THE PROPERTY PURCHASING CYCLE:
What Is Available?
An average villa close to the sea can be purchased for around £35,000
with rural properties being offered for even less. Do bear in mind though that
properties appearing by our standards to be very cheap will almost certainly
require work doing to them to bring them up to western standards. Obviously
the less expensive or even 'better value' properties will be older style and
perhaps more remotely located.
There are an increasing number of new developments under construction, in
particular on the coast, where properties may be purchased 'off plan' either
direct with the developer or via a host of brokers.
What is the law on foreigners owning property in Bulgaria?
According to the Bulgarian Constitution, foreign individual persons can buy
buildings but not land. Therefore the most common method for foreigners buying
property in Bulgaria is to set up a company which then owns the land and the
buildings. The law is expected to change within the short to medium term as
Bulgaria opens its doors fully in line with its expected entry into the
European Union (2007). This historic restriction is one of the reasons why
property in Bulgaria is so competitively priced compared to Western and Central
Europe.
The most popular form of engaging in business in Bulgaria is via a Limited
Liability Company (OOD).
Who can form a Limited Liability Company & how?
A foreign or Bulgarian person (judicial or physical). The person/persons will
be liable for the company's obligations to the value of his/hers share in the
company's registered capital. The shareholders conduct preliminary discussions
on the commercial activities they intend to engage in. Based on their
agreement, Articles of Incorporation are prepared & signed by all
shareholders.
A dedicated bank account is opened to collect all share capital. The minimum share
capital required is 5,000 leva. Shareholders at time of registration must have
paid at least 1/3 of their respective shares. It is required that at least 70%
(3,500 leva) of the capital is raised at time of registration.
The company exists from the moment it is added to the Commercial Register of the
district court of where the company will be based. The entry is made upon issue
of a district court decision for the incorporation. The following documents
must be available at the time of the submission of registration application to
the district court.
1. Articles of incorporation;
2. Memorandum for appointment of Director/ Directors;
3. Proof that each shareholder has paid at least one third of its interest,
but not less than 10 leva;
4. Proof that at least 70 per cent of the registered capital has been
paid.
The Bulgarian State Gazette is the official paper of Bulgarian State. All
Bulgarian legislation is published there for the law to take effect.
Publication of the company entry in the Commercial Register does not complete
your company formation, it announces to the general public the act of
formation.
The process of forming your company can take anywhere between a few days to
a few weeks.
Finally, your new company will need to register immediately with the
National Tax Register Authority.
The costs involved are: 3,500 leva = 70% share capital.
Administrative costs (payable to the state & registration court) are 250
leva (just over £70). This is the minimum capital that you need to raise for
registration. Once the entire share capital has been paid up these funds can be
accessed and withdrawn.
Allow betwen EUR 500 - 700 for charges relating to the formation
and registration of your company.
Other ways o purchasing Real Estate:
Of course,
there are other ways to do it, like:
Establishing a joint venture
with existing local companies;
Setting up a new venture;
Acquiring a company through
privatisation;
Making a portfolio
investment;
Foreign
organizations have the right to open bank accounts denominated in a Bulgarian
or foreign currency. There is also no limit to the company stake they possess.
Moreover, there is a special regime of respect towards the foreign investors on
the part of the Bulgarian legislative system, which is a gesture of tolerance
to those, who are interested in Bulgaria and are willing to benefit from its
future. Last 2 Bulgarian governments are doing their best to attract foreign
investors to our economy, inclusive such that want to buy Bulgaria real estate.
Real Estate Tax Summary
Transfer taxes
Apart from corporate tax, no other direct taxes are levied on the transfer of
real property. The transfer is, however, subject to notary and municipal fees.
The notary fees are paid on the higher of the market price or the book value of
the property at varying rates, with the maximum being BGN 3,500. In addition,
2% of the market value of the property is paid to the municipality in which the
real property is situated upon completion.
Local taxes and rates
The owner of a building or a plot is obliged to pay a real property tax. Where
a building is built on a State or municipal plot, the value of the plot will
also be included in the tax base. The tax is equal to 0.15% of the book value
of the property. Arable land is exempt from local taxes. In addition to the
real property tax, owners also pay waste-collection fees.
Value Added Tax
Transactions with land and lease of property for residential purposes are
exempt from VAT (Value Added Tax), all other real estate transactions are
subject to VAT at the uniform rate of 20%. The buyer/lessee is entitled to a
VAT refund, provided that it is registered for VAT purposes.
Estate Agents Charges
Fees charged by brokers for introducing you to a property that you subsequently
purchase vary enormously, as do the levels of service you can expect to receive
from one to another! The buyer can be charged anything from 3% of the purchase
price to as high as 10%! More often than not a 'minimum' commission is charged
regardless of the purchase price of between EUR 500 - 1,000.
You will also find that many agents in Bulgaria will want to charge you to
go on viewings (refundable if you actually purchase), whereas some will just
charge you for the taxi fare should you not have your own transport.
