1. Constitutional Principles Related to Investments
The Constitution introduces two general principles that directly impact the legal environment for international investments in Bulgaria and guarantee that investors are treated in a nondiscriminatory way: the principle of equal treatment of foreign and local investors and the principle of priority of international treaties over domestic legislation. Those principles are further developed in the Law on Encouragement of Investments1 and other legislation.
Under the principle of equal treatment of foreign and local investors, foreign investors may perform economic activity in the country under the same conditions that apply to Bulgarian investors unless the law explicitly provides otherwise. The second principle is the precedence of international treaties over domestic legislation. Pursuant to the said principles if an international treaty to which Bulgaria is a party sets out a more favorable treatment to foreign investments than local legislation, the former takes precedence to guarantee the investors a more favorable treatment.
2. Domestic Law Provisions on Investments
Under the Law on Encouraging of Foreign Investment a foreign investment is any investment by a foreign person in: (i) equity in commercial companies; (ii) ownership of buildings or any other limited rights in real estate; (iii) ownership of tangible movable property held as long term assets; (iv) ownership of selfstanding units of commercial companies with more than 50% state or municipal participation in the capital; (v) ownership of debt securities with a residual period to maturity exceeding six months and equity securities, or derivatives thereof; (vi) a loan extended to a local person for a term not less than twelve months; (vii) intellectual property rights; (viii) rights under concession contracts; (ix) rights under management contracts. Bilateral international treaties concluded by Bulgaria broaden the domesticlawgiven definition of a foreign investment.
In compliance with the principle of equal treatment foreign persons are free to obtain participation in local companies, to acquire any securities issued and traded on Bulgarian market, to possess intellectual property rights, property rights in movables, real estates and any other property. There are only few exceptions to that principle such as prohibition of direct ownership of land by foreign individuals and certain additional requirements for foreign participation in local gambling companies.
The Law on Investments Encouragement sets forth the obligations of the Bulgarian Investment Agency (the "BIA") to provide information and assistance to investors in the process of implementing their investment projects and after the investment has been made. These obligations of the BIA are set out in general terms, while the specific terms under which the BIA will provide services to investors are detailed in the Regulation for the Implementation of the Law on Investments Encouragement, adopted by the Council of Ministers2.
The Law on Investments Encouragement promotes investments for the acquisition of longterm assets for the purpose of introduction of new or extension or modernization of existing production of goods and/or services that establish new job positions, if the term for the investment realization is up to three years. Investments in banks, nonbank financial institutions, insurance companies, investment intermediaries, investment companies and companies with specific investment purpose, managing companies, pension and health insurance companies, gambling as well as investments performed under privatisation transactions stay outside of the encouraging measures of the law.
The measures for encouraging of investments are differentiated according to the class of investment, which depends on the amount of the investment determined by the Regulation for the Implementation of the Law on Investments Encouragement. The law provides for three classes of investments. The class of the particular investments is determined by BIA by way of granting a certificate following an administrative proceedings initiated by way of submission of an application by the investor, accompanied by an investment plan according to the rules of the Regulation for implementation of the Law on Investments Encouragement. Investors that have obtained a certificate for classification of the investments could benefit from preferential administrative servicing of their activity. Further, investors that have obtained a certificate for first class investments could use the facilitated procedure, outlined by the said law, for buying of real estates or other limited property rights in real estates owned by the state or by municipalities. Further, the law stipulates for a possibility of state financing of constructing of the infrastructure necessary for realization of first class investment plans within terms to be specified by the Regulation for implementation of the law.
3. Bilateral Treaties Relating to Investments
Bulgaria has entered into Mutual Promotion and Protection of Investment Treaties with more than fifty countries. A comparative analysis, based on bilateral agreements for the mutual promotion and protection of investments, which Bulgaria has entered into, shows that the definition of an "investment" in such agreements is broad enough and basically covers the concept of investment in its entirety. Also, it is very common for these agreements to include a "most favored nation" clause. The said treaties contain also provisions on (i) fair procedures for expropriation of the objects of investment; and (ii) repatriation rights.
4. Currency Control Issues
In addition to achieving full currency control liberalization of the investment regime in Bulgaria, including repatriation of investment, the Currency Law3 and the Regulations for its implementation establish a friendly regulatory framework for the investment abroad by domestic entities. There are no currency control restrictions with respect to any investment, including investments in equity, real estate, securities, intellectual property, and concessions. Foreign investment is not subject to any special registration requirements, other than the national statistics declaration and reporting requirements, which would apply to Bulgarian investors as well.
Pursuant to the Currency Law and Regulation No 27 on the Statistics of the Payment Balance4 ("Regulation No 27") debt financing between local entities or sole traders and any foreign person is subject to declaration before the Bulgarian National Bank within 15 days as of conclusion of the transaction. Pursuant to the Regulation No 27 if such financing is not related to opening a foreign bank account, the transaction is subject to declaration where its value equals or exceeds BGN 5,000.00. Direct investment abroad by local legal entities and sole traders is subject to the same declaration requirements for the purposes of statistics. The person obliged to declare the transaction is the local party thereto.
The Currency Law and Regulation No 27 further introduce obligations for collecting of information for the purposes of statistics, which apply to each transaction or payment between a local entity or individual and a foreign person as well as to each crossborder remittance and payment exceeding the amount of BGN 5,000.00. The entities responsible for gathering of such information are commercial banks and the Bulgarian National Bank, the Central Depository and the companies, which have issued registered securities on the capital market that are not registered in the Central Depository, the investment intermediaries (dealerbrokers), the insurance companies and the pension funds, notaries and judges registering real estate transfers. The same requirement for filing of a statistical form applies for payments received by local persons from abroad.
Pursuant to the Currency Law commercial banks and the Bulgarian National Bank perform payments and remittances abroad after the grounds for payment have been declared before them. In cases where the amount transferred exceeds the equivalent of BGN 25,000.00, the transferor should present before the bank additional information and documents stipulated for in Regulation No 28 for the Information, Collected by Banks at Performing Transborder Transfers and Payments (Regulation No 28")5, the Regulation stipulates for the exact documents that should be presented by local and foreign persons transferring amounts abroad, which generally constitute official evidence certifying the need for payment. Pursuant to Regulation No 28 a foreign person may perform remittance or payment abroad of currency exceeding the equivalent of BGN 25,000.00 originating from foreign investment or from liquidation of foreign investment after presenting before the local bank of documents evidencing the investment, respectively its liquidation as well as evidencing payment of the Bulgarian taxes due. Transfer abroad of amounts not exceeding any amounts, which have been previously remitted to the country by way of a bank transfer by the foreign person, is subject to presenting a document evidencing the initial receipt of the sum in Bulgaria.
Further, the Currency Law provides for periodical reporting obligations of local persons for their receivables and obligations to foreign persons exceeding certain thresholds determined by Regulation No. 27.
There are no limitations as to the amounts of the cash that could be imported or exported from Bulgaria. According to the Currency Law in conjunction with Regulation No 10 of 10 December 2003 of the Minister of Finance6 the import or export of local or foreign currency exceeding the equivalent of BGN 8,000.00 should be declared before the customs authorities by specifying the amount and the kind of the currency. When Bulgarians or foreigners export currency exceeding the equivalent of BGN 25,000.00 they should declare also its origin as well as present a certificate from the tax authorities that they have no outstanding tax obligations. The requirements of the preceding sentence for presenting a certificate and declaring the origin of the money do not apply in cases where foreigners export cash that they have imported earlier in the country.
Import and export of precious metals, precious stones and products manufactured thereof is subject to declaration before the customs authority in the way specified in Regulation No 10 of 10 December 2003 of the Minister of Finance. It is prohibited to export and import the mentioned goods in postal parcels except in parcels with announced value, whereas such restriction does not apply for banks.
Nadejda Krastanova is an associate of the Company Commercial Law Dept. of Studio Legale Sutti in Milan.
1 Promulgated in State Gazette, Issue No. 97 of 24 October 1997, as subsequently amended.
2 Promulgated in State Gazette, Issue No. 74 of 24 August 2004.
3 Promulgated in State Gazette, Issue No. 83 of 21 September 1999, as subsequently amended.
4 Promulgated in State Gazette, Issue No. 69 of 5 August 2003, as subsequently amended.
5 Promulgated in State Gazette, Issue No. 111 of 21 December 1999, as subsequently amended.
6 Promulgated in State Gazette, Issue No. 1 of 6 January 2004.
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.