Category Archives: Taxation / Accounting

Greek and Romanian companies move business to Bulgaria

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Bulgarian National Revenue Agency announced that the number of fully Greek-owned companies registered in Bulgaria increased significantly in 2011. 3781 companies with 100 % Greek capital paid taxes in Bulgaria last year compared with 2199 in 2010. This is an increase by more than 70 %. At first glimpse, the movement of capital to Bulgaria can be put down to the crisis that Greece has been ridden by for the last couple of years. Indeed, some small Greek entrepreneurs moved their investments to Bulgaria because it is safer but crisis is not the only reason for choosing Bulgaria for their investments. This is proved by the fact that the number of Romanian companies also increased by more than 50 % during last year. read more

EU Laws & Cryptocurrencies – Trading Rules & Legislation

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As of 2021, more and more European and world virtual currency traders choose Bulgaria for their headquarters of cryptocurrency business. There is still no law on virtual currencies based on blockchain technology, neither in Bulgaria, nor in the EU, nor in any other developed country, although cryptocurrency trading (Bitcoin, Ethereum, etc.) has been flourishing for years. Supervisory authorities in various EU countries issue sporadic guidelines, recommendations and warnings, but this has nothing to do with creating a legally regulated framework for crypto trading to adhere to, let alone uniform legal requirements. read more

Bulgarian tax residency for EU, non-EU and British citizens

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Tax residency in Bulgaria, where both personal and corporate income tax rates are 10 %, is a popular option for quite some time for many EU and non-EU citizens. Recently British citizens doing business and travelling in EU countries are anxious about their rights after Brexit. Over one million Brits are now already living outside the Island all over Europe.

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:

  • First step is to obtain a Bulgarian long term residence as an EU citizen and a Bulgarian ID card with a Bulgarian personal ID number. The procedure is relatively easy and the only one significant requirement is to have a registered address. There are three possible options – to rent an apartment and use it for real, to rent an apartment just for the address registration without the possibility to actually stay there, to buy your own property in Bulgaria. If you buy a property, but do not plan to stay in Bulgaria physically most of the time, you can even rent it for income.
  • Register a Bulgarian company or register as a self-employed service provider and invoice your clients for the work provided to them. Incorporation of a Bulgarian company is the best option, because as a company you can deduct expenses, pay only 10 % on profit and 5 % on dividends.
  • Pay social and health contributions here in Bulgaria.

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    Distribution of votes, profits and dividend in Bulgarian LLC and JSC

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    Participation is a commercial company implies various rights to the shareholders, the main being the right to dividend. According to Bulgarian Commercial Act shareholders in a Limited Liability Company are entitled to receive part of the profits in the form of dividends. Distribution of interim dividends (based on current year profits) is prohibited. Companies are allowed to distribute only accumulated profits from past fiscal years.

    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.

    Open bank account in Bulgaria for offshore company

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    Opening a bank account in Bulgaria for an offshore company? This is not a problem since Bulgarian offshore company formation followed by opening a bank account is a straightforward process which takes only a week time. The costs are minimal too.

    But first one should know that Bulgaria is not a typical offshore zone. It is more of a tax haven. In simple words – you get the best from an offshore and a ‘normal’ company registered in EU. From legal point of view Bulgarian offshore companies are ‘normal’ companies, publicly registered and legally operating all across Europe and the world. They are registered under EU jurisdiction which means that they benefit from all EU financial and tax regimes. And from purely psychological point of view they are much more prestigious – because everyone would prefer to deal with an EU based company, which is publicly registered and strictly regulated under EU legal framework – rather than deal with a typical offshore company, which by default hides many details about its business activities, real owners, etc.

    The benefits of a Bulgarian offshore company start with the lowest corporate tax rate in the whole EU – 10 %. Some typical offshore companies in Europe offer 0 % tax but as explained above this is the price for doing 100 % legal business in the entire EU. And all across the world.

    Offshore companies in Bulgaria however have many things in common with typical offshore companies. To start with – nominee shareholders and nominee directors are not explicitly regulated under Bulgarian law but in practice are quite popular. Plus they are 100 % legal. So in other words any savvy businessman can run even a big business quite legitimately under the protection of and using all benefits of a European jurisdiction – while at the same time no one knows that he is the real owner of that business who remain hidden behind nominee shareholder/s and nominee directors.

    Company in Bulgaria with account is something that every local company is entitled to. Anyone can set up a Bulgarian offshore company and then immediately open a bank account in Bulgarian Lev (BGN), Euro (EUR) or any other popular world currency. The fees that Bulgarian banks charge are very minimal, some even offer this service for free. Monthly fees for a Bulgarian company bank account are also very low – in most cases no more than 5 Euros. Another benefit in this relation is that many EU based large banks have branches in Bulgaria – and many corporate clients who use the services of such bank in their home countries prefer to use the services of the same bank, via its branch of course, in Bulgaria.

    Another very important aspect of bank services in Bulgaria is that almost all banks offer e-banking – operating a bank account over the internet from all around the world. These bank products are highly appreciated by foreign investors who can register an offshore company in Bulgaria but conduct their business from abroad. Any businessman who has activated electronic banking with any Bulgarian bank can make and receive bank transfers like a charm, with only a few clicks on his computer.

    Bulgarian property laws in the business environment in Bulgaria

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    Bulgarian property lawyers and real estate solicitors legally advise and act on behalf of foreign investors who might have any needs or legal issues regarding property law in Bulgaria – construction of production units, purchase or lease of office premises, etc. Bulgarian property law consists of many different acts and regulations, some of which unfortunately not fully synchronized with European legislation or even one with each other. This brings the necessity of very careful examination of all relevant laws.

    We have much experience in the field of Bulgarian real estate law and help our business clients with their property transactions of any kind (real estate acquisitions, property resales, etc.) as well as all relevant legal actions (permits, licences, BULSTAT and other registrations, tax returns, etc.). Our lawyers are absolutely independent as we have never worked for anyone else but for our corporate and individual clients. We never take commissions from third parties, we do not recommend real estate agents or sellers, we just make sure that a property deal is simply legally perfect.

    In the property acquisition process we are thoroughly checking whether our clients are buying exactly what they want to. Our conveyancing solicitors are making all necessary checks in relevant institutions to make sure that the clients will get a real estate that is not burdened and free of encumbrances. Property lawyers of our legal team can also negotiate the clauses of any contract in order to make sure that your rights are protected even if something goes wrong the rights and interests of our business clients will be fully protected.

    Publication of annual financial statements in Bulgaria

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    Although the obligation for publication of annual financial reports of companies is a common rule in almost all European countries, there are numerous differences among the legislation of the member states. In most countries this obligation is only for companies that match certain criteria – certain activity throughout the fiscal year, annual turnover, type of company, etc.

    That is probably the reason why many entrepreneurs that have set up companies in Bulgaria make the mistake not to publish their annual financial statements wrongly assuming that they do not fall among the entities that have this obligation. According to Art. 40 of Bulgarian Accounting Act enterprises are obliged to publish their annual financial statements and their annual management reports as adopted by the General Meeting of partners / shareholders.

    All merchants in the meaning of the Bulgarian Commercial Act, namely: limited liability companies (single member limited liability companies and limited liability partnerships), joint stock companies, general partnerships or sole traders, are obliged  to file and submit their annual reports in Bulgarian Commercial Register by 30 June every year. This obligation is applicable even for companies which have had no activity throughout the fiscal year and for dormant companies.

    Fines ranging from EUR 250 to EUR 1500 are imposed to all who fail to fulfill their obligation of submitting the information with the Commercial Register in Bulgaria within the specified deadline. In the event of a second violation of this rule fines are double.

    The announcement of the reports shall follow a strict procedure rules set in the Bulgarian Commercial Register Act. Announcement is made by filing an application form (available only in Bulgarian language) together with the financial reports, minutes of the General Meeting of shareholders or the relevant body confirming the adoption the annual financial statements and a few mandatory declarations. Applicant can be either the Bulgarian company manager or a lawyer with an explicit Power of Attorney or the company accountant again with an explicit Power of Attorney. Application can be made either on line with an electronic signature or at the local offices of the Registry Agency. Sending your application by post is not acceptable.

    Corporate income tax in Bulgaria – advance installments

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    =&0=&=&1=& According to Corporate Income Tax Act some legal entities are obliged to make advance installments of corporate tax. Whether an entity falls within this obligation depends on the net revenues of the previous year. In case the net revenues for 2012 are below BGN 300 000, advance installments are not due, for net revenues between BGN 300 000 and BGN 3 000 000 advance payments are due on quarterly basis and in case the revenues go above BGN 3 000 000, the advance installments must be on monthly basis.

    The new amendments here provide that the amount of the advance installments will be calculated on the basis of the forecast for the expected tax profit for the current year. However, there are no specific guidelines on how this forecast shall be made, so entities are relatively free to determine the advance payments as per their discretion.

    Furthermore, tax payers have the option to adjust their advance payments upwards and downwards during the year depending on changes in their forecast. If the total amount of advance payments made on an annual basis is 20 % lower that the annual final tax due, there will be interest implied of course, but in any case this is more-liberal than previous regulations where only 10 % difference was  allowed without interest.

    The deadlines for making the advance installments have also been changed. They are as follows: In case monthly installments are applicable, the deadline is the 15th day of the current month. In case quarterly installments are due the payments should match the following deadlines: for the first two quarters – the 15th day of the month following the respective quarter, for the third quarter – 15th of December.

    Dormant companies registration in Bulgaria

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    A Bulgarian dormant company is an inactive company that does not trade and hence does not have any accounting transactions recorded at all. Then why should anyone need such a company?

    Well, the reasons for keeping such a company registered in Bulgaria may be different. A good reason to use a dormant Bulgarian company is if you have a trademark or a brand name that you wish to protect. In other cases, if you have an active Bulgarian company, but business is not doing well and you need a break, you can make your company dormant so as to reduce expenses to minimum and until waiting for a suitable moment to start trading again. read more

    Companies subject to annual financial audit by registered auditors in Bulgaria

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    Although EU countries have made large steps in unifying their legislation, there are still major differences especially in the field of business and accounting regulations. One of the most frequent questions asked by foreign investors who step onto Bulgarian market is whether all companies registered in Bulgaria are subject to annual financial audit.

    According to Bulgarian Accounting Act enterprises which over the current or the previous year do not exceed the indicators under two of the following criteria:
    1. Balance sheet assets as of 31 December: BGN 1.5 million
    2. Net income from sales for the year: BGN 2.5 million
    3. Average number of personnel for the year: 50
    are referred to as Enterprises applying a simplified form of financial reporting. Such companies are not subject to independent financial audit by registered auditors unless these companies are:
    1. Joint stock companies and partnerships limited by shares
    2. Enterprises which are issuers in the meaning of the Public Offering of Securities Act
    3. Credit institutions, insurance and investment undertakings, companies for additional
    social security and the funds managed by them