RESIDENCY IN BULGARIA
Residency for foreigners in Bulgaria could be both long-term and short-term, depending on the activity that the foreigner has in the territory of the country. Short-term residency is generally for a term of three months for every six months whilst long-term could be for a term up to one year or permanent with a permitted unlimited term which can be received by foreigners with granted visas who exercise economic activity in Bulgaria who invest above €300k for acquisition of property or invest above €125K in Bulgarian entities or who are foreign specialists or students.
Foreigners who are citizens of another member-state of the EU and have their economic activity in Bulgaria could also become Bulgarian Tax Residents.
TAX RESIDENCY IN BULGARIA
A Tax Resident of Bulgaria can be any physical person that stays in the country more than 183 days within a calendar year and has their ‘centre of living interests’ in the territory of the country. The ‘Centre of living interest’ can be interpreted as a person who has close personal and economic relations in Bulgaria such as a permanent home, permanent business or immediate family.
CITIZENSHIP IN BULGARIA
Bulgarian citizenship can be acquired:
• by origin – when at least one of the parents is a Bulgarian citizen or if the person is adopted by a Bulgarian citizen
• by place of birth – any individual, born in the Republic of Bulgaria
• through naturalization – acquiring Bulgarian citizenship by naturalization is applicable to any person who is not a Bulgarian citizen and wants to acquire Bulgarian citizenship if, at the date of filling the application for naturalization is a major; was granted permission for permanent residence not less than five years ago; has not been sentenced by a Bulgarian court for a premeditated crime of a general nature and has not been the subject of criminal proceedings for such a crime unless the person concerned has been rehabilitated; has an occupation and income enabling him/her to support himself/herself in the Republic; has a command of the Bulgarian language subject to verification and was or will be released from previous citizenship upon acquiring the Bulgarian citizenship.
Citizenship could be used as an opportunity for the acquisition of immovable property in Bulgaria.
OWNERSHIP OF REAL ESTATE PROPERTY IN BULGARIA
Bulgarian legislation permits foreign nationals and legal entities to directly purchase buildings, premises within a building and limited property rights (e.g. a construction right, right of use) but cannot acquire direct ownership rights on land.
Foreign individuals or companies can acquire full ownership rights on land and other real estate by setting up or acquiring a stake in a company incorporated under Bulgarian legislation.
The amendments to the Constitution, relating to the Accession of Bulgaria to the EU (2007) provide for a transitional period prior to direct applicability of the “Free movement of the capital” rules and principals, applied within the EU. The above transition period for acquiring land for a second home and land for performing business activity shall be 5 years for individuals – citizens of any EU members unless being holders of a permanent residence permit and for foreign legal entities established under the laws of EU members state. The law provides a seven-year grace period for the purchase of agricultural and forest land by foreign citizens and legal entities and the ban will be lifted in 2014. The above amendments are of paramount importance not only for the harmonization of the national legislation with the acquit communitarian but also are a major incentive for sound investment on the basis of equal treatment.
There are no restrictions against the acquisition of land by locally registered companies with a majority foreign participation, especially if TP regulations are applied.
BULGARIAN TRANSFER PRICING REGULATIONS
Bulgaria fully applies the OECD Transfer Pricing Guidelines and TP is regulated through the local legislation. Back in 2008 the National Revenue Agency published a Manual for Transfer Pricing which is recommended but not mandatory, and was extended in 2010 to include the requirements regarding the documentation that tax auditors would require in the case of a tax audit. For TP control purposes the Bulgarian Tax Authorities have initiated and included a new appendix in the Annual Tax Return applicable from the tax year 2013 and onwards, which requires disclosure of transactions (types and amounts) between related parties (local and foreign ones) as well as transactions that were carried out with companies which are considered to be registered in offshore zones (see details below). Failure to file the aforementioned appendix or if not duly completed with accurate data, are subject to penalties.
FIRST OFFSHORE COMPANIES ACT
Recently, Bulgaria passed the “Act on Economic and Financial Relations of Companies Registered in Jurisdictions with a Low Tax Regime and their Beneficial Ownership” which is effective as of 1st January 2014.
According the new law, companies registered in jurisdictions with a privileged tax regime are prohibited from participating in 28 key sectors of the Bulgarian economy. Entities that are established in countries where income or corporate tax rates are 60% lower than the respective rates in Bulgaria, so called “offshore zones”; are not permitted to participate in tenders for public procurements; privatization transactions; concessionary competitions; contracts concerning municipal or government property. In addition, there are restrictions on obtaining licenses such as general credit institution licenses, insurance licenses, as well as licenses for gambling activity, healthy-insurance funds and mobile services providers. Also, entities registered in jurisdictions with a low tax regime and their beneficial ownership are unknown, cannot participate or act as a publisher of periodical press. Another sector, which is closed for offshore companies, is the area of social agencies that are preparing and sharing public sociological analysis.
It is important to note that the above restrictions are not applicable under certain circumstances such as in the case were the offshore company’s shares are traded on a regular stock exchange in an EU or EEA member state, or if the parent company or a subsidiary company of the offshore entity is a Bulgarian local resident and its Bulgarian physical person beneficial owners are known. The law even goes a step further and allows the participation of offshore companies in local entities that are publishers of periodical press, in the case whereby they submit through the official procedure all the necessary information regarding their beneficial owners.
BULGARIA IMPLEMENTED FACTA (Foreign Account Tax Compliance Act)
The Bulgarian National Revenue Agency and the US Department of Finance agreed on the text of the agreement between the two countries to improve the compliance of tax legislation from an international aspect and the enforcement of the Foreign Account Tax Compliance Act (FATCA), voted in 2010. In this respect Bulgaria is included in the list of countries treated by the Unites States as having a FATCA agreement in force.
Senior Tax Advisor