Doing business in

Learn how EY can help you navigate through Bulgaria 2019 01 Introduction

02 Bulgaria at a glance 03 Country profile: general information, geography, demographics 04 Business landscape: economy, financial system, key sectors, reasons to invest, foreign

10 Business incentives 12 incentives 12 Non-tax incentives 13 EU funding opportunities

14 Tax guide 16 Personal taxation 17 19 Immigration 21 Property 22 Corporate income tax 25 Indirect taxes

30 Legal guide 32 Establishing business presence 32 Business entities 33 Acquisition of property 33 Regulatory compliance 33 Banking 34 Intellectual and industry property 34 E-business 34 Competition & Consumer protection 34 Data privacy 35 Labor

36 Accounting and financial reporting. Audit.

48 EY Bulgaria Dear reader,

hank you for taking the time to get acquainted with this guide containing a comprehensive tax and legal analysis of the business environment in T Bulgaria. We have tried to touch upon the various questions that you as an investor might have when trying to find the best destination for your next business endeavour. Of course, you need to be aware that the economic, tax and legal landscapes change with time and there are a number of details within your specific industry sector and company business model that need to be observed.

In the last 27 years, Bulgaria has made considerable progress in terms of economic and political reforms. Today, in 2019, the country enjoys stable economy, political landscape and financial system. According to the , the Bulgarian economy will grow by 3.1% in 2019 in line with the forecasted 2.9% GDP growth of the global economy.

We look forward to welcoming you in !

All the best,

Nikolay Garnev Country Managing Partner, EY Bulgaria

EY Bulgaria is here “for every step of your business.

1 Doing business in Bulgaria How do we build a better working world?

ulgaria is situated on the and is bordering to the North, the Republic of and North BMacedonia to the West, and to the South and the Black Sea to the East. The Danube River separates Bulgaria from Romania connecting Bulgaria with countries from . The Black Sea provides water access to , Ukraine and Georgia, and through the Bosphorus, to the World Ocean. Its location in southeastern Europe puts it at the crossroads of important routes connecting Western Europe with the Middle East and Russia and Asia. The strategic location combined with developed transportation infrastructure to close economic ties with other countries. Bulgaria has four commercial airports in Sofia, , Varna and , which operate international and domestic flights.

Doing business in Bulgaria 2 Population

According to the official statistics by UNICEF, Bulgaria’s population is highly educated with an adult literacy rate of 98% for 2015. This, combined with a relatively low cost of labor, makes Bulgaria an attractive destination for foreign investments. Blak Bulgaria sea nder working age 16 t working age 43 er working age 13 rban 52 ural 1

ale 345 eale 365

oulation b orking status oation ender At a glance in ln Source: National Statistical Institute

Climate Time zone Continental EET 1 New Year’s Day Jan The continental Mediterranean Bulgaria is in the Eastern European Time (EET) zone climate of Bulgaria is a 3 National Holiday combination of cold, damp and is 2 hours ahead of Mar (Bulgaria’s Day of Liberation from Ottoman Rule) winters and hot, dry summers. Coordinated Universal Time. The country is partly The zone uses Daylight Saving 1 Labor Day May mountainous with lowlands in Time and is 3 hours ahead the north and the southeast. during the summer. 6 St. George’s Day, Day of the Bulgarian Army May

Day of Bulgarian Enlightenment and Culture, and of Currency 24 Language May Slavonic Alphabet Bulgarian 6 Bulgaria’s Unification Day Sept The country’s official language The official currency of Bulgaria is Bulgarian. Secondary is Bulgarian Lev. Bulgaria 22 Bulgaria’s Independence Day language closely corresponds enjoys stable currency due to Sept to the ethnic background. a arrangement According to the most recent introduced in 1997 (Bulgarian 1 Enlightenment Leaders’ Day – a day-off for educational Nov establishments census from 2011, 85% are currency is pegged to the ethnic , 8.8% are at a rate of BGN 1.95583 : EUR 1). 24 Christmas Eve Turkish, 4.9% are Roma and Dec the rest are from other ethnic groups. English and, to a lesser 25-26 Christmas Dec extent, German and French are spoken by the population as 2 days Easter (moveable holiday) second languages. Public holidays

Doing business in Bulgaria How do we build a better working world? Business landscape

n the last few years, Bulgaria Bulgaria has made a considerable has enjoyed a period of progress in the last 25 years, sustained reforming its economy in line with and political stability, and has the political changes happening in beenI ranked 50th in the World Bank’s the country. Joining the European “Doing Business 2018” index. Union (EU) in 2007 was a driving force for reform, modernization and Bloomberg ranks Bulgaria as the sixth convergence with EU living standards. best country for doing business in and Central Asia. A. T. The main drivers of economic growth Kearney ranks Bulgaria as number in Bulgaria in 2017 and 2018 were the 15 globally as an outsourcing increase in private consumption and destination. . Private consumption will still be one of the main drivers of economic Currently, BMI reports suggest that growth in Bulgaria in 2019, however, Bulgaria has a promising growth foreign direct investments, EU funds potential over the next decade due to and digital transformation will also its competitive labor force, growing contribute to the growth of the local political stability and potential for economy. Exports are expected to increase in productive capacity. With have a decrease in the whole region of the Bulgarian economy showing Central & Eastern Europe. signs of recovery after the recession for 2014 and 2015 and the country The table on the next page presents looking well-positioned to attract the main macroeconomic indicators foreign direct investment (FDI) over for the past five years and estimates the next few years, the forecasted real up to year 2023. GDP growth will average over 2.8% in the next 10 years.

Government debt to GDP

o D al ala ain aia rane olan relan rus reee elan usria inlan roaia sonia een Belgiu Bulgaria loaia loenia ungar orugal oania Denar eran iuania eerlans uebourg e eubli nie ingo

Doing business in Bulgaria 4 Key indicators and forecasts Source: Haver Analytics/Dun & Bradstreet

Subject descriptor 2014 2015 2016 2017 2018e 2019f 2020f 2021f 2022f 2023f

Real GDP growth (%) 1.8 3.5 3.9 3.8 3.3 3.0 2.8 2.9 2.6 2.7

Nominal GDP in USDb 57 50 53 58 65 67 70 73 76 77

Nominal GDP in local 83 88 94 101 108 110 112 115 117 119 currency (b)

GDP per capita in USD 7,841 6,984 7,457 8,205 9,240 9,613 10,024 10,571 11,092 11,384

Population (year-end, m) 7.2 7.2 7.1 7.1 7 7 6.9 6.9 6.8 6.8

Exchange rate 1.5 1.8 1.8 1.7 1.7 1.6 1.6 1.6 1.5 1.5 (yr avge, USD-LCU)

Current account in USDb 0.7 0 1.4 3.9 2.9 1.9 1.4 1.3 1 0.8

Current account 1.3 0 2.7 6.7 4.5 2.9 2.1 1.8 1.4 1 (% of GDP) FX reserves 18.6 20.8 23.7 26.7 27 27.3 28.1 28.7 29.3 30.1 (year-end, USDb)

Import cover (months) 6 7.9 9 8.6 8.2 7.9 7.7 7.4 7.2 7.1

Inflation (annual avg., %) -1.6 -1.1 -1.3 1.2 2.6 2.3 2 2.1 2 2

Govt balance (% GDP) -3.7 -2.8 1.6 0.8 0.1 -0.2 -0.1 0 0.1 0

Low Among Stable government the highest economy Bulgaria, together with and debt to GDP GDP growth are expected to be the three 2nd lowest to GDP in the EU most stable economies in Central & in the EU (22%) in 2018 Eastern Europe in 2019 (according to Euromoney).

5 Doing business in Bulgaria How do we build a better working world?

Financial system • ► In June 2017, KBC Group acquired Sectors United Bulgarian Bank, part of NBG he Bulgarian banking sector Group (holding 7.4% of the total ulgaria has a strong industrial plays the most significant market) for the amount of EUR basis. In the last decade, T part in the country's financial 610m, leading to the consolidation B Bulgaria has increased its system, with assets accounting for of UBB and CIBANK (part of KBC industry share and, also, the total 76% of total financial assets. The Group holding 3.4% of the total share of manufacturing in GDP. Central primary institutions responsible for market). to the are the the financial stability of Bulgaria • ► In January 2019, Societe Generale following sectors: , , are the Expressbank was acquired by OTP , , (BNB) and the Financial Supervision Group for the amount of EUR 400m. and , as well as IT and ICT, Commission (FSC). The FSC's main The integration between the two telecommunications, pharmaceuticals responsibilities lie in the regulation banks will continue until 2020. and textiles. Primary industrial exports and supervision of non-banks, capital As a result DSK Bank will further include clothing, iron and , markets, insurance and pensions, but strengthen its market position in machinery and refined fuels. All of nevertheless it works with the BNB Bulgaria reaching a market share of this comes as a condition for boosting to safeguard the financial stability 19% or more. competitiveness, sustainable growth in the country. In addition, the and new jobs. • ► The total assets of the domestic Financial Stability Advisory Council banking sector (Group 1 and (FSAC) is responsible for the formal Group 2) amounted to c. EUR 52.8b Macroprudential framework, crucial as at Sep18. Net loans amounted at for the banking sector. Furthermore, EUR 30.8b in Sep18. Between July the prime responsibility of the BNB is and September 2018, liquid assets to assess systemic risk in the banking posted an increase of 5.8%. By the sector. However, it also has a macro- end of Sep18 their share in banking prudential responsibility in line with balance sheet assets was 25.9% the EU supervisory framework. (25.3% in June 2018).

• ►► The Bulgarian banking market is • ► In 2019, the ECB conducted an currently composed of 20 banks and overall assessment and will adopt 6 branches of foreign banks. a decision on Bulgaria’s request to establish close cooperation. • ► In August 2016, the Central Bank The overall assessment included announced the results of the Asset Asset Quality Reviews and Stress Quality Review of all banks, which tests of six banks in Bulgaria. The confirmed the stability, high liquidity assessment was done between and good capitalization of the January and June 2019. The results banking sector. will be announced later this year. Strong financial system confirmed by a number of regulatory reviews by local and EU regulators

Doing business in Bulgaria 6 Industries % in GDP Source: Oxford Economics

Industry 2013 2014 2015 2016 2017 2018 2019 Manufacturing 15.0% 15.4% 15.9% 16.1% 16.4% 16.3% 16.4% Government and community services 15.7% 15.3% 14.4% 14.2% 14.1% 14.1% 14.0% Real estate activities 11.8% 12.0% 12.2% 12.2% 12.0% 12.1% 12.1% Retail 11.6% 11.7% 11.4% 11.7% 11.8% 12.0% 12.1% Financial services 7.5% 7.2% 7.4% 7.3% 7.2% 7.2% 7.2% and logistics 6.1% 6.3% 6.3% 6.4% 6.4% 6.4% 6.3% IT and communications 5.4% 5.3% 6.0% 6.1% 6.1% 6.2% 6.2% Other business services 5.8% 6.0% 5.9% 5.9% 5.8% 5.8% 5.8% Construction 6.2% 6.2% 5.6% 5.5% 5.5% 5.5% 5.5% Agriculture, forestry and fishing 4.7% 4.2% 4.3% 4.2% 4.0% 3.9% 3.8% Utilities 4.1% 3.9% 3.9% 3.9% 3.9% 3.8% 3.8% Hospitality 3.3% 3.6% 3.7% 3.8% 3.8% 3.8% 3.8% Mining and extraction 2.8% 2.9% 3.0% 3.0% 2.9% 2.9% 2.9%

IT and technology Outsourcing Automotive In the last 15 years, Bulgaria has Together with the IT sector, Bulgaria The automotive sector has developed developed a strong IT and technology has also developed its outsourcing a lot in Bulgaria in recent years. sector by attracting leading global IT industry. In 2017, the industry Bulgaria heads the list of the top 10 and technology companies, thus giving contributed with 4.8% to Bulgaria's countries, attractive to the automobile impetus to the IT community and GDP compared to 4.2% in 2016. If the sector in Europe, according to a ecosystem in the country, employing positive trend persists, the industry’s research by Colliers International and thousands of qualified professionals revenue is expected to double to Automobile Cluster Bulgaria. The and turning the country into a regional EUR 4b and contribute up to 7.9% of companies, which took part in the ICT center. Digital transformation the country‘s GDP by 2021. More than survey, defined as main advantages of of industries across the world and 51% of the companies in the sector Bulgaria the low labor costs (50%) and favorably developing a start-up primarily operate as BPO vendors, the EU membership. The proximity ecosystem in Bulgaria contribute while the remaining 49% have ITO (IT to clients and producers was ranked to a good-looking future image and outsourcing) as main activity. as second most important to 45% of positive growth expectations for the IT the respondents, followed by the tax The differentiation between ITO and sector in the country in the upcoming incentives received for doing business BPO (business process outsourcing), years. Annual revenues of IT sector in regions with high unemployment especially in the KPO (knowledge in the country have grown by 16% in rate (36%). Among the criteria were process outsourcing) field is 2018 and by 125% in the last seven the low real estate and electricity gradually fading as the complexity years (2012-2018). In 2018, the costs, the currency board, and of the companies’ products and sector employed 30,000 people and the accessibility and quality of the services gradually evolves. Narrowly amounted at 3% of Bulgaria's GDP. workforce. specialized companies in the fields of FAO (finance and accounting outsourcing) or HRO (HR outsourcing) remain considerably fewer than BPO companies with a broad profile. The number of KPO providers shows a sound growth trend, as more BPO companies turn into KPOs.

7 Doing business in Bulgaria How do we build a better working world?

Reasons to invest

EU, NATO, WTO Highly educated Cost efficiency

Bulgaria is part of the EU, Highly educated population with Low operating costs NATO and WTO English widely spoken in the country

Investment protection Stable currency Favorable tax regime

The Republic of Bulgaria is a party to Bulgaria enjoys stable currency due Bulgaria has the most favorable tax 64 bilateral agreements for mutual to a currency board arrangement regime in Europe. Corporate income protection and encouragement of introduced in 1997 (Bulgarian is 10%, the lowest in the EU. foreign investment. It is also a party to currency is pegged to the euro at a Personal income tax is 10%, flat rate. the Convention on the Settlement of rate of BGN 1.95583 : EUR 1). Industries in high-unemployment areas Investment Disputes between States can be granted a 0% tax rate. and Nationals of Other States.

Strong economic growth Financial stability

Real GDP growth reached 3.3% in 2018, 2nd lowest government debt to which is one of the highest in Europe. GDP in the EU (22%) in 2018.

Doing business in Bulgaria 8 6% 4% 5% 25% 7%

9%

11% 19%

14% % % 6 4 nlasified Source: Bulgarian National Bank 5% 25% utootie series 7% onstrution FDI by inane and insurane 9% industry anuaturing % tilities noration and teleo series 11% 19% dinistratie series 14% ters

nlasified utootie series onstrution inane and insurane Foreignanuatu rdirecting Foreign trade investmenttilities nororeignation aDirectnd tele Investmentso series in ulgaria has been actively Main trade partners of Bulgaria were diBulgarianistratie haveseri exceededes trading with other countries. , , Romania, Greece, FterUS$1.68bs in 2018. The largest B For 2018, the total value , and . net pre-investment flows are coming of exports is USD 31.76m or 1.2% from The , Germany and more than in 2017. Although this is Belgium. not a very big increase, data from the National Statistical Institute Bulgaria ranks 23rd in Europe in (NSI) confirms for another year that terms of attracted FDI projects in Bulgaria exports more machinery, 2018, according to EY European apparatuses and industrial parts, Attractiveness Survey. Number of thus adding more value to the world projects increased to 43 in 2018 economy. compared to 33 in 2017. The total value of imports in 2018 amounted to USD 38.066m.

Top exports of Bulgaria are commodities, and copper articles, machinery and mechanical parts, mineral fuel, oil & relative products, electrical machinery.

Top imports of Bulgaria are commodities, vehicles other than rail, electrical machinery, machinery and 10.9% mechanical parts, mineral fuel, oil & 63% relative products. increase in Bulgarian EU exports of foreign trade is with countries in 2017 within the (EU)

9 Doing business in Bulgaria How do we build a better working world?

Doing business in Bulgaria 10 11 Doing business in Bulgaria How do we build a better working world? Business incentives

Tax incentives Non-tax incentives nder certain conditions, • nvestors proposing projects, domestic tax legislation meeting certain eligibility rules U provides for various tax I are subject to the following incentives, such as: benefits:

• Up to 100% corporate income • Financial support with the necessary tax relief for manufacturers in public infrastructure (roads, water, underdeveloped regions etc.)

• 100%-expense deduction allowed for • Reimbursement of employees’ mandatory social security and health intangible assets from R&D activity insurance contributions • Accelerated depreciation for new • Financial support for employees’ investments training • Tax relief for initial investment in • Purchase of state or municipal land tangible production assets and without a tender procedure and manufacturing plants/facilities no state fees for the land status conversion • Qualified investors are allowed to self-assess VAT (to a certain • Shortened administrative deadlines amount) on import instead of allowing less administrative burden effectively paying it. and a faster start of business

• Bulgaria has the shortest general •  Employers may benefit from salary VAT refund periods – practically and social security reimbursement three months. schemes when hiring people from certain social groups. • Qualified investors and exporters enjoy a shorter 30-day refund •  Companies operating in certain period. energy-intensive industries are entitled to financial support for reduction of electricity costs.

Doing business in Bulgaria 12 EU funding • Production equipment Loans, guarantees and opportunities • R&D and development of inno- equity investments vations, including new products, uring the present EU ulgarian businesses, processes and business models programming period depending on the type of D (2014–2020), EU funding • Energy efficiency, implementing B economic activity, size of opportunities continue to be available renewable energy resources in the business and planned investments, can manufacturing process for businesses operating in Bulgaria. also benefit from a wide range of EU- EU funded operational programs (OP) • Implementation of international supported financial instruments in the provide support for entities active in a standards of quality, safety, energy form of low-interest loans, guarantees wide range of economic activities. efficiency, etc. and equity investments. • Human resources development – The 2014–2020 allocation for training and professional qualifica- businesses in Bulgaria amounts to: tion of employees • EUR 707.13m for "Human • Refund of expenses for transport Resources Development" OP of employees, investment in safety measures at the place of employ- • EUR 1,037.14m for "Innovation and ment Competitiveness" OP • Implementation of innovative mod- • EUR 701.18m for “Science, els for increasing the productivity Education and Intelligent Growth” and protecting the environment OP Bulgarian businesses as entities established in the EU can also benefit • EUR 1,009.60m for “Rural from a wide variety of direct EU funds Development” Program supporting innovation activities and ecological projects, transfer of good Investors may obtain grants under practices, know-how, as well as devel- a variety of funding instruments at opment and implementation of specific national, bi-/multi-lateral or EU level mechanisms and policies related to the for investments: respective economic activity.

13 Doing business in Bulgaria How do we build a better working world?

Doing business in Bulgaria 14 15 Doing business in Bulgaria How do we build a better working world?

Tax guide

General legislative framework

axation in Bulgaria taxation. The core principles of the EU is regulated by local Treaties, as well as the case law of the Bulgarian tax legislation. Court of Justice of the European Union In addition, as an EU not only on purely tax matters could TMember State, Bulgaria is impacted also be applied to tax issues. by the processes of harmonization of Direct taxation is further regulated by tax legislation at EU level. This has the Double Tax Treaties that Bulgaria led to full convergence of law in some has concluded. These bilateral areas, such as , high level agreements do not create new of harmonization in others, such as obligations, but serve to determine value added tax and duties, and which country has the right to impose limited approximation in areas, such tax in cases of cross-border receipt of as corporate and personal income income.

Personal Taxation

At a glance Employment income 10% Self-employment and business income • Independent professionals 7.5% a • Royalties income 6% a • Craftsmen income not subject to patent tax 6% a 10% • Agricultural income 4% a Directors’ fees 10% personal tax Rental income 9% a Interest income 8-10% Capital gain 10% Dividends 5% a - Effective rate after statutory deductions

Doing business in Bulgaria 16 Double Tax Treaties Currently, Bulgaria has concluded Double Tax Treaties with the following countries:

1 37 2 Algeria 38 3 39 4 40 Moldova 5 Azerbajan 41 Mongolia 6 Bahrain 42 * Income tax 7 Belarus 43 Morocco 8 Belgium Who is liable? 44 Netherlands 9 Canada ndividuals, who are considered tax 45 North Macedonia 10 residents in Bulgaria, are subject to 46 income tax on their worldwide income. 11 47 Pakistan** I 12 Individuals, who are non-residents for tax 48 13 purposes, are subject to income tax on their 49 14 Bulgarian-sourced income only. 50 Qatar 15 Egypt Income subject to tax 51 Romania 16 • Employment income - Employed individuals 52 Russian Federation 17 are subject to income tax on remuneration 53 ** 18 France (money or benefits in kind) paid directly 54 Serbia* 19 Georgia or provided by or on behalf of a Bulgarian 55 Singapore employer. Income derived from employment 20 Germany 56 Slovak Republic activities performed in Bulgaria is considered 21 Greece 57 to be from a Bulgarian source. 22 Hungary 58 23 India • Self-employment and income from other 59 Spain 24 Indonesia economic activities - Self-employment and 60 25 Iran income from other economic activities is 61 income derived from professional services 26 Ireland 62 Syria and business activities, such as the following: 27 Israel 28 Italy 63 Thailand • Income from activity as a sole 29 Japan 64 Turkey entrepreneur 30 Jordan 65 Ukraine • Copyright royalties 31 Kazakhstan 66 United Arab Emirates • Agricultural income 32 Korea (South) 67 United Kingdom 33 Korea (North) 68 United States • Forestry income 34 Kuwait 69 Uzbekistan • Earnings from self-employment and non- 35 70 Vietnam employment activities 36 Lebanon 71 Zimbabwe • Directors’ fees - Management income, including directors’ fees, paid to residents is taxed as employment income. The * The Treaty with (FYR) applies deductions that may be applied to tax ** Signed, not yet ratified, pending entry into force residents could be claimed by non-residents, Currently, new treaties are under negotiations with the Netherlands, who are tax residents of the European Union Italy and India. (EU) or the European Economic Area (EEA) Moreover, as discussed further in the following section, the signing of the Multilateral Instrument by Bulgaria will also have an overall impact countries by filing an annual tax return. on the application of the relevant tax treaties it will modify.

17 Doing business in Bulgaria Double tax treaties How do we build a better working world?

• Capital gains - Income derived from 200 per child from their annual tax Social security the sale of shares and other financial base for up to three minor children. Contributions assets is taxable. Gains on disposals A deduction of BGN 2,000 from Different social security regimes apply of securities traded through the the annual tax base is also available to individuals, depending on various Bulgarian or an EU/EEA regulated for taking care of a child with factors – type of activities performed, stock exchange are exempt from tax. disabilities. Only one of the parents age, retirement status, etc. or legal guardians can benefit from • Dividends - Dividends and Individuals performing working these deductions. liquidation proceeds realized activities in Bulgaria are subject to through participation in Bulgarian • Mortgage interest –Interest paid Bulgarian mandatory social security entities are considered Bulgarian on the first BGN 100,000 of a contributions unless an exemption source-. Foreign- mortgage loan is tax deductible for is provided. Labor is divided into source dividend income derived married couples if all of the following three categories, depending on the by Bulgarian tax residents is also conditions are satisfied: characteristics of the work performed. taxable in Bulgaria. • The taxpayer or his/her spouse Professions involving harmful or risky conditions are included in the first or • Real estate - Bulgarian and EU/EEA was below the age of 35 when second category. tax residents are not subject to tax the mortgage agreement was Currently, the monthly social security on a gain derived from the disposal concluded. base is capped at BGN 3,000. of one principal private residence • The mortgage loan contract is in a tax year if at least three years entered into after the date of the Coverage have passed between its purchase marriage. Employees working in Bulgaria under and subsequent sale. Such residents • The real estate subject to an employment contract are covered are also exempt from tax on gains mortgage is the only property under all of the social security funds, derived from up to two other real owned by the family. as well as the Pension Fund. estate properties if the properties • Mandatory social security and Sole entrepreneurs and freelancers have been owned for at least five health insurance contributions – insure themselves by paying years. Social security and health insurance contributions on a level of monthly Exempt income contributions made by individuals income selected by them. For these Income from scholarships, pensions to mandatory Bulgarian and EU/ individuals, the annual amount of derived from compulsory social EEA systems are deductible for tax social security and health insurance security schemes in Bulgaria and purposes. Official documentation of contributions is recalculated at the end abroad, alimony and certain insurance the social security institution must of the year, based on actual annual payments are not taxable. be presented as proof for the paid income received. Deductions contributions. Exemption • Donations – Gifts and donations • Voluntary social security Exemption from paying social security to Bulgarian and similar EU/EEA contributions – Deductions of up to contributions in Bulgaria may apply charitable institutions and other 10% of the tax base may be claimed under EU legislation for coordination welfare institutions are deductible for voluntary pension contributions on social security systems, as well as up to 5% of the annual tax base. A by individuals. In addition, under the provisions of the bilateral deduction of up to 50% applies to deductions equaling up to 10% of social security agreements concluded gifts and donations to special funds the tax base may be claimed for with selected third countries. for children’s medical treatment and voluntary health and life insurance assisted reproduction. contributions made by individuals • Child benefits – Bulgarian and EU/ to Bulgarian or EU/EEA authorized EEA tax residents may deduct BGN funds.

Doing business in Bulgaria 18 Immigration visa to stay in the international EU Blue card transit zone of a Bulgarian airport. Highly qualified foreign employees Entry and visa requirements A Bulgarian type ‘D’ visa (long- can be granted EU Blue cards subject • U nationals – EU nationals, term visa) allows the individual to to preliminary approval by the citizens of EEA Member commence working activities in the Employment Agency. A labor market E States and citizens of country. test is not required for the purposes of the EU Blue card procedure. An EU Switzerland may benefit fully from Work permits and EU Blue Blue card allows its holder to work and the right of free movement. They cards may enter Bulgaria based on a valid reside in Bulgaria for up to four years, identification card or international Work permits subject to renewal of the residence passport and reside freely in the Individuals not enjoying preferential permit each year. treatment who intend to work in the country. Individuals who intend to The following individuals do not need a country under a local employment spend more than three months in work permit to work in Bulgaria: Bulgaria should register with the contract or under the terms of a Bulgarian Immigration Office. A secondment or intra-corporate • Permanent residence permit holders transfer must obtain a work permit long-term residence certificate is • EU/EEA family members and Swiss from the Employment Agency. obtained through this registration. nationals Work permits are issued to foreign • Visa-free regime – Nationals nationals who possess proper • Registered directors of Bulgarian of some countries, explicitly education, special skills or professional companies determined by EU regulations, as experience, suitable to the position well as holders of Schengen visas • Representatives of foreign they intend to take. In most cases, the and residence permits issued by companies registered with the Bulgarian employer must perform a Schengen countries, Liechtenstein Bulgarian Chamber of Commerce labor market test to establish the lack and Switzerland, are not required and Industry of Bulgarians and individuals enjoying to obtain visas. They may stay in preferential treatment, who are • Individuals granted asylum or Bulgaria for up to 90 days within suitable for the position. The market humanitarian status each 6-month period, counting test requirement can be avoided under from the date of the first entry • Individuals to whom the provisions specific circumstances. into Bulgaria. These individuals of an international agreement apply The number of non-EU nationals are required to possess valid employed by a company may not international passports to enter the exceed 10% of the average number country. If they intend to work or of Bulgarian nationals and/or engage in self-employment activities preferentially treated individuals in Bulgaria, they are subject to the employed by the company in the same regime as citizens of non- preceding year. The ratio of foreign preferred countries. to local employees does not apply • Visa regime – Citizens of non- in cases of applications for work preferred countries (countries permit based on secondment or whose nationals are not subject intracorporate transfer. to a visa-free regime) need a valid international passport and a EU Blue Bulgarian visa to enter the country. Citizens of some non-preferred cards countries may require a Bulgarian can be granted to highly qualified type ‘C’ visa (business visa) to travel foreign employees through the country or an air transit

19 Doing business in Bulgaria How do we build a better working world?

Self-employment Investment immigration relationship with an EU, EEA or • Third-country nationals – Third- procedure Swiss national. The term of validity country nationals intending to • Residence permits based on of a residence permit of a family perform self-employment activities investment – Prolonged and member depends on the term of in Bulgaria should apply for a permit permanent residence permits can residency of the EU, EEA or Swiss before they can start performing be obtained based on investment in national whom the family member them. Bulgaria. For prolonged residence is accompanying. However, the term permits, an additional requirement cannot exceed five years. • EU citizens – EU citizens generally is that the foreigner must settle in enjoy freedom of movement and • Non-EU family members – Family Bulgaria. Greater investments must establishment if they decide to members of non-EU, EEA or Swiss be made to obtain a permanent engage in self-employment activities nationals must have separate residence permit without settling in in Bulgaria. However, depending permits to reside in Bulgaria. Bulgaria. on the types of professional They can apply for a residence activities, there might be additional • Fast-track citizenship – The permit on the grounds of their registrations that need to be Bulgarian Investment Immigration family relationship with Bulgarian performed before they can begin Procedure also allows for a fast-track residence permit holders. The their self-employment in the procedure to citizenship in case term of validity of their residence country. interested investors are willing to permits depends on the term of double the amount of investment (up the residence permits granted to Residence permits to approximately EUR 1,000,000) the non-EU, EEA or Swiss nationals Residence permits may be issued to in only 18 months without the need whom they are accompanying. They non-EU nationals who have entered to settle in the country or revoke should apply independently for their Bulgaria with a long-term type ‘D’ visa. other citizenships. Big changes own work permits if they wish to • Prolonged residence permits – are expected to take place with take up employment in Bulgaria. Prolonged residence permits are respect to the possibilities to obtain generally issued for a stay of up to citizenship based on investments one year, most often on the basis of Family members employment, study, marriage or a • EU family members – EU/EEA management agreement. Depending family members or Swiss nationals on the grounds for application, who are not citizens of EU Member the non-EU national must present States themselves can benefit from a specific set of documents to the the right of free movement within Immigration Office. the EU. They do not need a work • Permanent residence permits – permit to begin an employment Non-EU nationals, who have legally relationship in Bulgaria. However, and continuously resided in Bulgaria they need to register their for the preceding five years, can employment with the Employment acquire a permanent resident status. Agency. They may enter Bulgaria Holders of a permanent resident with an international passport Equal status enjoy equal treatment with and, if required as a result of their Bulgarians in respect of access to nationality, a visa. They can apply treatment work and self-employed activities for a long-term residence permit with Bulgarians in respect to access and certain other matters. on the grounds of their family to work is enjoyed by holders of a permanent resident status

Doing business in Bulgaria 20 Property taxes • Estate left to the Bulgarian Red • Immovable property: at the price Cross and/or lawfully registered agreed or, if it is lower than the tax nder Bulgarian law, transfer religious denominations in Bulgaria value, the latter is used as a taxable of property might be subject base U to inheritance, gift or transfer • Any ordinary household furnishings • Motor vehicles: at the insured value tax, depending on whether the • Any small farm implements transfer takes place before or after the Building tax • Libraries and musical instruments death of the testator, as well as on the Building tax is imposed on real estate availability of consideration or the lack Ordinary household furnishings, small and land located in Bulgaria. Certain thereof. farm implements, libraries and musical items are exempt from building instruments are exempt from tax tax, such as temporary buildings, subject to the condition that the estate Inheritance tax is levied on all property agricultural land and forests and low- devolves them to lineal relatives, located in Bulgaria and is paid by the value real estate. Taxable persons are spouse or siblings. recipient. Property located outside the owners of the real estate or land, unless another specific rule applies. Bulgaria that is owned by Bulgarian The tax is due regardless of whether citizens is also subject to inheritance Property acquired as a gift and the real estate is being used or not. tax, with certain exemptions available. forgiven debt is taxable unless the Spouses, parents and more remote gift is given by a spouse or is made The tax amount is payable in two ancestors and direct descendants between direct ascendants and equal installments – from 1 March to are not subject to inheritance tax. descendants. The tax base is the 30 June, and until 30 October of the The following flat rates apply for value of the property at the moment respective tax year for which it is due. determining the inheritance tax for of transfer determined by the tax For payment in full of the tax until other heirs: authorities or the Municipal Council. 30 April of the respective year, the taxpayer is given a discount of 5% of • For brothers, sisters and their The applicable rates vary by location the total tax amount. children, the tax rate ranges from and type of property. 0.4% to 0.8% (determined by the Property Tax on vehicles local Municipal Council of the Tax on vehicles registered in Bulgaria, Property transfer tax is levied on the last permanent residence of the as well as ships and aircraft, is due by sale of immovable property (buildings deceased) for an inheritance share their owners. The tax rate may vary and land), rights in rem, as well as the over BGN 250,000 within the range prescribed by law in sale of motor vehicles. • For other heirs subject to the different municipalities. Payment Transfer tax is generally the inheritance tax, the tax rate ranges of the tax is one of the conditions for responsibility of the purchaser, unless from 3.3% to 6.6% (determined by using the vehicles. specific rules apply. The applicable the local Municipal Council of the tax rate is determined by each Vignette fees () last permanent residence of the Vignette fees are due for using municipality within the ranges for each deceased) for an inheritance share Bulgarian national roads. The amount type of property as set in the law. over BGN 250,000 of fees varies depending on the period The tax should be paid upon the The following are examples of which the vignette sticker covers transfer of the property. When the inheritance tax exemptions: (a week, month or year) and on the transaction has to be certified by a category of the vehicle (for example, • Deceased spouse and lineal public notary, the latter supervises for a car, truck, etc.). From 2019, a new descendants and ascendants the timely payment of the transfer tax toll system, which replaces the current before certifying the contract. • Estate left to the state and the vignette stickers with electronic municipalities The property value is determined as vignettes, is being implemented. follows:

21 Doing business in Bulgaria How do we build a better working world?

Corporate income tax

At a glance

Capital gains tax rate (%) 10 (a) Branch tax rate (%) 10 Withholding tax (WHT) (%)(b) • Dividends 5 (c)(d) • Interest 0/10 (e)(f)(g) 10% • Royalties from patents, know-how, etc. 0/10 (e)(f) • Fees for technical services 10 (f) • Rent and payments under lease, franchising and factoring agreements (f) derived from sources in Bulgaria 10

Net operating losses (Years) Carryback 0 Carryforward 5

(a) Capital gains derived from the sale of (f) This tax applies to payments to non- shares and government bonds through residents only and may be reduced in the Bulgarian stock market or stock accordance with an applicable . exchanges in European Union (EU) or (g) Interest on debt (other than European Economic Area (EEA) countries government or municipality bonds) are exempt from tax. extended to the Bulgarian state or a (b) An EU/EEA recipient of Bulgarian- municipality is exempt from withholding source income that is subject to tax. Interest income on bonds or other withholding tax may claim a deduction debt instruments issued by Bulgarian for expenses incurred in earning that resident companies, the Bulgarian state or municipalities on a regulated EU/ (c) This tax does not apply to payments EEA market is exempt from withholding to entities that are resident for tax tax. The exemptions mentioned in the purposes in Bulgaria or EU/EEA two preceding sentences are granted countries. However, no exemption is to all corporate investors, regardless granted to an arrangement perceived as of their tax residency. Interest income . paid to non-resident issuers of bonds or (d) This rate may be reduced by tax other debt instruments is not subject to treaties for dividends distributed to withholding tax in Bulgaria under certain entities not resident for tax purposes in conditions. EU/EEA countries.

(e) The zero rate applies to EU associated companies (a minimum holding of 25% of the share capital must be maintained for at least two years).

Doing business in Bulgaria 22 Taxes on corporate income sales revenue from the previous year Capital gains and losses and gains below BGN 300k (approximately EUR Capital gains from disposals of assets, 153k) are not obliged to pay advance Corporate income tax including shares, are included in the installments for corporate tax. current year tax base and are subject ulgarian companies are to tax at the standard corporate subject to corporate tax on The tax base for determining the tax rate of 10%. Capital losses are their worldwide income. advance installments is based on the B deductible for tax purposes. Foreign companies are taxed in company’s forecasted annual taxable Bulgaria on their profits generated income (as indicated by the latter Capital gains derived from the sale of from activities conducted through in the respective tax return for the shares and government bonds through a in the previous year). the Bulgarian stock market or stock country and on income from Bulgarian Withholding tax (WHT) exchanges in EU/EEA countries are sources. obligations and administration exempt from tax. Similarly, losses Rates of corporate tax Certain types of Bulgarian-sourced from sale of shares through such stock exchanges are not deductible for tax The corporate tax rate is 10%. income, as specified in the table under para A (i.e., dividends, interest, purposes. A 10% tax is imposed on certain royalties, technical services and Hidden profit distribution expenses, such as employee related, others), are subject to Bulgarian Expenses, which companies accrue in-kind fringe benefits and expenses WHT. The tax has to be withheld or make to shareholders, partners related to personal use of company and remitted to the state budget by or their related parties, might be assets, which increases the effective the income payer (except for capital classified as hidden profit distribution tax rate for companies incurring such gains and income from the transfer of and taxed as dividends, if the expenses expenses. immovable property where this liability are not related to the business Administration rests with the income recipient) within activity of the companies or exceed The tax year is the calendar year. a month following the calendar quarter the usual market levels. Certain Annual tax returns must be filed by of accrual of the income. interest expenses might also be 31 March on the following year. WHT relief under a Double Tax classified as hidden profit distribution. Administrative sanction of 20% might Companies subject to tax make Treaty be imposed on the amounts that are advance payments of corporate tax, In case a foreign entity realizes classified by the tax authorities as depending on the amount of the Bulgarian-sourced income subject hidden profit distribution. Voluntary net sales revenue generated in the to WHT that exceeds BGN 500,000 disclosure of hidden profit distribution previous year, as follows: (approximately EUR 255,000) annually, the WHT due can be reduced by the companies is allowed. In such • Monthly advance payments – when or eliminated under a tax treaty case, the sanction does not apply. their net sales revenue for the concluded by Bulgaria only under a Remittance of profits by branches to preceding year exceeded BGN 3m special tax treaty clearance procedure their home countries is not subject to (approximately EUR 1.534m) with the national revenue authorities. withholding tax. • Quarterly advance payments – with No advance clearance applies to net sales ranging from BGN 300k to income equal or below BGN 500,000. BGN 3m In this case, however, the foreign Newly incorporated entities (except entity still has to submit certain in case of business transformations documents to the local income payer. – e.g., divisions) and entities with net

23 Doing business in Bulgaria How do we build a better working world?

Foreign tax relief companies, which have operations Bulgarian companies are entitled to in Bulgaria. The information to be a for identical or similar disclosed and reported by such foreign taxes imposed abroad. The tax enterprises would include information, credit is limited to the amount of the such as profit (loss) before income tax, Bulgarian tax that would have been income tax paid, income tax accrued, paid in Bulgaria on the income subject registered capital, etc. if certain legal to the foreign tax and it is applied requirements are met. separately on a country and income- In case a constituent company in type basis. Bulgarian tax treaties Bulgaria does not have the above- normally provide an exemption mentioned reporting obligations, it from Bulgarian taxation for income would nevertheless have to notify from foreign real estate and foreign the National Revenue Agency (NRA) permanent establishments. which entity would file the report, the Other relevant international jurisdiction in which it is tax-resident developments and general information about the As a general principle, transactions latter. between related parties should be Failure to comply with the CbcR at arm’s length. obligations could to significant (TP) documentation for proving the penalties. application of this principle should be prepared. In this regard, Bulgaria has endorsed the OECD Guidelines.

Bulgaria has signed the Multilateral instrument (MLI) with a preliminary position on the provisions contained therein. The MLI will be applied alongside existing tax treaties, modifying their application in order to implement the Base Erosion and Profit Shifting (BEPS) measures. A focus is put on tackling hybrid mismatch arrangements, treaty abuse, avoidance of permanent establishment, TP documentation requirements and other areas. Bulgarian The country-by-country reporting (CbCr) has also been implemented into Bulgarian legislation. This companies implies the triggering of certain are subject to corporate tax on their reporting obligations for multinational worldwide income

Doing business in Bulgaria 24 Indirect taxes Value added tax

At a glance

Name of the tax Value-added tax (VAT) VAT rates • Standard 20% • Reduced 9% for hotel accommodation • Other 0% VAT return periods Monthly Type of registration Treshold • Mandatory registration BGN 50,000/EUR 25,000 • Distance selling BGN 70,000/EUR 35,000 • Intra-community acquisitions BGN 20,000/EUR 10,000 • Supply of services subject to reverse charge N/A • Telecommunications, broadcasting and electronic services N/A Recovery of VAT by non-established businesses Yes

Scope of tax Who accounts for VAT? rendering services with a place of AT applies The supplier of goods and/or services supply in another EU Member State to the following charges and collects VAT on the should register in Bulgaria regardless V transactions: supplies to the recipients. This rule of its taxable turnover. applies regardless of whether the • The taxable supply of goods or A taxable person receiving cross- supplier is a local or foreign entity or services in Bulgaria for consideration border services subject to the reverse an individual. The supplier should start charge in Bulgaria must register for • Reverse-charge services received by charging VAT after registering for VAT VAT purposes in Bulgaria regardless of a Bulgarian taxable person purposes in Bulgaria. The supplier can its taxable turnover. also register for VAT voluntarily before • Intra-Community acquisitions starting operations. The mandatory A recipient is obliged to reverse- • The acquisition of new means of VAT registration threshold is the charge VAT in case of B2B supplies transport and excise goods by taxable turnover of BGN 50,000 in of services when the supplier is not taxable or non-taxable persons any 12 consecutive months, which established in Bulgaria or in case of intra-Community acquisitions of goods • The importation of goods into includes turnover from taxable coming from another EU Member Bulgaria, regardless of the status of supplies chargeable at the standard State to Bulgaria. the importer rate of VAT (20%) or the reduced rate (9% for hotel accommodation), Local reverse charge can be applied zero-rated supplies and financial in limited cases, for example, for sale and insurance services within the of waste materials and agricultural principal activity of the supplier. A products. taxable person established in Bulgaria,

25 Doing business in Bulgaria How do we build a better working world?

Fixed establishments of Non-established businesses Timing foreign entities A “non-established business” is a Right to VAT credit can be exercised Taxable persons that are not business that has neither a place of in the month when the purchase took incorporated, nor hold a seat/place of management/seat in Bulgaria, nor place or in one of the 12 following management in Bulgaria can create a a FE in Bulgaria. A non-established months. Effective VAT refund is fixed establishment (FE) in Bulgaria. business must register for VAT in obtained within three to four months. Unlike a representative office (RO) Bulgaria if it makes taxable supplies of For a delayed VAT refund, default of foreign entities which by rule of goods or services (unless the reverse- interest is due. law perform only auxiliary activities, charge mechanism applies) or if it Special rules apply to the recovery a FE is a place of business located performs ICA exceeding the statutory of input tax incurred on assets in another country which carry out thresholds. and services acquired before VAT economic activities. Still, a RO can Tax representatives of non- registration. start operating as a FE if, in terms of established businesses its organization and activities, it does Reliefs A foreign person established in a non- not only provide auxiliary support, but Accelerated VAT refund procedures EU country that has not entered into also performs taxable transactions. are available, for example, for big an agreement for mutual assistance investors, for exports and businesses A foreign entity can create a FE in with Bulgaria must appoint a resident with predominantly intra-Community Bulgaria if it has enough human and tax representative to register for VAT trade. technical resources in Bulgaria over purposes. The representative assumes a sufficiently permanent period of joint and unlimited liability for the VAT VAT refunds by non-established time. The definition of a FE is different obligations of the non-established businesses from the definition of a permanent business. Non-established EU entities can refund establishment (PE) which is applicable VAT incurred in Bulgaria. Non-EU for corporate income tax purposes. Recovery of VAT businesses can refund Bulgarian VAT However, it may be the case that once VAT-registered taxable persons can based on the principle of reciprocity, a PE is created, a FE is established as deduct VAT credit on their purchases i.e., only if both countries refund VAT well. if they are intended for their output to their residents. taxable supplies. Although a foreign taxable person Partial VAT credit may have created a FE in Bulgaria, VAT credit on purchases directly it is considered that the FE is not linked to exempt transactions is not intervening in a supply if its human recoverable. If the purchases are used and technical resources are not for both exempt and taxable supplies, involved in the transaction. the amount of the recoverable VAT is calculated based on the proportion Failure to determine correctly if an between taxable transactions and the activity was carried out through overall amount of the transactions. FE, leads to significant exposures in practice. Adjustment of VAT credit VAT deducted should be adjusted (paid back) if the supplier does not use the purchases for subsequent taxable 20% transactions. The period of adjustment standard VAT rate for capital goods is 5 years while for real estate it is 20 years.

Doing business in Bulgaria 26 EU filings EUR 35,000. Failure to register on time for a distance sale could lead to Reportings of one and the same The reporting month for VAT purposes supplies in both the country where the is the calendar month. A Bulgarian supplier is established and where the taxable person trading goods with customer belongs, charging of default other EU countries must complete interest for late payment of VAT and statistical reports, known as Intrastat administrative penalties. if the value of the goods exceeds certain thresholds, which are updated Special VAT schemes annually. Margin schemes Separate reports are required for Tour operators apply a special margin arrivals and dispatches. The thresholds VAT scheme where VAT is charged for declaration are updated annually. on the difference between the price paid by the traveller and the actual Bulgarian taxable persons that make cost borne by the travel agent for the intra-community supplies, supplies as supply of the services. intermediaries in triangular operations or B2B supplies with a place of supply Dealers of second-hand goods, works outside Bulgaria must file EU Sales of art and collectors’ items and Lists (ESLs called VIES Declarations) antiques can optionally apply a margin with the Bulgarian National Revenue scheme where VAT is charged on the Agency. difference between the sales price of the items and the purchase price for VAT on digital economy acquisition of the items. Supply of digital services Cash accounting Suppliers not registered under Small and medium-sized businesses the ‘Mini One Stop Shop’ (MOSS) can opt to charge VAT upon receipt of scheme in another country making a payment and not on the date of the B2C supplies of digital services are transaction. In such case, suppliers required to register for VAT if their can deduct input VAT only after customers are based in Bulgaria. paying to the supplier. Suppliers established in the country can register for MOSS in Bulgaria and submit quarterly VAT returns for supplying digital B2C services in other EU Member States. Distance sales Digital Non-established suppliers selling goods to Bulgarian customers services (B2C supplies) from a distance (e.g., online) can become liable to charge suppliers are required to register for Bulgarian VAT on their supplies if they VAT if their customers are based in reach a threshold of BGN 70,000/ Bulgaria.

27 Doing business in Bulgaria How do we build a better working world?

Excise duties Customs Suspension regimes There are different suspension regimes xcise duties ulgaria is part of the European which defer payment of import duties – are charged customs territory and applies for example, when goods are imported E on: B the Union Customs Code for the purpose of processing activities classification, tariffs and anti-dumping only and then exported. This will also • Alcoholic beverages duties applicable to all EU Member be the case if the goods are kept for • products States. warehousing and then re-exported, or pass through Bulgaria in transit. • Electricity and energy products Importation and exportation The list of items taxable within the of goods Customs value three categories above tends to Therefore, goods coming from non- Special rules apply to determining the increase over the years. EU countries to Bulgaria are subject taxable base for customs purposes, to clearance procedures connected such as taking into account the The amount subject to excise with importation of goods. Goods transport and insurance cost and is calculated based on the specifics leaving the European customs sometimes the royalties related to of the products (for example, pieces territory through Bulgaria are subject the goods. Additionally, the customs of cigarettes, MWh of electricity, to clearance procedures connected base would include additional charges hectoliters per pure alcohol, etc.). with exportation of goods. Upon connected with importation. One and the same product could be importation of goods from non-EU subject to excise duties or exempt territories, customs duties may apply Authorized economic operator depending on its usage. If the use depending on the product and the Businesses that obtain the status changes from taxable to exempt, the country from which it originates. Upon of Authorized economic operators excise duties could be refunded. importation, VAT, excise and ecological (AEO) benefit from customs- duties may also become due. Exports related facilitation and simplified Excise duties are not due if a and imports are formalized by customs procedures, such as “self-assessment” duty-suspension regime applies. declarations. and “centralized clearance”. The Chargeability and obligation for certification of AEO is obtained after payment of excise duties arise when covering specific criteria and the the goods exit this regime and are status is binding on all EU Member released for consumption. States.

Excise duties refunds

could happen if the use of the product/s changes from taxable to exempt

Doing business in Bulgaria 28 Ecological fees

ulgaria applies different ecological fees charged on B products which are harmful to the environment. Currently, ecological fees (called “product fees”) due are for:

• Plastic shopping bags

• Motor vehicles

• Tires

• Packaging

• Batteries and accumulators

• Motor oils

• Electrical and electronic equipment

The taxes are charged upon release of the products on the Bulgarian market by a producer or an “importer” of the products. Certain exemptions or reliefs, including decrease in the size of ecological fees can apply, e.g., if a producer/importer of the products engages in an individual or a collective waste management scheme.

Union Customs Customs An AEO status (Authorized economic Code tariff declarations operators) classification is applied in Bulgaria, are required in order to formalize benefits businesses that obtain it being part of the European customs exports and imports in Bulgaria with simplified procedures, such as territory "self-assessment" and "centralized clearance"

29 Doing business in Bulgaria How do we build a better working world?

Doing business in Bulgaria 30 31 Doing business in Bulgaria How do we build a better working world? Legal guide

Establishing business Types of business The corporate governance bodies of OOD/AD are a general meeting ost commonly used presence of the shareholders and managers investment vehicles are a here are no general or a management body which is limited liability company investment approvals M authorized to conduct the day-to-day (OOD) or a joint-stock company required for carrying out business operations and represents (AD). Other forms, such as limited business in Bulgaria. The the company before third parties. and general partnerships, or a Tformal set-up of a business requires The structure and competences of sole trader are also available and, fulfilling certain legal formalities, the management are different in depending on the case, may be more such as registering with the Bulgarian an OOD and in an AD. An OOD is flexible or suitable for a particular Companies’ Registry. In addition, managed by one or more directors business. Additionally, an investor running a business in certain sectors, who may be vested with individual may resort to other alternatives (not i.e., insurance/reinsurance, banking, or joint representative powers, involving the set-up of a separate financial investment services and without forming a body in any case. legal entity) to establish its business others may require that particular An AD may have a one-tier (i.e., presence in Bulgaria like a branch authorization/licences are obtained Board of Directors) or a two-tier (i.e., or a representative office. The latter before commencing the actual activity. Supervisory and Management Board) generally does not carry out economic management system. Most of their Whenever the business presence is activities, but rather performs functions are left to the discretion established by means of a merger, marketing or other auxiliary functions. acquisition or joint venture, merger of the decisions of the shareholders, control procedures should be observed An OOD/AD may be formed by a however, there are some limits set which are harmonised with the EU minimum of one shareholder; there is by the law or the established court Merger Regulation. no limitation on the maximum number practice. of shareholders. The latter may be An OOD is generally regarded as individuals and/or legal entities, a closed type of a legal entity in irrespective of their nationality, comparison to an AD in terms of residence or place of incorporation/ membership and shareholder rights effective management. One person is and obligations. Thus, an OOD could allowed to found or participate in more be less flexible in comparison with than one legal entity. By default, the an AD, for instance, in respect to shareholders’ liability is limited to the changes in the shareholder structure, subscribed shares, though in certain preferential rights attached to circumstances (e.g., tax avoidance) it shares, as well as vesting schemes, can be extended. among others. Conversely, an The share capital of an OOD must be AD entails a more sophisticated at least BGN 2 (or EUR 1) divided into management system, additional one or more shares while the minimum compliance obligations and equity- share capital of an AD must be at least related requirements. Further, BGN 50,000 (or approximately the shareholders in an OOD are EUR 25,565). more involved and owe personal engagement in the company’s matters.

Doing business in Bulgaria 32 Acquisition of property • ► Legal entities: (i) which have Regulatory compliance been established in Bulgaria for ollowing its accession to the epending on their economic more than five years; or (ii) legal EU, Bulgaria gradually opened sector, business entities in entities registered in Bulgaria for its land market to EU citizens. Bulgaria face general and F less than five years, only if their D However, a more restrictive regime specific compliance obligations. shareholders (natural persons and continues to apply to citizens and Publishing annual financial statements legal entities) have resided or have entities of third countries. They are is among the general compliance been established in Bulgaria for generally allowed to acquire ownership obligations of companies registered in more than five years title to buildings and rights in rem Bulgaria. Depending on the activities in real estates. However, there are Some entities are not allowed to carried on by a given company, it restrictions on acquiring regulated acquire and possess agricultural land may have further regulatory, tax and land plots, as well as agricultural land. under any circumstances: accounting compliance obligations. A foreign national may own land under • ► Companies where the shareholders Recently introduced anti-money the terms of an intragovernmental are companies directly or laundering legislation requires that all agreement concluded between indirectly registered in preferential legal and other entities registered in Bulgaria and its state of nationality/ tax treatment jurisdictions Bulgarian public registers are obliged residence, as the case may be. Where to declare by specific process their there is no such agreement, a national • Companies where the shareholders Ultimate Beneficial Owner (UBO) if not of a third country would not be allowed are foreign natural persons or registered as such on the files of the to purchase regulated land plots in legal entities: (i) residents of or respective entity.” Bulgaria. established in countries which are not members of the EU or of the Further restrictions with regard to European Economic Area (EEA); or Banking agricultural land apply to all natural (ii) residents of or established in persons and legal entities when countries with which Bulgaria has or practical and compliance acquiring and possessing ownership not concluded an intergovernmental reasons, companies title to such land in Bulgaria. The agreement setting forth specific F established or registered only following categories of natural persons terms and conditions for acquiring for tax purposes in Bulgaria most and legal entities can become owners agricultural land often maintain accounts in local banks, of agricultural land in Bulgaria: although this is not mandatory. There • ► Joint-stock companies which have are no requirements or limitations • Natural persons: (i) who have issued bearer shares in respect of the number of bank resided in Bulgaria for more than accounts or their currency. For the five years; or (ii) are self-employed Possession of agricultural land in opening of a bank account, the banks farmers — nationals of another breach of the statutory restrictions require certain documentation to Member State of the EU, who wish may result in penalties imposed on the be provided to ensure anti-money to establish themselves and legally owner. laundering (AML) compliance. reside in Bulgaria, and are registered under the BULSTAT Register Act, There is no general statutory regardless of the years of residence restriction on inbound and outbound or establishment preceding the bank account credit or debit acquisition operations.

33 Doing business in Bulgaria How do we build a better working world?

Intellectual and Competition and market, potential abuses of market power and growth of market industrial property consumer protection structures (mergers and acquisitions). ulgaria is a signatory to major ompetition law is aimed at Violation of the national or European international conventions safeguarding competition competition law provisions may result B and treaties on intellectual C in order to ensure that in significant consequences (e.g., property rights (IP rights), thereby consumers are provided with fair fines of up to 10% of the company’s ensuring an effective shield which prices and a sufficient diversity of turnover). protects IP rights created or held in goods and services. Competition The regime of state aid and potential Bulgaria. law covers the following main areas: restrictions of competition imposed (i) anti-competitive agreements Licensing agreements and assignment by the state in the form of state aid between undertakings; (ii) abuse of agreements (with regard to patents, are regulated separately, outside the dominant position (or monopoly); (iii) trademarks and copyright) are not competencе of the CPC. merger control; and (iv) the potential heavily regulated and thus, trade restrictions of competition imposed Consumer protection legislation is in and exploitation of IP rights is by the state. The Bulgarian legislation aimed at protecting the economic expanding in the absence of overly on competition is harmonized with interests of consumers. It mainly burdensome regulatory or practical the applicable EU rules and with the covers unfair commercial practices constraints. Licensing agreements relevant case law of the Court of and consumer contract law, should observe only minimum Justice of the EU. Unlike other EU such as misleading advertising mandatory legal requirements. jurisdiction Bulgarian legislation puts and unfair contract terms. The Furthermore, Bulgarian law allows IP into the legal framework and under national competent authority is rights to be contributed in kind to the the competence of the competition the Commission for Protection of share capital of Bulgarian companies watchdog the cases of unfair Consumers. Consumer protection subject to independent valuation, competition, as well as the abuse of practices on claims raised by which is an alternative to the classical stronger bargaining position (known customers are rapidly evolving. assignment or licensing of IP rights. elsewhere as abuse of economic dependence). These are prohibited E-businesses and violation of the prohibition is Data privacy regulated as an administrative offence n Bulgaria, the protection of he regulatory framework of and sanctioned by fines comparable to natural persons with regard e-commerce on consumer those for prohibited agreements and to processing personal data protection, data privacy, I T abuse of dominance. is heavily influenced by the electronic identification, among harmonization efforts of the EU. In the others, is harmonized with the EU The national competition authority wake of entry into force of the General legislation and is sufficiently flexible is the Commission for Protection of Data Protection Regulation (GDPR) to allow cross-border trade through Competition (CPC). The CPC remains in May 2018, a new Bulgarian Data servers or online platforms maintained responsible for monitoring the Privacy Act is expected to be adopted in Bulgaria. competitive behavior of businesses by springtime. The GDPR introduces on the Bulgarian market, collusion uniform rules across EU and sets between competitors in the Bulgarian

Doing business in Bulgaria 34 a clearer basis for cross-border employment relations to the laws transfers of personal data. However, of another jurisdiction. However, while this welcome development may the choice of a foreign law does not effectively reduce the complexity of deprive the employee of the protection the data protection landscape, such to which he/she is entitled by virtue of harmonization is likely to increase the the imperative rules in the legislation responsibility and accountability of the of an EU/EEA or of Switzerland at the data controller involved in processing place of employment if these rules personal data. Moreover, sanctions will are more favorable for the worker or increase significantly (up to 4% of the employee. global turnover). It will apply to all data Special rules apply in case of posting controllers and processors established of workers under service provision in the EU and organizations that target agreements and as part of inter- EU citizens. Data protection officers corporate transfers. Employers do must be appointed if an organization not owe payment of daily allowance. conducts large-scale systematic Instead, they should provide to monitoring or processes considerable employees, for the duration of amounts of sensitive personal data. the posting, at least the same GDPR imposes mandatory remuneration for the same or similar requirements, including performing work in the hosting country. Travel privacy impact assessments and costs are still at the expense of the regular data compliance audits, employer, while accommodation notifying personal data breaches and expenses will be due only if the parties maintaining records of personal data have specifically agreed on this. The activities. employees should be subject to the more favorable working conditions between the rules applicable in the Labor home and host countries, such as ulgarian employment law maximum length of the working applies to employment week, minimum annual paid leave, B relations between Bulgarian payment for overtime and night citizens, citizens of Member States work. Outside the scope of the new of the EU or of the EEA, citizens of legislation remains any posting from Switzerland, on the one hand, and Bulgaria to third countries (outside employers in the Republic of Bulgaria, the EU, the EEA and Switzerland). Posting on the other. It also applies to inbound For any business trip, which does not and outbound secondments. In case fall within the scope of the new rules, of workers of cross-border employment, the the old ones for business trips and under service provision agreements employer and the employee can, in specializations abroad apply. and as part of inter-corporate transfers principle, choose to subdue their are subject to special rules

35 Doing business in Bulgaria How do we build a better working world?

Doing business in Bulgaria 36 37 Doing business in Bulgaria How do we build a better working world? Accounting and financial reporting. Audit

n entity is required to • Content and preparation of financial maintain its records and statements, management reports prepare its financial and reports on payments to statements pursuant governments of enterprises and Ato the Bulgarian Accountancy Act groups of enterprises and other related Bulgarian laws and • Obligations for independent regulations. The following falls in its financial audit and disclosure of scope: financial statements, management • Requirements to maintain reports and reports on payments accounting records and accounting to governments of enterprises and systems of enterprises, accounting groups of enterprises documents and accounting • Duties and responsibilities of the information, the inventory of assets manager of the enterprise and liabilities and the storage of accounting information

• The applicable basis of accounting in financial reporting

Annual financial statements publishing is among the general compliance obligations of companies registered in Bulgaria

Doing business in Bulgaria 38 Auditing Type of enterprises according period, they do not exceed at least two to their size or nature of the following criteria: he independent financial audit in Bulgaria is governed by the Enterprises according to their • Book value of the assets – T Independent Financial Audit Act. size BGN 38,000,000 For the purposes of the Accountancy • Net sales revenue – The following falls in its scope: Act, entities are classified as either BGN 76,000,000 • Objective, scope and principles of micro-enterprises, small enterprises, • Average number of employees for the independent financial audit medium-sized enterprises or large the reporting period: 250 performed by registered auditors, enterprises based on three criteria — hereinafter referred to as "financial net book value of assets, net sales Entities are classified aslarge audit" revenue and average number of enterprises when at 31 December employees for the reporting period. of the current reporting period, they • Professional standards of organizing, exceed at least two of the following Entities are classified asmicro- documenting and executing, as well criteria: as certifying the results from the enterprises when at 31 December financial audit, hereinafter referred of the current reporting period, they • Book value of the assets – to as "applicable auditing standards" do not exceed at least two of the BGN 38,000,000 following criteria: • Acquiring the right to practice as a • Net sales revenue – BGN 76,000,000 certified public accountant • Book value of assets – BGN 700,000 • Average number of employees for • Acquiring the right to practice and • Net sales revenue – BGN 1,400,000 practicing the auditor’s profession by the reporting period: 250 registered auditors • Average number of employees for A change in the category is made the reporting period: 10 when the enterprise no longer • Rights and obligations of the meets two of the three criteria for registered auditors Entities are classified assmall the relevant category in the last two enterprises when at 31 December • Statute and functions of the accounting periods. The category of the current reporting period, they Commission for Public Oversight is changed from the beginning of do not exceed at least two of the of Statutory Auditors, hereinafter the next (third) reporting period. In following criteria: referred to as the “Commission” or cases when the enterprise meets the indicators for two different categories “CPOSA” • Book value of assets – BGN in the last two accounting periods, it 8,000,000 • Statute and functions of the Institute shall be categorized by the indicators of Certified Public Accountants • Net sales revenue – of the last accounting period. (ICPA) BGN 16,000,000 Enterprises determine initially their category for FY 2016, according to • Activity of audit committees in • Average number of employees for their indicators as of 31 December public-interest entities the reporting period: 50 2015. Entities are classified asmedium- Similar to enterprises, the Bulgarian sized enterprises when at Accountancy Act determines groups of 31 December of the current reporting entities in different sizes.

39 Doing business in Bulgaria How do we build a better working world?

Enterprises according to their • Water Supply and Sewerage -- The book value of their assets nature operators within the meaning of exceeds BGN 1,000,000 nder the Accountancy Act, Article 2 (1) of the Regulation of -- Net income from profit- public-interest entities (PIEs) Medium and Large Water Supply and generating and non-profit U are: Sewerage Companies Act operations for the current year: BGN 2,000,000 • Enterprises whose transferable Requirements for independent securities are admitted to trading audit over statutory financial -- Total amount of financing received during the current on a regulated market in a Member statements year and not utilized as of State of the European Union Subject to statutory independent 31 December of the current financial audit by registered auditors • Credit institutions year financing, received in are the annual financial statements of: previous reporting periods: • Insurers and reinsurers • Small enterprises, which at BGN 1,000,000. • Pension insurance companies and 31 December of the current • Are established to carry out funds managed by them reporting period exceed at least activities – for example, an agency two of the following indicators: in adoption of children under Art. • Investment firms, which are large 116 of the Bulgarian Family Code. enterprises under the Accountancy • Book value of assets – Act BGN 2,000,000

• Collective investment schemes and • Net sales revenue – BGN 4,000,000 management companies within the meaning of the Collective • Average number of employees for Investment Schemes and Other the reporting period: 50 Collective Investment Undertakings • Medium-sized and large enterprises Act, which are large enterprises under the Accountancy Act • Public-interest enterprises as defined in the Accountancy Act • Financial institutions within the meaning of the Credit Institutions • Joint-stock companies and limited Act, which are large enterprises partnerships with shares which are under the Accountancy Act not classified as micro-enterprises

• EAD (BDZ • The annual financial statements Holding) and its subsidiaries; the of enterprises included in the National Railway Infrastructure consolidated financial statements Company which are subject to statutory independent audit • Companies whose primary business is to produce and/or transfer, and/ • Enterprises for which this or sell electricity and/or heat, and requirement is established by law The reporting which are large enterprises under • Certain non-profit legal entities the Accountancy Act designated as operating for the period • Companies whose primary business public benefit when they either: in Bulgaria shall correspond to the is to import and/or transfer, and/or • Exceed one of the following calendar year (1Jan - 31Dec) distribute or transit , and criteria: which are large enterprises under the Accountancy Act

Doing business in Bulgaria 40 Requirements for • Activities in the area of research and management and other development reports to the annual financial • Information on the acquisition of statements own shares as required under Article The Accountancy Act prescribes 187e of the Commerce Act the minimum required content for the management report, depending • Existing branches of the enterprise on the category of the entity • Any financial instruments used by (micro-enterprise, small, medium- the enterprise, and where material sized or large enterprise). Specific for the purposes of evaluating the requirements for the content of the assets, the liabilities, the financial management report for public interest position and the financial result, the entities are also available in the Public following shall be disclosed: Offering of Securities Act (POSA). • Objectives and policies of the General requirements for the enterprise concerning financial management report risk management, including its Enterprises draw up an annual hedging policy for each main type management report, which shall of hedged item to which hedge accounting is applied contain at least the following information: • Enterprise’s exposure to price, credit and liquidity risks and cash Objective review giving a true and • flow risk fair view of the development and results of the operations of the Micro- and small enterprises enterprise and its position, together which are not subject to statutory with a description of the main risks independent financial audit are not facing it required to draw up a management report, provided that the information Analysis of financial and non- • regarding the acquisition of their own financial key performance indicators shares, as required by Article 187e relevant to the business, including of the Commerce Act, is disclosed information on issues related to in the notes to the annual financial environment and employees; when statements or in a footnote to the preparing the analysis for the compiled balance sheet. The latter management report, references to shall not apply to investment firms expenses reported in the annual and financial holding companies, financial statements and additional categorized as micro- or small explanations thereon may be enterprises. included Management • All significant events that have occurred after the date of drawing report up the annual financial statements is not required from micro and small • Probable future development of the enterprises enterprise

41 Doing business in Bulgaria How do we build a better working world?

Specific requirements for • Explanation by the PIE as to which Non-financial declaration PIEs parts of the accepted corporate Large enterprises which are public • Large enterprises which are public governance code the PIE does not interest enterprises and which, at interest enterprises and which, at comply with and as to what the 31 December of the reporting period, 31 December of the reporting grounds for this non-compliance exceed the criterion of the average period, exceed the criterion of the are and when the PIE has opted not number of employees during the average number of employees during to refer to any of the rules of the financial year of 500 people, shall the financial year of 500 people, shall corporate governance code – the include a non-financial declaration in include a non-financial declaration in grounds for that their management report. their management report. • Description of the main The non-financial declaration shall • For certain PIEs (whose transferable characteristics of the internal contain a short description of the securities are admitted for trading control system and of the risk business model of the entity (i.e., in an EU Member State, or are management system of the PIE goals, strategy, etc.) and description credit institutions, or insurers in connection with the financial of the policies of enterprises regarding and reinsurers) a declaration of reporting process their activities in the field of ecology, corporate governance should be • Information regarding take-over social issues and those related to included in the management report. offers employees, human rights, the fight against corruption. Declaration of corporate • The composition and functioning governance of the administrative, managerial Report on payments to The declaration of corporate and supervisory bodies and their governments governance shall contain: committees, as well as Large companies and public interest enterprises operating in mining, • Information whether the PIE • Only for large PIEs – description quarrying or logging of primary complies as appropriate with the of the diversity policy applied forests shall prepare and publish an following: as regards the administrative, annual report on payments made to managerial and supervisory • National Corporate Government governments, together with the annual bodies of the PIE in connection Code. The Corporate Governance management report, provided that the with aspects, such as age, gender Code approved by the Deputy annual lump sum of the payments to Chairperson of the Financial or education and professional governments exceeds the amount of Supervision Commission in experience, the objectives of BGN 195,600 (EUR 100,000). Bulgaria the Financial Supervision such diversity policy, its method Commission, or of application and the results The annual report on payments • Another corporate governance therefrom during the reporting to governments shall contain the code – in this case, the PIE period; when no such policy is following information about the should state explicitly where the applied, the declaration shall relevant reporting period: respective texts are accessible to contain an explanation regarding the • Total amount of payments made to the public reasons for that. each government • Information regarding the • Total amount for each of the corporate governance practices, which are applied by the PIE in payment types made to each addition to the Code under a) or b) government, as follows:

Doing business in Bulgaria 42 • Rights in production the International Financial Reporting financial statements under the Standards as adopted by the EU (IFRS- National Accounting Standards (NAS). • Profit and income taxes; the value EU): added tax paid, excise duties and The financial reporting framework income tax on individuals paid • Consolidated and separate annual applicable for all other enterprises in shall not be disclosed financial statements of enterprises Bulgaria are the National Accounting • Copyright, licence and related whose transferable securities are Standards (NAS). These enterprises, rights admitted to trading on a regulated however, may choose to prepare their market in a Member State of the annual financial statements based on • Dividends European Union (listed PIEs) IFRS-EU. These enterprises are allowed • Bonuses for signing a contract, to voluntary change their financial • Credit and financial institutions opening and production reporting framework only once after defined in the Bulgarian credit • Licence fees, rents, registration the existing Accountancy act was institutions law fees and other payments for entered into force (i.e. after 1 January licences and concessions • Investment intermediaries 2016). There are no constraigns in the Accountancy act for the moment of • Payments for infrastructure • Alternative investment fund this voluntary change but enterprises improvements managers, national investement are allowed to switch from NAS to funds and collective investment • Total amount of payments for each IFRS EU and vice versa only once after funds and management companies project separately, as well as total 1 January 2016. They are allowed defined in the Bulgarian Collective amount on the types of payments for to change the financial reporting investment schemes and other each project; when an enterprise has framework for the preparation of the undertakings for collective made payments on several projects annual financial statements in 2018 or investment act to the same person representing the in any other subsequent period. government within the meaning of • Payment services providers the law, the disclosure may be on The NAS are essentially following • Insurers and reinsurers individuals rather than on projects. the measurement and recognition • Pension funds defined in the principles of the International The Companies, required to prepare Bulgarian Social security code Accounting Standards version such a report for third countries under before 2005. However, there are Commission Implementing Decision • Central securities depositories certain differences (presentation and (EU) 2016/1910 of 28 October 2016 defined in Regulation (EU) No classification, initial recognition and on the equivalence of the reporting 909/2014 of the European subsequent measurement positions, requirements of certain third countries Parliament and of the Council of 23 business combinations, etc.). on payments to governments to July 2014 on improving securities the requirements of Chapter 10 of settlement in the European Directive 2013/34/EU of the European Union and on central securities Parliament and of the Council, are depositories and amending exempt from the requirement to Directives 98/26/EC and 2014/65/ Enterprises prepare a report on payments to EU and Regulation (EU) No governments under the Accountancy 236/2012 without any Act. Enterprises which are in the process Applicable accounting of liquidation or enterprices which activities standards in Bulgaria are non-profit legal entities (non- during the reporting period are exempt The annual financial statements of the profit associations and foundations) from the requirement to publish following entities are prepared under are required to prepare their annual financial statements.

43 Doing business in Bulgaria How do we build a better working world?

Financial year end, filing and A parent company which is a wholly- Format of the statutory public information owned or partially-owned subsidiary of financial statements According to the Accountancy Act, another entity (i.e., local intermediate The format, structure and content of entities are required to prepare their parent) and is exempt under the the full set of the financial statements annual financial statements as at 31 applicable financial reporting are defined by the applicable December in thousands of Bulgarian framework from the requirement accounting standards (IFRS-EU or levs (BGN). In line with the additional to prepare consolidated financial National Accounting Standards). provisions of the Act, the reporting statements, is required to publish in When the applicable reporting period shall correspond to the the consolidated framework is National Accounting calendar year (1 January–31 December). financial statements of its parent Standards, Accounting Standard 1 The financial year cannot be longer company together with the respective (AS 1) prescribes the format and than 12 months. It can be shorter consolidated management report structure of the balance sheet, income than 12 months only in the year of and audit opinion on these financial statement and equity statement incorporation. statements within three-month period and Accounting Standard 7 (AS 7) after the parent company’s statutory The entities shall publish their annual prescribes the format and structure publishing deadline. financial statements, the consolidated of the cash flow statement. The latter financial statements (if such are The information published is freely should be based on the direct method. prepared by the entity ) and the accessible through the Commercial Depending on the category of the annual reports in the Commercial Register website and in the Central entity, there are certain voluntarily register or in the Central Registry Registry of NGOs of public benefit reduced reporting requirements as of NGOs of public benefit (for non- website. follows: profit organizations) by 30 June. The Publicly listed companies and • The annual financial statements annual financial statements and the companies meeting the requirements of micro-enterprises may consist management report shall be published of §1e of the Supplimentary Provisions only of a summary balance sheet in the form and with the text on the from the POSA Act should publish and a summary income statement basis of which the registered auditor their financial statements within 90 by section (not applicable for has expressed his/her opinion. The days from the financial year end. investment firms and financial full text of the audit report shall also holding companies, categorized as be subject to publication. Enterprises, micro-enterprises). which are not subject to statutory independent financial audit, are • The annual financial statements of exempt from publishing certain parts small enterprises may consist of a of their financial statements (income summary balance sheet, a summary statement and management report). income statement by section and Enterprises without any activities group, and notes. during the reporting period are exempt These entities, however, may also from the requirement to publish voluntarily prepare a full set of financial statements. However, they Bulgarian financial statements. are required to submit a declaration for lack of activities within three Commercial months after the end of the reporting period in the Commercial Register Register website or in the Central Registry of NGOs of public benefit website (for Annual financial statements are freely non profit organizations – non-profit accessible through the Bulgarian associations and foundations). Commercial Register website

Doing business in Bulgaria 44 Requirements for annual Other specific requirements inventory counts with regard to preparing Entities shall take inventory of statutory financial the assets and liabilities at least statements once a year for the purpose of Interim, annual and consolidated fair presentation in the financial accounts of entities should be statements. Entities whose net sales prepared by individuals who are revenues do not exceed in employment, civil service or BGN 200,000 for the current reporting contractual relationship with the period, shall not take mandatory entity, or by accounting firms. inventory. The Accountancy Act Individuals who prepare the financial defines inventory taking as the process statements, and the managers of preparing and actually checking, and/or the representatives of through various means, the physical accounting firms who sign the and value parameters of assets and financial statements when prepared liabilities of the entity as at a specific by accounting firms, shall meet the date, comparing the results against following requirements: accounting data and establishing any • Minimum mandatory degree of mismatches. completed education and practical Language requirements experience corresponding to it, as The financial statements shall be follows: prepared in the Bulgarian language, • Higher education in accounting with Arabic numerals and in thousands and economics, and previous of levs (BGN). Where accounting employment in the area of software is used for the purposes of accounting, external and internal bookkeeping, the output documents audit and financial inspection, shall be in the Bulgarian language. tax audits or as an educator in accounting and control, as follows: Chart of accounts -- For the master's degree, 2 years In establishing and maintaining its accounting system, the entity shall -- For the bachelor's degree, ensure application of an individual 3 years chart of accounts as approved by the -- For the professional bachelor’s management of the entity. There is degree, 4 years no mandatory local statutory chart of • Other tertiary economic accounts that must be used. education and 5 years of previous Exchange rates used for employment in the area of accounting, external and internal transactions in foreign audit and financial inspection, currency tax audits or as an educator in When the transaction is negotiated in accounting and control foreign currency, its BGN equivalent Financial amount shall be determined by • Secondary economic education and 8 years of previous applying the central exchange rate employment as an accountant statements of the Bulgarian National Bank to the foreign currency amount as at the • Absence of conviction for an shall be prepared in Bulgarian date of the transaction. indictable offense language

45 Doing business in Bulgaria How do we build a better working world?

Retention of accounting PIE audit committees and • Monitor the mandatory financial information certain requirements to the audit of the annual financial Accounting information shall be stored PIE independent auditor statements, including its implementation, while taking on paper and/or technical carrier in PIE audit committees the enterprise within the following into consideration the findings Each PIE should have an audit time limits: and conclusions of the CPOSA committee, which is elected at the inspections on the work of the • Payrolls – 50 years from 1 January general assembly of the shareholders independent auditor of the reporting period, following or the partners of the entity. The the accounting period to which they majority of the members of the • Verify and monitor the refer audit committee shall be external independence of the registered to and independent of the PIE. The auditors according to the • Accounting records and financial chairperson of the audit committee requirements of the Independent statements, including documents for shall be elected by the members of Financial Audit Act, as well as tax control, audit and subsequent the audit committee. The chairperson pursuant to the Regulation (EU) financial inspections –10 years should be external to and independent No 537/2014 of the European from 1 January of the reporting of the PIE as well. Parliament and of the Council on period, following the accounting specific requirements regarding period to which they refer The audit committee shall: statutory audit of public- • All the other carriers of accounting • Inform the entity’s management and interest entities Regulation (EU) information – 3 years from supervisory bodies of the results No. 537/2014, including the 1 January of the reporting period, from the mandatory audit and clarify appropriateness of providing other following the accounting period to the manner in which the mandatory services outside the audit to the which they refer audit contributed to the truthfulness audited entity under the same of the financial reporting, as well as Regulation Accounting information may be stored of the role of the audit committee in in private or public records. • Be responsible for the procedure for the process selecting the registered auditor and Accounting and commercial • Monitor the financial recommend his/her appointment, information, as well as all other tax reporting process and present with the exception of the cases documents shall be stored within the recommendations and proposals in when the audited entity has its own following periods: order to guarantee the effectiveness selection commission • Payrolls: 50 years thereof • Notify CPOSA, as well as the entity’s • Accounting records and financial • Monitor the effectiveness of the management and supervisory statements: 10 years internal control system, the risk bodies of each approval given for management system and the provision of other services outside • Tax and social security control internal audit activity in respect of the statutory audit, provided by the documents: 5 years after expiry of the financial reporting in the audited elected independent auditor, within the extinguishment of the public entity a 7-day time limit from the date of obligation the decision • All other carriers of information: 5 years

Doing business in Bulgaria 46 • Report on its activity before the The independent auditor of a PIE is body in charge of the appointment subject to mandatory rotation. The independent audit firm should rotate • Draw up and submit an annual report after seven consecutive years of audit on its activity to CPOSA by 30 June with a cooling-off period of four years, CPOSA is performing monitoring, while the key audit partner of the assessment and measures in respect of same firm should rotate every four the activity of the audit committees. years, with a cooling-off period of Requirements for the PIE three years. independent auditor Certain PIEs are required to have joint The independent auditor of a PIE audits by more than one auditor. shall prepare and present to the audit committee a supplementary report to the audit report.

The supplementary report shall be prepared according to the requirements of the applicable auditing standards and the provisions of Regulation (EU) No. 537/2014.

The independent auditor is limited in providing other than statutory audit services to a PIE. Certain services are prohibited. The registered auditor can provide certain non-audit services provided that:

• The services do not exert an influence or exert an insignificant influence, separately or jointly, on the audited financial statements

• The assessment of the influence on the audited financial statements has been documented and explained comprehensively in the Mandatory supplementary report for the audit committee rotation • The registered auditor complies with of independent auditors of PIEs at the independence requirements every 7 consecutive years

47 Doing business in Bulgaria How do we build a better working world?

e have been present on the Bulgarian market since 1992. Employing over 300 W professionals locally across our four service lines: Assurance, Tax/Law, Transactions and Advisory, we offer the full scope of global services in a close and integrated effort with other growing practices in the region. EY enjoys a leading position on the Bulgarian market and also covers Albania, North Macedonia and Kosovo, providing both multinational clients and strong local companies with customized advice.

Doing business in Bulgaria 48 Assurance Tax Transaction Services Services Advisory Promoting transparency, supporting Helping our clients understand and investor confidence and economic manage their taxes responsibly and Services growth proactively Supporting businesses drive competitive advantage by proactively managing their capital agenda, which determines how they strategically raise, invest, preserve and optimize their capital People Legal Global Advisory Services compliance Business and practically oriented, Services EY Law Partnership is a new-style and reporting Collaborating with clients to help their legal practice working in very close Full outsourcing of accounting, payroll people agenda cooperation with professionals from and tax compliance functions of our the tax, accounting and financial teams clients

49 Doing business in Bulgaria How do we build a better working world?

ur values define who we are. They are People who demonstrate integrity, the fundamental beliefs of our global respect, and teaming. O organization. They guide our actions and behavior. They influence the way we work People with energy, enthusiasm, with each other – and the way we serve our clients and the courage to lead. and engage with our communities. Every day, each one of us makes choices People who build relationships and decisions that directly affect the way we based on doing the right thing. experience each other and the way our clients and wider communities experience us. Our values give us confidence that we are using the same principles to help us make these decisions throughout our global organization.

Assurance services

Nikolay Garnev Milka Natcheva-Ivanova Daniela Petkova Danail Gecev FCCA, CPA FCCA, CPA FCCA, CPA, CGAP FCCA, CPA, CIA Country Managing Partner Partner Partner Associate Partner Assurance Services Financial Accounting Assurance Services Advisory Services [email protected] [email protected] [email protected] [email protected]

Doing business in Bulgaria 50 Tax services Law services

Naiden Kostadinov Milen Raikov Svetlin Adrianov FCCA, CPA, Partner Attorney-at-law Attourney-at-law Tax Service Line Leader Partner Associate Partner Accounting, Compliance Tax Markets Leader Law Leader & Reporting Services Tax Advisory Services [email protected] [email protected] [email protected]

Transaction advisory services

EY Bulgaria 47A, "Tsarigradsko shose" Blvd. Diana Nikolaeva Svetoslav Evtimov Polygraphia Office Center CFA, Partner Associate Partner Transaction Advisory Services Transaction Advisory Services 1124 Sofia Bulgaria

[email protected] [email protected] T: 00359 2 817 7100

51 Doing business in Bulgaria How do we build a better working world?

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53 Doing business in Bulgaria EY | Assurance | Tax | Transactions | Advisory

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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.

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