Bulgaria property news and articles

In Bulgaria the issue of taxation is made more complicated by the fact that many foreign owners of property can own it either as individuals or through a company. This means that it is necessary to examine the tax implications for both cases. The matter is further complicated if buying as an individual, because your tax base will be dependent on your tax residence. Therefore below we have divided the discussion concerning tax into three sections:

• Other taxes payable in Bulgaria by non-resident individuals.
• Other taxes payable in Bulgaria by resident individuals.
• Other taxes payable by companies.

Other Taxes Payable in Bulgaria by Non-resident Individuals

There are taxes to pay when letting and when selling your Bulgarian property.

The income of non-resident owners (individuals) from the letting of real estate in Bulgaria is subject toio per cent withholding tax in Bulgaria. The withholding tax is administered as follows.

• If the lessee (the rent-payer) is a Bulgarian company or other entity, the withholding tax is automatically paid to the state by the lessee on behalf of the non-resident lessor (the owner of the property). This tax should be paid by the end of the month following the date in which the lessee company has entered the rent as a cost in its accounting books (regardless of whether the rent has been actually paid or not).

• If the lessee is an individual, the tax should be paid by the non-resident owner of the real estate, or by its representative, within 30 days of the date the lessee paid the rent.

If you sell your property as an individual non-resident owner,you must pay ю per cent withholding tax on the difference between the price you are selling it for (or the tax evaluation of the value of the property, if this is greater), and the price you paid to purchase it.

There are some important exemptions that apply to EU citizens when it comes to selling property. You are not required to pay this 10 per cent withholding tax if you sell:

• only one residential immovable property in any one year, regardless of when the property was purchased.

• up to two immovable properties, as well as any number of agricultural and forest properties, provided that more than five years have elapsed between the date you concluded the purchase of the property and the date of sale or exchange.

Other Taxes Payable in Bulgaria by Resident Individuals

Again, this is a brief summary of the immensely complicated laws relating to Bulgarian tax. If you are resident in Bulgaria,you are liable to income tax. Taxes are paid to the national government. Bulgarian tax returns must be completed by the end of April for the previous calendar year. If your total income is subject to any of the permitted exemptions,you need not fill in a tax return unless you are running a business or are self-employed.

Income is divided into six categories, but for the purpose of this book we will only refer to employment income, income from letting property and income from selling property.

Changes in Income Tax in Bulgaria

Recently the Bulgarian givernment announced plans to introduce a flat rate of 10 per cent for income tax. Whilst this is still awaiting approval, it would have a positive effect for those who decide to live and work permanently in Bulgaria.

The current rate of VAT in Bulgaria is 20 per cent. If you buy a property as an individual or as a company from a VAT-registered company,you will have to pay 20 per cent VAT. The seller then passes on this VAT to the government.

VAT Registration

Companies are obliged to register for VAT if the value of their sales is equal to or exceeds 50,000 leva (around €25,500) in any period not exceeding 12 months. You can also choose to register for VAT even if you have no revenue at the time of registration.

Consequences of VAT Registration

As of the date of your company’s VAT registration you are obliged to charge 20 per cent VAT on all taxable deals carried out in Bulgaria. The company should prepare and file monthly VAT returns and VAT purchase and sales ledgers.These documents should be submitted to the local tax office monthly.The company is obliged to settle its VAT liabilities no later than the 14th of the following month.

VAT in Operation

VAT charged to the buyer of the real estate will not be recoverable at the point of purchase unless the buyer is also registered for VAT. However, VAT may be recovered by the buyer as long as the property is still owned by the buyer at the date of their VAT registration. In other words, in order to get back the VAT charged on the purchase of real estate, the buyer should not dispose of the property before the date of their VAT registration. Once you have become VAT-registered, however, you will be expected by the tax authorities to be carrying out business and paying VAT for the services and goods that you sell.

Bearing this in mind, it is important that you schedule the timing of the purchase of the property, VAT registration and subsequent sale of real estate so as to allow for the recovery of the VAT charged on the initial purchase.

Activities that are not subject to VAT (even if you are VAT-registered) for the purposes of this book include:

• Letting a residential property to an individual who uses the property for residential purposes.

• Deals connected with agricultural land or forests.

• The sale of any buildings that are more than five years old; buildings are subject to VAT for five years from the date permission to use is granted, rather than the date when the building was given planning permission.

• The value of the right to build on land.