From 1 January 2012, the transfer of a construction right will be VAT exempt only until the construction permit is issued. The previous regime had allowed the exemption until the completion of the rough construction.
The Bulgarian VAT Act was amended on 16 December 2011 to decrease significantly the exemption period for transfers of a construction right. Under Bulgarian law, a construction right is a limited property right that entitles its holder to build on land owned by another and to acquire title to the structures once the construction is completed.
The construction right is granted by the owner of the land via a notary deed. The construction right automatically converts into an ownership title when the building, which is subject of the construction right, reaches the rough construction phase (all load-bearing and façade walls are done). Until that moment, the construction right can be transferred to another holder whereby under the previous regime, such a transfer was VAT exempt.
The amendment greatly shortens the period during which the transfer of the construction right is VAT exempt– now only until the construction permit is issued. Effectively, only the transfer of a construction right for a building for which the investor has only approved designs will be VAT exempt.
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.