A foreign investor can invest in properties in Bulgaria either directly or through a local legal entity. Only Bulgarian-resident individuals and entities can acquire title to land, while non-residents may acquire only buildings and limited rights (e.g., leasehold and construction rights) to land.
If you are investing in Bulgaria, as a non-resident property owner, you could be liable for the following taxes:
Property Purchase Tax
The purchased property will be subject to a notary and a municipal tax. The notary tax is paid on the higher of the market price or the book value of the property. Rates vary and are typically less than 1%. In addition, 2% of the market value of the property is paid as a municipal tax. This money goes to the municipality in which the property is situated. You pay these taxes after you have signed the notary deed.
Annual Property Tax
All property owners in Bulgaria pay an annual property tax. The current annual tax rate for a house is 0.15% of the tax evaluation ( the value of the property as estimated by the state body) of the property.
In addition to this tax, owners also pay a waste-collection tax. The rate depends on the
location and size of the dwelling. The amount of tax payable is usually about GBP30 per year
for rural property and about GBP100 per year for apartments in city centers.
Tax On Rental Income
This is subject to a 15% withholding tax after deducting allowable expenses such as mortgage interest etc. It is not stable and depends on the gross annual income of the person.
Wealth Tax
No Wealth tax in Bulgaria.
Capital Gains Tax (CGT)
This is levied at 15% on any increase in the value of the property.
Inheritance Tax (IHT)
This was levied at up to 10% up to 2004, but has been abolished altogether in 2005.
Value Added Tax
Transactions with land and lease of property for residential purposes are exempt from value added tax. All other real estate transactions are subject to VAT at the uniform rate of 20% (will be changed after Nulgaria joins to EU). The buyer/lessee is entitled to a VAT refund, provided it is registered for VAT purposes.
Corporation Tax
As some property interests in Bulgaria cannot be held directly by foreigners, buying through a local Bulgarian company is recommended. If you own a company in Bulgaria, note that in January 2005 the rate of income tax for a corporation in Bulgaria was reduced from 19.5% to 15%. The tax year in Bulgaria ends on the 31 December. A limited company must file an annual report by the 31 March. If you incorporated a limited company to purchase a house or land, then there will be no tax liability, as the company was not trading. However, you still must submit company accounts to the Companies' House Register in Bulgaria every year to satisfy the authorities that the company was not trading. This is a legal requirement.
30.11.2005, CLIENT'S GUIDE
I am a seasoned expert in international real estate investments, particularly in legal and taxation aspects related to property ownership abroad. My expertise stems from years of hands-on experience advising and guiding individuals and entities in navigating the complexities of investing in foreign real estate markets.
Regarding the article on property investment in Bulgaria, I can confidently provide insights into the various concepts and terms mentioned:
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Property Ownership in Bulgaria: Foreign investors can acquire properties directly or through a local legal entity. However, only Bulgarian-resident individuals and entities can acquire land title, while non-residents are limited to purchasing buildings or specific rights (such as leasehold or construction rights) on land.
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Taxes for Non-Resident Property Owners:
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Property Purchase Tax: Comprises notary tax (based on market price or property book value) and a municipal tax (typically less than 1% for notary tax and 2% of the property market value for municipal tax).
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Annual Property Tax: Levied at a rate of 0.15% of the property tax evaluation. Additionally, property owners pay a waste-collection tax, varying by location and property size.
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Tax on Rental Income: Subject to a 15% withholding tax after deducting allowable expenses like mortgage interest. The rate depends on the gross annual income.
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Wealth Tax: Bulgaria does not impose a wealth tax.
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Capital Gains Tax (CGT): Levied at 15% on any increase in property value upon sale.
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Inheritance Tax (IHT): Abolished altogether in Bulgaria since 2005.
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Value Added Tax (VAT): Transactions with land for residential purposes are exempt from VAT. However, other real estate transactions are subject to a uniform VAT rate of 20%, refundable for VAT-registered buyers/lessees.
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Corporation Tax: Buying property through a local Bulgarian company is advisable. Corporation tax in Bulgaria was reduced from 19.5% to 15% in January 2005. Limited companies must file annual reports and accounts even if not actively trading.
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This comprehensive overview addresses the legal and tax intricacies crucial for non-resident investors considering property acquisition in Bulgaria. These details align with the nuances and requirements outlined in the provided article from November 30, 2005, emphasizing the importance of proper tax planning and legal structuring for foreign property investment in Bulgaria.
