Bulgaria Property buyers Guide
Overview
Successfully looking for Real Estate
in Bulgaria
As it emerges from years of semi-isolation behind the infamous Iron Curtain, Bulgaria
is becoming a more and more attractive place for foreign nationals to make investments
of different types in the real estate market. (With that said, and as will be discussed
thoroughly later, a foreign national cannot presently directly own real estate in
Bulgaria. The prohibition against direct ownership should be changed within the
coming decade. And, in the interim, there are ways in which a foreign national can
take title to real estate in a more indirect manner - which will also be discussed
in detail shortly.)
Presently, the biggest demand made by foreigners when it comes to real estate in
Bulgaria involves residential property. Many Europeans and individuals from some
other countries around the world are buying
Bulgarian property to establish holiday or vacation retreats.
Additionally, more and more savvy investors from different countries around the
world are becoming more involved in the ownership of business or commercial real
estate in some of the major cities in Bulgaria, most particularly
property in Sofia, the Bulgarian capital and
Varna on the coastal regions of the Black Sea.
Population: 7.97m
Currency: Bulgarian Lev
Capital: Sofia
Investment Property in Bulgaria
As mentioned, more and more international investors are putting money into real estate
in Bulgaria for investment purposes. For example, these investors are buying real
estate that is being developed for business and commercial purposes - especially
in and around Sofia.
(Once again, an investor needs to keep in mind that a foreign national cannot own
real estate directly in Bulgaria at this time. Again, there are mechanisms available
to deal with this prohibition that will be presented and discussed later.)
Another area in which foreign investors are becoming more active is in the purchasing
of apartments or apartment complexes which are then being rented and leased to the
influx of people that have taken to coming to Bulgaria to participate in the burgeoning
economy of that country since it has become more fully integrated into the overall
European community of nations.
Residential Bulgarian Property
As referenced, there are a significant number of overseas buyers who have taken to
buying property in Bulgaria for
holiday or vacation purposes. This includes people who have purchased elegant and
substantial villas in different parts of the country as well as the more affordable
and less costly apartments. In any case, a property in Bulgaria is proving to be
experiencing a sharp increase in the number of residences that are being sold to
people who are looking for second homes for retreats, vacations or holiday homes in Bulgaria.
Finally, with many people moving
to Bulgaria from other countries around the world, a great demand has been
placed for the development of single family homes and houses as well as apartments
in many parts of the country.
Residential Real Estate - Apartments in Bulgaria
Due to the prohibitions against foreign ownership of
land in Bulgaria that likely will remain in place for approximately ten more
years, many people are opting to
buy apartments in Bulgaria. Because apartments normally are sold as units
and without the conveyance of any actual land, a foreigner directly can purchase
and own an apartment.
Throughout Bulgaria, apartment sales have been brisk with many people buying holiday
apartments in the Black Sea resorts of
Sunny Beach,
Golden Sands,
Nessebar as well as the
Ski Resorts of Bansko,
Borovets and
Pamporovo. In addition, each year a significant number
of new apartment complexes are being developed in all of the major
locations in Bulgaria and in many more rural communities as well.
Again, due to the prohibition against the direct ownership of land by a foreign
national, many people are opting for apartment ownership at this juncture.
Holiday Property in Bulgaria Resorts
As mentioned earlier, many foreign buyers have taken to seeking and purchasing real estate in Bulgaria for vacation
or holiday purposes. One of the most interesting trends in the Bulgarian real estate
market at this time involves the renovation of substantial residents -- including
breathtaking and historic villas and chalets -- in different parts of the country.
These magnificent properties are being restored to immaculate condition and are
then, in many instances, being purchased (indirectly) by foreign nationals to be
used as retreats, vacation or holiday destinations.
In addition to the trend towards the rehabilitation of older
properties in Bulgaria, a significant number of new and off plan residential
developments are under construction in many resort communities in Bulgaria. Bulgaria
has worked diligently, through its government and through the private sector, to
attract tourists and tourism money into that country over the course of the part
five to ten years. Indeed, an ever growing number of people are finding themselves
attracted to Bulgarian resorts and have begun to purchase (again, indirectly unless
the residence is an apartment) real estate and residences being developed in this
various resort communities in Bulgaria. Most Bulgarian real estate market analysts
expect the trend towards the development of vacation-style residences to continue
well into the next decade as an ever increasing number of people begin to discover
Bulgaria and its resort destinations.
Specific steps to Buying Real Estate Property in Bulgaria
Since it has emerged from behind the Iron Curtain, Bulgaria through its government
has worked to bring that nation into the mainstream of international commerce. However,
and with that said, Bulgaria remains in a period of transition when it comes to
some commercial matters. This particularly is the case when it comes to the ownership
of real estate by a foreign national within the borders of Bulgaria.
At the present time, the Bulgarian national constitution actually prohibits foreign
nationals from directly
owning land in Bulgaria. With that said, the governmental leaders in Bulgaria
are in the process of changing the country's constitution to allow for the direct
ownership of land in Bulgaria by foreign individuals. The proposed constitutional
changes likely will not be in effect until 2014 or 2015.
Understanding that a foreign national cannot directly own land in that country at
the present time, this does not mean that a foreigner cannot own
property in Bulgaria "indirectly." In other words, if a person is interested
in owning land in Bulgaria, there is an additional step that he or she will need
to take in advance of making such a purchase and of assuming such ownership of real
property.
Keep in mind that if a foreign national is interested only in purchasing an apartment
-- to which no land will be involved, to which any land outside of the apartment
unit will be conveyed to the foreign national -- direct ownership is, in fact, permissible.
If a person is interested in buying or investing in land in Bulgaria, and if that
person is not a Bulgarian citizen, he or she will need to establish what is known
as a Bulgarian Limited Company through which land in Bulgaria can be purchased and
legally owned. In order to set up or establish a Bulgarian Limited Company, a person
will need to plan on spending just under one thousand Euros. In most instances,
a qualified real estate agent in Bulgaria should be able to
offer this service to a foreign national.
Once this Bulgarian Limited Company has been established, the hunt for land/property
to purchase can begin in earnest. At the time that a piece of property has been
identified that a person is interested in buying, an oral offer to purchase is made
to the seller. If the seller orally accepts a buyer's offer, the next step in the
purchasing process is the preparation and signing of what is known as a preliminary
contract.
Customarily, in Bulgaria, at the time the preliminary contract is executed, a 10%
deposit is placed or made by the buyer. Generally speaking, the deposit is non-refundable
unless the seller withdraws from the contract or cannot, in the end, provide a clear
conveyance of the property in question to the buyer. In other words, if the buyer
pulls out of the deal, he or she will lose his or her deposit money.
In Bulgaria, perhaps more so than in many other countries in Europe and elsewhere
in the world, it is imperative that a very thorough title search be undertaken.
In addition, an independent survey of the property subject to the sale should be
taken to ensure that the legal description of the property is, in fact, correctly
stated. Unfortunately, Bulgaria has somewhat of a reputation of being a country
in which titles to real property and survey descriptions are rather muddled in more
than a few instances.
Once the title to the real estate is deemed clear, and once all other inspections
and evaluations have been completed, the time will arrive for the signing of the
final contract. This must take place in the office of a notary public. When the
final contract is signed, all state and municipal taxes will need to be paid as
well as the remaining balance due and owing on the real estate. After the final
payment is made, the deed will be transferred into the buyer's name, which in the
case of a foreign national will be the Bulgarian Limited Company.
How to Buy Property in Bulgaria
Bulgaria is one of the new boom countries for property investors - property is relatively
inexpensive compared to neighbouring countries and certainly much better value than
the developed economies of Western Europe.
Buying property in Bulgaria
is a relatively straightforward procedure. We've broken the process down into a
few simple steps - follow these and you'll soon be the proud owner of a new property
in Bulgaria!
1. Find your property
OK this is the fun bit - at www.property-abroad.com
you can find an amazing range of Bulgarian property on offer from budget apartments
in Bansko to grand residences. Browse our site to find the property that suits your
needs best but bear in mind the following:
If the property seems cheap by UK standards, it may indicate that it:
- Requires significant refurbishment.
- Is built in an older style
- It's located in a remote area
- Only has an outside toilet
Many new developments, especially on the coast, are sold "off plan" which means
that they are currently under construction. You need to ensure that the relevant
terms and conditions are included in the preliminary contract - ask your legal advisor
for assistance.
2. Set up a limited company:
Foreigners are permitted to buy buildings in Bulgaria but not land. If you are not
a Bulgarian national, we recommended setting up a limited company that will then
own both the real estate and the buildings on the land. If you are buying an apartment,
it may not be necessary to form a limited company - check with the property agent
whether a direct purchase is permitted.
While this law is expected to change when Bulgaria enters the EU in 2007, it is
also the reason why Bulgarian property
is currently so inexpensive compared with other European countries.
What is a limited company?
As shareholder in a limited company you are liable for the company's financial commitments
up to the value of your share in the company's registered capital ie: if the company
incurs any expenses or debts your liable is limited to the full amount of your investment
in the company.
Who can set up a limited company?
Essentially anyone can form a limited liability company in Bulgaria - you do not
have to be Bulgarian to do so. This enables foreign nationals to purchase Bulgarian
property indirectly.
How do I set up a limited company?
Before signing any agreement you should agree with all the other shareholders what
commercial activities the company will be involved with and agree the structure
of the company.
Once you have all agreed on the nature of the business, the relevant documents for
incorporation will be prepared by your legal advisor and signed by all the shareholders.
Next you will need to open a dedicated company bank account to collect all share
capital.
The minimum share capital necessary to form a limited company is 5000 leva, of which
a minimum of 70% (3500 leva) is required at the time of registration. As well as
your share capital you will be required to pay administration costs for the registration.
Don't forget you will still have the money in the company.
Your limited company will officially exist as soon as it is added to the Commercial
Register of the district court, in the region where the company will be based.
This entry is made as soon as the district court make a decision to permit the incorporation
of your company.
When you submit your registration application you will need to provide the following
documentation:
o Proof that each shareholder has paid into the company at least one third of the
total amount of his or her financial interest, amounting to no less than 10 leva.
- Proof that at least 70 per cent of the registered capital has been paid.
- Articles of incorporation
- A memorandum relating to the appointment of directors
In order for any law to take effect, all Bulgarian legislation has to be published
in the official Bulgarian state newspaper, the Bulgarian State Gazette. Publication
of your company's entry in the commercial register is a public declaration of your
formation.
Finally, you will need to register your company with the National Tax Register Authority
to complete the process of formation.
Following registration, once you have paid your entire share capital you can withdraw
funds from the company to make your property purchase.
Now you've formed your company you can get on with buying your property.
3. Make sure you know about the taxes
In Bulgaria, as with pretty much everywhere else, property transactions are subject
to tax. It's important that you factor these charges into your financial planning.
Transfer taxes
- Corporate tax (15% in 2005) is the only direct tax on the transfer of property.
Because you are buying the property with your company you are liable for corporate
tax.
- Notary fees are payable on the transfer - rates vary but the maximum is around BGN3500.
- Municipal fees of 2% of market value are also payable on completion.
- Capital Gains Tax
- There is no Capital Gains Tax on the profit when your company sells the property.
- Local taxes and rates
- Property tax is payable by anyone who owns a building or building plot. This is
charged at 0.15% of the list value of the property.
- If the building is on a municipal or State-owned plot, the value of the plot will
also be included when tax is calculated
- Local taxes are not payable on arable land
- All building owners must also pay fees for waste collection
- Value Added Tax
VAT of 20% is payable on all real estate transactions except with land and lease
of property is for residential use.
The buyer or lessee can claim a VAT refund provide they are registered for VAT.
4. Put down a deposit on your property
Once you've found the property you want, you will need to place a deposit to reserve
it. The deposit is usually 10% of the selling price and is refunded on completion
of your purchase.
At this you will usually pay a commission to the property agent who will then take
the property off the market while you begin the purchase. Check with the property
agent regarding their fees and the terms and conditions they apply.
5. Sign an initial contract of sale
When the property agent receives all their cleared funds their solicitors will draft
an initial contract, which contains details of all the relevant terms and conditions,
monies paid and any other information relating to the property transaction.
Once this contract is signed, searches are carried out to make sure that the titles
deeds are valid, that any relevant licenses and permissions are taken into consideration,
that any debts on the title are brought to light, and that the terms of the final
contract are agreeable to both buyer and vendor.
6. Sign the Notary Act
The last step in the buying process is to sign the Notary Act - essentially an official
declaration that you have agreed to buy the property. At this point any state and
municipal taxes must be paid and any outstanding balance of monies must be paid
to the vendor.
The title deed of the property is then transferred into your company name.
Congratulations - you're now the owner of a Bulgarian property!
Property Abroad always recommends using a
Solicitor or Lawyer
Help others to find this article:
Further Reading on Bulgaria