A Q&A guide to doing business in Bulgaria.
This Q&A gives an overview of key recent developments affecting doing business in Bulgaria as well as an introduction to the legal system; foreign investment, including restrictions, currency regulations and incentives; and business vehicles and their relevant restrictions and liabilities. The article also summarises the laws regulating employment relationships, including redundancies and mass layoffs, and provides short overviews on competition law; data protection; and product liability and safety. In addition, there are comprehensive summaries on taxation and tax residency; and intellectual property rights over patents, trade marks, registered and unregistered designs.
To compare answers across multiple jurisdictions, visit the Doing business In... Country Q&A Tool.
This article is part of the PLC multi-jurisdictional guide to doing business worldwide. For a full list of contents, please visit www.practicallaw.com/dbi-mjg.
On 27 January 2013, there was a referendum on whether a nuclear power plant should be constructed to develop nuclear energy in Bulgaria. This referendum follows the rapid development of the energy sector in recent years, as well as the government's latest measures to reduce the investment in the renewable energy sector.
From 1 January 2013, the first Public Private Partnership Act was implemented. It created pre-conditions for mutual business undertakings between the government and the municipalities with private investors.
Legislative amendments in the investment promotion are being discussed, which aim at introducing measures, as well as new criteria, that make an investment suitable for promoting.
Bulgaria is a civil law jurisdiction with no federal system.
There are no restrictions on foreign investment. Foreign investors are considered equal to local investors in all aspects, including shareholder participation. There are certain restrictions on foreign nationals acquiring ownership or limited property rights over land with EU citizens being privileged in comparison to other foreign nationals.
In 2014, EU citizens will gain equal rights to Bulgarian citizens in relation to real estate in Bulgaria.
As an EU-member state, Bulgaria imposes restrictions established at EU level (for example the applicable visa regime) that are applied by the other member states as well. Within the EU, there is the possibility for imposing restrictions on a reciprocal basis and only in compliance with the trade policy of the EU.
Currency regulations are provided in the Currency Act (State Gazette No. 83/21.09.1999, as amended). Generally, there are no restrictions on payments or currency exchanges, but the following should be considered:
Suppliers of payment services make payments and transfers to recipients abroad only after receiving declarations describing the grounds for the transfer.
People making transfers or currency payments exceeding BGN30,000 to recipients abroad must provide the supplier of payment services with certain information and documentation concerning the payment.
Transactions or payments between domestic and foreign persons must be registered for statistical purposes.
Local entities must report to the Bulgarian National Bank for:
Claims on, and liabilities to, foreign nationals.
Direct investments made abroad.
Transactions concerning the granting or receiving of financial credits to or from foreign nationals exceeding BGN100,000.
Payments within the territory of Bulgaria are made only through bank transfers or deposits to payment accounts where either:
Their value or their respective BGN equivalent is equal to or in excess of BGN15,000.
Their value is below BGN15,000 but they are representing part of a financial consideration under a contract, the value of which is equal to, or in excess of, BGN15,000.
A foreign investor has the same rights as a resident (Investments Promotion Act (State Gazette No. 97/24.10.1997, as amended)). In certain cases, international agreements give more favourable conditions for foreign nationals' economic activity.
The most common form of business vehicle used by foreign companies is a limited liability company (LLC). It can also exist as a single-owned company and creates the possibility for more direct control over the activity and management of the company.
Companies are registered with the Trade Register at the Recording Agency. The Trade Registry Act (State Gazette No. 34/25.04.2006, as amended) allows a three-day term to complete the registration procedure, counted from the moment of filing the application for registration together with the respective documents at the Trade Register.
A company's annual financial statements must be submitted, for announcement, to the Trade Register at the Recording Agency by:
31 May of the following year for sole proprietors.
30 June for limited liability companies.
31 July for joint stock companies and all other legal entities under the Commerce Act (State Gazette 48/18.06.1991, as amended).
The minimum amount of the registered capital is BGN2.
Non-cash consideration is allowed, subject to special valuation procedures.
Restrictions on rights attaching to shares. No restrictions on rights attaching to shares are possible in an LLC.
Automatic rights attaching to shares. Shareholders in LLCs have voting rights, rights to dividends and certain information rights as well as the right to participate in the management of the company.
The typical management structure for LLCs is one or more managing directors acting jointly or severally (boards do not apply).
There are no management restrictions.
Managing directors can have:
Civil liability for damages caused to the company.
Additional obligations and responsibilities in the management contract.
Administrative Liability under the Tax and Social Insurance Procedure Code (State Gazette No. 105/29.12.2005, as amended) for:
a failure to properly disclose relevant facts to the authorities;
making payments from the company's property in bad faith, constituting a hidden profit or dividend distribution;
transferring any of the company's property for no consideration or consideration substantially lower than the market price.
Criminal liability for crimes against the creditors, including (Criminal Code (State Gazette No. 26/02.04.1968, as amended)):
deliberate bankruptcy;
imprudent bankruptcy;
a failure to request insolvency proceedings where appropriate.
LLC’s are only liable for their subsidiaries' liabilities up to their contribution to the capital.
The Labour Code (State Gazette No. 26/01.02.1986) regulates employment relationships irrespective of the employees' nationality. Most of its provisions are mandatory and cannot be excluded by choice of law. It covers the regulation for commencement and termination of employment, the working hours, breaks and vacations, payment of wages and employment disputes. A lot of bye-laws regulate the vacations, sick leave, the employment remuneration, business trips, and so on. The health and safety conditions at work are regulated by a specific Act (Act on the Health and Safety Conditions for Work).
A written form is required. It must include the job position, working hours, remuneration, the term of the advance notice for termination and the workplace. The mandatory provisions of the Labour Code apply, as well as collective agreements if such exist on national, branch or enterprise level.
EU and EEA citizens do not need permits. They must register their residency in the country.
To employ another foreigner, an employer must prove there is no available Bulgarian or EU/EEA professional qualified for the job. Non-EU and EEA citizens need work and residency permits (with the exemption for business trips of up to three months for specific activities). Obtaining both permits takes about three to four months.
The fees are:
BGN600 for a work permit.
BGN200 for a residence permit, for up to six months.
BGN500 for a residence permit between six months and one year.
The work permit can be prolonged for two consecutive one year periods without the employee having to leave Bulgaria. The European blue card regime applies as of 2011.
Where a business enterprise is transferred, or the employer is changed on other grounds (for example, transformation), both the old and the new employer must inform the trade union (if any) and employee representatives of, among other things:
The planned reorganisation.
The date of the reorganisation.
The reasons for the reorganisation.
The possible legal, economic and social implications of the reorganisation for the employees.
The Labour Code sets out several grounds for lawful termination of an employment contract, as:
By mutual consent.
On expiry of the agreed term.
With advance notice by the employee.
Dismissal (with or without notice) by the employer on certain grounds set out in the law.
An unlawfully dismissed employee can claim in court indemnification and restoration to the job.
In case of unlawful termination, the employee is entitled to dispute the dismissal before the employer or the court and claim for:
The dismissal to be pronounced unlawful and be revoked.
Reinstatement to the job position.
Compensation for the period of unemployment due to the dismissal.
Correction of the grounds for the dismissal, as reflected in his work book.
There are procedures concerning redundancies and mass layoffs in the Labour Code. In case of mass layoffs, the employer must consult the trade union, the employee representatives and the Employment Agency and make efforts to:
Reach an agreement to avoid the mass layoff.
Reduce the number of employees affected.
Mitigate the consequences of the dismissals.
Before these consultations, the employer must provide employee representatives with information on the reasons for the layoffs, the number of employees to be dismissed, and so on. This information is also sent to the National Employment Agency.
Unless there is a double taxation avoidance treaty stating otherwise, a person is Bulgaria resident for taxation purposes if they:
Have a permanent address in Bulgaria.
Stay in Bulgaria for more than 183 days in any 12-month period.
Has his centre of vital interests in Bulgaria (that is, interests such as family, immovable property, professional or economic activities, which are closely related to Bulgaria).
Bulgarians (and their families) working abroad for a Bulgarian state body or Bulgarian enterprise are considered tax residents in Bulgaria.
The tax rates are:
Personal income tax: 10% on taxable income.
Social insurance contributions (the obligation for their payment is split between employer and employee):
are between 12.8% and 20.8% for the pension fund, depending on the year of birth and specifics of the category of labour;
3.5% for the common disease and maternity fund;
1% for the unemployment fund;
are between 0.4% and 1.1% for the industrial accidents and occupational diseases fund, fixed each year in the Public Social Insurance Budget Act.
Health insurance contributions: 8%.
Non-tax resident employees pay personal income tax at 10% on work income from Bulgaria. Social insurance contributions are the same as above.
Double taxation treaties can also apply.
As of 1 January 2009, the social insurance contribution to the common disease and maternity fund and the unemployment fund is divided between the employer and employee at a ratio of 60 to 40. The ratio of contributions to the pension fund is between 7.1% to 12.9% for the employer and 5.7% to 7.9% for the employee depending on the employee's year of birth and the category of labour.
Business vehicles that are registered in Bulgaria or have their actual management in the country are considered resident. Business vehicles include:
Companies incorporated under Bulgarian law.
Companies under Regulation (EC) No. 2157/2001, where they have their seat in Bulgaria.
Co-operative societies under Regulation (EC) No. 1435/2003, where they have their seat in Bulgaria.
If a relevant double taxation treaty exists, it defines tax residency for legal persons.
Non-tax resident business vehicles pay tax as follows (unless a double taxation treaty provides otherwise):
Corporate tax at 10% on profits through a Bulgarian permanent establishment.
Withholding tax at 5% on dividends and proceeds of selling shares. This tax does not apply to foreign legal persons who are resident for tax purposes in an EU member state or in another state which is a contracting party to the EEA agreement.
Withholding tax at 10% on certain types of Bulgarian-source income, for example:
income from financial instruments, issued by Bulgarian companies, the state and the municipalities;
interest payments;
income from rent or other uses of movable or immovable property;
copyright and license royalties, and so on.
The withholding taxes are withheld at source and are final.
Tax resident business vehicles pay tax on its worldwide income including:
Corporate tax on profits at 10%.
Tax on certain expenses (such as business related expenses or social expenses in kind provided to employees) at 10%.
Value added tax (VAT) at a standard rate of 20%.
Dividends paid to foreign corporate shareholders?
Dividends received from foreign companies?
Interest paid to foreign corporate shareholders?
Intellectual property (IP) royalties paid to foreign corporate shareholders?
Dividends paid by resident legal persons to non-resident legal persons (except where such dividends accrue through a permanent establishment in the country) are subject to a withholding tax of 5%.
Dividends received are subject to corporate tax at 10% and the right to use foreign tax credit in respect of the tax imposed abroad on the gross amount of the income from dividends.
Interest paid to foreign corporate shareholders is a 10% withholding tax.
IP royalties paid to foreign corporate shareholders is a 10% withholding tax.
Loans from both foreign and local affiliates come under the same thin capitalisation rules.
Interest on loans from affiliates can be deducted from a company's gross income for accountancy purposes, provided the interest payable does not exceed 75% of the company's gross income before all expenses and income from interests.
The interest in excess of this limit is deducted from the taxable profit during the next five years until they are depleted.
The profits of a foreign subsidiary do not have to be imputed to a parent company.
There are transfer pricing rules to prevent tax avoidance. Transactions between related parties are taxed as transactions between unrelated parties at the relevant market prices. This includes transactions between a non-resident enterprise's permanent establishment in Bulgaria and its other divisions situated outside the country.
There are no import or export duties on trade with EU countries. The VAT rates are:
Exports: 0%.
Imports: 20% which is payable by the importer.
Goods from non-EU countries must pay import duties, as well as VAT of 20%. Exports are generally subject to VAT at 0%.
Bulgaria has concluded more than 65 treaties for the avoidance of double taxation, including most of the EU member states. The most significant include:
The US.
China.
Japan.
Germany.
France.
The UK.
Italy.
Switzerland.
Spain.
Russia.
Most of the former members of the Soviet Union.
The relevant competition authority is the Competition Protection Commission.
The Bulgarian Law on Protection of Competition applies to all undertakings and associations of undertakings that operate in Bulgaria, or beyond it (regardless of the place of registration), should they prevent, restrict, or distort competition in Bulgaria.
Liability arising from violations of the Law on Protection of Competition may be administrative and/or civil. There are no criminal penalties for violations of the competition rules.
Restrictive agreements and practices are regulated and Bulgarian law is harmonised with EU competition law. Local regulations, such as Article 15 and 21 of the Law on Protection of Competition (State Gazette No. 102/28.11.2008, as amended), follow Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU).
The competition law regulates the activities of firms with a dominant market position and prohibits the abuse of such a position. Bulgarian competition law is harmonised with EU competition law. Local regulations, such as Article 15 and 21 of the Law on Protection of Competition (State Gazette No. 102/28.11.2008, as amended), follow Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU).
A transaction between independent companies (regardless of their place of registration) that results in a permanent change in control exercised over the participants in the concentration, and which affects the Bulgarian market (that is, there is a local nexus), is subject to merger control by the Competition Protection Commission, if the thresholds are met.
A relevant transaction can include:
A merger or acquisition between two or more independent undertakings.
When one or more persons who already control at least one undertaking purchase securities, stakes or property, for example through a contract, and gains direct or indirect control over other undertakings or parts of undertakings.
The establishment of a joint undertaking that permanently performs the functions of an economically independent subject.
Control manifests itself in the acquisition of rights, conclusion of contracts or other courses of action which, independently or jointly, and in view of the existing factual circumstances and applicable law, give decisive influence over an undertaking.
The connection with the territory is assessed according to the turnover realised by the participants in Bulgaria during the preceding financial year.
The concentration is subject to advance notification before the Bulgarian Competition Protection Commission if the sum of the total turnovers of all undertakings participating in the concentration on the territory of the Republic of Bulgaria for the previous financial year exceeds BGN25 million and either:
The turnover of each of at least two of the undertakings participating in the concentration in Bulgaria for the previous financial year exceeds BGN3 million.
The turnover of the undertaking which is the object of acquisition on the territory of the Republic of Bulgaria for the previous financial year exceeds BGN3 million.
Definition and legal requirements. To be patentable, inventions must have all of the following characteristics:
Be new.
Involve an inventive step.
Be capable of industrial application.
Legal Protection. Inventions are protected by a patent issued by the Bulgarian Patent Office (BPO), which certifies the proprietor's exclusive rights over the invention. The Republic of Bulgaria is a member of the European Patent Convention since 2002, and European patents granted by the European Patent Office also have legal effect in Bulgaria on validation.
Enforcement and remedies. The patent holder, and an exclusive licensee, is entitled to bring an action for infringed patent rights before the competent court to:
Establish the facts of the infringement.
Claim compensation for damages and loss of profit.
Stop the infringement.
Reprocess or destroy the infringing goods.
Have the court judgment published in two daily newspapers at the infringer's expense.
Length of protection. Patents are protected for 20 years from the date of filing the application.
Definition and legal requirements. The right is acquired by registration and starts from the date of publication for registration.
Protection. Trade marks are protected by registration with the BPO and the issuance of a registration certificate.
Enforcement and remedies. This is the same as for patents (see above, Patents) with the additional possibility of enforcement through an administrative-penal procedure before the BPO.
Length of protection and renewability. Protection is for ten years from the date of filing the application. The registration can be renewed for an unlimited number of further ten-year periods.
Definition. The design must be new and original.
Registration. The right to a design is acquired by registration with the BPO.
Enforcement and remedies. The design right holder, and an exclusive licensee, have independent rights to undertake actions for infringement. The court has similar powers as those for trade marks (see above, Patents). There is an additional possibility of enforcement through an administrative-penal procedure before the BPO.
Length of protection and renewability. The length of protection is ten years, after which the registration can be renewed for three additional successive periods of five years each.
Definition and legal requirements. The design must be all of the following:
New.
Original.
Have been made available to the public, namely to have been published, exhibited, used in trade or otherwise disclosed in such a way that in the normal course of business, these events could reasonably have been known to those in the sector concerned.
The design should not, however, be deemed to have been made available to the public for the sole reason that it has been disclosed to a third person under explicit or implicit conditions of confidentiality.
Enforcement and remedies. No registration is required. Unregistered designs can be protected only by EU legislation (Council Regulation (EC) No 6/2002 of 12 December 2011 on Community designs). Civil claims before the relevant competent court (Community design court in Bulgaria, the Sofia City Court).
Length of protection. The length of protection is three years from the date on which the design was first made available to the public.
Definition and legal requirements. A person whose name or identifying mark is inscribed in the customary manner on the original of a work, its replicas or copies, and/or the packaging, is considered its author. An author gains copyright over their literary, artistic and scientific works with the act of creation.
Protection. The copyright does not need to be registered. The Bulgarian Copyright and Neighbouring Rights Act (State Gazette No. 56/29.06, as amended) regulates copyright protection.
Enforcement and remedies. The copyright holder, or a person given exclusive user rights, can bring an action against an infringer to:
Claim damages immediately resulting from the infringement.
Establish the fact of the infringement.
Stop or ban the illegitimate use.
Seize and destroy illegitimately produced copies of the work, including negatives, master copies, printing forms and other materials.
Seize and put out of operation the copying, decoding and reproducing equipment used exclusively for committing violations.
Publish the court judgment in two daily newspapers and screen it on national television at the infringer's expense.
Length of protection and renewability. Protection lasts for the life of the author plus 70 years. For works having two or more authors, the 70-year term starts at the death of the last surviving author.
Utility Models
Legal protection for utility models granted through registration with the Patent Office. To be registered, utility models must be new, involve an inventive step and be susceptible of industrial application. The term of validity of the registration is four years as of the filing date of the application. It can be extended by two consecutive three-year periods.
Supplementary Protection Certificates
As of 1 January 2007, supplementary protection certificates for products enjoying patent protection must be granted under the terms and procedure provided for in Regulation 1768/92/EEC (Regulation (EC) 469/2009) and Regulation 1610/96/EC. The certificate application must be filed with the Patent Office of the Republic of Bulgaria.
Agency is regulated by the Commerce Act (State Gazette No. 48/18.06.1991, as amended) and by written agency agreements. An agent is a professional person engaged independently to act as a merchant's representative, with separate rights and obligations. Agents can be authorised to effect transactions in the merchant's name, or in their own name but on the merchant's behalf.
An agent is entitled to a commission for all transactions completed, or assistance given, during the term of the contract. Where agents are entrusted with a specific territory or circle of clients, they are entitled to commission for all transactions concluded without their assistance but with persons from the same territory or with the same clientele.
On termination of an agency contract, the agent has the right of a single compensation payment when the principle continues to profit from the clientele created by the agent.
Distribution agreements are not specifically regulated. There is an interpretation of the concept by the Supreme Court, but no legal regulations to deal with this type of agreement.
Franchising agreements are not specifically regulated. There is a definition of franchise in the Corporate Income Tax Act (State Gazette No. 105/22.12.2006, as amended) and certain rules of taxation on franchising fees, but no specific regulation of this type of agreement.
Relations between providers and recipients in e-commerce are regulated by the:
Law of Electronic Commerce (State Gazette No. 51/23.06.2006, as amended). This gives providers specific obligations and liabilities regarding their services and the acceptance of electronic statements.
Law of Protection of Consumers (State Gazette No. 99/09.12.2005, as amended). This gives general rules for the protection of consumers and specific requirements in distance selling contracts, including:
consumer withdrawal rights;
payment requirements;
liabilities and burdens of proof in any resulting litigation.
Law of Electronic Documents and Electronic Signature (State Gazette No. 34/06.04.2001, as amended). This regulates the exchange of electronic documents and statements. It recognises the validity of electronic documents and regulates the certification of services providers.
The general regulation of advertising is mainly related to protection of competition and protection of the consumers of some specific products. From the competition perspective, the Bulgarian legislation prohibits misleading advertisement and the prohibited comparative advertisement.
The advertisement which in any way, including by the manner of its presentation, misleads or may mislead the persons it targets or reaches and therefore possibly influences their economic behaviour, and thereby harms or may harm a competitor, must be considered misleading.
Comparative advertisement should be any advertisement which directly or indirectly identifies a competitor or goods or services offered thereby. The Competition Protection Act provides for some explicitly described hypothesis where the comparative advertisement should be allowed.
From a consumer protection perspective, the local legislation also provides for limitation of advertisement in the following cases:
Cigarette products.
Alcohol products.
Gambling.
Data protection is regulated in the Law of Protection of Personal Data (State Gazette No. 1/04.01.2002, as amended) which provides the main obligations and regulatory requirements for personal data administrators.
Personal data is protected under Bulgarian law, and includes any information related to a natural person, identified directly or indirectly by an identification number or one or more specific indices.
The Law of Protection of Consumers regulates product liability and product safety. In general, the producer, the distributor and the merchant are responsible for damages caused by stock defects.
Damages can be recovered for:
Death or physical injury.
Damage to personal property of more than BGN1000.
All other damage under the civil law rules.
The producer is responsible irrespective of whether they caused the defect.
Main activities. Tax collection authority.
Main activities. The Bulgarian National Bank is responsible for organising, supporting and developing the domestic payment systems, by assisting the creation and operation of effective payment systems and overseeing them. It has the exclusive right to issue banknotes and mint coins.
W http://migration.mvr.bg/default.htm
Main activities. The Migration Directorate is a national specialised authority responsible for regulation and control of the migration of foreign citizens, staying in Bulgaria and for the administrative servicing of the EU and EEA citizens and the members of their families.
W http://www.icadastre.bg/index.aspx?ReturnUrl=%2f
Main activities. Register of the ownership and other property rights over real estate in Bulgaria.
Main activities. Register of the companies established and existing under the Bulgarian Commerce Act and their current status.
Official websites where original language text of the legislation/case law/rules are available:
Description. The official website of the State Gazette where all laws are published.
Description. The official website of the Parliament of the Republic of Bulgaria, where draft laws are under discussion by the Parliament.
Description. The official website of the Supreme Cassation Court providing access to case law of this court.
W http://www.sac.government.bg/
Description. The official website of the Supreme Administrative Court providing access to case law of this court.
Description. The unofficial online portal on the legislation in force.
Description: Legal information systems providing paid access to translated legislation. English translation of separate specialised legislation texts for guidance only is available also under the official websites of certain ministries.
T +359 2 971 3935
F +359 2 971 1191
E vladimir.penkov@penkov-markov.eu
Professional qualifications. Bulgaria, Solicitor, 2002; Bulgaria, Arbitrator, 1999.
Areas of practice. Banking and finance; company and commercial; competition and anti-trust; privatisation; foreign investments; investment management; M&A; project development and finance; taxation; IT, media and telecommunications; energy; international arbitration.
Languages. Bulgarian, German, English
Professional associations/memberships.
Arbitrator at the Arbitration Court at BCCI.
Member of the Managing Board of BCCI.
Chairman of the Supervisory Board of the Bulgarian, Telecommunications Company.
Member of the German-Bulgarian Cooperation Council.
Publications.
T +359 2 971 3935
F +359 2 971 1191
E svetlin.adrianov@penkov-markov.eu
Professional qualifications. Bulgaria, Solicitor, 1996.
Areas of practice. Company law and commercial; competition and antitrust; consumer protection; privatizations & foreign investments; litigation and arbitration; M&A; project development and finance.
Languages. Bulgarian, English, Russian
Publications.
Country Question and Answer Chapter, Bulgaria in the International Comparative Legal Guide to: Cartels & Leniency 2012, Authors together with Vladimir Penkov issued by the Global Legal Group.
Competition Legislation Imposes New Restrictions on Business, LegaInterconsult News (September 2012).
More on Prohibited 'Promotions', LegaInterconsult News (September 2012).
