10 reasons to buy property in Bulgaria
You want to own property abroad and make a fortune? The right time and the right place is Bulgaria!
Properties in Bulgaria are still the cheapest in Europe but prices are already rising as 2007 when Bulgaria joins the ÅU is coming! By 2007 they will rocket!
Prices rose up 100% in 1 year! After Bulgaria joined NAÒO in April'04 and with the closing of 2007 when Bulgaria enters ÅU they'll keep growing and any investment made now will double or triple by 2007. Plus you can rent the property for additional profit. Remember the prices in Spain, Greece or Portugal before Å U ! Even if BG property prices reach Spanish they still be selling because you pay for house ones but for beer every day. Well, the beer here is 10 times cheaper than Spain and Spanish properties are way over 100 000 .
Property prices: New villas are from 80 000 Euro, resale vary from 30 000 to 300 000. New apartments are from 30 000. Prices at seaside are usually higher than inland or mountain areas. Country homes with gardens (for renovation) can be found in small quiet villages by the sea, inland, or in the beautiful mountains even for 10 000- 20 000 Euro. Whatever your budget and wish, you can find the right property - villa/second house, apartment, plot to build on, hotel, agricultural land, office, buildings to let, commercial property, etc.
Property ownership: By the Law in Bulgaria, foreign persons may own buildings but not land. Because of that if a foreigner wants to buy a property (apartments are an exception) he has to register a local LÒD company and buy the land on company's name. This is not needed for the apartments. As a matter of fact this law is one of the main reasons keeping the prices from explosion. But it will drop after 2007.
Property transaction: in Bulgaria it is similar to Europe but the cost is lower. The notary fees, state taxes, mortgage check and legalization are around 3 % altogether.
Property running cost is VERY LOW: Annual real estate tax - 0.15 %. Annual Community and waste collection tax - about 0.5 %. If the property is a part of a residential complex or apartment building, monthly tax to the housing union - around 40 - 50 Euro for security, cleaning, lighting, garden, pool, etc.
Resale/Renting/Mortgage: It's easy to resale your property as prices rise every month. By renting it you can earn (depends on status and location) from 2000 to 8 000 Euro per year and get your investment back. Banks in Bulgaria mortgage at credit rates from 9% up.
Visas: UK citizens can visit Bulgaria without a visa and stay 30 days. For longer periods they need a visa.
Living costs in Bulgaria: Good red wine - 2.00 Euro per bottle, good beer - 0.30, local cigarettes - 0.60, Marlboro - 1.50, delicious dinner for two - 10 - 15 Euro, petrol - 0.70, house keeper - 150 Euro per month.
total normal life cost for family of 2 is about 400 Euro per month. Very good life - 600. Luxury life - 1000+.
COMPANY FORMATION
If you are foreigner interested in buying a property in Bulgaria, according to Bulgarian law you must register a Trade company. In Bulgaria it is forbidden a foreigner to buy land as an individual. This limitation will cease after 2014.
The procedure for registration as a legal person is the following: you have to pay the taxes and present the necessary documents in the Court. You can register a company in every court of the large towns. No matter where the registration is done, your company will have the right to activity in the whole country.
If you qualify as a trader you can be a sole owner of the capital of the company and sole representative of it. Your company can have more than one partner in order to do business together as LTD company. It is considered as a trading company from the day of the entry in the trade register of the Court. The company should also be registered with The National Statistics Institute (Bulstat), The National Social Insurance Institute (NOI) and the Tax authorities. After all this you receive original documents confirming that the company is registered according to all laws.
Before the deal you have to sign a protocol, declaring the intention to buy a particular property. The difference between EOOD (Single person limited company), OOD (Multiple person limited company)and sole trader is that the sole trader is responsible for their duties regarding the business liabilities but if your company is a LTD (EOOD or OOD), each partner is responsible only to the extend of their share in the total capital.
TAX SUMMARY: BULGARIA
General - Bulgaria is a politically stable country and the introduction of a currency board in 1997 helped for the stabilization of the country's economy. A foreign investor can invest in properties in Bulgaria either directly or through a local entity. Only Bulgarian- resident individuals and entities can acquire only buildings and limited rights to land. Sometimes acquisition of immovable property by non- residents requires a permission of the Ministry of Finance. The transfer of your profit abroad can be made only if the bank doing the transfer is presented a certificate proving payment of all Bulgarian taxes due.
Investing through a local entity versus direct investment - In the case of a direct investment, the tax treatment of the foreign investors depends on whether or not their activities are a permanent establishment. A permanent establishment means: the mere fact that a foreign company owns and rents out property in Bulgaria (except where such activity is carried out through an independent agent) may create a permanent establishment under domestic law. If the activities of a foreign person owning real estate in Bulgaria don't constitute a permanent establishment, the person will be liable for only 15% withholding tax on the rentals and capital gains, unless an even lower rate is applied under an interstate Double Tax Treaty
Basis of taxation -The taxation of a local entity or a foreign entity constituting a permanent establishment is:
Rental income - The basis of the taxable income of a company which invests in Bulgarian real estate is the gross income derived from the property less tax- deductible , property- related expenses and depreciation. These expenses include repairs, maintenance, renovation and similar costs and interest of loans used used for the acquisition of the property. A municipal tax at a rate of 10% of profits is due.
Depreciation - Land itself isn't depreciable. Depreciation for tax purposes is at rate 4% per annum. Real estate acquired for purposes of re- selling is considered as “investment property”. That is why it is no depreciable and is subject to annual revaluation to the market value.
Loss carry - forward- Tax losses can be carried for a five year period. Losses can't be offset against profits from previous years.
Capital gains - They are treated as ordinary income subject to corporate income tax.
Property transfer taxes - the transfer is subject to notary and municipal fees. The notary fees are paid on the higher of the market price or the tax value of the property at varying rates. 2% of the market value of the property is paid to the municipality where the property is located.
Local taxes and rates - The owner of a building or a plot is obliged to pay a real estate tax. The tax is equal to 0.15% of the tax value of the property. Arable land is exempt from local taxes. Owners pay waste- collection tax from 0.5 to 0.15% of the tax value depending on the region.
Value Added Tax (VAT )- Transactions with land and lease of property for residential purposes are exempt from VAT. All others are subject to VAT at the uniform rate of 20%. If you are buying property from an individual you pay no VAT.
Financing the property - A registration wit the Bulgarian National Bank is required for loans granted by non- residents to Bulgarian entities. Where the debt financing exceeds the equity financing, deductibility of interest is subject to limitation. If the interest costs exceed the allowable limit, the excess is non- deductable. The interest cost non- deducted in a given year can be deducted in the subsequent tax period. |
