Company types are more or less different around the world.When speaking about specifics of any desired corporate entity to be set up, investors should know that there are half dozen of different types of companies in The Republic of Bulgaria and the main criteria is the active trading quality – its lack or availability. The major possible forms of business entities in Bulgaria can and should be further divided into two main big groups: a) traders and b) non-traders. Traders who are involved in active deals or any other commercial activities can be divided into another further two groups (depending on the special relevant legal act regarding their business status): A1) Traders registered under the Commerce Act; and A2) Traders who are subject to regulation by specific laws. The forms of opening a company and running an active business outlined below might be divided once again into two groups: 1. Commercial trading companies and 2. Other legal entities. There is also another group in which corporations are split into ‘normal’ (with two or more members) and single member trading companies.
Corporate income tax in Bulgaria – advance installments
There are new rules for making advance installments as per amendments of Corporate Income Tax Act as of 2013. 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.
Insolvency in Bulgaria – bankruptcy laws & proceedings
Bulgarian bankruptcy / insolvency proceedings are regulated by Bulgarian Commercial Act. The first thing one should bear in mind is that bankruptcy and insolvency in Bulgaria are synonyms and mean absolutely one and the same thing from legal point of view.
There are two legal grounds for opening bankruptcy proceedings in Bulgaria – insolvency or over-indebtedness (the second rule applies only to limited liability companies, stock corporations or companies limited by shares). According to Bulgarian Commercial Act insolvent shall be deemed merchants who are unable to meet outstanding capital obligation under a commercial transaction or public duty to the state and the municipalities related to the merchant’s commercial activities, or private state obligation. The insolvency shall be assumed when the debtor has stopped his payments. Insolvency may be present also when the debtor has paid or is in position to pay partially or in full only the claims of individual creditors. An interesting detail is that bankruptcy proceedings shall be deemed automatically opened as well as for any unlimited partner in an insolvent company in Bulgaria. Bankruptcy proceedings can also be opened for deceased or even deregistered merchant – physical person if before his death or deregistration from Bulgarian Commercial Register he has been insolvent.
Dormant companies registration in Bulgaria
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.
Business for sale in Bulgaria – benefits and risks
The reason for that abundance of hotels and restaurants for sale is simple. The boom in both construction and tourism a few years ago led to thousands of new hotels and developments in the resorts. Most of the developments, however, were financed by bank loans and mortgages. Due to the global financial crisis some of the investors were not able to pay their credits to the banks any longer and facing the option to lose everything they chose to sell the entire business or some part of it.
Investors looking to acquire an operating business in Bulgaria by merging or purchase should be very careful though, as this type of investment is more risky than setting up a new company in Bulgaria. For example, if one chooses to buy a newly built hotel at the seaside, it is of crucial importance to make sure beforehand that the hotel has all necessary permits to operate as such and to let rooms to tourists and that all construction and finishing works match the requirements of Bulgarian standards.
In any case, it is always recommended for the buyer, if possible, to purchase only the premises, i.e. the real estate, and not to buy the company. Buying an operating company definitely carries more risks because all obligations and liabilities of the company under sale are transferred to the new shareholder. Those risks can be minimized if a thorough investigation by professional commercial lawyer is conducted before the transaction takes place. Liabilities to the government and banks are relatively easy to be tracked down, but sometimes outstanding liabilities to third parties could be covered up and even a good business lawyer will not be able to discover them. In such cases, the form and stipulations of the sale-purchase contract arranging the transfer of shares is of crucial importance. It is highly recommended that the contract is made by legal professional that knows all legal mechanisms to insure the buyer against any future possible claims by third parties or any other hidden liabilities that an unfair vendor may try to conceal in a business transaction.
Payday loans license for short term loans direct lenders in Bulgaria
Furthermore, a licence is not required – companies that provide short-term micro loan services operate as non-banking financial institutions which are subject to registration with Bulgarian National Bank (BNB). The procedure of obtaining a certificate is relatively quick – BNB completes registration within 30 days from the date of submitting application documentation.
The basic requirements for successful company formation and registration are:
- BGN 250 000 minimum capital (the minimum required capital must be maintained at all times)
- Owners / shareholders must have clean criminal record
- Managers should match the following criteria: higher education in Law or Economics, at least three years of experience in a similar field, clean criminal record
Companies subject to annual financial audit by registered auditors in Bulgaria
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
0 % Corporate Income Tax in Bulgaria?
‘Corporate tax retention’ means that the company is entitled not to remit the amounts of corporate tax due to Bulgarian state budget and has the right to keep the amounts in its company capital and to use them for purposes prescribed by law. Broadly speaking, the retained tax must be invested in fixed assets within four years from the beginning of the year for which the tax is retained.This tax relief can be granted for companies that have made their initial investment after 2006 but not later than 2014.
A further advantage of such investments in highly unemployed areas in Bulgaria is that, as a rule, wages and salaries in those areas are close to the minimum wage rate determined by Bulgarian government and hence, cost of labour is very cheap. For information, the current monthly minimum wage in Bulgaria is 290 BGN which is approximately 148 EUR.
Costs for opening a cheap company in Bulgaria
The first group of expenses represents the administrative ones. In other words all state fees fall into this category. The main expense here is the company registration tax which is in all cases due to the Bulgarian Commercial Register. One should also know and bear in mind that if this tax is paid electronically over the internet, then it is in lower amount. The other condition is that all paperwork is also submitted to the aforementioned register electronically. This task is very hard to achieve for foreign investors who are not in good command of Bulgarian language since the Trade Register’s interface in only in Bulgarian language.
Notary related expenses fall into other group of company incorporation costs. Even if the owner/s or shareholder/s in the company speak perfect Bulgarian, there is always at least one document which has to be notarized and this is the specimen of the signature of the Bulgarian company’s manager. In case there are more than one managers – then all of them should do this job. However this expense is in a very low amount at least in Bulgaria – less than 10 Euros per signature. Other documents for the incorporation procedure can also be notarized but this is not strictly mandatory according to Bulgarian company laws. Unfortunately in many cases the registration process gets slowed down if more documents are not certified by a notary public.
The last main group of set up expenses includes cheap service fees. For example remuneration of the lawyers who are in charge of the company establishment. The lawyers’ fees in Bulgaria vary but there is a minimum amount set by Bulgarian Law Society (the Bar Association). However in some case foreign investors could find service fees even lower than this minimum amount – and typically this is the case where Bulgarian paralegals or even non-lawyers (for example accountants, etc.) make such sorts of tempting cheap offers which are hard to resist, at least at first sight. But every investor in Bulgaria should keep in mind that these ‘specialists’ are doing no legal service but are rather selling a bunch of documents with absolutely equal content (where only names are changed). And the risks here are very high – incomplete work, violations of the legislation and all associated fines or even ruined business.
Property transactions through a Bulgarian limited company
Furthermore, buying real property as a company asset requires knowledge not only of property laws but also of accounting and tax regulations. Therefore property transactions of any kind (sales, purchases, rent, lease, etc.) by legal entities (i.e. companies) must be handled by experienced real estate solicitors working independently from real estate agencies and property developers.
If you are considering buying real property in Bulgaria through a limited company, here are a few things you should have in mind.
To begin with, be sure that the company has enough finance ‘on paper’ to buy the property. Many businessmen mix their personal assets with the assets of their company. Before making the deal, consult with your accountant and ask how much money exactly your company has as per the ledgers. If finance is not enough, you cannot just pay from your personal savings or from the bank account of another company you have. Passing money from one pocket to the other can be made legally by signing a loan agreement at interest not less than the minimum prescribed by law.
In most cases payment of purchase price must be made by bank transfer. Cash payments in property transactions are forbidden unless the price is under BGN 15000. Of course bank transfers are recommended even in low cost deals as cash payments are risky. Actually it is recommended an escrow account to be used, usually a special account of the notary public who will witness the deed. This is the most secure way of payment.
Acquiring real property through a limited company definitely has its advantages: you will make deductions for any expenses for renovation, furnishing, you will deduct depreciation of asset every year, etc. On the other hand, companies pay higher annual property tax and waste fee, and you should think carefully about your company credit status. If the business goes down and company has creditors or becomes insolvent, the property could be lost.
If you are the company owner, but you have another person appointed as manager, you should know that it is actually the manager who has the power to complete the any property deals and sign title deeds and lease contracts. Generally it is possible to restrict the powers of the manager by including special limitation clauses into your Company’s articles. In such cases, consulting with your corporate lawyer before undertaking any serious property investment is absolutely mandatory.