Bulgaria: A Safe Haven For Russian Property Investors

Bulgaria is a destination of contradictions and of all combinations. It combines exquisite winter resorts and exotic summer destinations situated in the Black Sea Coast or as it became internationally known as 'The Red Riviera'. Bulgaria became famous for its cold winters and sky resorts almost half year round with no exception to spa resorts while on the summertime it is offering its visitors warm summers by the Black Sea coastline. The alterations to the landscape grant a magical experience to the visitors and investors throughout the year.

In terms of business, over the past recent yearsBulgaria has becomeone of the three leading target countries for Russian investors relating to the acquisition of real estate. During 2009 Bulgaria became the unequivocal favoured destination for Russian buyers, attracting approximately twenty (20) per cent of those who decided to buy abroad. Russian investors acquire property in Bulgaria due to its favorable weather conditions, short distance from permanent residence and attractive prices in relation to other EU destinations..

To date, under the Bulgarian laws non-residents may acquire only buildings and limited rights to land such as leasehold and construction rights; the acquiring of land is not allowed for foreign residents. It should be noted that Bulgarian law is rather welcoming to foreign investorsand allows foreign individuals and legal entities to be shareholders and managers of a Bulgarian company. In addition, under the recent amendments in the Bulgarian Commercial Act the establishment of a limited liability company requires initial capital of only 2 leva (approximately 1 euro). For disclosure reasons, in some cases BVI companies serve as ultimate holding companies.

Real estate investments in Bulgaria – structure

  • Real estate tax 0.1 to 2.5 pro mile%
  • Transfer tax 0.1 to 3%
  • Stamp duty: n/a

Russian individual

  • Notary fees: 0, 1% to 1,5% of the certified material interest but could not exceed BGN 3000 (approximately EUR 1500), VAT excluded.
  • Capital Gain Tax: 10%
  • VAT: exempt for new buildings

In the case of a direct investment, the tax treatment of the foreign investors depends on whether or not their activities constitute a permanent establishment under the Double Tax Treaty signed between Bulgaria and Russia. In the case of a permanent establishment, the taxation is made under the Bulgarian laws, i.e. a fiscal rate of 10 % flat rate applies. For entities the taxation which applies is as follows:

  • Capital gains received from transfer of a property located in Bulgaria or rental income is levied pursuant to the Bulgarian laws, i.e. with 10 % withholding taxon the capital gains and rentals. Apart from corporate tax, no other direct taxes are levied on the transfer of real property;
  • In addition, local taxes would be due for the property. The local taxes vary between 0, 1 to 2, 5 pro mile % of the book value of the property.

Under the Bulgarian laws transactions with land and lease of new property for residential purposes are exempt from Value Added Tax.

Moreover, favorable visa conditions are also applicable to Russian investors, an element which makes Bulgaria even more accessible for property acquisition by investors. The only requirement is the evident validity of the passport while a pleasant deal for all Russian purchasers is the multiple visa for 180 days which can be further extended to three additional years.

Specific advice shall be sought from tax experts dealing with real estate structuring and re-structuring prior and post proceeding into the actual purchase of the real estate in Bulgaria. Benefits can be further examined and tailor made your needs into a safe investment in the country of roses.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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