Bulgarian financial institutions are governed by the Credit Institutions Act and in accordance with its Art. 3, a financial institution is a legal entity different from a credit institution or an investment intermediary. Main activity of financial institutions is performing one or more of the following:
Providing payment services under the Payment Services and Payment Systems Act;
Issuing and administering other means of payment (travellers checks and letters of credit) as far as this activity is not covered by item 1;
Trading on your own account or for account of customers in foreign currencies and precious metals with the exception of derivative financial instruments on foreign currency and precious metals;
Provision of services and / or activities under Art. 5 para. 2 and 3 of Markets in Financial Instruments Directive;
Acquisition of credit claims and other forms of financing (factoring, forfeiting, etc.);
Issuing electronic money;
Acquisition of shares in a credit institution or other financial institution;
Lending funds, that are not raised through public deposits or other repayable funds.
Financial institutions are subject to registration with BNB (Bulgarian National Bank) public register. A very important detail in this regard is that if there is a specific activity under a special law – the arrangements for licensing a financial institution are different. For example, a financial institution that issues electronic money should be registered and licensed under the Payment Services and Payment Systems Act.
Opening a company in Bulgaria is at first sight a straightforward and not complicated process. There are relatively clear requirements of Bulgarian Company Laws and the whole procedure is fast and easy compared to other corporate issues. That is why it is a common practice for paralegals and non-lawyers to offer Bulgarian company incorporation services by filling in a standard pack of documents and filing them with the competent Registry Agency without even asking for anything but personal/company details.
If you wish to register as a haulier transport company in Bulgaria and to operate on the territory of the entire European Union, you will need the Community License for road haulage.
This licence is granted by Bulgarian minister of transport, information technologies and communications through Transport Administration Executive Agency. In order to apply for a licence you need to incorporate a Bulgarian limited liability company or a sole proprietor with main activity carrying of goods for third parties, for hire or reward.
Obtaining a ForEx licence in Bulgaria gives right to the broker to operate within the entire EU either by free providing of services or through opening a branch.
Companies that want to operate ForEx business platforms in Bulgaria should be registered as investment intermediaries and licensed by Bulgarian Financial Supervision Commission. They work under the European MiFID which has been implemented in Bulgarian legislation and financial institutions are regulated by the directive with some national specifics.
There are really many advantages that can drive an investor to start a Bulgarian company. It is definitely not the only but maybe it is the most important one – and this is the lowest corporate tax rate in the whole of the European Union. It amount to only 10 % – yes, that’s only ten percent! This the absolute maximum that any company registered and based in Bulgaria can be obliged to pay to the Bulgarian state. It is very important to mention that all expenses that a company has made are subject to deduction from the total corporate turnover at the end of each financial year. Actually it is not all of them but all relevant and business-related expenses made throughout the year. If you have a good enough accountant or business consultant – it’s almost guaranteed that you will have all those financial expenses deducted from the turnover.
E-money, payment institutions, payment systems, online payment system providers – at a first glimpse all these terms look similar, but in fact they refer to different issues regulated by:
Bulgarian Law on Payment Services and Payment Systems,
Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market (amending Directives 97/7/EC, 2002/65/EC, 2005/60/EC) and
Directive 2009/110/EC of the European Parliament and of the Council of 16 September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions (amending Directives 2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC).
The above documents regulate the requirements to the payment service providers which, apart from banks, inclusive European Central Bank and the national central banks of the member states, can be two types:
Electronic money institutions
Payment Institutions in turn are divided into three types and they are allowed to offer any or all of the services specified below:
Bulgarian travel agency or tour operator businesses can be conducted only by Bulgarian companies that are listed in the Register of Tour Operators and Travel Agents, part of Bulgarian National Tourism Register. The registration is made with the Ministry of Economy, Energy and Tourism upon filing an application by the candidate together with a number of documents confirming that the applicant matches the criteria specified in Bulgarian Tourism Act and sub delegated legislation. Below we have summarized some of the basic registration requirements prescribed in Bulgarian Laws.
Although the obligation for publication of annual financial reports of companies is a common rule in almost all European countries, there are numerous differences among the legislation of the member states. In most countries this obligation is only for companies that match certain criteria – certain activity throughout the fiscal year, annual turnover, type of company, etc.
That is probably the reason why many entrepreneurs that have set up companies in Bulgaria make the mistake not to publish their annual financial statements wrongly assuming that they do not fall among the entities that have this obligation. According to Art. 40 of Bulgarian Accounting Act enterprises are obliged to publish their annual financial statements and their annual management reports as adopted by the General Meeting of partners / shareholders.
The absolutely total number of Bulgarian companies that could legally be opened under the applicable Bulgarian laws is five and they are exactly the following ones:
Joint Stock Company (AD – Aktsionerno Druzhestvo or EAD – Ednolitchno Aktsionerno Druzhestvo)
Limited Liability Company (OOD – Druzhestvo s Ogranichena Otgovornost or EOOD – Ednolitchno Druzhestvo s Ogranichena Otgovornost)
General Business Partnerships (SD – Sabiratelno Druzhestvo)
Commanditte Business Partnership (KD – Komanditno Druzhestvo)
Commanditte Business Partnerships Limited by Shares (KDA – Komanditno Druzhestvo s Aktsii)
As one can see the Bulgarian word for “company” is “druzhestvo”.
As an exception to the common rule, the Limited Liability (LTD or OOD) and Joint Stock Companies (JSC or AD) may also be started up as a single member trading companies – SMLLC (EOOD) and SMJCS (EAD). Bulgarian law does not prohibit single foreign investors from registering the above mentioned single member companies. Foreign citizens could even establish EOOD or EAD in their capacity of single owners of the capital and then be the only managers (for the JSC type of companies there should be managing board of at least 3 members).
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.
The business address of a newly formed or existing Bulgarian company is one of the most important questions in the process of Bulgarian company formation.
The very first thing to mention is that from legal point of view there is no such legal term as ‘business address’. The legal term, according to Bulgarian Commerce Law, is ‘seat and registered address‘ but practically it is one and the same thing.
The above mentioned address is actually the company’s official address. But what is the propose of this official address? The main and most important role is that this is the address where all official correspondence is delivered. This is of utmost importance due to the fact that it may lead to monetary losses or even business closure. And here is one simple example – if someone, actually this could be anyone, is suing the company – all court summons come to the official address of the company. And if there is no such company at the address, then, according to Bulgarian Law, all papers are considered delivered and accepted and the company is not sought for the civil or commercial proceedings anymore. Which means that the company cannot for example appoint a lawyer to defend its rights and best interest – and this in most cases leads to a lost case. And if it’s a big case then the company would suffer enormous losses and could even go bankrupt.
A dormant Bulgarian 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.
Negotiations is often the fastest, cheapest and most efficient method of alternative dispute resolution in which a trustworthy commercial lawyer can be of great legal help to the companies they are representing. Negotiations save time and cut costs – compared to court litigation – and can be held from a distance. For example an attorney working on commercial cases in Sofia can conduct negotiations from his office with another lawyer in Plovdiv using the internet to exchange various documents and data. The mutual concessions in preliminary negotiations are in most cases advantageous to both parties and if the negotiations are successful all agreements have to be drawn in legal form.
If you are interested in doing business in Bulgaria and you search the web for an overview of potential investment opportunities, you will notice a large number of offers for businesses for sale in Bulgaria, including many listings of hotels, bars and restaurants at Bulgarian seaside or in mountain ski resorts.
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.
Contrary to the common European practice, Bulgarian Law of Consumer Credit Protection is not applicable for loans under BGN 400 (a little more than EUR 200) and in case the loan is for up to three months. Currently these loans are outside the scope of this protection law and there are no limits. Although the government has been considering changing the law, this has not happened up to date so any companies that work in the field of micro loans can take advantage of the delay in regulating these micro loans. Currently most companies offer such micro loans with around 35% monthly interest that makes more than 400% per annum, which is much more as compared to other European countries.
Although EU countries have made large steps in unifying their legislation, there are still major differences especially in the field of business and accounting regulations. One of the most frequent questions asked by foreign investors who step onto Bulgarian market is whether all companies registered in Bulgaria are subject to annual financial audit.
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
Yes, the zero corporate tax is a fact in areas with high unemployment in Bulgaria. As per Bulgarian Corporate Income Tax Law companies that carry out manufacturing activities in municipalities where the rate of unemployment for the year preceding the current year is by 35 % or more higher than the national average for the same period can benefit from the so called ‘tax retention’ of up to 100 %.
‘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.
Bulgarian National Revenue Agency announced that the number of fully Greek-owned companies registered in Bulgaria increased significantly in 2011. 3781 companies with 100 % Greek capital paid taxes in Bulgaria last year compared with 2199 in 2010. This is an increase by more than 70 %. At first glimpse, the movement of capital to Bulgaria can be put down to the crisis that Greece has been ridden by for the last couple of years. Indeed, some small Greek entrepreneurs moved their investments to Bulgaria because it is safer but crisis is not the only reason for choosing Bulgaria for their investments. This is proved by the fact that the number of Romanian companies also increased by more than 50 % during last year.
How much does it cost to open a Bulgarian company? – is maybe one of the first questions many foreign investors ask. And the answer is that the company formation procedure in Bulgaria involves different types of costs.
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.
It is well known that in most EU countries the current economic environment is unfavorable for enterprises. Bulgaria stays like oasis with its financial stability and low tax burden. Tempted by the good business climate in Bulgaria some EU corporations want to merge their European registered companies with a Bulgarian one by way of absorption so that the transferee company (a Bulgarian limited liability company) absorbs in itself the transferor company (the foreign company). This can be used as a legal mechanism for the transferor company to move its registered office from any European state to Bulgaria.
Bulgarian property legislation consists of many different acts and regulations, some of which unfortunately have not been synchronized with European legislation. All property transactions are registered by Bulgarian Registry Agency and made in a notary form by a notary public.
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.
Bulgarian company registration as well as all possible forms of starting business are entirely covered by the modern and sophisticated corporate legislation adopted by The Republic of Bulgaria which consisting of Codes, Acts, Ordinances, etc. Generally speaking all available applicable laws in force allow miscellaneous commercial and other real life business activities under many various forms. The major and most important of the above mentioned and described acts that do regulate the entire complicated process of doing business in Bulgaria are the Constitution, the Trade Code, and the Contracting Act on Obligations. There also exist other acts and laws but they are applicable in specific cases – for example if some type of business requires licensing. Bulgarian economy is very liberal and licenses apply to a very limited number of business activities (for example weapons, gambling, etc.).