AML contact person + new declaration for companies in Bulgaria (foreign-owned)

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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  In connection to this in 2018 Bulgaria launched a new Law on Measures Against Money Laundering which totally repealed the previous one in force.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.  

How to leave a Bulgarian company and resign as shareholder or director (manager) by sending a notice of withdrawal

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Participation (membership) in a Bulgarian limited liability company (LLC, LTD) is always set up in a specific order, namely by the will of the partners (shareholders), who are involved in the company incorporation, or in case of acceptance of a new shareholder after the incorporation of the company, by the will of the partners holding shares at the time of acceptance of a new shareholder. This kind of decisions are made at the General Meeting of the Shareholders, which is the only competent body on these matters.

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.

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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    Bulgarian Forex license – fast obtaining and EU passporting

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    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:

    1. 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:
      1. Reception and transmission of orders in relation to one or more financial  instruments, including intermediating for conclusion of transactions in relation to  financial instruments
      2. Provision of investment advice to clients
      3. Execution of orders on behalf of clients
      4. 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:

    2. Requirement towards the directors (managers) – they must be professionals of good reputation, with proper higher education and experience in the field
    3. 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
    4. Capital adequacy requirements
    5. Requirements towards staff, organizational structure
    6. Requirements towards internal control, audit
    7. Technical requirements

      8. read more

    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.

    Registration of non-profit organizations and foundations in Bulgaria

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    The procedure of registration and re-registration of non-profit organizations and foundations in Bulgaria has been significantly changed with the new amendments of the Non-profit Legal Entities Act. The changes were published in Bulgarian SG in 2016.

    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.

    Relocating to Bulgaria or move business after Brexit

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    Relocating to Bulgaria after Brexit is an option considered by more and more Britons. Moving business to Bulgaria is another option which more and more European and worldwide businessmen are taking advantage of.

    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.

    Registration and licensing of recruitment / employment agency in Bulgaria

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    The procedure of registration of recruitment / employment agencies in Bulgaria is regulated under Bulgarian Employment Promotion Act and Ordinance on the Terms and Conditions for Conducting Mediation in Employment.

    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.

    EU Online Gambling Licence from Bulgaria

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    Gambling licence in Bulgaria is the best and most cost effective solution in the whole EU. Especially when it comes to online gambling which could in fact be managed from abroad and not necessarily from Bulgaria where the licence has been obtained. Bulgarian Gambling Law requires that the owner of the company that will provide online gambling to be either a Bulgarian or an EU national. The same requirement is if the shareholder is a legal entity. If a non-EU company plans to obtain such licence, it should incorporate another EU company first and then the new entity can be the shareholder of the Bulgarian company that will organize the online gambling.

    The first major requirement is a minimum amount of the investment. There are two applicable components – BGN 600 000 (a little more than EUR 300 000) is the amount which must be invested in hardware, software, etc. plus BGN 1 000 000 free capital for the purpose of paying clients, i.e. real money available ‘at hand’. The documents proving that the company has the required funds (BGN 1 600 000 BGN) are shown together with the application for the licence. The origin of all funds must be proved as the Commission explicitly checks for this.

    Another mandatory requirement concerns the online communication equipment and respectively the central computer system. The rule is that they must be physically located on the territory of Bulgaria. However, they can be managed or maintained from a distance, i.e. even though in Bulgaria, servers and other equipment can be run from abroad. The central computer system of the online casino must be connected to the Bulgarian National Revenue Agency for real time transfer of information directly to the National Revenue Agency.  Every transaction is online registered in the Agency’s system. And finally the gaming software should be approved by the Bulgarian State Commission on Gambling

    When it comes to payment applicants should bear in mind that licensed companies organizing online gambling must open a special bank account for depositing stakes and paying out winnings with an EU or a Swiss licensed bank operating in Bulgaria.

    The time frame for obtaining an online gambling licence is 2 months from the date on which all required documents have been filed with the Commission. If there are any discrepancies or if the Commission requires more documents, then the applicant has another month. The fees for reviewing the applicant’s documents are BGN 40 000 for sporting events and horse/dog racing or BGN 70 000 for online poker and casino. A licence can be issued for 5 or 100 years and in order to be maintained the company organizing the online gambling should annually pay BGN 100 000 plus 20% on the net profit.