residence permit to the investor. Investing another EUR 511 292 during the second year from obtaining the residence permit grants citizenship. Thus a non-EU citizen can get an EU permanent ID card for less than 6 months and an EU passport for approximately two and a half years.
At a first glance the amount of the investment seems huge (over EUR 1M within two years) but this straightforward option has great advantages compared to any other options offered by Bulgaria and other EU member states.
Firstly, the money is tied up for a period of 4-5 years but not actually spent. Purchase of Bulgarian government bonds is one of the lowest risk investments. By buying bonds the investor actually lends money to the state for a certain period of time for which the investor receives interest in the form of a coupon paid up to him at regular intervals before the maturity of the issue. Presently (2017) interest rates are very low, gravitating around zero, but they are still positive and a better solution considering the fact that since 2016 most European banks offer negative interest rates on deposits and securities. At maturity the investor gets the principal. If bought at the right time and then sold at the right time bonds can even generate income to the investor. The advantage is that bonds can be sold any time before their maturity date on the bond market. The interbank bond market is open and banks list their quotations every day so anyone willing to sell or buy can do that freely. The bond market is very conservative as a whole and flotation of interest rates is small.
A further advantage of this fast track Bulgarian citizenship option is that the applicant is involved with bureaucracy procedures at a minimum. Almost everything can be settled from a distance via a power of attorney given to a Bulgarian immigration lawyer. Of course if the applicant prefers to sign the bank documentation personally, no problem, banks are very flexible and friendly to large investors and formalities can be arranged within a day or two. So with the assistance of a local lawyer everything can definitely be arranged in advance so that a short visit to Bulgaria will be quite enough for the investor to sign all papers. If the investor prefers not to make this first visit, the whole process from making the investment to obtaining Bulgarian citizenship requires no more than two trips to Bulgaria and a couple of visits to any Bulgarian embassy in the world depending on the applicant’s current residency. The fact that the procedure is consuming a little time and efforts on behalf of the applicant makes it a preferred option by well-to-do businessmen who don’t have time to spend in sluggish administrative procedures.
Applicants are required to have address in Bulgaria though, but this requirement is common for all countries which offer EU citizenship for sale. Bulgaria’s advantage is that rental prices of real properties are very low as compared to other European countries. Anyone can rent a a one bedroom apartment for approximately 150 -200 Еuros per month which definitely costs less than a night stay in a decent hotel in Europe. Last but not least, foreigners who apply for Bulgarian citizenship by investment are not required to learn Bulgarian language or to stay physically in Bulgaria either during the period of their application or afterwards.
As you can see according to latest amendments in Bulgarian immigration laws any foreign citizen may now obtain Bulgarian (hence EU) citizenship in 2 years against an investment amounting to a little more than € 1M. This looks even better knowing that the investment is in Bulgarian government bonds as this is a very low risk investment. The straightforward investment program is quite simple to understand – you buy Bulgarian government bonds worth 2M Bulgarian Levs (a little more than 1M Euros) and after 2 years you become a Bulgarian citizen.
The program described above is simple and 100 % perfectly legal and secure but obviously there are only a few who can afford it. No doubt this is an expensive option but this was exactly the idea of Bulgarian authorities when they launched the program. The fast track Bulgarian citizenship option is deliberately intended to wealthy investors, people from high societies from non-European countries who wish to have a second citizenship in the European Union for themselves or their families. This option is for people who can prove the origin of their funds and who have more than € 1 million in bank accounts or other assets.
Recently there have been a lot of enquiries from potential investors from all parts of the world looking for an alternative of the option described above. Probably in response to this big demand different Bulgarian investment consultants started to offer the so called ‘financed investment’ option for Bulgarian citizenship.
These offers are under the same program described above but especially intended to those who cannot afford to invest such a big amount of money or to those who do have the money but cannot prove the origin of funds or just prefer not to invest their own money. There are many leverage offers circulating on the internet for such financed investment options but unfortunately none of the offers in circulation describes the legal and financial mechanism.
Financed investment options offered on the Bulgarian citizenship market can be divided into two.
The first one can be classified as a reasonable leverage of the investment. In this option you need to have a little more than half a million Euros available. The leverage mechanism is the following: you buy Bulgarian government bonds worth BGN 1 million and immediately after the purchase you can take a loan from the bank that sold the bonds to you by placing the bonds as a security for the loan. Bonds are connected to low risk and banks can grant a loan at a very low interest – around 1 %. Banks can give as a loan up to 90 % (in some cases even 95 %) of the market value of the bonds. This is the so called repo deal. Thus the investor will have the bonds and match the Bulgarian citizenship criteria and at the same time will have the money free to work with it and to invest it in real business and generate income from the same money. Many people would think, well, if such an option is legal and working – why should they use the straightforward option instead of this financed investment option. The answer is – yes, this option is legal and it is working but unfortunately most banks do not offer it to clients – physical persons. Repo deals must be rolled once a month or once every three months as their maturity is short, they involve paperwork, monitoring of the bond market, etc. That is why, if you decide to use this option, you will need an investment intermediary or in other words a financial broker to stay in the middle between you and the bank. Actually the bank will lend the loan to the broker and the broker will lend to you and manage your investment.
Different brokers offer different terms and conditions for commissions, interest rate, etc. but in the common case roughly estimate, he fees you will pay for the repo deals and for the management of the portfolio will be approximately EUR 10 000 per year. To summarize, repo deals can be used as a form of reasonable leverage of the investment so as not to lock your money in Bulgarian government bonds for five years. If you have an alternative to invest the same money in a business that will give you let’s say 20 % profit per year, for five years you will earn another half million, therefore we call this option reasonable if the related expenses are lesser than the potential profit you can generate.
However, there are leverage offers circulating on the internet which cannot be classified as reasonable, although they are also theoretically possible. A lot of companies offer loans for the purchase of Bulgarian government bonds but this type of financing is much riskier than the one described above because in the above described case the client purchases the bonds with his own money. The non-refundable part in this case is considerably higher.
Our legal and financial consultants advise all potential applicants to study all possible leverage mechanisms before indulging in the investment. There is always more than one option for Bulgarian citizenship by investment.
Bulgarian trade representative office registration
Residence permit in Bulgaria for trade representatives
Obtaining Forex license in Bulgaria
Bulgarian Forex broker MiFID EU passporting
Bulgarian Forex license gives right to the broker to operate within the entire EU either by free providing of services or through opening a branch.
Companies that want to operate Forex business platforms in Bulgaria should be registered as investment intermediaries and licensed by Bulgarian Financial Supervision Commission. They work under the European MiFID which has been implemented in Bulgarian legislation and financial institutions are regulated by the directive with some national specifics.
There are two types of Forex licenses in Bulgaria which are applicable to brokers, depending on the type of activity:
- Brokerage license – BGN 250 000 (approx. EUR 125 000) minimum required investment capital – that type of license gives the investment intermediary the opportunity to hold clients’ money and securities and to provide any of the following services:
- Reception and transmission of orders in relation to one or more financial instruments, including intermediating for conclusion of transactions in relation to financial instruments
- Provision of investment advice to clients
- Execution of orders on behalf of clients
- Portfolio management
Full (Market Maker) license – BGN 1 500 000 (approx. EUR 750 000) foundation capital – that type of Forex license gives Bulgarian investment intermediaries the right to deal on their own account.
In both cases 25 % of the minimum required capital must be deposited with a bank before filing the application for licensing in Bulgaria and the remaining amount within 14 days from receiving the approval by the Financial Supervision Commission.
Apart from the capital requirement, there are other requirements that can be summarised in several categories:
- Requirement towards the directors (managers) – they must be professionals of good reputation, with proper higher education and experience in the field
- Requirements towards the shareholders and the origin of funds of the share capital – as above shareholders can be persons/companies of good reputation, showing clear criminal record and clear origin of investment capital
- Capital adequacy requirements
- Requirements towards staff, organizational structure
- Requirements towards internal control, audit
- Technical requirements
In the common practice the balance profit is distributed among the shareholders in proportion to their shares. In other words, if in a limited liability partnership there are two partners each holding 50 %, that means that they will receive equal share from the profit, unless otherwise agreed. “Unless otherwise agreed” is a key phrase here, as it gives opportunity to shareholders to stipulate different shares of profit. These stipulations shall be made in writing on the company’s Articles or Operating Agreement. So, practically there are no legal limitations to disproportional distribution of profits in a Limited Liability Company, in case all shareholders agree on that. In all cases, in order to be effective and legally binding, the decision for distribution of profits in the form of dividends should be taken by the General Meeting of Shareholders and duly recorded in writing in the company’s documentation.
Furthermore, payment of dividends should not confront the Limitation of Cash Payments Act which prohibits cash payments for amounts over BGN 10 000 (approx. EUR 5000). In such cases, payment of dividends must be by bank transfer.
The distribution of the votes in the general meeting of a Limited Liability Company (LLC) can be agreed in a similar way. Unless otherwise agreed, the voting right is proportionate to the share of the respective shareholder. Nevertheless, shareholders are free to determine different voting powers, regardless of their shares, in case all partners agree to such condition.
The distribution of profits in Bulgarian Joint Stock Companies (JSC) depends on the type of stocks the respective company issues. A Joint Stock Company is a company the capital of which is divided into stocks with a nominal value. A stock entitles its holder to a single vote in the General Meeting of Shareholders, to a dividend and to a liquidation share in proportion to the nominal value of the stock. Bulgarian Commercial Act, however, provides that JSCs can issue stocks with special rights, the so called privileged shares. They can grant to their owner guaranteed or additional rights to a dividend and/or a liquidation quota. It is possible the privileged shares to guarantee additional dividend but at the same time to deprive their holder from voting rights. Any special rights must be explicitly provided in the by-laws (statute) of the company.
From 2018 on all Bulgarian non-profit organizations shall be entered into a special Non-profit Legal Entities Public Register of Bulgarian Registry Agency. Presently registration is made at the District Court by the seat and registered address of the entity and there is not one unified register where the status of the non-profit entities can be checked.
The new register shall include and make public a number of important data such as:
- Name, main objectives and means to achieve them;
- Headquarters and official address of the non-profit organization or foundation;
- Names and personal details of all members of the managing board;
- Foundation act; statute;
- All decisions regarding changes in circumstances;
Announcement of any of the above listed circumstances should be made no later than one month from the day of occurrence of the relevant circumstance.
Re-registration of non-profit organizations and foundations in Bulgaria is a totally new legal phenomenon. It concerns those foundations and organizations registered with the district courts before the amendments. All existing Bulgarian foundations and non-profit organizations shall undergo a re-registration procedure under the new rules. By the end of 2020 all those entities are obliged to file an application for re-registration accompanied by a certificate of good standing issued by District Court by their seat and a BULSTAT registration certificate.
The same requirements apply to branches of Bulgarian non-profit organizations and foundations.
There is an option changes of circumstances to be filed together with the re-registration application, regardless of the nature of the new circumstance, including dissolution of Bulgarian non-profit organizations or foundations.
After their re-registration with new register, Bulgarian non-profit organizations and foundations and their foreign branches will be excluded from the BULSTAT register and the BULSTAT code will be changed with an Unified Identification Code of a non-profit legal entity. After the re-registration the legal entity will keep its current name.
The good news is that the re-registration will be free of charge, including for branches. The same re-registration process was carried out a few years ago for the commercial companies when the public commercial register was created.
Bulgaria is an EU member since 2007. Continued financial stability, lowest corporate income tax in Europe (10%), lowest cost of labour force combined with highly educated work force are only a few of its credits. That is why it is not a surprise why UK and other EU companies already started to study the opportunities to use Bulgaria as a safe harbour for relocation of their business.
The EU is the UK’s largest trade partner. Free movement of goods within the EU is one of its best achievements – no border control, no duties, no VAT payable on import. Brexit puts too much uncertainty about how UK export-import companies will be affected. Some are optimistic that new trading arrangements will be achieved allowing Britain to continue to benefit from free trade even after Brexit but largest European member states already implied that such scenario is unlikely to happen. That means that UK trading companies and manufacturers could face significant difficulties and it may happen that they will not be able to run their European businesses from the UK. Relocating to Bulgaria a working business is not an easy job, that is why most businessmen prefer to wait and monitor the consequence of events before making a decision. Waiting is not a wise option as any last minute relocation could result in negative due diligence reports and decline in reputation; some top corporate UK solicitors and consultants already advised that relocating to the EU should be considered in the wake of Brexit as moving will allow such companies to get round potential trade barriers.
Most uncertain is the statute of regulated companies, such as financial institutions, transport companies, investment brokers, etc. Now most global regulated companies do business in the EU through their UK based companies using the right to passport their service in other member states. For example, largest Forex brokers are UK based and London is the largest Forex trading hub in Europe. According to statistics over 40 % of foreign exchange trading volumes worldwide are generated in London. Large market makers will definitely relocate to other big financial centres such as Frankfurt, Dublin or Paris but for a medium Forex broker Bulgaria is the perfect relocation option. A number of new emerging brokers already chose Bulgaria for their licensing even before Brexit mainly due to the low cost of the initial investment for the licensing and low cost of the post-licence support. Bulgaria also offers perfect conditions for haulage companies licensing as well. Procedures are fast and insurance and guarantee are much cheaper as compared to the UK. Now UK transport companies use one licence of the Community which allows them to carry cargo across the EU. The negative impact of Brexit is expected to be most severe for trucking companies, not only because of the EU regulations but due to the fact that 80 % of the truck drivers in the UK are immigrants and shortage of workforce is forecasted as inevitable, if not now, surely in a few months or years.
Bulgaria is still not among the top relocation jurisdictions for big corporations but its advantages for small and medium sized businesses are unquestionable and perspicacious entrepreneurs have already noticed the chance to insure their business future by setting up a Bulgarian company. Having companies in both the UK and Bulgaria is a wise business decision for many reasons, the main of which is the fact that the initial company setup is very cheap and then running a dormant company costs a couple of hundred euros per annum. A Bulgarian dormant company can be quickly turned into an active commercial company at any time if its owner(s) decide to start doing business in Bulgaria – and this would then be a company with business history, although it has been dormant for that time. Some have already moved their whole businesses in Bulgaria while some have only cloned their businesses – moving only 10-20% of their business activities just to see how well they will perform while keeping their main business activities in the UK. In any case setting up a Bulgarian company is definitely beneficial to British businessmen, no matter what exactly the business consequences of Brexit will be.
Offering any of the intermediation employment and recruitment services listed below requires obtaining a registration certificate before starting the activities. These activities are:
- Consulting job seekers and employers
- Professional training
- Referral to appropriate employment programs
- Support to job seekers for starting work
- Offering job positions on behalf of various employers
The certificate of mediation activity is issued by the Minister of Labour and Social Policy but the application is actually filed with Bulgarian Employment Agency. Along with the application form, the recruitment agency applicants should provide a list of documents proving that their company matches the requirements prescribed by Bulgarian and European legislation such as: education of manager and employees of the company, certificate of good standing, certificate of clean tax record of the company, certificate of registration with the Personal Data Protection Commission as well as drafts of the intermediation contracts the company will offer to employers and job seekers.
There is a state fee payable at the time of application. The fee is BGN 400 if the recruitment company will operate only on the territory of Bulgaria and BGN 900 if the employment company wants to operate in other countries as well.
The whole process of registration of an employment agency in Bulgaria takes minimum three months. Actually the application is reviewed by the competent authority within 14 days so this stage is relatively fast. However, the preparation of required legal documentation which should be filed together with the application form takes at least two months.
Once the company has been registered as an recruitment agency it has the obligation to display the registration certificate prominently in all its offices as well as to quote its registration number in all its job ads and publications. The mediator can publish ads or announce job vacancies only if he has a contract with an employer.
Bulgarian Law explicitly stipulates that recruitment services shall be provided for free to job seekers. Any agency fees shall be paid by the employers. Agency fees cannot be deducted from the salary of the employees.