Bulgaria: Overview

RENTAL YIELDS

Sofia's rental yields are moderate at 6.4%

Apartment prices in Sofia range from €80,00 to €215,000, i.e., an average of €1,440 per sq. m.

Gross rental returns are around 6.4%. Yields are higher for smaller apartments of 60-90 sq. m., reaching up to 6.96%. While monthly rents for 150 sq. m. apartments are much higher at €1,065, this does not compensate as much for the high selling price.

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TAXES AND COSTS

Bulgaria's tax burden is in the middle range

Effective Tax Rate on Rental Income
Monthly Income	€1,500	€6,000	€12,000
Tax Rate	10%	10%	10%
Click here to see a worked example
Source: Disclaimer

Rental Income: Tax on gross rent payable to non-residents of 10% must be withheld at source. Deductions are not allowed for nonresidents.

Capital Gains: The sale of real estate by nonresidents in Bulgaria is subject to 15% withholding tax on the net (capital) gains received. However, properties owned for more than five years are not taxable.

Inheritance Inheritance is taxed at progressive rates from 0.7% to 5%.

Residents: Residents' worldwide income is taxed at progressive rates ranging from 20% to 24%.

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BUYING GUIDE

Total transaction costs in Bulgaria are among the highest in Europe

Closing costs are quite high in Bulgaria. Total roundtrip transaction costs range from 24% to 26%, with the bulk of the cost going to the 20% VAT, which is payable on old as well as new building sales. An agent’s commission of 2.5% to 3% is equally borne by buyers and sellers. To these transaction costs, of course, the foreigner who is buying land will have to add the costs of forming and administering a company, see forming a company in Bulgaria.

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LANDLORD AND TENANT

The laws are pro-landlord

Bulgarian law is pro-landlord.

Rent: There are no rent controls, so rents and terms and conditions can be freely negotiated between the parties. Any method of rent increase can be agreed upon, including indexation, and periodic progressive increases.

Tenant Eviction: Bulgaria’s weakness is the inefficiency of the court system, which can, in practice, make it difficult to evict a tenant. Usually it is the landlord who initiates litigation. But the length of proceedings often dissuades them. It takes an average of 660 days to evict a tenant.

ECONOMIC GROWTH

Strong growth continues with reforms

Bulgaria’s transition from communism has not been easy. Things only really started to improve when former king Simeon II became prime minister, from 2001 to 2005. His government pushed market reforms intended to ease accession to the EU. The economy grew remarkably, with unemployment falling to just 9.1% in 2006, from a high of 20%. This was a big change from the political instability and strikes of the early 1990s, and the economic stagnation of the late 1990s.

In June-August 2005, the Socialist Party led by Sergei Stanishev topped the poll in the general elections. After weeks of wrangling, the main parties signed a coalition deal under which he became prime minister, but he has largely continued previous policies, partly constrained by EU membership conditionalities. 2006 GDP growth is likely to come in at around 6% - 6.5%, well up on 2005’s 5.5% growth.

Inflation was reduced to 2.3% in 2003, down from 10.4% in 2000, though it has since risen sharply, with annual inflation in Q3 2006 a worrisome 9.3%. Inflation is expected to fall back to 4.5% in 2007, as oil prices ease.

The widening current account deficit, around 16% of GDP in 2006, is expected to decline gradually as import growth slows, and oil prices ease, and as tourist receipts rise.

The Bulgarian National Bank (BNB) has been gradually increasing base interest rates, which have risen from 2.05 % in Q4 2005, to 3.15% in Q4 2006.

The EU welcomed the accession of Bulgaria on January 1 2007, but the government is being forced to take steps to fight corruption and organized crime, and to improve border-control systems and environmental safety.