Property Purchase Process | Property Purchase Costs | Mortgage Finance

Overview:
Bulgaria is a politically stable country, and the introduction of a currency board in 1997 stabilised the country's economy. However, as is the case elsewhere in Central and Eastern Europe, legislation, including that governing real estate, is volatile and subject to frequent change. A foreign investor can invest in properties in Bulgaria either directly or through a local entity.

Only Bulgarian-resident individuals and entities can acquire title to land, while non-residents may acquire only buildings and limited rights (e.g., leasehold and construction rights) to land. In some limited cases, acquisition of immovable property by non-residents requires prior permission of the Ministry of Finance.

Foreign investors are guaranteed full repatriation of profits resulting from an investment in Bulgaria. The transfer abroad can be made only after the bank organising the transfer is presented a certificate proving payment of all Bulgarian taxes due.

People buying property in Bulgaria will have to bear the following costs:

Transfer taxes
Apart from corporate tax, no other direct taxes are levied on the transfer of real property. The transfer is, however, subject to notary and municipal fees. The notary fees are paid on the higher of the market price or the book value of the property at varying rates, with the maximum being BGN 3, 500. In addition, 2% of the market value of the property is paid to the municipality in which the real property is situated.

Local taxes and rates
The owner of a building or a plot is obliged to pay a real property tax. Where a building is built on a State or municipal plot, the value of the plot will also be included in the tax base. The tax is equal to 0.15% of the book value of the property. Arable land is exempt from local taxes. In addition to the real property tax, owners also pay waste-collection fees.

Capital Gains Tax
There is no Capital Gains Tax on the profit when your company sells the property but the standard rate of corporate tax (15% in 2005)

Value Added Tax
Transactions with land and lease of property for residential purposes are exempt from VAT (Value Added Tax); all other real estate transactions are subject to VAT at the uniform rate of 20%. The buyer/lessee is entitled to a VAT refund, provided that it is registered for VAT purposes

Investing through a local entity versus direct investment
As indicated above, a foreign investor can invest in properties in Bulgaria either directly or through a local entity. In the case of a direct investment, the tax treatment of the foreign investors depends on whether or not their activities constitute a permanent establishment.

The definition of a permanent establishment under Bulgarian law is very broad: the mere fact that a foreign company owns and rents out property in Bulgaria (except where such activity is carried out through an independent agent) may create a permanent establishment under domestic law.

The various tax treaties entered into by Bulgaria usually contain a narrower definition of permanent establishment. If the activities of a foreign person owning real property in Bulgaria do not constitute a permanent establishment, the person will be liable for only 15% withholding tax on the rentals and capital gains, unless an even lower rate is applied under a double tax treaty.

Completion costs

1. The outstanding amount of money necessary to pay the balance on your property.

2. Extra 10%-11% of the cost of the property for:

• Solicitor’s fee, Notary fees and interpreter’s fees - you will be informed for these expenses by your lawyer.
• The minimum fee charged is 1000 EURO.
• Notary tax – 1.75 % of the cost of the property
• Stamp duty fee - 2% of the cost of the property
• Local taxes - 2 % of the purchase price.

On the day of completion the lawyer will deal with the payment.

NB All legal and Notary fees, government and local taxes have to be met by the buyer on the day of completion.

Important information to consider
The usual timeframe for the old owners of the property to move out of it after completion of the sale is one month. This could be negotiated if the buyers require a shorter term. For this purpose, they should ask the assistance of Bulgarian Home 4U, and not expect the property to be empty right after signing of the final contract.

All foreign buyers purchasing property in Bulgaria must be aware that in Bulgaria there are such terms as "tax estimation price" and "purchase price". The "tax estimation price" is for the purposes of real estate taxation and is usually much lower than the actual selling price. This is the equivalent to the "Council Tax Valuation" of a property in England.

Most of the Bulgarian property sellers wish that the "tax estimation price" is written in the title deed, and not the selling price which the buyers are paying, so due to this practice there may be a discrepancy between the price you are paying and the price written in the title deed. This issue should be discussed and agreed between the seller's lawyers and your lawyer prior to the completion date.

It must be clearly understood that you are responsible for paying all local fees and taxes prior to the completion date. This money has to be transferred into your lawyer’s account before this date

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