Bulgaria Investment Tax Planning

Below is a guideline to the tax implications of property investment in Bulgaria. It is important to be clear of these prior to any purchase.

Rental Income

A company investing in Bulgarian property is taxed on its gross income derived from the property, minus tax-deductible, property-related expenses and depreciation. Tax-deductible expenses include repairs, maintenance, renovation and similar costs, as well as interest on loans used for acquiring the property.

A Municipal Tax at a rate of 10% of profits is due. This is then deductible in calculating taxable profits which are subject to a flat corporate tax rate of 15%.

Depreciation

Land itself is not depreciable, although any immovable property affixed thereto is, provided that it is used for the business activities of the company and is recorded as a fixed asset.

Depreciation for tax purposes is at a rate of 4% per annum, and is usually calculated using the straight-line method. Real estate acquired for the purpose of re-sale is considered as "investment property". As such, it is non-depreciable and is subject to annual revaluation to the market value. In practice, it is often unclear in which situations a property should be treated as an "investment property" or a fixed asset.

Loss Carry-Forward

Tax losses can be carried forward for a five-year period. Losses cannot be offset against profits from previous years.

Capital Gains

Capital gains are treated as ordinary income subject to corporate income tax.

Transfer Taxes

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

Local Taxes and Rates

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

Value Added Tax

Transactions with land and lease of property for residential purposes are exempt from value added tax.

Value Added Tax (VAT)

All other real estate transactions are subject to VAT at the uniform rate of 20%. The buyer/lessee is entitled to a VAT refund, provided it is registered for VAT purposes.

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