Transaction costs in Bulgaria are moderate
Taxation Researcher | July 11, 2019
How high are realtors´ and lawyers´ fees in the Bulgaria? What about other property purchase costs?
|Transfer Tax||0.10% - 3%||buyer|
|Notary Fees||0.10% - 1.50%||buyer|
|Real Estate Agent´s Fee||2.50% - 3%
2.50% - 3%
|Costs paid by buyer||2.80% - 7.60%|
|Costs paid by seller||2.50% - 3%|
|ROUNDTRIP TRANSACTION COSTS||5.30% - 10.60%|
| See Footnotes
Source: Global Property Guide
How difficult is the property purchase process in Bulgaria?
Buyers should remember that unlike the UK, US, and other developed countries, Bulgaria has no centralized property registry. Property searches will be necessary, and the process needs to be entrusted to a competent Bulgarian lawyer or consultant.
It is very important to find an advisor that you can trust, and have a full discussion about why you are buying (for investment? for residence?). Do NOT be persuaded by developers or by investment schemes that it is unnecessary to have a careful discussion with a truly trusted advisor. It is absolutely necessary.
"Bulgaria gives buyers a very good tax rate on income tax BUT you need support, you need a trusted advisor,´ says Bogdan Ivanchev of Bulgarian Accountant. ´And this is the biggest problem in Bulgaria - they will cheat you.
´It is always important [for the advisor] to understand what the client wants the property for. Knowing that, we can devise a consistent strategy, from A to Z."
Foreign investors may purchase property and the land it had been constructed in. Foreign investors are restricted from owning agricultural land but the restriction will fall off in 01 January 2014.
Citizens of EU states may own property and land in Bulgaria at the same terms and conditions as Bulgarians.
At present, there is an alternative option when buying landed property - to form a Bulgarian registered company, with the buyer as sole owner and director (the buyer could choose to add other directors, e.g., his spouse).
When buying non-landed property, a company is not necessary, but is often advisable. Otherwise if you buy an apartment and the head lease is sold, the new owner could forbid entry to the land around the apartment.
An important issue is: ´Should the company be VAT-registered or not´? Discuss this with your advisor.
- If the seller is a physical person, buyer is physical person, no VAT
- If the seller is a physical person, buyer is company, no VAT
- If seller is a company, VAT required IF company is registered for VAT, or if property value is over BGN50,000 (€25,510)
- If seller is a company registered for VAT, and buyer is company registered for VAT, then buyer can get VAT refund.
So if you are buying from a developer (who is likely to be a company registered for VAT), you may need to become VAT-registered.
In any case, if the sale price is more than BGN50,000 (€25,510) and the property was bought through a company, your company will need to get VAT registered, because its turnover is more than BGN50,000 (€25,510). After the sale, you need to register for VAT within 14 days.
If VAT is payable, VAT is 20% of the ´taxable base´ - the difference between the sale price and the ´base turnover´ of BGN50,000 (€25,510) - so if you sell for BGN51,000 (€26,020), VAT is payable at 20% of BGN1,000 (€510). Or alternatively if your purchase price was above BGN50,000 (€25,510), VAT is 20% of the difference between your purchase and your sale price.
A complication arises if you bought from a company, because you would then probably have reclaimed the VAT your developer paid (and included in the sale price). You would have registered a company, then registered for VAT, and reclaimed the VAT that your vendor charged you. When you sell, you will need to pay back that VAT refund in full (even if the price of the property has dropped).
The Corporate Route
To set up a company to acquire property is not unusual, and there are many realtors who offer this as part of the package.
The steps are as follows:
- When you have found a property you like, make a preliminary enquiry to get answers to your questions and address initial issues. When you´re sure you want the property, negotiate.
- Upon reaching an agreement, a preliminary contract is drawn up and signed by the vendor or a representative, and at the same time you are expected to place a 10% deposit to secure the property.
- The title search then begins as your realtor begins to set up a company for you.
- When the company has been setup and the title is "cleared", a "contract of purchase" (notary act) is signed by both parties, while you pay the existing balance from the purchase price and the ´keys´ handed over to you. You are now a proud owner.
To register a Private Limited Company (OOD) you must:
- Come up with a unique company name, and reserve it.
- Draft the articles of association, or memorandum of association.
- Appoint a managing director (or board of directors).
- Deposit at least 70% of the authorized capital, and obtain a bank deed confirming the deposit. The minimum foundation capital is BGN5,000 (€2,551).
- Register at the commercial register, acquire any needed permits, and then wait for publication in the State Gazette. The company registration is technically complete at this. There are however a few more steps to take:
- Within three days of the registration, register the company at the National Statistical Institute and obtain a BULSTAT number.
- Register at the National Social Security Institute and the local tax office.
You now have a legal company.
Note: In Bulgaria there is a Tax Estimation Price similar to UK´s "ratable value". This value is usually several times lower than the sale price. For various reasons most vendors prefer that this lower price should appear on title deeds rather than the real sale price. Because of this, there might be discrepancies between the price you are paying and the price written on title deeds.
The Notary Deed
Under Bulgarian law the transfer of property rights, as well as the establishment of limited rights in rem in respect of real estate is done by way of a formal agreement (generally referred to as a "Notary Deed"), executed by the parties and a duly qualified Notary Public authorized to act within the region of location of the property.
Transfers of ownership or limited rights in respect of real property are subject to registration with the relevant Real Estate Registry. The legal owner of the property is considered to be the person registered in the Real Estate Registry.
It takes an average of 17 days to complete the procedures needed to register a property.
Footnotes to Transaction Costs Table
|TAX BASE, BGN (€)||NOTARY FEE|
|Up to 100 (€50)||BGN30 (€15)|
|100 to 1,000 (€500)||1.50% on band over €50|
|1,000 to 10,000 (€5,000)||1.30% on band over €500|
|10,000- 50,000 (€25,000)||0.80% on band over €5,000|
|50,000- 100,000 (€50,000)||0.50% on band over €25,000|
|100,000 - 500,000 (€250,000)||
0.20% on band over €50,000
|Over 500,000 (€250,000)||
0.10% on band over €250,000 but not more than BGN6,000 (€3,000)