invest in Bulgaria 2004 by z2q8RQ9

VIEWS: 34 PAGES: 68

									INVEST BULGARIA 2004

       LEGAL GUIDE




 Published by the InvestBulgaria Agency (IBA)
      http:/www.investbg.government.bg




                                                1
         This edition has been made possible thanks to professional contributions by:



BORISLAV BOYANOV & CO                                         Tel.: +359 (2) 981 3007
24 Patriarch Evtimii Blvd.                                    Fax: +359 (2) 981 7733
Sofia 1000, Bulgaria                                          www.boyanov.com


Deloitte & Touche                                             Tel.: +359 (2) 980 8500
55 Alеksander Stamboliiski Blvd.                              Fax: +359 (2) 980 0436
Sofia 1000, Bulgaria                                          www.deloitte.bg


Djingov, Gouginski, Kyutchukov & Velichkov                    Tel.: +359 (2) 932 1100
10 Tsar Osvoboditel Blvd.                                     Fax: +359 (2) 980 3586
Sofia 1000, Bulgaria                                          www.dgkv.com


KPMG                                                          Tel.: +359 (2) 969 7300
37 Fridtjof Nansen Str.                                       Fax: +359 (2) 980 5340
Sofia 1142, Bulgaria                                          www.kpmg.bg


MODUS CONSULT                                                 Tel.: +359 (2) 963 4737
86 Lyuben Karavelov Str.                                      Fax: +359 (2) 963 4878
Sofia 1142, Bulgaria                                          www.modus-bg.com


NOVEL CONSULT                                                 Tel.: +359 (2) 988 5709
59 Kniaz Boris І Str.                                         Fax: +359 (2) 986 3955
Sofia 1000, Bulgaria                                          www.novelconsult.net


SEPLEX                                                        Tel.: +359 (2) 930 0907
19А Patriarch Evtimii Blvd.                                   Fax: +359 (2) 930 0978
Sofia 1142, Bulgaria                                          www.seplex.com




                                                                                        2
                                                                             TABLE OF CONTENTS

INTRODUCTORY NOTES................................................................................................................................................................ 7
І.       FOREIGN NATIONALS LEGAL STATUS .......................................................................................................................... 8
    I.1.       Legislative framework and general rules ......................................................................................................................... 8
    I.2.       General Review ................................................................................................................................................................ 8
        I.2.1.       Entry of Foreign Nationals to Bulgaria ................................................................................................................... 8
        I.2.2.       Visas ....................................................................................................................................................................... 8
        I.2.3.       Visa exemption rules .............................................................................................................................................. 8
        I.2.4.       Residence permits ................................................................................................................................................... 8
    I.3.       Work permits .................................................................................................................................................................... 9
        I.3.1.       General rules ........................................................................................................................................................... 9
        I.3.2.       Foreign nationals who generally do not require a work permit in Bulgaria ............................................................ 9
        I.3.3.       Foreign nationals who may work on short-term assignments without a work permit ............................................ 9
II. SET UP OF COMPANIES ...................................................................................................................................................... 10
    II.1.      Legal Framework ........................................................................................................................................................... 10
    II.2.      General Review .............................................................................................................................................................. 10
    II.3.      Registration Procedures.................................................................................................................................................. 10
    II.4.      Most Commonly Used Forms of Business Organisations .............................................................................................. 10
        II.4.1.      Limited Liability Company (OOD) ...................................................................................................................... 10
        II.4.2.      Joint Stock Company (AD)................................................................................................................................... 11
        II.4.3.      Branch................................................................................................................................................................... 11
        II.4.4.      Trade Representative Office (TRO)...................................................................................................................... 11
III.        INVESTMENT LEGISLATION ........................................................................................................................................ 12
    III.1.       Legal Framework ...................................................................................................................................................... 12
        III.1.1.     Laws and Regulations ........................................................................................................................................... 12
        III.1.2.     Іnternational Treaties (bilateral and multilateral) ................................................................................................. 12
    III.2.       Legal definitions ........................................................................................................................................................ 12
        III.2.1.     Foreign Investors .................................................................................................................................................. 12
        III.2.2.     Definitions and Forms of Investment ................................................................................................................... 12
    III.3.       General preview ........................................................................................................................................................ 12
        III.3.1.     Legal and International Guarantees for Foreign Investment ................................................................................. 12
        III.3.2.     Investment incentives under the Encouraging of Investments Act ...................................................................... 13
        III.3.3.     Terms and procedure for certification................................................................................................................... 13
    III.4.       InvestBulgaria Agency .............................................................................................................................................. 14
IV.         OWNERSHIP OF REAL ESTATE AND CONSTRUCTION ........................................................................................... 15
    IV.1.        Legislative framework and general rules ................................................................................................................... 15
        IV.1.1.      Legislative framework .......................................................................................................................................... 15
        IV.1.2.      Direct acquisition of real estate in Bulgaria by a foreign company ...................................................................... 15
        IV.1.3.      Indirect acquisition of real estate in Bulgaria by a foreign company .................................................................... 15
        IV.1.4.      The transaction ..................................................................................................................................................... 15
        IV.1.5.      The price ............................................................................................................................................................... 15
        IV.1.6.      Legitimacy of the buyer ........................................................................................................................................ 15
    IV.2.        Statutory costs and expenses ..................................................................................................................................... 15
    IV.3.        Title review (Real estate legal due diligence) ............................................................................................................ 15
    IV.4.        Other possible reviews/analysis................................................................................................................................. 16
    IV.5.        Special cases .............................................................................................................................................................. 16
        IV.5.1.      Acquisition of marketable state owned real estate ................................................................................................ 16
        IV.5.2.      Acquisition of marketable municipality owned real estate ................................................................................... 16
    IV.6.        Incentives ) ................................................................................................................................................................ 16
        IV.6.1.      General ................................................................................................................................................................. 16
        IV.6.2.      Transfer of the ownership title over real estate owned by the state without remuneration ................................... 16
        IV.6.3.      Sale of marketable real estate owned by the state without a tender/auction ......................................................... 17
        IV.6.4.      Sale of marketable real estate owned by the municipality without tender/auction ............................................... 17
        IV.6.5.      Establishment of limited property rights over marketable real estate owned by the state without remuneration . 17
        IV.6.6.      Establishment of limited property rights over marketable real estate owned by a municipality without
        remuneration ............................................................................................................................................................................ 17
        IV.6.7.      Establishment of limited property rights over marketable real estate owned by the state without a tender/auction
                     17
        IV.6.8.      Establishment of limited property rights over marketable real estate owned by a municipality without a
        tender/auction .......................................................................................................................................................................... 17
V. CONSTRUCTION .................................................................................................................................................................. 17
    V.1.       Legislative and administrative framework. Categories of construction works ............................................................... 17
        V.1.1.       Legislative framework .......................................................................................................................................... 17
        V.1.2.       Administrative bodies ........................................................................................................................................... 17
                                                                                                                                                                                                 3
      V.1.3.      Categories of construction works ......................................................................................................................... 18
   V.2.     Participants in the construction process. Insurance ....................................................................................................... 18
   V.3.     Preliminary research and investigation. Visa ................................................................................................................ 19
      V.3.1.      Preliminary research and investigation ................................................................................................................. 19
      V.3.2.      Visa ....................................................................................................................................................................... 19
   V.4.     Project design ................................................................................................................................................................. 20
      V.4.1.      Phases of designing............................................................................................................................................... 20
      V.4.2.      Compliance evaluation ......................................................................................................................................... 20
      V.4.3.      Approval of the project design. Validity ............................................................................................................... 20
   V.5.     Construction permit ........................................................................................................................................................ 20
      V.5.1.      Required documents. Procedure. Validity .......................................................................................................... 20
      V.5.2.      Appeals ................................................................................................................................................................. 20
      V.5.3.      Changes in the project design after the issuance of the construction permit ........................................................ 20
   V.6.     Commencement and execution of construction works ................................................................................................... 21
      V.6.1.      Acts and protocols executed during construction works ....................................................................................... 21
      V.6.2.      Legal requirements concerning construction works ............................................................................................. 21
   V.7.     Completion ..................................................................................................................................................................... 21
      V.7.1.      “As-made” documentation .................................................................................................................................... 21
   V.8.     Permitting the use of completed works. Warranty periods............................................................................................ 21
   V.9.     Incentives ....................................................................................................................................................................... 22
VI.       BULGARIAN LABOR AND SOCIAL SECURITY LEGISLATION .............................................................................. 23
   VI.1.       Bulgarian Labor Legislation ...................................................................................................................................... 23
      VI.1.1.     Legal Framework .................................................................................................................................................. 23
      VI.1.2.     Legal Definitions .................................................................................................................................................. 23
      VI.1.3.     General Review of the Labour legislation ............................................................................................................ 23
      VI.1.4.     Incentives .............................................................................................................................................................. 24
   VI.2.       Bulgarian Social Security Legislation ....................................................................................................................... 25
      VI.2.1.     Legal Framework .................................................................................................................................................. 25
      VI.2.2.     Legal definitions ................................................................................................................................................... 25
      VI.2.3.     General Review .................................................................................................................................................... 25
      VI.2.4.     Incentives .............................................................................................................................................................. 26
VII.      TAXATION ........................................................................................................................................................................ 27
   VII.1.      Direct taxation of corporations .................................................................................................................................. 27
      VII.1.1.       Corporate income tax ....................................................................................................................................... 27
      VII.1.2.       Profits subject to tax......................................................................................................................................... 27
      VII.1.3.       Determination of profits for tax purposes ........................................................................................................ 27
      VII.1.4.       Valuation of depreciable assets for tax purposes. Depreciation and amortization .......................................... 27
      VII.1.5.       Valuation of inventory. Cost of sales ............................................................................................................... 28
      VII.1.6.       Interest costs .................................................................................................................................................... 28
      VII.1.7.       Bad debts.......................................................................................................................................................... 28
      VII.1.8.       Utilisation of losses .......................................................................................................................................... 28
      VII.1.9.       Dividends ......................................................................................................................................................... 28
      VII.1.10.      Foreign source income of a Bulgarian corporation. Relief for foreign tax paid............................................... 28
      VII.1.11.      Group taxation. Transactions between related parties ..................................................................................... 29
      VII.1.12.      Tax reporting and tax payments ....................................................................................................................... 29
   VII.2.      Special income tax regimes ....................................................................................................................................... 29
   VII.3.      Income tax exemptions and incentives ...................................................................................................................... 30
      VII.3.1.       Regional incentives .......................................................................................................................................... 30
      VII.3.2.       Employment incentives .................................................................................................................................... 31
      VII.3.3.       Incentives for agricultural businesses .............................................................................................................. 31
      VII.3.4.       Other tax incentives ......................................................................................................................................... 31
      VII.3.5.       Taxes on the corporate expenses ...................................................................................................................... 31
      VII.3.6.       Benefits to the personnel (“social expenses”) .................................................................................................. 31
      VII.3.7.       Expenses relating to use and maintenance of company cars ............................................................................ 31
      VII.3.8.       Business entertainment expenses ..................................................................................................................... 32
      VII.3.9.       Donations and sponsorship .............................................................................................................................. 32
   VII.4.      Withholding tax obligations ...................................................................................................................................... 32
      VII.4.1.       Repatriation of profit/Dividend withholding tax .............................................................................................. 32
      VII.4.2.       Withholding obligations with respect to payments to non-residents ................................................................ 32
   VII.5.      Double Tax Treaties .................................................................................................................................................. 32
      VII.5.1.       Treaty Network ................................................................................................................................................ 32
      VII.5.2.       Income Paid From Bulgaria ............................................................................................................................. 33
   VII.6.      VAT System .............................................................................................................................................................. 36
      VII.6.1.       VAT Registration ............................................................................................................................................. 36
      VII.6.2.       VAT charges .................................................................................................................................................... 36

                                                                                                                                                                                              4
      VII.6.3.         VAT Exemptions ............................................................................................................................................. 36
      VII.6.4.         VAT reporting and payments ........................................................................................................................... 37
      VII.6.5.         VAT refunds .................................................................................................................................................... 37
      VII.6.6.         Special rules for material investment projects ................................................................................................. 37
      VII.6.7.         Special VAT regulations for tourist sector ....................................................................................................... 38
   VII.7.      Excise duties .............................................................................................................................................................. 38
   VII.8.      Local taxation ............................................................................................................................................................ 38
      VII.8.1.         Real estate tax .................................................................................................................................................. 38
      VII.8.2.         Transfer taxes ................................................................................................................................................... 38
      VII.8.3.         Vehicle tax and Road tax ................................................................................................................................. 39
   VII.9.      Capital taxation. Ecological levies ........................................................................................................................... 39
      VII.9.1.         Taxes on capital ............................................................................................................................................... 39
      VII.9.2.         Packing charge ................................................................................................................................................. 39
   VII.10.     Income taxation of individuals .................................................................................................................................. 39
      VII.10.1.        Individuals subject to tax ................................................................................................................................. 39
      VII.10.2.        Tax rates........................................................................................................................................................... 39
      VII.10.3.        Determination of annual income for tax purposes ........................................................................................... 39
      VII.10.4.        Exemptions ...................................................................................................................................................... 40
      VII.10.5.        Wage withholding tax ...................................................................................................................................... 40
      VII.10.6.        Expatriate tax treatment ................................................................................................................................... 40
      VII.10.7.        Special taxation rules for certain items of income ........................................................................................... 40
      VII.10.8.        Special rules for non-residents ......................................................................................................................... 40
      VII.10.9.        Businesses of individuals/Sole traders ............................................................................................................. 41
      VII.10.10.            Tax returns and payment of taxes................................................................................................................ 41
VIII.     CUSTOMS DUTIES .......................................................................................................................................................... 41
   VIII.1.     Legal Framework ...................................................................................................................................................... 41
   VIII.2.     Relief from or deferral of customs duties .................................................................................................................. 41
IX.       COMPETITION ................................................................................................................................................................. 42
   IX.1.       Legal Framework ...................................................................................................................................................... 42
   IX.2.       General Review ......................................................................................................................................................... 42
   IX.3.       Agreements and concerted practices, generally prohibited by law ........................................................................... 42
   IX.4.       Monopolistic and dominant position ......................................................................................................................... 42
   IX.5.       Concentrations ........................................................................................................................................................... 43
   IX.6.       Unfair competition..................................................................................................................................................... 43
   IX.7.       Incentives (scope, requirements, procedure) ............................................................................................................. 43
   IX.8.       Foreign investors related measures ............................................................................................................................ 43
X. CURRENCY REGIME ........................................................................................................................................................... 44
   X.1.     Legal Framework ........................................................................................................................................................... 44
      X.1.1.      Laws and Regulations ........................................................................................................................................... 44
      X.1.2.      International Institutions ....................................................................................................................................... 44
   X.2.     General Review .............................................................................................................................................................. 44
   X.3.     Licenses, Permits. Procedure - competent authority, documents required, terms, fees .................................................. 45
XI.       CONCESSIONS REGIME ................................................................................................................................................. 46
   XI.1.       Legal Framework ...................................................................................................................................................... 46
   XI.2.       Legal Definitions ....................................................................................................................................................... 46
   XI.3.       General Review ......................................................................................................................................................... 46
   XI.4.       Procedures for Granting Concessions ........................................................................................................................ 46
      XI.4.1.     Procedures for Granting Concessions. Regulatory (Issuing) Authority ............................................................... 46
      XI.4.2.     Validity Term of the Concession .......................................................................................................................... 47
      XI.4.3.     Concession Holder ................................................................................................................................................ 47
      XI.4.4.     Transferability and Exclusivity. Restrictions Applicable to a Transfer of Concession to a Third Party ............. 47
      XI.4.5.     Financial Terms. Concession Fee ......................................................................................................................... 47
      XI.4.6.     Environmental Aspects of Concession Activities ................................................................................................. 48
      XI.4.7.     Incentives .............................................................................................................................................................. 48
      XI.4.8.     Foreign Investors Related Measures ..................................................................................................................... 48
XII.      PERMITS AND LICENSES ACCORDING TO SPECIAL LEGISLATION.................................................................... 49
   XII.1.      Legal Framework ...................................................................................................................................................... 49
   XII.2.      Legal Definitions ....................................................................................................................................................... 49
   XII.3.      General Review ......................................................................................................................................................... 49
   XII.4.      Permits and Licenses According to Special Legislation. Procedure - Competent Authority, Documents Required,
   Terms, Fees .................................................................................................................................................................................. 49
      XII.4.1.         Banking ............................................................................................................................................................ 49
      XII.4.2.         Insurance .......................................................................................................................................................... 49
      XII.4.3.         Securities Trading ............................................................................................................................................ 50
      XII.4.4.         Energy .............................................................................................................................................................. 50

                                                                                                                                                                                                 5
      XII.4.5.        Telecommunications ........................................................................................................................................ 50
      XII.4.6.        Audio-visual Sector ......................................................................................................................................... 51
      XII.4.7.        Tobacco Industry ............................................................................................................................................. 51
XIII.   INDUSTRIAL & INTELLECTUAL PROPERTY ............................................................................................................. 52
  XIII.1.       Legal Framework ...................................................................................................................................................... 52
      XIII.1.1.       Laws and Regulations ...................................................................................................................................... 52
      XIII.1.2.       International Treaties (bilateral and multilateral) ............................................................................................. 52
  XIII.2.       Legal Definitions ....................................................................................................................................................... 52
  XIII.3.       General Review ......................................................................................................................................................... 53
      XIII.3.1.       Copyright and Neighbouring Rights ................................................................................................................ 53
      XIII.3.2.       Patents .............................................................................................................................................................. 53
      XIII.3.3.       Marks ............................................................................................................................................................... 53
      XIII.3.4.       Geographical Indications ................................................................................................................................. 54
      XIII.3.5.       Industrial Designs ............................................................................................................................................ 54
      XIII.3.6.       Licenses ........................................................................................................................................................... 54
  XIII.4.       Protection against infringement of IP rights .............................................................................................................. 54
      XIII.4.1.       Civil Protection ................................................................................................................................................ 54
      XIII.4.2.       Criminal Protection .......................................................................................................................................... 55
      XIII.4.3.       Administrative Protective Measures ................................................................................................................ 55
  XIII.5.       Foreign investors related measures ............................................................................................................................ 55
XIV.        PUBLIC PROCUREMENT ........................................................................................................................................... 56
  XIV.1.        Legal Framework ...................................................................................................................................................... 56
  XIV.2.        Legal Definitions ....................................................................................................................................................... 56
  XIV.3.        Procedures ................................................................................................................................................................. 56
  XIV.4.        Appeals ...................................................................................................................................................................... 57
  XIV.5.        Public Procurement Agency ...................................................................................................................................... 57
XV.     SECURITIES & BANKS ................................................................................................................................................... 58
  XV.1.         Securities ................................................................................................................................................................... 58
      XV.1.1.         Overview.......................................................................................................................................................... 58
      XV.1.2.         Legal Framework ............................................................................................................................................. 58
      XV.1.3.         Legal Definitions (The Market Players) .......................................................................................................... 58
      XV.1.4.         Conclusion ....................................................................................................................................................... 59
  XV.2.         The Banks .................................................................................................................................................................. 59
      XV.2.1.         The Central Bank ............................................................................................................................................. 59
      XV.2.2.         Banks and Their Scope of Business ................................................................................................................. 60
      XV.2.3.         Banking Sector Stability .................................................................................................................................. 60
      XV.2.4.         Bank Secret and Information ........................................................................................................................... 61
      XV.2.5.         Conclusion ....................................................................................................................................................... 61
XVI.        PRIVATISATION ......................................................................................................................................................... 62
  XVI.1.        Development of the Privatisation Process ................................................................................................................. 62
  XVI.2.        Legal Framework. Relevant Public Authorities ........................................................................................................ 62
  XVI.3.        Legal Definition of Privatisation ............................................................................................................................... 63
  XVI.4.        Scope of the Privatisation Act ................................................................................................................................... 63
  XVI.5.        Methods for Privatisation .......................................................................................................................................... 63
  XVI.6.        Incentives................................................................................................................................................................... 64
  XVI.7.        Foreign Investors-Related Measures ......................................................................................................................... 64
XVII.       INVESTMENT DISPUTES AND DISPUTES RESOLUTION IN BULGARIA ......................................................... 65
  XVII.1.          Legal Framework .................................................................................................................................................. 65
      XVII.1.1.       Laws and Regulations ...................................................................................................................................... 65
      XVII.1.2.       International Treaties (bilateral and multilateral) ............................................................................................. 65
  XVII.2.          Investments Disputes. General Review ................................................................................................................ 65
      XVII.2.1.       Investments Protection Treaties ....................................................................................................................... 65
      XVII.2.2.       Average Dispute Resolution Mechanism ......................................................................................................... 65
      XVII.2.3.       Arbitration Ad-hoc ........................................................................................................................................... 65
      XVII.2.4.       International Center for Settlement of Investment Disputes (ICSID) .............................................................. 65
  XVII.3.          National (Bulgarian) Court / Arbitration .............................................................................................................. 66
      XVII.3.1.       Court Dispute Resolution ................................................................................................................................. 66
      XVII.3.2.       Alternative Dispute Resolutions ...................................................................................................................... 66




                                                                                                                                                                                              6
INTRODUCTORY NOTES
In the last few years Bulgaria is in the focus of the investors’ interest. The political stability and predictability due to the NATO
membership and to the finalizing of the EU accession negotiations 6 months earlier than previously foreseen and planned, the
stable economic perspective and the growing credit rating of the country and its institutions, these are only some of the elements
guaranteeing that the investors’ interest will further grow and will be effectively realized. The improvement of the investment
climate in the country gives new incentives to the striving for faster economic growth. Undoubtedly the existing legal
framework and the implementation of the legal provisions are the other very basic criteria which are being delineated with all
their complexity, problems and priorities.
The current Bulgarian legal system is dynamic, constantly improving, adopting the modern patterns which reflect the economic
progress, the globalization and the directions of the political development. In fact the process of harmonization of our legal
system with the acquis communitaire, which has started with the Accession Agreement, is in full speed. A lot was done and
achieved but still more is ahead. The process of adapting the Bulgarian legislation to the EU law and the creation of the
respective legal surroundings for the implementation of the new legislative acts – these are goals that will be surely achieved
only with the joined efforts of the legislative, the government officials, the regional administrations and, of course, with the
active support of all members of the legal community in the country - private lawyers, judges, prosecutors.
In Bulgaria investors will find out that many legal provisions are similar to those regulating other markets on which they used to
do business. The vast range of the on-going legal reforms concerns every part of the current material, as well as procedural laws.
In many areas investors will be nicely surprised to find the tendency to speed up and make more effective as well as to reduce
the number of the bureaucratic and administrative regimes. They may as well benefit from the establishment of special measures
fostering the investment projects with more significant amount. The equal treatment of local and foreign investors is a principle
legally determined and the provisions differing from it, such as the property on land, are in a process of overcoming. The
development of the banking sector, the legal regime of securities and the privatization policies are areas no longer threatening
with uncertainty and crises. At the same time there are spheres such as concessions regime and public procurement in which the
success of the undertaking depends not only on the legislative amendments introduced but lies more with the organization and
the transparency in the functioning of the administrative system. And there it still leaves much to be desired.
The efficient protection of the intellectual and industrial property in Bulgaria is often one of the preconditions for the start of
investments in the country. And what determines the good investment climate in this respect is not only the accordance of local
laws with the achievements of the international instruments but it is again the existence of the respective institutions and the
organization of their activity for the implementation of the legal provisions and for the prevention of infringements of rights.
Another very sensitive for the investors sphere is the protection of the rights of employees, especially those of women and
disabled persons, the stability of labor relations, the system of social security.
The question about the administration of justice in Bulgarian is a topic on which very wide, tough, and sometimes even painful
public discussions exploit the existing guarantees on the independence of the judiciary and the fair trial imperative.
These and many other questions which investors pose will be answered by the Bulgarian Investment Information network
(BIIN).




                                                                                                                                        7
I.         FOREIGN NATIONALS LEGAL STATUS                            I.2.2. Visas
                                                                     A visa is a clearance for entry and/or stay on the territory of
                                                                     the Republic of Bulgaria for a certain period of time.
I.1.     Legislative framework and general rules
                                                                     A valid visa is not a guarantee of entry into Bulgaria. The
The legal status of foreign nationals in Bulgaria is governed        border control officers will determine whether the foreign
by the Constitution of the Republic of Bulgaria, the Foreign         national meets the requirements for admission. If there has
Nationals Act (effective 1998), the Regulation on the                been a change in the circumstances between the date of the
Application of the Foreign Nationals Act and the Ordinance           application and arrival, or if subsequent information is
on Issuing Visas. Generally, the Bulgarian legislation               given which was not originally available to the visa office,
concerning foreign citizens is in compliance with the EU             then the foreign national may be refused entry.
aquis communautaire related to immigration policy.
                                                                     The Foreign Nationals Act provides for the following main
The Constitution of the Republic of Bulgaria provides for            visa categories: transit visa, short-stay visa and long-stay
foreign nationals in Bulgaria to have all the rights and             visa.
obligations accorded under Bulgarian law and international
agreements ratified by Bulgaria, except in respect to those          A transit visa is required for travel through Bulgaria to
rights and obligations, for which Bulgarian citizenship is           another country within 24 hours.
required.                                                            A short-stay visa allows a foreign citizen single or multiple
Under Bulgarian law foreign nationals are restricted in the          entries into Bulgaria for up to 90 days within a period of six
exercise of the following rights:                                    months.

      Ownership rights – foreign citizens do not have the           A long-stay visa allows a foreign national to enter into
       right to acquire ownership over land except through           Bulgaria and thereafter to apply for a long-term or
       legal inheritance. If land is acquired through this           permanent residence permit. The validity of the long-stay
       method then it should be transferred to Bulgarian             visa is 6 (six) months and it allows its holder of stay up to
       individuals or legal entities within three years;             90 days.

      Professional rights – foreign nationals cannot be             All visa applications are to be submitted to the respective
       employed as state servants, customs officers or as            Bulgarian diplomatic missions and consular departments
       officers at the Bulgarian Ministry of Internal Affairs,       around the world. In exceptional cases (e.g. in the state’s
       the Patent Office, the Electronic Media Council, etc. A       interest, in extraordinary circumstances or for humanitarian
       foreign citizen also cannot work as a lawyer or as a          reasons) border control officers, after coordination with the
       notary;                                                       Foreign Nationals Administrative Control Office
                                                                     (“FNACO”), can issue transit visas or short-term visas for
      Political rights – foreign nationals cannot be candidates     up to 10 days.
       for the positions such as that of mayors, municipal
       advisors, members of parliament, president. They also
       cannot participate in elections or local and national         I.2.3. Visa exemption rules
       referendums as voters.
                                                                     Citizens of some countries can enter Bulgaria without
There is a general rule that foreign nationals are obliged to        obtaining visas.
observe Bulgarian laws and the established legal order, that
                                                                     EU citizens (with the exception of the Republic of Ireland
they should be loyal to the Bulgarian state and not derogate
                                                                     and the United Kingdom) do not need visas for a stay of up
the prestige and dignity of the Bulgarian people. In this
                                                                     to 90 days within each period of six months. Citizens from
respect, foreign citizens residing in Bulgaria bear the same
                                                                     Australia, New Zealand, Japan, Ireland, UK, Canada, USA,
civil, administrative and criminal responsibilities as
                                                                     Switzerland, etc., are allowed to stay in Bulgaria without
Bulgarian citizens, unless otherwise provided for under a
                                                                     visas for up to 30 days within each period of six months.
special law or in an international agreement to which the
Republic of Bulgaria is a party.                                     The calculation of the period commences on the day of first
                                                                     arrival into Bulgaria as indicated in the foreign national’s
All foreign nationals are obliged to register with the
                                                                     international passport.
respective local police station within 48 hours from entering
Bulgaria, except when they reside in a hotel.
                                                                     I.2.4. Residence permits
I.2.     General Review                                              Residence permits are issued to foreign nationals entering
                                                                     Bulgaria who intend to stay in the country longer than three
                                                                     months. For certain foreign nationals (e.g. Australia, New
I.2.1. Entry of Foreign Nationals to Bulgaria                        Zealand, Japan, Ireland, UK, Canada, USA, Switzerland,
                                                                     etc) that period is one month.
Foreign nationals who wish to enter and stay in Bulgaria
must obtain a visa, unless they are subject to visa-waiver           There are two types of residence permits:
agreements.                                                             Long-term residence permits – up to one year, and
                                                                        Permanent residence permits – for an indefinite period
                                                                         of time.

                                                              KPMG                                                                     8
The most common grounds for issuance of long-term                     Work permits should be requested by the local employer
residence permits are:                                                and are issued by the Employment Agency. A number of
                                                                      legal terms and conditions must be met for the permit to be
      A foreign national is a member of the management or            issued. Work permits are issued for a maximum duration of
       supervisory bodies of a Bulgarian company                      1 year. If the terms and conditions for its issuance are still
      A foreign national is a trade representative of a              valid, the work permit may be renewed for an additional
       company registered with the Bulgarian Chamber of               one-year term.
       Commerce and Industry (“BCCI”)                                 Foreign nationals on short-stay visas are not entitled to seek
      A foreign national has been issued a work permit by the        employment or apply for work permits in Bulgaria.
       Bulgarian Employment Agency, and
      A foreign national conducts business activities in             I.3.2. Foreign nationals who generally do not require a work
       Bulgaria and employs at least 10 Bulgarian nationals           permit in Bulgaria
In order to apply for a residence permit the foreign national         Outlined below is a list of the main categories of foreign
has to initially obtain a long-stay visa.                             nationals who may work in the country without the need to
The common documents required for issuance of a long-                 have a work permit:
term residence permit are as follows: (i) a valid                        Managers of companies or branches of foreign legal
international passport of the applicant; (ii) evidence that the           entities
applicant has been provided with a place to live during
his/her stay in Bulgaria (e.g. rental contracts, etc.); (iii) the        Members of the Managing Board or Board of Directors
standard application form; (iv) evidence of payment of the                of local companies, who are not employed on a labour
relevant state fees, and (v) evidence that the applicant has              contract
enough financial means to meet the costs of his/her stay in
                                                                         Trade representatives of foreign companies registered
Bulgaria.
                                                                          at the BCCI, and
The application for obtaining a long-term residence permit
                                                                         Foreign nationals with permanent residence in Bulgaria
must be filed before FNACO not later than 7 days prior to
the expiration of the term of the long-stay visa (90 days).
Applications are considered and reviewed within 7 working
                                                                      I.3.3. Foreign nationals who may work on short-term
days of their submission and the decision of FNACO is then
                                                                      assignments without a work permit
presented in writing to the applicant-foreign national.
                                                                      Foreign nationals may also be engaged to perform short-
The long-term residence permit can be renewed if the
grounds for its issuance still exist at the time of the renewal.      term assignments without a work permit under the
It should be noted that an extension of long-term residence           following conditions:
permit can be refused if it is established that the foreign              They are sent on a business trip to Bulgaria by their
citizen has not stayed on the territory of the Republic of                foreign employer
Bulgaria for at least 6 months and one day during the
preceding calendar year.                                                 The assignment in Bulgaria is no longer than 3 months
                                                                          within a period of one year
Once the foreign national has been granted a long-term
residence permit, he/she may live, reside and travel in the              The assignment encompasses any of the following: (i)
Republic of Bulgaria as long as the permit is valid. The                  the installation or the warranty repair of imported
foreign national may freely choose and change his/her place               machinery and equipment; (ii) training in the operating
of residence, or leave the country and enter it again.                    of equipment or the delivery of ordered equipment,
                                                                          machines or other items; (iii) training as part of an
Foreign nationals who have obtained a long-term residence                 export contract for the supply of goods under a license
permit have all the rights and obligations granted to or                  agreement; (iv) control and coordination of the
imposed on the Bulgarian citizens. For example, they can                  performance of a tourist services contract between a
be employed by Bulgarian employers, receive social                        foreign tour-operator and a Bulgarian tour-operator or
security compensations, health care insurance, etc. The                   hotel-keeper.
long-term residence status of the foreign citizen is usually
evidenced by the issuance of a Bulgarian ID card for foreign          For all other categories of employees a work permit is
nationals.                                                            required. It is usually issued provided that all requirements
                                                                      of the law are met (e.g. there is ratio requirement between
                                                                      foreign and Bulgarian employees: 1:10).
I.3.     Work permits                                                 Employers must register foreign nationals at the Labour
I.3.1. General rules                                                  Bureau within 3 days from the start of their employment
                                                                      even if no work permit is required.
Foreign nationals may work in Bulgaria only after obtaining
a work permit, unless otherwise stipulated by the law. The
bases for obtaining a work permit are an employment
contract, or a business trip to undertake certain activities.




                                                               KPMG                                                                    9
II.       SET UP OF COMPANIES                                     restrictions as to the percentage of foreign capital in a
                                                                  company.
II.1. Legal Framework
                                                                  II.3. Registration Procedures
The basic law regulating the types, corporate structure and
operations of companies and the procedure of incorporation        Under Bulgarian law commercial companies are
is the Commerce Act (promulgated in State Gazette No. 48          incorporated by way of registration into the commercial
of 1991, as subsequently amended). Other laws related to          register with the respective district court according to the
specific corporate matters include the Corporate Income           place where the company’s seat is to be located. The
Tax Act 1997, VAT Act1998, Statistics Act 1999, Social            registration procedure takes normally one to two weeks
Security Code 1999, Protection of Personal Data Act 2002,         following the date of filing of the required documents.
etc.
                                                                  As a general rule, the subject matter of activity of a
II.2. General Review                                              company is registered with the court, but a company may
                                                                  conduct all types of business activities not prohibited by law
The types of commercial companies are exhaustively                and as long as the company has acquired any licenses,
provided for in the Commerce Act and an investor may only         permits or registrations, which may be required for a
choose among the list. In particular, the types of                particular type of business activity under special laws and
commercial companies are:                                         regulations. For example, such activities include inter alia
     general partnership (SD);                                   banking, insurance, gambling, brokerage, hospital services,
                                                                  trade in medicines, production and trade in tobacco etc.
     limited partnership (KD);
                                                                  A branch is incorporated also by way of registration into the
     partnership limited by shares (KDA);                        commercial register with the respective district court
     limited liability company (OOD) or sole-owner limited       according to the place where its seat is to be located. A
      liability company (EOOD);                                   trade representative office is incorporated by way of
                                                                  registration into the commercial register with the BCCI.
     joint-stock company (AD) or sole-owner joint stock
                                                                  Following registration in court or, in the BCCI respectively,
      company (EAD).
                                                                  commercial companies, as well as branches and trade
In addition to the 5 types of commercial companies under          representative offices, shall be registered with the National
the Commerce Act as enumerated above, other forms of              Statistics Institute, BULSTAT Register (within 3 days), the
business organisations recognised under Bulgarian law are:        National Social Security Institute (within 7 days) and the
                                                                  local tax authorities (within 14 days).
     sole trader (ET);
                                                                  II.4. Most Commonly Used Forms of Business
     joint-venture (may be in the form of any type of
                                                                         Organisations
      commercial company under the Commerce Act);
                                                                  The most commonly used forms of business organisations
     holding;                                                    for establishing foreign corporate presence in Bulgaria are
     branch;                                                     the limited liability company, the joint stock company, the
                                                                  branch and the trade representative office.
     trade representative office;
                                                                  II.4.1. Limited Liability Company (OOD)
     public company; and
                                                                  This type of company organisation is the most widely used
     co-operative.                                               among investors because of the minimum capital
                                                                  requirements, the simplicity of the corporate governance
Under Bulgarian law, the sole trader is not a legal entity
                                                                  system and the less administrative procedures for its
separate from its owner, who is fully liable to the creditors
                                                                  operation. However, there are statutory required qualified
of the sole trader with all his/her personal assets. The
                                                                  majorities or unanimity for transfer of shares, acceptance of
general partnership is a legal entity separate from its
                                                                  new shareholders and capital increase or decrease, which
owners, but the latter have unlimited liability and are
                                                                  may decrease the flexibility of the company’s operations.
exposed to the creditors of the company with all of their
personal assets. The limited liability company and the joint      Two or more shareholders, or only one in the case of sole
stock company are legal entities separate from their              owner limited liability company (EOOD), may establish a
shareholders, and the liability exposure is limited to the        limited liability company, or a sole owner limited liability
company’s assets, not extending to the assets owned by the        company respectively. Shareholders in an OOD may be
shareholders. The shareholders may be held liable only to         Bulgarian or foreign individuals or legal entities. The
the amount of their contribution to the company’s capital. In     minimum content of the articles of association is provided
the third place, the limited partnership and the partnership      for in the Commerce Act. The bodies of corporate
limited by shares comprise of general partners, to which          governance in an OOD are the general meeting of the
unlimited liability applies, and limited partners, to which the   shareholders and the manager(s). The manager is
separation of company’s and personal liability applies.           empowered by law to manage and represent the company
                                                                  before third parties, as if more than one manager is
The regime for establishing a business organisation is one
                                                                  appointed, the managers shall manage and represent the
and the same for local and foreign investors and foreign
                                                                  company individually, unless the articles of association
investors do not have to register with any governmental
                                                                  provide otherwise. In an EOOD, the sole owner of the
authority prior to establishment of a company. There are no
                                                                  capital exercises the powers of the general meeting of the


                                     Djingov, Gouginski, Kyutchukov & Velichkov                                                10
shareholders and it manages and represents the company          the by-laws shall have been adopted, the whole capital shall
before third parties, unless a manager is appointed by him.     be subscribed and at least 25 % of it shall be paid in, the
The minimum required capital for a limited liability            supervisory and the management board, respectively the
company is BGN 5,000 (five thousand). It must be divided        board of directors, shall have been appointed and all other
into shares of value not less than BGN 10 (ten), as any         statutory requirements shall have been complied with. Share
higher value must be divisible by 100. Shares are not           capital contributions may be made in cash or in kind. The
materialized and are not tradable instruments. They may be      state fees for registering of an AD, or an EAD respectively,
transferred and succeeded, as transfer between shareholders     amount to approximately BGN 600 (six hundred).
is free, while transfer of shares to third parties requires a
                                                                Only joint stock companies may register as public
resolution of the general meeting of the shareholders. As a
                                                                companies. The Public Offering of Securities Act sets forth
condition precedent to court registration, the company shall
                                                                the requirements, under which a company may or, shall,
have adopted its articles of association, the manager shall
                                                                register as public.
have been appointed and at least 70% (seventy percent) of
the capital shall have been paid in. The payment of the         II.4.3. Branch
remaining part may be deferred in time, but not longer than
                                                                Any merchant, i.e. including foreign legal entities registered
two years as of the registration of the company. The state
                                                                as merchants under their national law, as well as foreign
fees for registering of an OOD, or an EOOD respectively,
                                                                natural persons and entities, which are not legal entities, if
amount approximately to BGN 300 (three hundred).
                                                                registered as having a right to perform commercial activity
II.4.2. Joint Stock Company (AD)                                under their national law, may register a branch as a form of
                                                                business establishment under the Commerce Act. A branch
The joint-stock company is another widely used type of
                                                                is not a legal entity, separate from its parent company, and
business organisation. It is preferred because of the lack of
                                                                its assets and liabilities are deemed to be of the parent
statutory restrictions on the transfer of shares and the
                                                                company, and as a result of this, unlike a local company, a
absence of personal engagement of the shareholders in the
                                                                branch may not acquire title over real estate. Nevertheless, a
operation of the company. However, the corporate
                                                                branch may engage in business activities and it shall keep
governance system is more complicated than the one of the
                                                                commercial books as an independent business entity and
OOD and the statutory procedures for convening and
                                                                have a balance sheet. From tax point of view, a branch of a
holding of the general meeting of the shareholders are more
                                                                foreign investor is considered a “permanent establishment”,
onerous. In addition, the Commerce Act sets forth
                                                                and therefore, it triggers tax liability for the foreign
mandatory requirements to be complied with by an AD, or
                                                                investor’s home office. A branch is incorporated by way of
an EAD respectively, concerning forming of a reserve fund,
                                                                registration into the commercial register with the district
distribution of profit and minority shareholders rights.
                                                                court where the seat of the branch will be located. There are
Under Bulgarian law a joint stock company is established        no capital requirements set forth for a branch. The branch
pursuant to a decision of a founding meeting of all persons     has to have a manager. The state fees for registering of a
who are to subscribe shares in the company, or pursuant to a    branch depend on the type of the parent company, and by
resolution of the sole shareholder in the case of sole owner    way of example amount to approximately BGN 250 (two
joint stock company (EAD). The minimum contents of the          hundred and fifty) if the parent company is a limited
by-laws is provided for in the Commerce Act. A joint stock      liability company, or approximately BGN 500 (five
company may have either an one-tier or, two-tier, system of     hundred), if the parent company is a joint stock company.
corporate governance. The corporate governance structure
                                                                II.4.4. Trade Representative Office (TRO)
consists of a general meeting of the shareholders, and a
board of directors (in the case of an one-tier governance       Any foreign person who has the right to carry out
system), or a supervisory board and a management board (in      commercial activities under its national law may register a
the case of a two-tier governance system). In both systems,     trade representative office in Bulgaria under the
both the board of directors, and the management board with      Encouragement of Investments Act. A TRO is not a
the approval of the supervisory board respectively, may         separate legal entity and it may not carry out business
authorise an executive member to represent the company          activities. Thus, a TRO is meant to carry out non-
before third parties.                                           proprietary activities for the purposes of performing
                                                                promotions, exhibitions, demonstrations, training or
The registered capital of a joint stock company cannot be
                                                                advertising of products or services etc. Consequently, in
less than BGN 50,000 (fifty thousand) and it must be
                                                                general a TRO does not generate income and is not subject
divided into shares of a face value not less than BGN
                                                                to corporate income taxation in Bulgaria. If, nevertheless, a
1(one). A higher minimum capital is required for
                                                                TRO engages in business activities in the country, it would
establishing companies in the form of an AD, or an EAD
                                                                qualify as a “permanent establishment” for tax purposes,
respectively, where special commercial activities are to be
                                                                and the foreign commercial entity will be liable in Bulgaria
performed, such as banks and insurance companies. All
                                                                for corporate income tax on the profit made by business
shares shall have equal face value and are tradable
                                                                activity through such TRO.
instruments. The types of shares that a joint stock company
may issue are: (i) registered or bearer shares; (ii) common     A TRO is subject to registration into the commercial
or privileged shares, as well as (iii) materialized or non-     register with the BCCI. The fee charged by the BCCI for the
materialized shares. In general, restrictions to the transfer   registration of a TRO amounts to EUR 100 (one hundred).
of any type of shares may be provided for in the by-laws of
the company. As a condition precedent to court registration,



                                   Djingov, Gouginski, Kyutchukov & Velichkov                                                11
III.     INVESTMENT LEGISLATION                                   Bilateral treaties on promotion and mutual protection of
                                                                  foreign investment to which Bulgaria is a party may provide
                                                                  for a wider definition of foreign investment.
III.1. Legal Framework
III.1.1. Laws and Regulations                                     III.3. General preview
 Encouragement of Investments Act (promulgated in State          III.3.1. Legal and International Guarantees for Foreign
              Gazette, issue 37 of 2004);                         Investment
 Rules on the Enforcement of the Encouragement of                a) National Treatment
Investments Act (promulgated in State Gazette, issue 74 of
2004);                                                            The Bulgarian Constitution and the Encouragement of
                                                                  Investment Act provide national treatment to foreign investors
III.1.2. Іnternational Treaties (bilateral and multilateral)      which means that foreign investors are entitled to perform
                                                                  economic activity in the country under the same provisions
 Convention for the establishment of Multilateral Investment     applicable to Bulgarian investors except where otherwise is
Guarantee Agency;                                                 provided by law. In particular this principle covers the whole
 Convention for the establishment of International Center for    range of economic and legal forms of activities for
Settlement of Investment Disputes;                                accomplishing entrepreneurial businesses. The national
 Convention for the establishment of the World trade             treatment to foreign investors includes the participation in the
organization;                                                     process of Privatisation and acquisition of shares, debentures,
 Bilateral investment promotion and protection treaties;         treasury bonds and other kinds of securities.
 Double tax treaties.
                                                                  b) Most Favoured Nation Status

III.2. Legal definitions                                          Bulgaria is signatory to a system of bilateral treaties on
                                                                  promotion and mutual protection of foreign investment which
                                                                  provide, further to the national treatment regime, for the most
III.2.1. Foreign Investors                                        favoured nation status of the investment made by entities and
                                                                  individuals from one of the contracting countries on the
Under the Encouragement of Investments Act, foreign               territory of the other contracting country.
investors are:
 legal persons which are not registered in Bulgaria;             c) Priority of International Treaties
 partnerships which are not legal persons and are registered
abroad;                                                           When international treaties to which Bulgaria is a party
 foreigners with permanent residence abroad.                     provide for more favourable terms and conditions for foreign
                                                                  investment, these terms have precedence over the local rules.
III.2.2. Definitions and Forms of Investment                      This guiding principle finds expression in the treaties for
                                                                  protection of foreign investments and especially in the
Foreign investment is any investment or increase of               agreements for abstaining of double taxation regulations. The
investment of foreign persons or their branches in:               international treaties on mutual protection of foreign
 stock or shares of trade companies;                             investment always include an extended concept of a foreign
 title to buildings and limited property rights over real        direct investment, and the application of this concept shall be
estates;                                                          prior to the Bulgarian legislation.
 title and limited property rights over goods and chattels,
having the nature of non-current tangible assets;                 d) Legal Guarantees Against Adverse Changes in the Law
 title to unbundled parts of commercial companies with more
than 50 per cent state or municipal interest in their capital     The Law on Foreign Investments stipulates the principle that
within the meaning of the Privatization and Post-Privatization    foreign investment made prior to the adoption of amendments
Control Act;                                                      in law imposing statutory restrictions only with regards to
 securities, including bonds and treasure bills, as well as      foreign investments, shall not be affected by these restrictions.
instruments derivative therefrom, issued by the state, the
municipalities or other Bulgarian corporate entities, with time   The sense of the law provides for that foreign investments
remaining to due date not less than 6 months;                     shall be guaranteed against subsequent legislative changes.
 credits, including in the form of financial leasing for a
period not shorter than 12 months;                                e) Protection against expropriation
 intellectual property – subject to copyright and its related
rights, patentable inventions, utility models, trademarks,        The Bulgarian Constitution allows forcible expropriation of
service marks and industrial design;                              property in the name of the state or for municipal needs only
 rights under concession contracts and contracts for             if effected by virtue of a law provided that these needs cannot
commissioning of management.                                      otherwise be met, and after a fair compensation has been
                                                                  ensured in advance.




                                                  InvestBulgaria Agency                                                        12
Expropriation under Bulgarian Law is governed by the Law            information about all administrative procedures
on State Property and Law on Municipal Property.                   concerning the implementation of the investment project.

                                                                   For 2nd-class investments InvestBulgaria Agency will
III.3.2. Investment incentives under the Encouraging of
                                                                   provide investors with:
Investments Act
                                                                    information services as mentioned above;
The new Encouraging of Investments Act regulates the terms          individual administrative servicing with respect to all
and procedures of investing in Bulgaria. The law equally           central and regional bodies of the Executive.
applies to Bulgarian and foreign investors.                        Investors will have the opportunity to authorize officials of
                                                                   the Agency to obtain from the corresponding competent
According to the new law, the Minister of economy is the           bodies on investors’ behalf and for investors’ account any
leading executive authority that shall perform the state policy    documents necessary for implementation of the particular
in the investment sphere. In the implementation of this            investment project as may be required under the existing
activity the Ministry of economy prepares a strategy for           legislation.
encouraging investment in cooperation with other authorities
of the executive power. In compliance with this strategy and       For 1st-class investments, the InvestBulgaria Agency will
the regional development strategies regional Governors shell       assist investors as follows:
develop investment encouragement programs for the
respective region and coordinate their implementation.              individual informational and administrative services
                                                                    assistance with real estate “titling” issues
The Encouragement of Investments Act sets forth preferential        infrastructure building assistance
treatment measures for investments meeting certain criteria
specified in the said law as follows:                              On the request of the 1st-category investor the Agency may
                                                                   propose to the corresponding authorities to transfer ownership
 the investment to be in fixed assets acquisition with the        rights or establish a limited ownership right over real estate
purpose of creating new or enlarging or modernizing existing       (private - state or municipal property) without a tender, free of
production of goods and/or services;                               charge or on preferential prices.
 new jobs to be created;
 the investment project to be implemented within 3 years;         Where the technical infrastructure networks and facilities of
                                                                   the transport, water-supply, sewerage, communication, and
The measures, however, do not apply to investments in banks,       other systems are public property, their construction will be
non-banking financial institutions, insurance companies,           financed from the state budget, or by the corresponding
investment companies and companies with special investment         municipality on a decision by the Municipal Council; in all
purposes, managing companies, pension funds, health                other cases they shall be for account of the managing
insurance companies, gambling companies and investments            operation company.
made under privatisation agreements.

The measures are differentiated according to the class of the      III.3.3. Terms and procedure for certification.
investments, as the latter are grouped in three classes,           The preferential treatment measures under the new law are
depending on the investment project value. The value
                                                                   applied only to certificated investors. The certifying procedure
thresholds are set forth in the Rules on the Enforcement of the
Encouragement of Investments Act as follows:                       and the requirements to the investment plan are set forth in the
                                                                   Rules on the Enforcement of the Act. According to the latter
       1. first class - investments over BGN 100 million.          rules certificates for the respective class of investment are
     2. second class - investments from BGN 50 million to          issued by the Executive Director of the InvestBulgaria
BGN 100 million, and                                               Agency or thereby authorized official as based on investor
                                                                   Request. The following documents must come enclosed with
       3. third class - investments from BGN 10 to 50 million;     the Request:
Generic preference applied to all classes of investments is        1. investment plan;
shortening the lime limits for provision of administrative
services to certified investors for realization of their           2. certificate of incorporation or registration (if the Requester
investment plans. On presentation of a certificate for             is a corporate entity, a sole-trader or a branch of a foreign
investment class, central and territorial executive authorities,   person) or a copy of identification document (if the Requester
and local self-government authorities shall provide                is a natural person);
administrative services within time limits by one third
shorter than the ones provided for in the legislation.             3. annual financial reports for the past three years, auditor
                                                                   verified, with auditor reports thereon. A branch must
For 3rd-class investments InvestBulgaria Agency will               additionally enclose the annual financial reports for the past
provide information services to investors as follows:              three years of the foreign person, auditor verified in
                                                                   compliance with its national legislation, with auditor reports
 pre-developed information materials;
                                                                   thereon. This requirement is not applied if the Requester is a
 information about potential partners in the country;
                                                                   natural person;


                                                  InvestBulgaria Agency                                                         13
4. investment projects carried out so far, if any;                   An investor Request filed, the Executive Director, or thereby
                                                                     authorized official appoints the Agency staff to examine the
5. documents to certify capacity for project financing;
                                                                     investment plan and thereto enclosed documents. In virtue of
6. declaration for the origin of the financial resources in the      the examination the authorized persons prepares an opinion on
form set by the Executive Director;                                  the investment conformity with the terms and conditions of
                                                                     the Encouragement of Investment Act and of The Rules on the
7. document to certify absence of liquid and due tax liabilities
and mandatory security contributions as at the moment of             Enforcement of the act. In virtue of the opinion thus prepared,
                                                                     the Executive Director, or thereby authorized official, issues a
filing the Request in compliance with the respective national
                                                                     certificate for investment class within one month of the filing
legislation.
                                                                     of the Request.
The Rules on the Enforcement of the Encouraging of
                                                                     The Executive Director, or thereby authorized official, refuses
Investments Act also set forth some binding requirements in
                                                                     to issue a certificate in case:
respect to the contents of the investment plan, which must
include the following requisites:                                    1. all required documents have not been enclosed with the
                                                                     Request or presented later on after giving notice to the
        identification data of the investor presented pursuant
                                                                     Requester by the Agency staff ;
         to its national legislation. If the Requestor is a branch
         of a foreign person, the identification data for the        2. the investment does not meet the criteria specified in the
         branch and the foreign person must be indicated. If         law (Art.12 of EIA) or the investment value is under
         the Requestor is a natural person, its personal data        minimum threshold set forth in the Rules on the Enforcement
         must be specified;                                          of the law (Art. 2 of the REEIA).
        purpose of investment pursuant to Art. 12 of the
         Encouragement of Investment Act i.e. if the
                                                                     III.4. InvestBulgaria Agency
         investment is for the purpose of the creation of new
         or expanding or modernizing already existing                The Encouragement of Investment Act transforms the
         enterprise;                                                 Bulgarian Foreign Investment Agency into executive agency
                                                                     under the power of the Ministry of the economy. The basic
        cash amounts to be invested in long-term fixed assets       function of the Agency after the transformation shall be to
         acquisition;                                                support the Minister of the economy in the implementation of
                                                                     the investment encouraging state policy. In this connection the
        itemization of expected profits and losses;                 Agency shall:
        expected cash flow breakdown;                                provide information and individual administrative services
                                                                     to the investors after the issuance of a certificate for
        sources of financing;                                       investment category by the director of the Agency or by a
                                                                     state servant authorized by him;
        expected staff number, as well as its expected               carry out marketing and other studies on the account of the
         increase in the process of its performance, the             investors;
         requirements       for    personnel’s      professional      carry out investment marketing by presenting and
         qualification, and expected spending on staff               advertising abroad the investment opportunities in the
         qualification training and re-training programmes;          country;
                                                                      prepare an annual report on the investments in the country
        determining the place where the enterprise will be          and on the conditions for their encouragement, which report
         built or production equipment localized;                    shall be submitted to the Council of Ministers via the Minister
        type of equipment and facilities, as well as size in        of Economy.
         square meters of the area where they will be built:
                                                                     A key function of the Agency is to assist companies in the
         manufacturing facility, store houses, administrative        investment process. It provides to prospective investors up-
         buildings, etc.;                                            dated information on the investment process in the country,
                                                                     legal advice, searching for suitable Bulgarian partners and co-
        information regarding the planned construction of
                                                                     ordination of the investment policy with other institutions.
         new buildings, leasing, or buying existing ones;
        stages in the performance of the investment plan and
         the cash resources to be allocated for each stage.




                                                     InvestBulgaria Agency                                                       14
IV.  OWNERSHIP OF REAL ESTATE AND                                          respective country and translated in Bulgaria by a
CONSTRUCTION                                                               certified translator.
IV.1. Legislative framework and general rules                             Certificate for Good Standing – apostilled in the
IV.1.1.Legislative framework                                               respective country and translated in Bulgaria by a
                                                                           certified translator.
The major legislative acts governing the real estate and real
estate transactions in Bulgaria are the Bulgarian                         Power-of-attorney, signed before a notary and
Constitution, The Property Act, The State Property Act, The                apostilled in the respective country and translated in
Municipal Property Act, The Civil Procedure Code, The                      Bulgaria by a certified translator, for the person who
Encouragement of Investments Act, The Territorial                          will represent the foreign investor before the Bulgarian
Development Act and The Contracts and Obligations Act.                     notary.
IV.1.2.Direct acquisition of real estate in Bulgaria by a             b)     Indirect acquisition
foreign company
                                                                      Where a foreign company indirectly acquires real estate in
In Bulgaria foreign companies can directly acquire                    Bulgaria through a Bulgarian subsidiary company it should
buildings, premises within a building and limited property            ensure that at least the following documents are presented:
rights (e.g., a construction right, right of use), but not
                                                                          Resolution of the competent corporate body of the
property on land.
                                                                           Bulgarian subsidiary approving the acquisition of the
IV.1.3.Indirect acquisition of real estate in Bulgaria by a                targeted real estate.
foreign company
                                                                          Certificate for Good Standing of the Bulgarian
Indirectly, foreign companies can acquire any type of real                 subsidiary –original or a certified copy.
estate, including land, by registering a Bulgarian company
to act as acquirer. It is possible for such a company to be               Power-of-attorney signed before a notary for the person
100% owned by the foreign investor.                                        (if this is not the person pointed out in the Certificate
                                                                           for Good Standing as the person representing and
IV.1.4.The transaction
                                                                           binding the Bulgarian subsidiary) who will represent
The general rule under Bulgarian law is that transactions                  the Bulgarian subsidiary before the Bulgarian notary
involving real estate (e.g. a purchase, exchange, etc.) should             handling the transaction.
be executed by a notary deed performed before a registered
                                                                          Certificate for tax registration for the local subsidiary –
notary in the region where the real estate is located. After
                                                                           the original and a copy for the notary.
execution of the deed the notary is obliged, by law, to
register the transaction in the Real Estate Registry in order             BULSTAT (statistic) registration card of the Bulgarian
to make the ownership title of the acquirer defendable                     subsidiary – the original and a copy for the notary.
against third parties.                                                IV.2. Statutory costs and expenses
A notary deed is not required for the sale of state or                    Transfer tax – 2% of the higher of the purchasing price
municipal property or in privatization transactions where                  agreed between the parties, or the tax valuation made
the simple written form is sufficient for a valid title transfer.          by the tax office prior to the transaction. The tax may
There are also special rules and procedures governing the                  be shared between the parties or be just born by one of
acquisition of real estate arising from enforcement,                       them.
insolvency and similar procedures, and for in-kind
contributions of real estate.                                             Fee for registration in the Real Estate Register – 0.1%
                                                                           of the higher of the purchasing price agreed between
IV.1.5.The price
                                                                           the parties, or the tax valuation made by the tax office
The purchase price is freely negotiable and may be                         prior to the transaction. The fee may be shared
stipulated and paid in BGN or in any other currency.                       between the parties or be borne by just one of them.
IV.1.6.Legitimacy of the buyer                                            Notary fee – according to the statutory Notary Tariff
a)     Direct acquisition                                                  not more than BGN 3,000 (approx. Euro 1,550) per
                                                                           transaction. The fee may be shared between the parties
Where a foreign company acquires directly buildings,                       or be borne by just one of them.
premises or limited property rights it should ensure that at
least the following documents are presented:                          IV.3. Title review (Real estate legal due diligence)

    Resolution of the competent corporate body approving             Before purchasing real estate it is recommended that the
     the acquisition of the targeted real estate. The                 buyer ensure verification of the ownership status of the
     resolution has to be notarized and apostilled in the             targeted real estate, including that there is/are:




                                                               KPMG                                                                  15
   a clean, valid and marketable ownership title held by         Where the value of the property is over BGN 550,000 the
    seller. The seller has to be, and his predecessors should     sale and the exchange can only be performed after a
    have been the valid owner of the targeted real estate in      decision of the Council of Ministers initiated upon the
    order to avoid any risk of rescinding or annulment of         proposal of the Minister of Regional Development. In such
    the transaction. Usually, this title review covers the        circumstances the Minister of Regional Development issues
    last 10 years since the maximum acquisitive                   an administrative order and then concludes the contract for
    prescription term in Bulgaria is 10 years;                    the sale or exchange.
   no lien or encumbrances over the property. The buyer          IV.5.2.Acquisition of marketable municipality owned real
    should be fully aware as to whether there are any             estate
    registered liens and/or encumbrances over the targeted        The person entitled to conclude a contract for sale or
    real estate, e.g., mortgages, interlocutory injunctions,      exchange of marketable municipal real estate is the Mayor
    going-concern pledges, limited property rights                of the municipality in which the property is located.
    established in favor of third parties. A general
    principle in Bulgarian law is that liens and                  Currently a sale is to be performed through either a tender
    encumbrances “follow the property”, i.e., the registered      or an auction. The Municipal Council determines the tender
    liens and encumbrances can be enforced against the            or auction procedures in a special Ordinance. After the
    new owner;                                                    issuance of another administrative order announcing the
                                                                  winner in the tender/auction the Municipal Council passes a
   no other registered rights in favor of third parties – if     resolution or the Mayor issues an administrative order. On
    there are registered rental or lease agreements over the      the basis of the said resolution/administrative order, the
    targeted real estate then the buyer shall be bound by         Mayor concludes a formal contract. The contract has to be
    them until the expiration of their term;                      registered at the Real Estate Registry in order to be
   no court or restitution claims.                               opposable to third parties.

IV.4. Other possible reviews/analysis                             Currently an exchange is performed without a tender or an
                                                                  auction. The Municipal Council passes a resolution to effect
Depending on the type, usage, location and zoning of the          the exchange. On the basis of the said resolution, the Mayor
real estate and the complexity of the transaction zoning,         concludes a formal contract. The contract has to be
construction and business feasibility studies and a business      registered at the Real Estate Registry in order to make the
valuation might also be considered by the buyer.                  ownership title of the acquirer defendable against third
IV.5. Special cases                                               parties.
IV.5.1.Acquisition of marketable state owned real estate
Marketable state owned real estate can be acquired through        IV.6. Incentives )
a purchase transaction or through its exchange with other         IV.6.1.General
real estate owned by the foreign investor or its Bulgarian
subsidiary.                                                       Upon the request of an investor whose investment is
                                                                  certified by the InvestBulgaria Agency (“BIA”) as a “first
The person authorized to dispose of marketable state owned        class investment” the BIA shall propose to the competent
real estate is the Regional Governor of the administrative        state or municipal body that they:
region where the property is located.
                                                                     transfer to the investor, without remuneration, the
Currently a sale is to be performed through either a tender           ownership title over marketable real estate owned by
or an auction. The Regional Governor determines the tender            the state or municipality; or
or auction procedures with an administrative order. After
the issuance of another administrative order announcing the          sell to the investor marketable real estate owned by the
winner in the tender/auction, a sale purchase contract is             state or municipality; or
concluded. The contract has to be registered at the Real             establish, with or without remuneration, limited
Estate Registry in order to make the ownership title of the           property rights in favor of the investor over private real
acquirer defendable against third parties.                            estate owned by the state or municipality.
Currently an exchange is performed without a tender or            IV.6.2.Transfer of the ownership title over real estate owned
auction. The Regional Governor issues an administrative           by the state without remuneration
order, which has to be approved by the Minister of Regional
                                                                  The transfer of ownership over marketable state owned real
Development and based on that a contract is concluded. The
                                                                  estate to an investor without remuneration should be
contract has to be registered at the Real Estate Registry in
                                                                  initiated by BIA, which has to send a formal proposal to the
order to make the ownership title of the acquirer defendable
                                                                  Ministry of Regional Development. In its turn, the Ministry
against third parties.
                                                                  of Regional Development has to send a formal proposal to


                                                           KPMG                                                                16
the Council of Ministers. If the Council of Ministers             IV.6.7.Establishment of limited property rights over
accepts the proposal it will issue a resolution allowing the      marketable real estate owned by the state without a
transfer of the said real estate. On the basis of the             tender/auction
resolution of the Council of Ministers, the Regional              The establishment of limited property rights over
Governor of the region, where the real estate is located,         marketable real estate owned by a municipality without a
concludes a formal contract with the investor. The contract       tender/auction is started by the preparation of an evaluation
has to be registered at the Real Estate Registry in order to      by an independent certified evaluator. The Minister of
make the ownership title of the acquirer defendable against       Regional Development and the Minister of Economy
third parties.                                                    provide a written opinion on the sale of the real estate and
IV.6.3.Sale of marketable real estate owned by the state          on the evaluation. The relevant Regional Governor can then
without a tender/auction                                          issue an administrative order and conclude the sale contract.

The sale of marketable real estate owned by the state             IV.6.8.Establishment of limited property rights over
without a tender/auction is started by the preparation of an      marketable real estate owned by a municipality without a
                                                                  tender/auction
evaluation by an independent certified evaluator. The
Minister of Regional Development and the Minister of              The establishment of limited property rights over
Economy provide a written opinion on the sale of the real         marketable real estate owned by a municipality without a
estate and on the evaluation. The relevant Regional               tender/auction is started by the preparation of an evaluation
Governor can then issue an administrative order and               by an independent certified evaluator. The Municipal
conclude the sale contract.                                       Council should pass a resolution and the Mayor should
IV.6.4.Sale of marketable real estate owned by the                issue an administrative order. On the basis of the said
municipality without tender/auction                               resolution the Mayor can conclude a formal contract with
                                                                  the investor.
The sale of marketable real estate owned by a municipality
without a tender/auction is started by the preparation of an
evaluation by an independent certified evaluator. The             V.      CONSTRUCTION
Municipal Council then passes a resolution with an
                                                                  V.1. Legislative and administrative framework. Categories
administrative order issued by the Mayor of the region
                                                                         of construction works
where the real estate is located. On the basis of the said
resolution the Mayor can conclude a formal contract with          V.1.1. Legislative framework
the investor.                                                     The major legislative acts governing the construction
IV.6.5.Establishment of limited property rights over              process in Bulgaria are the Territorial Development Act
marketable real estate owned by the state without                 (“TDA”) of 2001, and the various Ordinances on its
remuneration                                                      application, such as: Ordinance No. 1 on the categorization
The establishment of limited property rights over                 of construction works; Ordinance No. 2 on putting into
marketable real estate owned by the state without                 operation of completed construction works and the
remuneration should be initiated by BIA, which has to send        minimum warranty periods for them; Ordinance No. 3 on
a formal proposal to the Council of Ministers. If the             the acts and protocols executed in the course of construction
Council of Ministers accepts the proposal, it should issue a      works; Ordinance No. 4 on the scope and contents of
resolution allowing the establishment of limited property         project designs; Ordinance No. 7 on the rules and norms for
rights over the said real estate. On the basis of the             development of the different types of territories and
resolution, the relevant Regional Governor then concludes a       development zones, etc.
formal contract with the investor.                                Provisions concerning separate aspects of design and
IV.6.6.Establishment of limited property rights over              construction process are contained in a number of other acts
marketable real estate owned by a municipality without            not directly related to construction, as well as in the
remuneration                                                      ordinances issued by each municipality with respect to
                                                                  works executed on their territory.
The establishment of limited property rights over
marketable real estate owned by a municipality without            V.1.2. Administrative bodies
remuneration is initiated by BIA, which has to send a             The issuance of the principal documents in the construction
formal proposal to the Municipal Council. If the Municipal        process – visas, approvals of project designs, construction
Council accepts the proposal it will issue a resolution with      permits and operation permits (with a few exceptions) –
an administrative order of the Mayor, allowing the                typically falls within the competence of the chief architect
establishment of limited property rights over the said real       of the respective municipality, against payment of a fee that
estate.                                                           is determined by each municipality on the basis of the type
                                                                  and size of the works. Where projects concern more than


                                                           KPMG                                                               17
one municipality, or more than one district, these documents                VI category – temporary structures erected for the
are issued by the relevant district governor, or by the                      purpose of construction and other minor works for
Minister of Regional Development, respectively. The same                     which no approval of the design is required and no
documents with respect to special projects related to the                    construction permit is issued.
national defense and security are issued by the Minister of
                                                                     It is important to categorize the project properly, as the
Defense, or the Minister of the Exterior, respectively.
                                                                     requirements for its implementation vary depending on the
The administrative control for observing and applying the            category.
relevant laws and regulations is exercised by the Minister of
                                                                     V.2. Participants in the construction process. Insurance
Regional Development through its specialized body, the
National Construction Supervision Directorate (“NCSD”).              The persons recognized by the law as participants in the
NCSD has extensive powers in all phases of the                       construction process with their specific obligations are: the
construction process, including the power to review appeals          investor, the designer, the contractor, the consultant, the
against construction permits issued, inspect sites and all           supervisor, the structural engineer, the project manager and
construction documents, issue mandatory instructions to all          the supplier of plant and equipment. The relations between
project participants, ban the use of materials, suspend              the project participants must be settled by written contracts.
works, impose penalties, prohibit the access to and order the                Investor is the person, individual or legal entity, that
demolition of works, etc.                                                     has the ownership title, or the right to construct in the
V.1.3. Categories of construction works                                       land plot on which construction works are to be
                                                                              carried out.
Construction projects are divided by TDA into 6 categories
depending on their characteristics, significance, complexity                 The designer of the construction works can be an
and operational risks:                                                        individual who has a degree in his area of
                                                                              specialization and full designer capacity, or an entity
   I-t category – big infrastructure projects of national
                                                                              employing such individuals.            Designers are
    significance such as highways; I-t and II-d class roads;
                                                                              responsible for the preparation of the project design
    ground and underground railways; public ports and
                                                                              and, if explicitly assigned by the investor, for
    airports; transfer conduits of the utility networks;
                                                                              carrying out preliminary research and investigation.
    electric power plants and heat plants with a capacity of
                                                                              They also exercise control for the compliance of the
    over 100 MW; industrial plants with over 500 working
                                                                              construction works with the design, and are
    places; metallurgical and chemical plants, mines,
                                                                              authorized to issue instructions in that respect, which
    quarries, etc.;
                                                                              are mandatory for the other participants in the
   II-d category – smaller projects of national or regional                  process. In all categories of projects except VI, the
    significance such as roads of III-d class; distribution                   designer’s control is mandatory for the structural part
    conduits of the utility networks; facilities and                          of the works; an extension of its scope may be agreed
    installations for treatment of waste; public service                      in the contract with the investor.
    buildings and facilities for over 1,000 visitors; industrial
                                                                             The contractor is the individual or legal entity that
    plants with 200–500 working places; 25–100 MW
                                                                              executes the construction works under a contract
    electric power plants and heat plants, etc.;
                                                                              with the investor. The contractor is responsible for
   III-d category – projects of local significance such as                   the execution of the works in compliance with the
    municipal roads and streets; high residential and                         approved designs and permits and the legal
    combined buildings; public service buildings and                          requirements concerning construction works,
    facilities of more than 5,000 m2 or for 200–1,000                         methods, materials and products, as well as for
    visitors; industrial buildings with 100–200 working                       preparing the “as-made” documentation of the works,
    places; up to 25 MW electric power plants and heat                        if explicitly assigned to him under the construction
    plants; parks and gardens of over 1 ha, etc.;                             contract. The persons authorized to act as contractors
                                                                              are supposed to be subject to a registration regime
   IV-th category – private roads; medium-height
                                                                              under a special law which has not yet been adopted.
    residential and combined buildings; public service
    buildings and facilities of 1,000–5,000 m2 or for 100–                   The consultant is a legal entity that has been licensed
    200 visitors; industrial buildings with 50–100 working                    by NCSD for exercising independent supervision over
    places; parks and gardens of up to 1 ha, etc.;                            construction works and carrying out compliance
                                                                              evaluation of project designs. Apart from these two
   V-th category – low-height residential and combined
                                                                              activities, such a person may be appointed by the
    buildings; villas; public service buildings and facilities
                                                                              investor also to carry out preliminary research and
    of less than 1,000 m2 or for less than 100 visitors;
                                                                              investigation, preparation of the design process and/or
    industrial buildings with less than 50 working places,
    etc.;

                                                              KPMG                                                                    18
    co-ordination of the construction process until the                 where no consultant has been appointed by the
    completed works are put into operation.                             investor.
   TDA mandates that a consultant be appointed by the                 If the investor has assigned the supply and the
    investor for supervising construction works of I to IV              assembling of the construction plant to a supplier,
    category. The supervision of the lower categories of                then the latter is, by virtue of the law, responsible for
    works can be exercised by the project manager. The                  its due and timely supply and assembling, as well as
    supervisor (consultant or project manager):                         for the passing of the tests thereof.
        o    is responsible for the lawful commencement          Designers, consultants, contractors and supervisors are
             of the construction works, the completeness         obliged to insure their professional liability for damage
             and correctness of all acts and protocols           caused as a result of unlawful acts or omissions in the
             executed during the construction, the               course of the fulfillment of their obligations. A special
             execution of the works in compliance with           Ordinance determines the minimum limits under the
             the approved project designs and the legal          insurance policies for the different project participants and
             requirements, the observation of the safety         for the different categories of works.
             requirements, the prevention of damage to
                                                                 As the mandatory insurance covers the liability of the
             third parties or property resulting from the
                                                                 insured under any project in which it participates during its
             works, the fitness of the completed works
                                                                 term of validity, the investor may, in its contracts with the
             for putting into operation, the assessment of
                                                                 respective project participants, require that they undertake
             their energy efficiency and accessibility to
                                                                 additional insurance especially for its own project.
             disabled persons;
                                                                 Extended insurance coverage (e.g. contractor’s-all-risks,
        o    is obliged to inform the regional branch of         employer’s liability, etc.), if required by the investor, has to
             NCSD of any breach of the technical norms           be agreed contractually, as it is not mandatory under the
             and regulations it has identified in the            law.
             course of the construction works;
                                                                 V.3. Preliminary research and investigation. Visa
        o    is authorized by law to issue mandatory             V.3.1. Preliminary research and investigation
             instructions and orders to the contractor that
             can be appealed within 3 days before                Prior to commencing any works, the investor may require
             NCSD;                                               that preliminary research and investigation be made in order
                                                                 to determine the most appropriate location and to estimate
        o    must sign all acts and protocols executed in        the legal admissibility and the expedience of the project.
             the course of the construction works and            Though not a mandatory phase of the process, it is often
             issue a final report to the investor upon their     necessary and useful for the investor to obtain in advance
             completion;                                         data on the site specifics (e.g. geological, seismic,
        o    is jointly liable with the contractor for any       hydrological, climatic and other conditions, existing
             damage resulting from breach of the                 structures and networks in and around the site), on the
             technical norms and regulations, or                 specific technical and zoning requirements affecting the
             deviation from the approved designs.                project, etc. The scope of such preliminary research and the
                                                                 person(s) to which it is assigned will vary depending on the
    When appointing a consultant, investors should bear
                                                                 type of project and the investor’s requirements.
    in mind that a consultant cannot act as a supervisor
    or carry out compliance evaluation of the designs for        V.3.2. Visa
    projects in which it or its employees or related parties     In specific cases listed in TDA the investor must, before
    are involved as designers, contractors or suppliers.         commencing the design of the project, obtain from the
                                                                 respective administrative body an excerpt from the detailed
   The structural engineer is an individual possessing
                                                                 zoning plan covering the plot and the surrounding properties
    a special capacity for exercising technical control          (visa), which marks the existing structures, the permitted
    over the structural part of detailed project designs         boundaries, height, density, intensity and any other
    (technical and execution designs). He must also              requirements to construction in the plot. If the plan is in the
    countersign the “as-made” documentation.                     process of being approved or modified, an excerpt from the
                                                                 draft plan is issued instead of a visa.
   The project manager is the civil engineer managing
    the execution of the construction works on behalf of         As per TDA, the visa should be issued within 7-14 days of
    the contractor. If the works are executed by the             being requested, depending on the issuing body. It is valid
    investor himself, he is obliged to appoint a project         for a term of 6 months, after which it can be revalidated by
    manager. Project managers are also responsible for           the same body, if no changes in the zoning plan have been
    the supervision of works of V and VI category,               effected meanwhile.


                                                          KPMG                                                                  19
V.4. Project design                                                  The refusal to approve project designs can be appealed by
V.4.1. Phases of designing                                           the investor before NCSD within 14 days after notification.

Project designs can be prepared in 3 steps (phases) with a           V.5. Construction permit
different level of detail:         conceptual, technical and         Construction works can only be carried out after a
execution. The parts and contents of each phase of                   construction permit has been issued for them.
designing are specified in detail in Ordinance 4. The
                                                                     V.5.1. Required documents. Procedure. Validity
investor must determine in the contract with the designer
the phases he requires, bearing in mind that: (i) a one-phase        Construction permits are issued to the investor on the basis
design is sufficient for projects with a low level of functional     of the approved project designs in all their phases (except
and technological complexity, and must in any event be a             for projects for which no such approval is required).
technical or execution design; (ii) in a two-phase design,           With its latest amendment of July 2003, TDA allowed a
one of the phases must in any event be a technical or
                                                                     construction permit to be issued on the basis of an approved
execution design; (iii) the three-phase design is mandatory
                                                                     conceptual design only, provided that a preliminary
for complicated or complex projects.                                 compliance evaluation thereof has been made by a
Each phase of the project design must be approved by the             consultant. In such an event the detailed designs of the
respective administrative bodies before commencement of              works (technical and/or execution) must be approved in the
the construction works. No approval is required for some             course of their execution.
minor works listed in TDA.
                                                                     With its request, the investor must present evidence of its
V.4.2. Compliance evaluation                                         ownership title/construction right, the visa (if available),
                                                                     three copies of the project design, the compliance
Project designs must be subjected to an evaluation of their
                                                                     evaluation report, as well as an environmental report, where
compliance with the detailed zoning plan, the territorial
                                                                     such is required under the Protection of the Environment
development norms and regulations, the legal requirements
                                                                     Act.
concerning construction works, the requirement for
coordination between the separate parts of the design and            As per TDA, the permit should be issued within 7 days after
for completeness and structural integrity of the engineering         the request. The approved project design is an integral part
calculations.                                                        of the construction permit.
Compliance evaluation for projects of I or II category must          A construction permit is issued for the works in their
be made by a consultant (different from the designer), who           entirety, or for parts thereof (including separate floors of
issues a report on its findings. In addition, the structural         buildings), provided that they can be executed and used
part of technical and execution designs must be evaluated            separately.
by a structural engineer.
                                                                     The permit expires if construction works have not
In lower categories the appointment of a consultant is               commenced within 3 years or if the rough construction has
optional; if such is not appointed, the compliance evaluation        not been completed within 5 years of its issuance, but can
is made by the municipal experts, but only after the                 be revalidated within 1 year against payment of 50 % of the
structural part of the design has been approved by a                 fee due for a newly issued permit.
structural engineer.
                                                                     V.5.2. Appeals
V.4.3. Approval of the project design. Validity
                                                                     The issuance of, or the refusal to issue, a construction
For the purpose of getting an approval, the investor must            permit can be appealed only on the grounds of breach of the
present to the competent authorities the design itself, the          law, and only by the investor, the holders of the ownership
compliance evaluation report, an approval by the fire safety         title or the construction right in the land plot, and the
authorities, as well as preliminary agreements with the utility      regional branch of NCSD, within 14 days after they have
companies for connecting to the technical infrastructure             been notified thereof, which is made ex officio.
networks. The prescribed term for approval is 7 days after           Construction permits that have entered into force cannot be
submission of all required documents, and 1 month – in the           repealed.
event that the compliance evaluation was not made by a               V.5.3. Changes in the project design after the issuance of the
consultant.                                                          construction permit
The approved project design serves as grounds for the                Such changes are allowed only if they are not substantial, and
issuance of a construction permit, for which the investor            are reflected in the “as-made” documentation. Substantial
may apply simultaneously with the submission of the design           changes such as changes in the type of structure, structural
for approval. It loses its validity if within 1 year the             elements and/or loads, in the purpose of separate parts of the
investor has not applied for a construction permit.                  works, the type and location of installations in buildings or
                                                                     the type, level or location of technical infrastructure or

                                                              KPMG                                                                20
transportation networks, can be made only after the design        V.7. Completion
thereof has been approved and attached to the construction        V.7.1. “As-made” documentation
permit.
                                                                  Upon completing the works the contractor (or another
V.6. Commencement and execution of construction works             person appointed by the investor) must prepare the “as-
V.6.1. Acts and protocols executed during construction works      made” documentation which contains a full set of drawings
                                                                  of the works as they were actually executed. The “as-
The date of commencement of the construction works is
                                                                  made” documentation is countersigned by the investor, the
deemed to be the date on which the protocols of opening of
                                                                  contractor, the supervisor and the structural engineer, and is
the construction site (Protocol 2) and of determining the
                                                                  submitted to the administrative body that has issued the
construction line and level (Protocol 3) are signed by the
                                                                  construction permit, which must stamp it on each page.
supervisor. Protocol 3 is one of the most important records
to be compiled during construction: in it, the supervisor         If it is evident from the “as-made” documentation that the
enters the results of all inspections it has made upon            works were executed in substantial deviation from the
reaching the major levels of construction, before authorizing     approved design, the respective administrative body notifies
the contractor to proceed with the next level. It is              NCSD.
mandatory for all categories of works except VI.
                                                                   Acceptance of the completed works by the investor and the
Within 3 days of commencing the works, the supervisor             supervisor
must present the paginated order book of the works to the
                                                                  The completion of construction is certified by executing a
body that has issued the construction permit for
                                                                  protocol (the so called “Act 15”) which is signed by the
certification.   The book will contain all orders and
                                                                  investor, the designer, the contractor and the supervisor.
instructions of the competent persons and authorities
                                                                  Act 15 is the document evidencing the delivery and
concerning the works, and is mandatory for all
                                                                  acceptance of the completed works between the contractor
constructions of I to IV category.
                                                                  and the investor. With it, they certify that the works have
In addition to the above protocols and order book, a number       been executed in compliance with the approved design, the
of other standard-form acts and protocols have to be              “as-made” drawings, the legal requirements to construction
compiled during the execution of the works for the purpose        works and the terms of the construction contract.
of certifying the various circumstances concerning the
                                                                  Based on Act 15, the supervisor prepares a final report on
construction process, such as acceptance of the executed
                                                                  the execution of the works.
works before covering, interim and final acts of acceptance
of the various stages of works, etc. Ordinance No. 3              V.8. Permitting the use of completed works. Warranty
determines in detail the 17 standard types of acts and                   periods
protocols, their contents, the persons to compile and sign        Completed works or parts thereof can only be used after
them, as well as those of them which are mandatory for the        having been put into operation in the manner prescribed by
various categories of works. The acts and protocols serve         TDA.
as evidence for the circumstances recorded therein and            Works of I to III category are put into operation on the basis
concerning the commencement, execution and completion             of an operation permit issued by NCSD following the
of the works.                                                     procedure established in Ordinance No. 2. For the purpose
                                                                  of its issuance, a special committee is appointed by the
V.6.2. Legal requirements concerning construction works
                                                                  Director of NCSD upon request of the investor,
Construction works must be executed in compliance with            supplemented with: (i) the final report of the supervisor;
the legal requirements contained in various laws and              (ii) the major acts and protocols signed during the
                                                                  construction; (iii) certificate of registration of the works in
regulations concerning: the bearing capacity, stability and
                                                                  the Cadastral Agency; (iv) signed contracts with the utility
durability of structures and the foundation base under            companies for connecting the completed works to the
operational and seismic loads; fire safety; protection of         technical infrastructure networks. All costs related to the
people’s lives, health and property; safety of operation;         committee’s work are borne by the investor.
preservation of the environment during the time of
                                                                  The committee includes the investor, the supervisor and
construction and of using the completed works; economy of         representatives of NCSD and the special supervisory
heat energy and heat insulation; accessible environment.          authorities. Upon inspection of the completed works and
The responsibility for the compliance with these                  the relevant documents, the committee issues Protocol 16
requirements is borne jointly by the contractor and the           for accepting or rejecting the works (the so called “Act
supervisor.                                                       16”). Based on it, the Director of NCSD issues the
                                                                  operation permit. The maximum term for completing the
                                                                  procedure, as prescribed by TDA, is about 1 month.
                                                                  Note should be taken that an operation permit for a part of
                                                                  the works can be issued only if the construction permit was


                                                           KPMG                                                                 21
issued, or has been subsequently amended so as to allows          The contractor remains responsible for the works executed
for them to be executed in parts (phases).                        by him for a certain period after their completion. The
                                                                  minimum periods are prescribed by the law and vary from 1
The procedure regarding works of IV and V category is
                                                                  to 10 years, depending on the type of work. Longer periods
simplified and involves just a desktop review of documents
                                                                  can be determined contractually.
concerning the works (which are substantially the same as
those necessary for Act 16) and registration of their putting     V.9. Incentives
into operation. It is performed by the body that has issued
the construction permit, and ends with the issuance of a          Where the project has been recognized as any class of
certificate of putting into operation, which as per TDA           investment under the Encouraging of Investments Act, the
should be done within 7 days after all necessary documents        respective administrative bodies shall be obliged to issue the
have been submitted by the investor.                              acts requested from them in shorter terms than the ones
                                                                  prescribed by TDA.
Works of VI category can be used without any special
procedure of putting into operation.




                                                           KPMG                                                                22
VI.  BULGARIAN LABOR AND SOCIAL                                 Leaves, Convention on Discrimination in the Labor Sphere
SECURITY LEGISLATION                                            and Professions, etc. These conventions represent an
                                                                integral part of the Bulgarian legislation and in case of
VI.1. Bulgarian Labor Legislation                               controversy between any of the internal law and any of
VI.1.1.Legal Framework                                          these Conventions, Bulgarian courts are obliged to apply
                                                                directly the provisions of the respective Convention.
The Bulgarian legislation related to labor law is
characterized with codification and detailed provision          VI.1.2.Legal Definitions
established in our Constitution, the Labor Code, a number       The labor legislation indicates legal definitions of the basic
of legal acts and many regulations and rules.                   labor terms as follows:
The Labor Code settles the principles, rules and manner for     Employer - is any natural person, legal entity or its
labor implementation on the territory of the Republic of        division, as well as any other organizational and
Bulgaria within the frames of a labor relationship. The Code    economically       separated     formation      (enterprise,
determines: the territorial scope of the effect of the          establishment, organization, cooperation, economy,
Bulgarian labor legislation; scope of persons in relation to    institution, household, company, etc.) which independently
which it is applied; trilateral cooperation; levels of labor    employs employees under labor relations;
negotiation;     employees’     organizations;    employers’
organizations; basic labor rights and obligations; types of     Enterprise – is any place - enterprise, establishment,
labor contracts; general contents and amendment of the          organization, cooperation, establishment, site, etc. – where
labor relations; preserving the labor relations in case of      the employed labor is implemented;
change of the employer; working hours, rests and leaves;
                                                                Working place – is any premise, workshop, room, location
labor remuneration; termination of labor relations;
                                                                of machinery, equipment or any other similar territorial
compensations related to the labor relation; safe and healthy
                                                                specific place within the enterprise where the employee
labor conditions; special protection of certain categories of
                                                                implements the labor assigned by his employer in pursuance
employees; labor disputes and control for protection of the
                                                                of his obligations arising out of the labor relation;
labor legislation.
                                                                VI.1.3.General Review of the Labour legislation
Laws containing provisions for labor relations may be
divided in two basic groups: general laws developing the        The Bulgarian labor legislation is based on principles
Labor Code and special laws settling labor relations of         generally applicable for the labor law and the legal system
special categories of employees. Within the first group fall:   of the European Union: freedom and protection of labor,
Protection against Discrimination Act, Law on Safe and          social dialogue between the state and employees’ and
Healthy Labor Conditions, Encouragement of Employment           employers’ organizations for regulation of labor relations
Act, Law on Settling Collective Labor Disputes, Law on          and relates related therewith, ban on discrimination, sexual
Employees’ Secured Claims in Case of Employer’s                 equality regarding       the    right to employment and
Insolvency. The second group includes: Higher Education         remuneration, guaranteeing the labor remuneration, fixed
Act, State Employee Act, Law on Protection, Rehabilitation      working hours, limitation of overtime work, guaranteeing
and Social Integration of Disabled Persons, Ministry of         rests and leaves, preserving the labor relation in case of
Interior Act, Defense and Armed Forces Act, Judicial            change of the employer, collective arrangements, freedom
System Act and Civil Aviation Act.                              of association of employers and employees.
Number and types of sub-legislative normative acts in the       As determined in the Labor Code, the Bulgarian labor
sphere of labor law do not allow for their exhaustive           legislation is applicable to all employment relationships
enumeration, therefore we shall specify only several of         with Bulgarian enterprises and joint ventures in this
those acts which apply in respect to all subjects of labor      country, as well as to employment relationships between
relations. Those are: Regulation on Working Hours, Rests        Bulgarian citizens and foreign enterprises in this country or
and Leaves, Regulation on Additional and Other Labor            Bulgarian enterprises abroad, insofar as not provided
Remunerations, Regulation of Business Trips and                 otherwise in a law or a treaty to which the Republic of
Specialization Abroad, Regulation on Work-book and              Bulgaria is a party. The employment relationships of
Length of Service, Regulation No 3 on obligatory                Bulgarian citizens sent to work abroad in foreign enterprises
preliminary and periodical medical examinations of              or joint ventures, and of foreign nationals appointed to work
employees, Regulation № 4 on documents required for             in this country in Bulgarian enterprises or joint ventures
execution of a labor contract, Regulation № 5 on illness        pursuant to treaties shall be regulated by the Labour Code,
where employees suffering from those illness, profit a          insofar as not provided otherwise in a law or a treaty to
special protection according to article 333, para 1 of the      which the Republic of Bulgaria is a party.
Labor Code, Regulation No 7 on the minimum requirements
                                                                There is no collective labor agreement in Bulgaria
for healthy and safe labor conditions on working places and
                                                                established on a national level but there is a National
in case of use of working equipment, Regulation No 14 on
                                                                Council for trilateral cooperation comprising representatives
the service centers for labor medicine, etc.
                                                                of the Council of Ministers, representative organizations of
Of course, along with the national legislation, the Republic    employees and employers. The Council has advisory
of Bulgaria has ratified a number of Conventions in the         functions and its own formations on a branch, trade and
sphere of labor relations, such as: Convention on Working       municipal level.
Hours, Convention on Unemployment, Convention on
Employees’ Representatives, Convention on Annual Paid


                                                    NOVEL CONSULT                                                            23
The collective labor bargaining exists on three levels:               in case of distribution of the operations of one
enterprise, branch, industry field. For businesses that are            enterprise between several enterprises;
financed by the budget of a municipality is possible
Collective Labour Agreement (“CLA”) at the level of the               in case of transfer of an autonomous part of one
respective Municipality. The Collective labour bargaining              enterprise to another;
regulates issues of the labour and social security relations of       in the event of change of the owner of the enterprise or
employees, which are not regulated by mandatory                        of an autonomous part thereof;
provisions of the law. A CLA shall not contain clauses
which are more unfavourable to the employees than the                 in the case of delivery of the enterprise or an
provisions of the law or of a higher grade of CLA, which is            autonomous part thereof for rent, on lease or under
binding the employer.                                                  concession.
Labor contracts, individual and collective ones, are signed        Similarly to the signing, termination of labor contracts is
in writing and are subject to a subsequent registration.           done in writing. The termination procedures and grounds
                                                                   for termination of labor contracts are specified in details in
CLA should be registered, depending on their level, at a           the Bulgarian labor law. The types of termination of labor
special register of the local or Central Labor Inspectorate.       contracts may be divided in several basic groups:
CLA are effective for 2 years.
                                                                      Procedures where termination requires consent of the
The individual labour contract shall be concluded between              other party or procedures where termination involves
the employee and the employer before the start of the                  the will and actions only of the party entitled to initiate
performance of the job. Individual labor contracts are                 termination – termination by mutual consent or
subject to registration within three days as of their signing at       unilateral termination of the contract;
the respective division of the National Social Security
Institute.                                                            Termination procedures via advance notice or
                                                                       termination procedures where no advance notice is
Upon conclusion of the labor contract the employer shall               required. The maximum terms of the advance notice are
introduce the employee to the labour obligations ensuing from          specified n the Labor Code: 1 month for non-fixed term
the position occupied or the nature of the work performed.             contracts unless anything else is specified in the
According to the last amendments of the Labor Code, the                contract, but not more than 3 months and 3 months for
obligatory contents of the individual labor contract was               fixed term contracts, but not more than the remainder
extended and now it shall specify the place, position                  by the end of the contract;
occupied and nature of work, duration of labor contract,
date of execution and commencement of performance,                 Termination procedures of the contract upon a motion of the
amount of basic and extended annual paid leave and                 employer and termination procedures upon a motion of the
additional annual paid leaves, identical term of advance           employee. The typical here is that while the employee may
notices for both parties in case of termination of the labor       terminate the labor contract without stating any grounds, the
contract, basic and additional labor remunerations of              employer cannot use such procedure.
constant nature as well as the periodic terms for their
                                                                   There are no special Bulgarian courts for consideration of
payment, duration of working day or week.
                                                                   labor disputes similar to certain European countries but our
The employment contract may be concluded:                          legislation settles a special procedure for consideration of
                                                                   labor disputes. A particular feature of considering labor
   for an indefinite period;                                      disputes is that employees are released from paying fees and
   as an employment contract for a fixed term.                    taxes related to the court procedure.

Fixed term employment contracts are: for a definite period         VI.1.4.Incentives
which shall not be longer than 3 years, insofar as a law or an     Incentives in the sphere of labor law are aiming mainly the
act of the Council of Ministers do not provide otherwise;          decrease of unemployment and enhancement of
until completion of some specified work; for substitution for      employment. Those are settled in the Encouragement of
an employee who is absent from work; for working at a job          Employment Act and the Rules on its application. The
which is to be taken through a competitive examination, for        incentives are payment of funds from the Employment
the time until it is taken on the basis of the competitive         Agency to employers who open new job positions, preserve
examination; for a certain mandate, where such has been            opened job positions in case of decrease of the working
specified for the respective body; employment contract for a       volume, hiring unemployed women over the age of 50 years
trial period.                                                      and unemployed men over the age of 55, engaging
Similarly to the legislation of the European Union, the            unemployed persons of decreased working ability, hiring
Bulgarian labor legislation envisages retention of the             unemployed women-mothers or single parents, employing
employment relationship in case of change of employer.             permanently unemployed persons, etc.
The employment relationship with the employee shall not            An employer wishing to apply for an encouragement of
be terminated:                                                     employment program should meet the following
   in case of merger of enterprises;                              requirements: to be registered pursuant to the existing
                                                                   legislation and lack any claimed public liability. Depending
   in case of joining of one enterprise with another;             on the particular program, other requirements may be
                                                                   specified.


                                                       NOVEL CONSULT                                                             24
Another hypothesis for encouragement of employment is                   Orthodox Church and other religions registered
provided by the Corporate Income Tax Act – the so called                pursuant to the Religions Act.
“assignment or decrease of the corporate tax”.
                                                                       Obligatory secured persons for disability because of a
VI.2. Bulgarian Social Security Legislation                             general disease, for old age and death are persons
                                                                        registered as freelancers and/or craftsmen; persons
VI.2.1.Legal Framework
                                                                        exercising activity as sole merchants, owners or
The right to social security and social relief is determined in         partners in commercial companies; PH.d students if
the Constitution of the Republic of Bulgaria. Similarly to              not socially secured for pension on different grounds;
the labor legislation, the provision of the social security is          registered agricultural producers and tobacco
characterized by codification: its basic provision is                   producers; persons employed under no labor relations
grounded in the Social Security Code.                                   and receiving monthly remuneration equal or
                                                                        exceeding one minimum working salary after
The legal acts representing part of the normative provision             deduction with the normatively acknowledged costs,
on social security are the Laws on the budget of the state              provided they are not socially secured on other
social security which are adopted for each separate calendar            grounds during the respective month;           persons
year.                                                                   employed under no labor relations and socially
An interest of general importance from the sub-legislative              secured on other grounds during the respective month
acts in the sphere of social security is: the Regulation on             regardless of the amount of the received
elements of remuneration and income over which are                      remuneration.
deposited social security installments and for calculation of     Social Assurer – according to article 5 of the Social
pecuniary compensations for temporary disability or               Security Code it is any natural person, legal entity or its
pregnancy and child-birth; Regulation on granting and             division as well any other organization obligated by the law
payment of financial compensations for unemployment;              to deposit social security installments for other natural
Regulation on pensions and security length of service,            persons.
Regulation on social security funds; Regulation on social
security of self-secured persons and Bulgarian citizens           Self-secured person - natural person obligated to deposit
working abroad.                                                   social installments at his/her own account.
The Republic of Bulgaria is a party to a number of                VI.2.3.General Review
international deeds in the sphere of social security such as:
                                                                  Social security relations in the Republic of Bulgaria may be
Contracts for social security between the Republic of
                                                                  divided in two general groups: relations regarding the state
Bulgaria and Spain, Republic of Macedonia, Ukraine;
                                                                  social security and relations regarding the additional social
Agreements with the Slovak Republic, Czech Republic,
                                                                  security.
Federal Republic of Germany, Hungary, Libya, etc.
                                                                  The state social security covers risks of general disease,
VI.2.2.Legal definitions
                                                                  labor    accident,   professional    illness,   maternity,
The legal definitions of some of the basic terms in the           unemployment, old age and death.
sphere of the social security, are the following:
                                                                  The additional social security is: additional obligatory
Secured persons – pursuant to article 4 of the Social             pension security in case of old age and death; additional
Security Code such persons are:                                   voluntary pension security in case of old age, disability and
                                                                  death; additional voluntary security for unemployment
     Employees obligatory secured for all secured risks          and/or professional qualification.
      are those who are hired for more than five days or 40
      hours within one calendar month regardless of the           The basic characteristics of the state social security are:
      nature of work or mode of payment and source of             equality of socially secured persons, obligation,
      funding; state officials; judges, prosecutors,              comprehensiveness, solidarity of socially secured persons,
      investigators, executory officers, registrars and court     and fund organization of securing funds.
      officers; regular militants pursuant to the Law on          The income over which security installments are assessed
      Defense and the Armed Forces of the Republic of             includes all remunerations and other income received from
      Bulgaria; state officials – officers, sergeants and civil   labor activity. The Law on the Budget of the State Social
      persons pursuant to the Law on the Ministry of              Security for the respective year determines the amount of
      Interior; and state employees - officers, sergeants and     social security installments depending on the encompassed
      civil persons pursuant to the Law on Executing              social risks as well as the minimum and maximum security
      Penalties; members of cooperatives exercising labor         income for the year. For the year 2004 the amount of
      activity and receiving remuneration from the                security installments for all risks regarding employees
      cooperative; members of cooperatives on no labor            working at third (basic) category of labor, is 36.7%.
      relations with the cooperative are not socially secured
      for unemployment; persons working under a second            The distribution of security installments between social
      or additional labor contract; contractors under             assurors and employees, members of cooperatives,
      agreements for management and control of                    contractors under agreements for management and control,
      commercial companies; persons exercising labor              persons employed at elective office and persons employed
      activity and receiving income from elective office as       under no labor relations is changing in time and is as
      well as officers on clerical positions at the Bulgarian     follows:


                                                      NOVEL CONSULT                                                           25
                                                               installments for self-secured persons and persons employed
    For year              Allocation of social security
                                                               under no labor relations are deposited by the tenth day of
                              installment liability
                                                               the month following the month they refer to.
                          For the              For the
                          insurer              insured
                                                               VI.2.4.Incentives
      2004                       75%                 25%       Incentives in the sphere of social security are directed
                                                                 mainly at tax relieves:
      2005                       70%                 30%
                                                                    Income of universal and professional pension funds
                                                                     are not subject to taxation pursuant to the Corporate
      2006                       65%                35 %
                                                                     Income Tax Act;
      2007                       60%                 40%            Income from investments of pension funds
                                                                     distributed to the individual lots of secured persons
      2008                       55%                 45%             are not subject to taxation pursuant to the Taxation of
                                                                     Income of Natural Persons Act;
   2009 and on                   50%                 50%
                                                                    Individual security installments for additional
                                                                     obligatory pension security are deducted from the
                                                                     income prior to taxation;
Security installments for state social security which are to
                                                                    Installments made by employers for additional
the account of social assurors are deposited simultaneously
                                                                     obligatory pension security are acknowledges as
with the payment of remuneration. At that moment should
                                                                     costs related to their business activity.
be deducted and deposited also social security installments
to the account of socially secured persons. Security




                                                   NOVEL CONSULT                                                           26
VII.     TAXATION                                                Generally, the taxable profit is determined in accordance
                                                                 with the financial result reported in the Profit and Loss
                                                                 Account (“P&L”) adjusted for tax purposes. Business costs
VII.1. Direct taxation of corporations                           are deductible on accrual basis, except for certain items
The taxation of corporate income and profits is governed by      which are deducted on “when realised” or “cash” basis,
the Corporate Income Tax Act (“CITA”). Apart from the            such as:
corporate income tax which is charged on the corporate
                                                                    Non-realised losses from valuation, revaluation or
profits, CITA also regulates certain other taxes, such as:
                                                                     impairment of assets (including impairment of non-
      Special income tax regimes applicable to insurance            collectible receivables) and investments;
       companies, gambling businesses and certain services
                                                                    Provisions for contingent liabilities;
       provided through telecommunication means and
       certain investment companies;                                Accruals for certain payments to the personnel (such as
                                                                     non-used paid leave, provisions for retirement, equity
      Taxes on corporate expenses; and
                                                                     compensation accruals, etc.), etc.
      Withholding tax obligations of corporate taxpayers
       with respect to dividend distributions and payments       Non-business costs, as well as costs which have not been
       due to non-resident contractors.                          properly evidenced with accounting and business
                                                                 documentation are non-deductible. Bulgarian accounting
                                                                 and tax laws contain comprehensive requirements with
VII.1.1. Corporate income tax                                    respect to documenting the costs which have to be observed
Corporate income tax in Bulgaria applies in a single rate of     for getting a tax deduction.
19.5%. The tax policy of the Government envisages a              Capital profits and losses are not subject to specific taxation
further reduction of the tax rate to 15%, subject to
                                                                 rules. Such profits/losses are included in the ordinary
maintenance of budgetary and economy stability.
                                                                 business revenue and are subject to tax in accordance to the
                                                                 general tax rules.
VII.1.2. Profits subject to tax                                  Dividends distributed by Bulgarian resident companies to a
Bulgarian resident companies are subject to Bulgarian tax        Bulgarian corporate resident shareholder are not included in
on their world-wide profits. Companies that are non-             the taxable profit of the shareholder.
residents in Bulgaria, but operate in Bulgaria through a         Gains from trading shares in Bulgarian public companies on
branch, office, agency or other form of a permanent              the Bulgarian stock exchange are also excluded from the
establishment are only liable to tax on the profits generated    taxable profit (except for gains derived from block
through their Bulgarian establishment.                           transactions). Losses from trading such shares, however,
Generally, a company is resident in Bulgaria if it is            are non-deductible.
incorporated (registered) in Bulgaria. Most of the taxation
rules, including the major rules relating to tax incentives,
                                                                 VII.1.4. Valuation of depreciable assets for tax purposes.
apply equally to resident and non-resident corporations
                                                                 Depreciation and amortization
conducting activities through a Bulgarian permanent
establishment.                                                   Tax depreciation is accrued for all fixed assets and
                                                                 investment properties except for land, cultural monuments
                                                                 and the financial assets.
VII.1.3. Determination of profits for tax purposes
                                                                 As of 1 January 2004 depreciable assets are valued for tax
Profits are determined in accordance with generally              purposes at historical acquisition costs. Additions and
accepted accounting principles (provided for in the              improvements to such assets are recognized as separate
respective accounting standards), subject to adjustments for     depreciable assets and are subject to depreciation in
tax purposes. Currently, most of the corporate taxpayers are     accordance to the tax rates applicable to the main asset.
allowed to elect to apply either the Bulgarian Accounting
Standards or the International Financial Reporting               Capital expenditures which exceed BGN 500 must be
Standards (IFRS) as a primary accounting basis. There is a       capitalized as depreciable asset for tax purposes.
statutory requirement for banks, insurance companies, other      Bulgaria has relatively flexible tax depreciation rules which
financial institutions and public companies to apply IFRS as     leave space for tax planning of the annual depreciation
a primary accounting basis. As of 1 January 2005 all             charges and optimization of the tax costs or utilization of
corporate taxpayers will be obliged to apply IFRS only.          prior year losses. Under CITA, the annual tax depreciation
Accounts are to be prepared in Bulgarian Leva, regardless of     charges are computed in accordance to the straight-line
the functional currency of the respective company.               method by applying annual depreciation rates, which cannot



                                                     Deloitte & Touche                                                         27
exceed the maximum tax depreciation rates, specified             Under these rules, if the debt-equity ratio of the taxpayer
below:                                                           does not exceed 2:1 as of the end of the respective calendar
                                                                 year the interest costs can be deducted for tax purposes in
                                                                 full. If the debt equity ratio is higher than 2:1, then the
                                                                 maximum tax deductible portion could not exceed the sum
             Maximum Tax Depreciation Rates
                                                                 of the interest income of the taxpayer and 75% of the
                                                 Annual Tax      Earnings Before Interest and Tax (EBIT). The portion that
                                                 Depreciation    appears to be non-deductible in the current year can be
                                                  Rate (%)
                                                                 carried forward and deducted in the following three years,
 Buildings, equipment, transmission lines
                                                                 subject to the EBIT formula described above.
 and pipe systems, telecommunication                        4
 lines and systems                                               As mentioned above, interest on bank loans and finance
 Plant and machinery, apparatus                            30    lease facilities provided by non-related bank/lessor are
 Vehicles (except for automobiles),                        10    always deductible in full.
 coverage of roads, aviation runways
 Hardware, software and the rights to use                  50
 software, peripheral devises
                                                                 VII.1.7. Bad debts
 Automobiles                                                25
 Intangible assets which are subject to a             over the   Impairment of receivables (bad debts) is deductible only
 pre-determined period of use                    period of use   when:
 All other assets (including other                          15
 intangibles, office equipment, and                                 Liquidation or bankruptcy proceedings are initiated
 goodwill)                                                           with respect to the debtor; or
                                                                    The statute of limitations with respect to the receivables
Tax depreciation rates can be freely elected by taxpayer,            has expired. For most of the commercial debts the
within the above maximum rates, and are not linked to the            statute of limitations is 5 years.
accounting depreciation rates or the useful life of the asset.
The election can be changed each calendar year and the
change applies prospectively.                                    VII.1.8. Utilisation of losses
                                                                 The tax loss can be carried forward for five consecutive
VII.1.5. Valuation of inventory. Cost of sales                   years to offset the taxable profit reported in these years.
                                                                 The period for carry forward starts on 1 January of the year
Inventory is valued for tax purposes at acquisition costs.       following the year in which the loss has been incurred and
Non-realised losses (such as losses from valuation or            expires on 31 December of the fifth year. Losses cannot be
impairment, etc.) are not recognized for tax purposes until      carried back.
realised. Some business losses (such as the complete loss of
                                                                 Foreign losses can be carried forward for a period of five
inventory) are non-deductible for tax purposes or are subject
                                                                 years to offset the profits from the same source which
to limitations with respect to the size of the tax deduction
                                                                 generated the losses.
available.
                                                                 As there is no capital gains tax or special tax treatment of
There are no specific tax methods for valuation of the cost
                                                                 the capital gains and losses, capital gains can offset the
of sales at disposal of inventory. All accounting methods
                                                                 current and prior year operating losses and vice versa.
(LIFO, FIFO, average costs) are also permitted for tax
purposes.
                                                                 VII.1.9. Dividends
VII.1.6. Interest costs                                          Dividends distributed by a Bulgarian resident company to
                                                                 another Bulgarian resident company are exempt from
Interest costs are normally deductible on accrual basis,
                                                                 corporate income tax and are not included in the taxable
subject to the limitations provided in the Bulgarian thin
                                                                 profit. Such dividends also are not subject to withholding
capitalization rules. In some very limited cases the interest
                                                                 tax or other form of dividend tax.
costs could be capitalized in the value of the respective
depreciable assets to which the costs relate (e.g. in case of    Foreign dividends are fully taxable with corporate income
construction of huge fixed tangible assets by a taxpayer who     tax.
applies IFRS as a primary accounting basis, etc.).
                                                                 VII.1.10.Foreign source income of a Bulgarian corporation.
Bulgarian thin capitalization rules apply to substantially all   Relief for foreign tax paid
forms of financing extended between related and non-             Bulgarian resident corporation, which suffered foreign
related parties, except for loans and finance lease facilities   income tax on its foreign business or investment income
provided by non-related banks or lessors.


                                                     Deloitte & Touche                                                        28
could credit such tax against the Bulgarian corporate            Newly incorporated entities and the companies which have
income tax. The tax credit is limited to the amount of the       reported tax loss in the preceding year make provisional tax
Bulgarian corporate income tax that would have been              payments on a quarterly basis. The payments are calculated
incurred had the respective foreign income been earned in        on the profit earned in the respective quarter adjusted for tax
Bulgaria. The foreign tax credit which has not been utilized     purposes.
in the current calendar year cannot be carried forward or
                                                                 The annual balancing payment is due by 31 March of the
back.
                                                                 following year.
If the foreign tax have been paid to a country, with which
Bulgaria has a Double Tax Treaty, the foreign tax relief
could be either in the form of a tax credit against the          VII.2. Special income tax regimes
Bulgarian corporate income taxes due, or be provided as an          Insurance companies
exemption from Bulgarian tax of the foreign income,
subject to the specific provisions of the Treaty.                Insurance companies are not subject to corporate income
                                                                 tax. In lieu of such tax, insurance companies are charged to
                                                                 a direct tax on the net insurance premiums and the revenue
VII.1.11.Group taxation. Transactions between related            from any other activities not related to insurance. The tax is
parties                                                          payable monthly.
There is no group taxation in Bulgaria. Each entity is taxed     The basis for tax includes the following items:
as a separate taxpayer.
                                                                            o    The net insurance premiums calculated as
Bulgaria has tax rules regulating the tax deductions and the                     gross premiums received less the premiums
taxable revenue from transactions between related parties                        returned and the reinsurance premiums paid;
                                                                                 and
(“the transfer pricing rules”). Transfer pricing rules apply
to both domestic and international transactions between                     o    The revenue from non-insurance activities
related parties. The Bulgarian transfer pricing rules are                        and investments (such as interest, rents,
broadly similar to the generally accepted OECD standards                         etc.).
that could be seen in the EU and OECD countries. There           If the basis for taxation is a negative figure, it is carried
are still however some difficulties in the practical             forward for the following months.
implementation and interpretation of these rules, and it is
expected that the transfer pricing practices would undergo       The general insurance companies are charged to tax at a rate
substantial development in the future.                           of 7%. Life insurance companies are subject to tax at a rate
                                                                 of 2%.
Currently, there are no requirements for advance transfer
                                                                    Gambling businesses
pricing filings or reporting, or for keeping specific transfer
pricing documentation with respect to transactions between       Gambling businesses (including telecommunication
related parties. The taxpayer could not enter into advance       gambling) are subject to tax on the gross revenue from bets.
pricing agreements with the tax authorities.                     Auxiliary and supplementary activities of gambling
                                                                 companies are also subject to tax on a gross basis.

VII.1.12.Tax reporting and tax payments                          The tax rates applicable to gambling businesses are 8% or
                                                                 12% depending on the type of the activities.
The tax year coincides with the calendar year. Corporate
income tax liabilities are reported annually through filing an      Provision of informational and other similar services
                                                                     through telecommunication
annual tax return by 31 March of the following year. No
extension of the period for filing is allowed.                   Businesses which organise certain telecommunication
                                                                 services (such as informational services, entertainment
The corporate income tax liability is paid through making:
                                                                 telecommunication services, etc.) are subject to tax on the
   Monthly/quarterly provisional tax payments against the       gross revenues from these activities. The tax is withheld by
    annual tax liability; and                                    the public telecommunication operator who provided an
   Annual balancing payment, which is calculated as the         access to its public network for the delivery of the services.
    balance between the annual tax liability reported in the     The rate of tax is 12%.
    tax return and the monthly provisional installments
    paid.                                                        Other business activities of entities providing the above
                                                                 services are subject to corporate income tax in accordance
   Monthly provisional payments are due by companies            with the general tax rules.
    which have reported taxable profit in the preceding
    year. These payments are generally based on the                 Licensed investment companies
    taxable profit for the preceding year adjusted for the
    inflation.

                                                     Deloitte & Touche                                                         29
Licensed investment companies for trading in shares                      Tax credit for the value of assets acquired as part of
securities are subject to the general corporate income tax                initial investment
rules, except for that they are not taxed for their profit from   As of 1 January 2005 tax credit will be available for acquiring
trading of securities.                                            assets in terms of investing in depressed regions. The credit is
                                                                  determined at 10% of the acquisition costs of the assets. The
   Licensed securitisation companies
                                                                  tax credit can be carried forward for a period of 5 years.
Investment companies which are licensed to conduct
                                                                  The eligible investment should be an initial investment in a
securitisation of real properties and receivables are not
                                                                  depressed region, an enhancement of the investment in such
subject to corporate income tax. Dividends distributed by
                                                                  a region, or commencement of a new activity related to
such companies are subject to tax, even if distributed to
                                                                  modernization of the business processes. The investment
Bulgarian corporate shareholders.
                                                                  should consist of acquisition of fixed tangible assets (except
                                                                  for cars) or purchase of patents, licenses or know-how. The
                                                                  costs of the intangible assets should not exceed 25% of the
VII.3. Income tax exemptions and incentives
                                                                  acquisition costs of the fixed assets.
Most of the previous tax exemptions (capital allowances,
tax vacations) aimed at attracting investors have been            The assets acquired in terms of eligible investment cannot
revoked in the recent years. Some entities which have             be disposed off for a period of five years, except in cases of
acquired the right to use such incentives prior to their          merger or restructuring of the company.
revocation are still entitled to benefit from the incentives
until the expiry of their respective original term.               In order to qualify for tax credit the taxpayer also has to
                                                                  meet some other conditions related to the financing of the
Presently, the major tax incentives are focused on                investment project or designated to preserve the competition
encouragement of the development of depressed regions
                                                                  on the market.
(regional incentives), the reduction of the unemployment
(employment incentives) and advancement of the                           Tax exemption for manufacturing companies
agriculture (incentives for the agricultural businesses).
                                                                  Manufacturing companies which invest in depressed regions
                                                                  (including companies involved in toll manufacturing) are
VII.3.1. Regional incentives                                      entitled to complete exemption from corporate income tax,
The following basic incentives are available for investments      subject to the following basic conditions:
in depressed regions included in a list approved by the                       o    All business sites and premises of the
Minister of Finance:                                                               taxpayer have to be located in the respective
Most of the regional incentives have been recently amended                         depressed region;
with effect as of 1 January 2005. The basic conditions                        o    All assets of the taxpayer (except for cash in
described below are those that shall apply as of 1 January                         bank accounts and investments in associates
2005.                                                                              and subsidiaries) have to be located in the
As of 1 January 2005 certain companies and industries                              respective depressed region;
cannot benefit from the regional incentives. These include                    o    The taxpayer should not have outstanding
companies in liquidation and bankruptcy, companies in                              and non-disputable liabilities for taxes or
financial difficulties, companies from automotive sector,                          social insurance or penalty interest thereon
shipyards, coal mining industry, steel industry,                                   for the respective year in which the
manufacturing of synthetic fibers, agriculture and fish                            exemption is claimed;
breeding.
                                                                  The amount of the tax credit for each year should be
The incentives are subject to some advance and subsequent         invested in manufacturing activities within a period of three
filing requirements and notifications. Where the value of the     years after the end of the year in which the exemption was
exemptions/incentives and other state aids for regional           claimed. The eligible investment should consist of fixed
development exceeds BGN 75 million, a clearance from the          tangible assets or licenses, patents and know-how at a value
                                                                  not exceeding 25% of the costs of the fixed tangible assets.
Commission for Protection of the Competition is required.
                                                                  The investor is also required to invest own funds of at least
Where the amount of the state grants and subsidies                25% of the amount of tax credit. Some other additional
(excluding the grants provided tax incentives) does not           conditions are also required to be met. The assets acquired
                                                                  could not be disposed for a period of 5 years, except for in
exceed BGN 200,000 in a three-year period, the tax
                                                                  cases of merger or reorganisation.
incentives can be used under less strict conditions.
                                                                  The incentive is available for a period of five subsequent
The following regional incentives are available:                  years, subject to meeting its conditions in each respective
                                                                  year. If during the five-year period the respective region is
                                                                  excluded from the list of the depressed regions, the
                                                                  incentive survives the exclusion and can be applied until the
                                                                  expiry of its term. Where a company started preparatory


                                                      Deloitte & Touche                                                         30
activities for investing in a depressed region, but prior to      employment costs or sharing of the training costs of the
commencement of manufacturing the region was excluded             employer, subject to conditions in the law.
from the list, the company is still eligible to use the
incentive for a period of four years.
                                                                  VII.3.3. Incentives for agricultural businesses
VII.3.2. Employment incentives                                    Agricultural businesses which produce non-processed
                                                                  production for the market (including bee breeding , silk-
In general, the employment tax incentives and all other           worm breeding and fish breeding) are entitled to a tax credit
subsidies and aids for encouragement of the employment            of 60% of the corporate income tax payable. The amount of
are subject to certain thresholds with respect to their           the tax credit should be reinvested in the agricultural
maximum amount. In general, such incentives and aids              activities.
cannot exceed 50% of the payroll costs for the new jobs for       Businesses which produce and process              agricultural
a period of two years.                                            production are not entitled to this incentive.
The following tax incentives are currently available to
investors:                                                        VII.3.4. Other tax incentives
     Tax deduction for employing individuals in specific         There are also some other tax incentives which apply to
      social conditions                                           specific organizations such as organizations for employment
The employer is entitled to deduct from its taxable profit, as    of disable people, cooperative organizations, universities
                                                                  and schools, etc.
an additional allowance, an amount equal to the
compensations, social, health and unemployment insurance
paid for the following employees employed for a period of         VII.3.5. Taxes on the corporate expenses
at least 12 months:
                                                                  Bulgaria levies taxes on certain corporate expenses. The
       o      Individuals who have been registered as
                                                                  taxes are charged monthly. Both the expenses taxed and the
                unemployed for a period exceeding one
                year;                                             amount of the tax accrued are allowed for deduction for
                                                                  corporate income tax purposes.
       o      Individuals who have been registered as
                unemployed and are of more than 50 years          The following expenses are subject to tax on expenses:
                of age; and
       o      Disabled persons who have been registered as        VII.3.6. Benefits to the personnel (“social expenses”)
               unemployed.
                                                                  Benefits provided to personnel provided either in-kind, or in
The above tax allowance is to be used in the calendar year        cash, in addition to the employees’ ordinary compensation
during which the original 12-month period of employment           and not related directly to past or current work performance
expires.                                                          are subject to tax at a flat rate of 20%. If taxed with 20% at
     Tax incentive for creating new jobs in depressed            a company level, the benefits are not included in the taxable
      regions                                                     personal income of the employees and are not subject to
                                                                  wage withholding tax.
Employers who create new jobs in depressed regions for
individuals registered as unemployed are entitled to deduct
from their taxable profit an additional allowance equal to        VII.3.7. Expenses relating to use and maintenance of
the social insurance contributions paid by the employer for       company cars
such employees. The incentive requires that an increase of
the average number of the employees be in place, that the         Expenses related to maintenance and use of company cars
jobs be taken by persons registered as unemployed and that        are also subject to tax. The tax is levied on the net amount
the new jobs be maintained for a period of at least three         of certain costs (such as maintenance, repair, fuel, lubricant
years. In addition, the employer should not have non-             and parking costs) incurred in relation to the use of cars
settled indisputable tax and social insurance liabilities as at   with less than 6 seats. Certain expenses incurred in relation
the end of the respective year.                                   to company’s cars (such as depreciation expenses, drivers’
                                                                  salary costs, and insurance premium) are not subject to tax.
This incentive is not available for certain companies and         The tax is not due if the taxpayer can definitively prove (by
industries such as companies in liquidation and bankruptcy,       travel records, etc.) that the cars have been used entirely and
companies in financial difficulties, companies from the           directly for the purpose of the taxpayer’s business. The use
automotive sector, shipyards, coal mining industry, steel         of cars by the general administration and management staff
industry, manufacturing of synthetic fibers, agriculture and      is not considered a direct use for the purpose of the business
fish breeding.                                                    and is subject to tax.
     Non-tax grants and subsidies
In addition to the tax incentives, the Bulgarian law provides
for some non-tax subsidies and grants for reimbursement of

                                                      Deloitte & Touche                                                         31
VII.3.8. Business entertainment expenses                        The following main items of income of non-residents are
                                                                subject to Bulgarian withholding tax:
The tax is levied on the gross amount of the business
 entertainment expenses at a rate of 20%.                          Interest on loans and other forms of debt financing
                                                                    including interest on finance lease facilities and default
                                                                    interest;
VII.3.9. Donations and sponsorship
                                                                   Royalties for transfer or use of intellectual property of
The tax is levied on the gross amount of expenses for               any kind or for licenses thereof. This also includes
donations and sponsorship agreements at a standard rate of          license fees payable for licensing rights to software;
20%. A reduced rate of 15% applies to donations to eligible
charities.                                                         Technical service fees. Technical service fees are
                                                                    defined as any consideration for consultancy or
                                                                    advisory services, or for services of a technical nature
                                                                    (including installation, maintenance and other technical
VII.4. Withholding tax obligations
                                                                    works), or for marketing research. Technical service
Corporate taxpayers are subject to the following main               fees are subject to withholding tax if paid by a
withholding obligations (other than payroll withholding):           Bulgarian corporate taxpayer, even if the services have
                                                                    been performed entirely outside Bulgaria;
                                                                   Management fees including any consideration for
VII.4.1. Repatriation of profit/Dividend withholding tax
                                                                    services or activities of management nature, if paid by a
Bulgarian resident corporations which distribute dividends          Bulgarian corporate taxpayer, even if performed
have to withhold dividend withholding tax of 15% from the           abroad;
following dividend distributions:
                                                                   Factoring fees and franchise payments;
   Dividends distributed to Bulgarian resident individuals;
                                                                   Rent charged for use of movable or immovable
   Distributions to non-resident individuals and legal             properties;
    entities.
                                                                   Capital gains derived from disposal of real estate,
Dividends distributed to Bulgarian resident corporations are        shares in Bulgarian companies, securities issued by a
not subject to withholding tax.                                     Bulgarian entity or other financial assets.
Bulgaria does not charge tax on the remittance of the profits   The withholding taxes have to be deducted at the time when
of branch offices or non-residents.          Therefore, no      the respective payment is accrued to the non-resident
withholding obligations apply to transfers of profits of
                                                                contractor/investor, even if no effective transfer of funds
Bulgarian branches or permanent establishments of non-
residents.                                                      has taken place. The amounts withheld have to be paid to
                                                                the budget by the end of the month following the month
                                                                when the payment was accrued as a liability to the
VII.4.2. Withholding obligations with respect to payments to    contractor/investor.
non-residents
Certain items of business and investment income of non-
resident individuals and legal entities earned from sources     VII.5. Double Tax Treaties
in Bulgaria are subject to flat final income tax, which is
normally levied by means of withholding. The domestic
rate of tax is 15%. Where the recipient of the payments         VII.5.1. Treaty Network
resides in a country with which Bulgaria has a Double Tax
                                                                Bulgaria is a party to fifty three bilateral double tax treaties
Treaty, the tax rate could be reduced or an exemption could
                                                                which provide for a relief of tax or a reduced rate of tax.
be available subject to the provisions of the respective
                                                                Double Tax Treaties with Algeria, Egypt and Latvia have
treaty.
                                                                been signed, but are not effective yet. The multilateral
What is particular for Bulgaria is that withholding tax is      COMECOM treaty could still apply to some former USSR
charged not only on the traditional investment income from      countries (such as Kyrgyzstan, Tajikistan, Turkmenistan
Bulgarian sources (interest, royalties, etc.), but also on      and Uzbekistan)
certain items of business income earned in Bulgaria or paid
                                                                The summary below provides a broad information on the
by a Bulgarian taxpayer (technical service fees, advisory
                                                                withholding system of taxation on straightforward charges:
fees, management fees, etc.).




                                                    Deloitte & Touche                                                          32
                       VII.5.2. Income Paid From Bulgaria
                            Country
                                                              Dividend                       Interest      Royalties
                                            Substantial    Non-             Percentage of       Rate          Rate
                                           shareholding    substantial       substantial
                                                           shareholding     shareholding
                       Albania                      5.00          15.00              25.00         10.00        10.00
                       Armenia 1                    5.00          10.00               0.00         10.00        10.00
                       Austria                      0.00            0.00              0.00          0.00         0.00
                       Belarus                     10.00          10.00               0.00         10.00        10.00
                       Belgium                     10.00          10.00               0.00         10.00         5.00
                       Canada                      10.00          15.00              10.00         10.00        10.00
                       China 2                     10.00          10.00               0.00         10.00        10.00
                       Croatia                      5.00            5.00              0.00          5.00         0.00
                       Cyprus 3                     5.00          10.00              25.00          7.00        10.00
                       Czech Republic              10.00          10.00               0.00         10.00        10.00
                       Denmark                      5.00          15.00              25.00          0.00         0.00
                       Finland 4                    0.00            0.00              0.00          0.00         5.00
                       France                       5.00          15.00              15.00          0.00         5.00
                       FYROM                        5.00          15.00              25.00         10.00        10.00
                       (Macedonia)
                       Georgia                     10.00           10.00              0.00         10.00        10.00
                       Germany                     15.00           15.00              0.00          0.00         5.00
                       Greece 5                    10.00           10.00              0.00         10.00        10.00
                       Hungary                     10.00           10.00              0.00         10.00        10.00
                       India 6                     15.00           15.00              0.00         15.00        15.00
                       Indonesia                   15.00           15.00              0.00         10.00        10.00
                       Ireland                      5.00           10.00             25.00          5.00        10.00
                       Israel 7                     7.50            7.50              0.00         10.00         7.50
                       Italy                       10.00           10.00              0.00          0.00         5.00
                       Japan                       10.00           15.00             25.00         10.00        10.00
                       Kazakstan                   10.00           10.00              0.00         10.00        10.00
                       Korea                        5.00           10.00             15.00         10.00         5.00
                       Korea
                       (Democratic                 10.00           10.00              0.00         10.00        10.00
                       People’s Republic
                       of Korea)

1
 The major rate applies if the recipient holds directly at least US$40,000 (or equivalent in the respective national currency) of the
capital of the company paying the dividend.

2
 This rate applies to all royalties except those paid for the use of or right to use industrial, commercial and scientific equipment, for
which the rate is 7%.

3 The withholding tax rate on royalties is 10%. However, under the provisions of the treaty, 10% rate would not apply on royalties
paid to Cypriot resident/company by Bulgarian resident/company in case at least 25% of Cypriot resident/company assets are
possessed (directly or indirectly) by Bulgarian resident/company. Hence, such royalties would be subject to 15% withholding tax.

4
    In contrast, a dividend paid by a resident company of Finland to a Bulgarian resident shall be subject to 10 % tax in Finland.

5
 Bulgaria and Greece signed a double tax treaty on 15 February 1991 and protocol on 18 July 2000 both of which are effective from 1
January 2002. The protocol took effect at the same time as the treaty.
6
 Under the treaty the rate is 20%; the nontreaty rate applies when it is lower. The rate is 15% for copyright royalties for literature, art
or science (other than cinematograph films or tapes) used for television or radio programmes.
7
  Under the treaty the dividend and royalty withholding tax is capped at 50% of the domestic rate subject to a maximum of 12.5% and
a minimum of 7.5%. Interest withholding tax is limited to 10%, reduced to 5% in the case of banks and financial institutions.



                                                           Deloitte & Touche                                                            33
                            Country
                                                              Dividend                       Interest      Royalties
                                             Substantial    Non-            Percentage of       Rate           Rate
                                            shareholding    substantial      substantial
                                                            shareholding    shareholding
                        Kuwait                      0.00             5.00            25.00          5.00         10.00
                        Kyrgyzstan 8                0.00             0.00             0.00          0.00          0.00
                        Lebanon                     5.00             5.00             0.00          7.00          5.00
                        Luxembourg 9                5.00           15.00             25.00         10.00          5.00
                        Malta 10                    0.00             0.00             0.00          0.00         10.00
                        Moldova                     5.00           15.00             25.00         10.00         10.00
                        Mongolia                   10.00           10.00              0.00         10.00         10.00
                        Morocco                     7.00           10.00             15.00         10.00         10.00
                        Netherlands 11              5.00           15.00             25.00          0.00          0.00
                        Norway                     15.00           15.00              0.00          0.00          0.00
                        Poland                     10.00           10.00              0.00         10.00          5.00
                        Portugal                   10.00           15.00             25.00         10.00         10.00
                        Romania                    10.00           15.00             25.00         15.00         15.00
                        Russia                     15.00           15.00              0.00         15.00         15.00
                        Singapore                   5.00             5.00             0.00          5.00          5.00
                        Slovakia                   10.00           10.00              0.00         10.00         10.00
                        Spain                       5.00           15.00             25.00          0.00          0.00
                        Sweden                     10.00           10.00              0.00          0.00          5.00
                        Switzerland 12              5.00           15.00             25.00         10.00          0.00
                        Syria 13                   10.00           10.00              0.00         10.00         18.00
                        Tajikistan xi               0.00             0.00             0.00          0.00          0.00
                        Thailand                   10.00           10.00              0.00         15.00         15.00
                        Turkey                     10.00           15.00             25.00         10.00         10.00
                        Turkmenistan xi             0.00             0.00             0.00          0.00          0.00
                        UK                         10.00           10.00              0.00          0.00          0.00
                        Ukraine                     5.00           15.00             25.00         10.00         10.00
                        Uzbekistan xi               0.00             0.00             0.00          0.00          0.00
                        Vietnam                    15.00           15.00              0.00         10.00         15.00
                        Yugoslavia                  5.00           15.00             25.00         10.00         10.00

8
 According to the Bulgarian Ministry of Finance the COMECON treaty is held to still be effective with regard to Kyrgyzstan,
Tajikistan, Turkmenistan, and Uzbekistan.

Whether this position will be reciprocated is uncertain with regard to some of these countries and further advice should be sought
from Deloitte and Touche in Sofia, Bulgaria on a case-by-case basis.
9
    The nontreaty rate applies if the recipient is a Luxembourg 1929 holding company.
10
  When dividends are paid from a resident of Malta to a Bulgarian resident the withholding tax shall not exceed 30% of the dividends
paid or the profit tax charged on the profits from which the dividend are paid in accordance with the Decree for Development of
Industry as of 1959.
11
 Under the treaty the rate is 5%. However, under the Protocol to the treaty royalties are exempt from tax as long as under
Netherlands tax law the Netherlands does not levy tax at source on royalties.
12
  Under the treaty the rate is 5%. However, under the protocol to the treaty royalties are exempt as long as Switzerland does not levy
tax at source on royalties.
13
     Under the treaty the withholding tax on royalties is 18%, however if lower non-treaty rate shall apply.




                                                           Deloitte & Touche                                                         34
(Serbia and
Montenegro)
Zimbabwe      10.00          15.00        25.00   10.00   10.00




                      Deloitte & Touche                           35
   Procedures for claiming relief under a Double Tax             VAT is charged as a tax on consumption on each level of
      Treaty                                                      sale of goods and services in the course of business. VAT is
Claims of benefits under a Double Tax Treaty (such as             also due on importation of products into Bulgaria. Credit is
exemption from income tax withholding or a reduced rates          given for VAT charged to VAT-registered businesses, thus
of tax) are subject to issuance of a decision for clearance by    VAT is borne by the ultimate customer.
the Bulgarian tax authorities.
                                                                  The standard VAT rate is 20%. Zero rate of VAT applies to
The procedure for obtaining clearance decision requires that      exports of products, certain eligible exports of services, as
the respective non-resident entity files with the Bulgarian
                                                                  well as to some other transactions.
tax authorities certain documents, such as:
                                                                  VII.6.1. VAT Registration
   a claim for the application of the respective treaty in a
    standard form;                                                Bulgarian and foreign businesses which carry out taxable
   a statement from the Bulgarian entity which owes the          transactions with a place of supply in Bulgaria are required
    payments containing some information of the type,             to register for VAT in Bulgaria at the time when the
    amount and legal grounds for the payment;                     turnover from such transactions (determined on the basis of
                                                                  in any preceding period not exceeding 12 months) reaches
   a declaration of the foreign entity confirming that this
                                                                  BGN 50,000. Non-residents who perform services in
    entity is the beneficial owner of the income;
                                                                  Bulgaria are subject to mandatory registration at the time
   a statement of the tax residence of the foreign entity,       when their transactions reach the above registration
    which must be certified in advance by the tax                 threshold, even if the respective non-resident business does
    authorities of the country of residence;
                                                                  not have a place of business in Bulgaria. Non-residents are
   certain incorporation documents of the foreign entity         registered for VAT through a VAT representative, except
    (such as certificate of incorporation or registration,        for branch offices of non-residents for which no such
    including information on the directors of the foreign         representative is required.
    entity);
                                                                  Voluntary VAT registration is substantially limited.
   a power of attorney where applicable;
                                                                  Businesses could not register voluntary for VAT, except in
   certain commercial documents (copy of the contract            some specific cases, such as:
    with the Bulgarian customer and/or other relevant
    documents, such as invoices, if issued) to prove the               if the business carries out zero-rated exports and has a
    nature, the amount and the grounds for payment of the               turnover of at least BGN 50,001;
    income in question                                                 if a company incorporated in Bulgaria has a registered
Within 30 days after the date of filing of the claim the tax            and paid up share capital of at least BGN 500,000, etc.
authorities should approve or reject the claim by issuing a       VII.6.2. VAT charges
decision regarding the eligibility of the foreign entity to
benefit from the DTT. Failure of the tax authorities to issue     VAT is generally charged on the consideration agreed
a decision within the 30-day period will be deemed to be an       between the parties. In some specific cases a minimum
“implicit refusal” for the direct application of the DTT. If      basis for VAT charges applies. For example, where
the tax authorities have implicitly or explicitly refused the     products or assets are sold at a price which is lower than the
direct application of the DTT, the Bulgarian customer             acquisition price/cost of sales, VAT is charged on a basis
should withhold tax under the domestic rates of 15%. The
                                                                  reflecting the acquisition price/cost of sales.
refusal of the Bulgarian tax authorities to allow a direct
application of DTT is considered provisional and not final.       Transactions performed without consideration are also
Therefore, the foreign entity can subsequently file a new         subject to VAT chargeable on market value of the
claim for a refund of the tax withheld and the issue for the      products/services. Transactions between related parties are
application of the treaty benefits is then finally decided.
                                                                  subject to VAT on the market price of the products/services.
If periodical or continuous payments are due by the
                                                                  Real estate transactions of registered businesses are
Bulgarian customer on the basis of one and the same
                                                                  normally subject to VAT, except for transfer of land and
contract, then it is sufficient that one decision for clearance
                                                                  rights in rem with respect to land, and letting out residential
is obtained for all payments. The claim should be filed and
                                                                  properties.
the approval should be obtained prior to the due date for
payment of withholding tax on the first periodical payment.           Bulgarian law requires that in some cases the VAT
                                                                      deduction used by the respective business be subsequently
VII.6. VAT System
                                                                      adjusted and repaid. Such cases include for example loss
The Bulgarian VAT legislation has its origin in the                   and waste of business assets.
provisions of the EU legislation on the VAT system of
                                                                  VII.6.3. VAT Exemptions
indirect tax. However, the Bulgarian VAT legislation
contains some specific national regulations.                          a)    VAT exemption with a right to deduct VAT/Zero
                                                                      Rate of VAT


                                                      Deloitte & Touche                                                         36
 The following major transactions are entitled to zero rate         Businesses which perform both VAT-taxable transactions
 of VAT:                                                            and VAT-exempt transactions with no right to deduct
                                                                    VAT are required to file an annual VAT return by 15
     exports of products outside Bulgaria;
                                                                    April of the following year. The annual balancing
     certain transactions      related    to    international      payment is due within the same term.
      transportation;
                                                                    Each VAT-registered business is required to open and
     toll manufacturing services to non-residents                  maintain the so called “VAT-account”. The VAT account
      performed in Bulgaria with respect to products
                                                                    is a special bank account which is operated under the
      imported under inward processing or processing
      under customs control;                                        control of the tax authorities. The owner of the VAT
                                                                    account cannot freely dispose of the funds in the account.
     public telecommunication services provided by                 The balance in the VAT account can only be used for
      licensed Bulgarian telecommunication operators to
                                                                    payment of VAT charged by suppliers or on importation,
      foreign operators;
                                                                    or for payment of VAT debts reported in the VAT returns.
     transfer of rights on software programs to non-               As of 1 January 2003 all charges of VAT of more than
      residents, subject to certain conditions;                     BGN 1,000 have to be paid through a transfer from the
     transfer of rights on movies to non-residents, subject        VAT account of the customer to the VAT account of the
      to certain conditions;                                        supplier. Excess cash in the VAT account can be released
                                                                    by the tax authorities following a VAT audit of the owner
     certain services related to carrying            out   of
      international hunting tourism in Bulgaria;                    of the account.

     certain transactions financed by foreign financial          VII.6.5. VAT refunds
      institutions on the basis of bilateral or multilateral        Where VAT incurred on purchases exceeds VAT charged
      governmental agreements, which explicitly provide             on sales, the excess VAT deduction is first carried
      for an exemption from VAT.
                                                                    forward for a period of three months to offset VAT debt
 b)     VAT exemptions without right to deduct VAT                  due in these three months. If at the end of the three-
                                                                    month period the excess VAT or part thereof has not been
 Main transactions which are exempt from VAT without
                                                                    recovered, the balance is refunded within 45 days after the
 right to deduct VAT charged include:
                                                                    date of filing of the VAT return for the third month (i.e.,
     Financial services;                                           within approximately five months after the excess VAT
     Insurance services;                                           has been incurred). The period for refund could be
                                                                    extended by the tax authorities if they commence a tax
     Gambling activities;                                          audit, but generally by not more than three months.
     Services of attorneys admitted to the Bar;                    Companies whose turnover consists of at least 30% of
     Transactions with land and rights on land, and renting        export transactions are entitled to refund VAT with 45-
      out residential properties;                                   days after the filing of the VAT return.
     All transactions with a place of supply outside               Companies, which by the end of the current month paid
      Bulgaria, except for those treated as zero rated under        the major part of the monthly VAT charges of suppliers or
      specific VAT rules.
                                                                    on imports (80% or more) to the VAT accounts of the
 Under the national treatment, no VAT is charged on the             suppliers/the tax authorities, are entitled to a 45-day
 transactions with a place of supply outside Bulgaria, but          period of refund.
 no VAT deduction could be claimed for such transactions.
                                                                    The shorter period for refund of 45 days also applies to
 Such treatment applies, for example, to advisory and               entities performing transactions which are exempt from
 consultancy services to non-residents, transfer of
                                                                    VAT on the basis of international financing agreements.
 intellectual property to non-residents (other than rights on
 software programmes and movies), processing of                   VII.6.6. Special rules for material investment projects
 information for non-residents, certain R&D activities              VAT-registered investors who perform certain eligible
 which result in transfer of rights on intellectual properties,     investment projects are entitled to import assets needed
 etc.                                                               for the project without effective payment of import VAT.
VII.6.4. VAT reporting and payments                                 In addition, such investors are entitled to refund VAT
                                                                    incurred on local purchases within 10 days after filing of
 VAT is generally reported and paid monthly. The                    the tax return, provided that at least 80% of the monthly
 monthly VAT returns are to be filed and monthly VAT
                                                                    VAT charges incurred on purchases are paid through a
 payments are to be made by the 14-th day of the                    VAT account.
 following month.



                                                      Deloitte & Touche                                                       37
    In order to benefit from the special investment rules, the           Coffee, extracts from coffee and tea (except for
    investor needs to obtain an advance approval from the                 herbal and fruit tea);
    Ministry of Finance. In order to receive the approval, the           Certain automobiles (with maximum 9 seats) with an
    investment project must meet certain conditions, such as:             engine power exceeding 120 kW;
       The size of the investment should be at least BGN 10             Fuels and certain derivatives from fuels;
        million for a period not exceeding two years;
                                                                         Facilities for gambling.
       The period for the completion of the project should
        not exceed two years;                                     In addition, certain gambling games are also subject to
                                                                  excise duties.
       The project should result in creation of at least 50
        new jobs;                                                 Excise duties are normally charged as a flat amount per
                                                                  measurement unit for the respective product (BGN per
       The project should be eligible for state aids for
        regional development;                                     piece/ton/litre, etc.).

       The investor should prove an ability to finance the       Exports are exempt from excise duties. Where excise duties
        project.                                                  have been paid for products that are subsequently exported,
                                                                  a refund could be received.
VII.6.7. Special VAT regulations for tourist sector
                                                                  Where excise duties are charged on row materials with a
    Tour operators and tourist service agents who sell
                                                                  content of alcohol which have been used for production of
    package tourist services in Bulgaria to non-resident
                                                                  dutiable liquors or non-dutiable food products or medicines,
    tourists/tour operators are subject to special VAT
                                                                  a refund could be claimed for the duties paid on the row
    regulations, as follows.
                                                                  materials.
    The tour operator or the agent can elect to charge VAT on
                                                                  VII.8. Local taxation
    a gross margin basis. In such case VAT is charged on
    35% of the gross margin of the tour operator/agent            Local taxes are charged by the local municipalities. The
    calculated as the difference between the revenue from the     following main local taxes are presently being due to the
    sale of tourist services and the cost of the services         local governments:
    purchased by the tour operator/agent. The tour                VII.8.1. Real estate tax
    operator/agent is entitled to claim 65% of VAT incurred
    on the purchases. If no such election is made, VAT is         Owners of real properties (built up land, non-built
    charged on 35% of the sales value of the tourist services     construction plots and buildings) are subject to real estate
    and the tour operator/agent is entitled to claim VAT          tax on an annual basis. Non-built agricultural land and
    deduction in full (which would effectively result in a        forests are not subject to tax. The buildings of farmers for
    reduced rate of VAT of 7%).                                   use in their agricultural business are also exempt from tax.

    Hotel businesses which market accommodation to foreign        The tax rate is 0.15% and is charged on the book value of
    tour operators for organised groups of foreign tourists are   each property as at 1 January of the respective year (for
    entitled to charge VAT on 35% of the consideration            business properties of entities) or on the tax valuation of the
    agreed with the foreign tour operator (which again would      property (for residential properties of business entities and
    lead to an effective reduction of the VAT charge to 7%).      properties of individuals).

VII.7. Excise duties                                              VII.8.2. Transfer taxes

Certain luxury products, as well as certain other goods listed    Transfer taxes are due on transfer for considerations of real
in law are subject to excise duties. Excise duties are payable    properties and vehicles. The tax rate is 2% and is charged as
as one-time consumption tax on the import of dutiable             follows:
products in Bulgaria, or on the first sale of locally                With respect to real estate properties – on the higher
manufactured products in Bulgaria by their manufacturer.              amount of the consideration agreed and the tax
                                                                      valuation of the property; and
The following main categories of products are subject to
excise duties:                                                       With respect to vehicles – on the full insurance value of
                                                                      the vehicle transferred.
       Liquors and beer, and raw materials with a content of
        alcohol; wine is zero-rated for excise duty purposes,     Donations and disposals without consideration of any
        but the producers of wine may be subject to excise        properties are also subject to tax at a standard rate of 5%.
        duty registration and control;                            Waiver of debts is charged at tax at the same rate of 5%.
       Tobacco products such as cigars, cigarettes, tobacco      Exemption from transfer taxes is provided for privatisation
        for consumption;                                          of assets, for in-kind contribution of assets to the share



                                                      Deloitte & Touche                                                         38
capital of a company as well as in some other cases               Double Tax Treaty applies, the residency status could be
provided in law.                                                  impacted by the provisions of the Treaty.
                                                                  Bulgarian residents are subject to tax on their income from
                                                                  activities/investments in Bulgaria or abroad. Non-residents
VII.8.3. Vehicle tax and Road tax                                 are taxable in Bulgaria for activities and investments related
                                                                  to Bulgaria. Bulgarian law contains detailed rules on when
Vehicle tax is payable by the owners of road means of             an activity or investment is sufficiently related to Bulgaria
transport, ships and airplanes registered in Bulgaria. The        to give rise to Bulgarian taxation.
rate of tax depends on the type and the characteristics of the
respective mean of transport. The tax is due on annual basis.
                                                                  VII.10.2.Tax rates
Road tax is charged to the owners of passenger cars with
maximum 8 seats. The tax rate is BGN 10 per each ton of           In general, individual income tax is charged over the taxable
weight of the vehicle.                                            annual income in accordance with progressive tax rates, as
                                                                  follows:
Owners of vehicles other than passenger cars with
                                                                                           Tax rates 2004
maximum 8 seats are subject to service charge for use of the
public roads payable to the Ministry of Transport. Such tax           Annual Tax
                                                                                                    Tax Payable
is paid through purchase of certificates/stickers for the use           Base
on the roads for a specific period (calendar year, month or                             Base           Plus
                                                                      Over     To                                  On Excess
                                                                                        Tax         percentage
week).                                                                BGN     BGN                                  over BGN
                                                                                        BGN             tax
In addition to the above taxes, the municipalities also collect           0   1,440            0            0%                0
some service charges for performance or maintenance of                1,440   1,800            0            12%          1,440
public services such as waste collection charge, tourist
                                                                      1,800   3,000       43.20             22%          1,800
charge, charges for various administrative services.
                                                                      3,000   7,200      307.20             26%          3,000
                                                                      7,200        -   1,399.20             29%          7,200
VII.9. Capital taxation. Ecological levies
                                                                  Certain items of income of residents or non-residents are
VII.9.1. Taxes on capital                                         not included in the taxable annual income and are subject to
Except as mentioned above, no specific taxes are charged          special rules of taxation with respect to the rates and the
on the capital of the businesses or their net worth or on their   basis for tax.
assets. In particular, no capital duties or material stamp
duties are payable on the incorporation of a Bulgarian            VII.10.3.Determination of annual income for tax purposes
company or on its capital or on subsequent contributions to
the capital.                                                      The annual taxable income is defined as an aggregate of the
                                                                  total income received by the individual during the calendar
VII.9.2. Packing charge                                           year, not including, however, (i) items of income that are
                                                                  specifically excluded from the annual income and are taxed
As of 2004 Bulgaria introduced a packing charge levied on
                                                                  separately under specific rules (as discussed below) and (ii)
the import of packed products or on the sale of locally           the items of income exempt from tax. The annual income is
manufactured packed products on the Bulgarian market.             taxed on a “when received” basis and not on “when earned”
The charge is collected for the provision of the public           basis.
services related to management of packing waste. The
                                                                  Losses from one source of income could not offset the
charge is not payable if the importer/manufacturer put in         income from another source (e.g., capital losses cannot
place a proper system of management and                           offset employment income, etc.).
recovery/recycling of the packing waste.
                                                                  The following deductions are generally permitted for most
                                                                  items of taxable income:
VII.10. Income taxation of individuals                                 Bulgarian statutory pension, social and health insurance
                                                                        paid in relation to the activity; Foreign insurance could
VII.10.1.Individuals subject to tax                                     be deducted only if it is obligatory payable in the
Bulgarian income tax is charged to individuals who are                  respective foreign country or is due on the basis of a
Bulgarian tax residents, as well as to non-residents who earn           bilateral social insurance treaty;
income from sources in Bulgaria.
                                                                       Contributions and premiums payable to Bulgarian
Bulgarian residents are defined as individuals who have                 private insurance and pension schemes are deductible
permanent domicile in Bulgaria or who have stayed in                    from the tax basis of certain items of active income
Bulgaria for a period of over 183 days in any 365-day                   (employment, self-employment, business, income from
period starting or expiring in the calendar year. Where a               services or management functions). For each of (i)
                                                                        private pension schemes and unemployment insurance


                                                      Deloitte & Touche                                                           39
    scheme and (ii) life insurance, including investment            Stock dividends, etc.
    insurance instruments, and health insurance, the
    deduction is limited to 10% of the annual taxable
    income from respective source. In general, the amount        VII.10.5.Wage withholding tax
    of the deduction used may be captured back and be a
    subject to taxation at the time when the respective          Salaries and other payments due for employment are
    amounts     are     returned or paid back,         or        included in the annual taxable income and are subject to
    compensations/pensions are paid (except for in some          personal income tax. The employer is required to withhold
    cases, such as death, disability, reimbursement of           provisional tax from the wages of the employees on a
    medical costs, etc);                                         monthly basis. The wage withholding tax is charged in
                                                                 accordance to monthly progressive rates which generally
   Standard flat deduction. Such deduction is applicable        coincide with the annual rates of tax on a full-year basis.
    to certain activities and investment income such as          Therefore, where the employee worked the full year, the
    income from management functions realized by                 provisional wage withholding tax normally would coincide
    registered directors or members of boards (10% of the        with his/her annual tax liability.
    gross income), self-employed individuals and
                                                                 When during the respective year the employee received
    individuals performing services (35% of the gross
                                                                 only employment income, he/she is not liable to file a tax
    income), royalties related to creation of works of art
    and science (50% of the gross income), rents of real         return. Where the wage withholding tax exceeds the annual
    properties (20% of the gross income), certain business       tax liability (for reasons of being employed for part of the
                                                                 year, etc.), the refund is determined and provided through
    activities of individuals (50% - 70% depending on the
                                                                 the employer.
    respective activity). No standard deduction is available
    for the income from employment.                              VII.10.6.Expatriate tax treatment
   Allowances for charitable donations up to 10% of the         There is no special tax regime or tax exemptions for
    income after the deductions referred to above.               expatriates assigned to Bulgaria on a temporary basis.
                                                                 Where a Double Tax Treaty is in place, exemption could be
VII.10.4.Exemptions
                                                                 claimed for expatriates on short-term assignments, subject
Certain items of income are exempt from personal income          to the specific provisions of the Treaty.
 tax, such as:
                                                                 VII.10.7.Special taxation rules for certain items of income
   Gains from disposal of movable properties (other than
                                                                 Certain items of income are not included in the annual
    means of transport, shares and securities), as well as
                                                                 taxable income of the individuals but are taxed separately
    gains from sale of means of transport owned for a
                                                                 with a flat final tax payable monthly or quarterly. This
    period of one year or more;
                                                                 treatment applies to the following items of income:
   The gains from disposal of the main home of the
                                                                    Interest receipts, except for exempt interest income;
    taxpayer, as well as the gains from sale or exchange of
    two other real estates held by the taxpayer for a period        Corporate dividends, as well as production dividends
    of at least five years;                                          distributed by co-operative organizations;
   Interest on deposit and current accounts with Bulgarian         Receipts from franchise or factoring agreements;
    banks or branches of foreign banks, interest and
    discounts on governmental or municipal bonds or                 Compensations for loss or profit or business;
    corporate debentures, default interest paid;                    Receipts from private pension or insurance schemes
   Earned investment income on pension accounts or                  (except for pensions) corresponding to the tax
    insurance accounts;                                              deduction claimed;

   Certain compensations for losses (compensations for             Any other income from incidental transactions,
    death and disability, indemnities for losses,                    activities or sources.
    compensations on property insurance policies;                The standard rate of tax is 20%. A reduced rate of 15%
                                                                 applies to corporate dividends and to amounts paid on life
   Prizes from lotteries and other gabling games;
                                                                 insurance policies at the expiry of the term of the policy,
   Properties received by means of donations or                 provided that the policy was held for a period of 10 years or
    inheritance, as well as the gains from disposal of such      more.
    properties;
   State pensions;                                              VII.10.8.Special rules for non-residents
   Pensions and life insurance compensations paid by            Certain items of income of non-residents paid by entities or
    private schemes, except for the amount claimed as            sole traders are taxed with income tax in accordance with
    deduction against the taxable income in prior years or       the Corporate Income Tax Act, in lieu of the personal
    in the current year;                                         income tax. This applies to the following income:
   Income of farmers from production of non-processed              Interest on loans and other forms of debt financing;
    agricultural products,


                                                     Deloitte & Touche                                                         40
   Royalties for transfer or use of intellectual property of    Bulgaria is a member of World Trade Organization. The
    any kind or for licenses thereof;.                           Bulgarian customs legislation is harmonized with European
                                                                 Community Customs Code.
   Technical service fees, including fees for consultancy
    or advisory services, or for services of a technical         The imports of products are subject to customs duties at
    nature, unless the services are carried through a fixed      rates determined in the Customs Tariff approved by the
    place of business in Bulgaria;                               Government. The customs tariff codes are generally based
                                                                 on the international Harmonized System (HS). Bulgaria has
   Management fees, unless the services are carried             preferential tariff agreements (free trade agreements) with
    through a fixed place of business in Bulgaria;               EU, EFTA, CEFTA, Turkey, Israel, Macedonia, Albania
   Factoring fees and franchise payments;                       and Serbia and Montenegro which may result in certain
                                                                 tariff rates being reduced or eliminated. The preferential
   Rent charged for use of movable or immovable                 tariff rates apply to products originating from the respective
    properties;                                                  party to the agreement and are subject to submission of an
                                                                 evidence for origin.
   Capital gains derived from disposal of real estate,
    shares in Bulgarian companies, securities issued by a
    Bulgarian entity or other financial assets.
                                                                 VIII.2. Relief from or deferral of customs duties
The above income is subject to 15% flat tax payable by
means of withholding or personally by the non-resident           Generally, the customs duties and import VAT are payable
taxpayer. The non-residents who are subject to tax in            at the time of the importation. However there are some
accordance with the Corporate Income Tax Act are not             customs procedures and arrangements under which products
entitled to deductions or tax exemptions that are ordinarily     could be imported into Bulgaria without need of immediate
applied to the annual taxation.                                  payment of customs duties. Such procedures include:

Where a DTT is in place a relief from Bulgarian tax or a            Inward processing
reduced rate of tax may apply subject to obtaining clearance     An approval can be obtained from the customs authorities,
from the tax authorities.                                        subject to certain conditions, that goods be imported into
VII.10.9.Businesses of individuals/Sole traders                  Bulgaria without payment of customs duties for the
                                                                 purposes of their processing and subsequent re-exportation.
The tax basis of the registered sole traders is the net profit
determined in accordance to the tax rules applicable to             Warehousing procedures
corporations. The taxable profit is subject to tax in            An approval from the customs authorities could be obtained
accordance to the progressive annual rates provided for          that the goods be imported free of customs duties and stored
individual taxation.                                             in warehouses in Bulgaria until needed for the purposes of
Certain small businesses are subject to a business tax at a      the business. If the goods are subsequently re-exported, no
flat amount levied in lieu of income tax.                        customs duties are payable. If the goods are placed on the
                                                                 Bulgarian market, the payment of duties can be deferred
VII.10.10.        Tax returns and payment of taxes               until the goods are withdrawn from the warehouse.
Where the income is subject to annual taxation, the tax             Temporary import
return has to be filed by 15 April of the following year.
                                                                 In some cases assets can be imported in Bulgaria without
Annual tax is due to be paid within one month following the      immediate payment of customs duties, for the purposes of
date of the filing of the tax return. Certain items of income    their being used in Bulgaria and subsequently re-exported.
are also subject to provisional tax payable through the year     Certain professional equipment could be temporary
on monthly or quarterly basis (income of directors and           imported without payment of customs duties. Other assets
members of boards, income of self-employed individuals           could be temporarily imported with a partial relief from
and income from provision of services, rent income, etc.).       customs duties.
If the annual tax return is filed and the balancing annual          Free zones
payment is made by the end of January of the following
year, the taxpayer is entitled to a 5% discount of the amount    Currently, there are six free zones in Bulgaria which avail
of the balancing annual tax payment due under the tax            facilities for duty free importation and storage of products.
return.                                                          The zones are located respectively in Plovdiv, Burgas,
                                                                 Svilengrad, Rousse, Vidin and Dragoman. No customs
                                                                 duties are payable at the importation of the products on the
VIII.    CUSTOMS DUTIES                                          territory of the free zone. While in the zone, goods could be
                                                                 processed or stored on the basis of inward processing or
                                                                 warehousing arrangements discussed above.
VIII.1. Legal Framework                                          If the goods are subsequently re-exported no customs duties
                                                                 are due. Placement of the goods on the Bulgarian market is
Customs duties are payable on the importation of goods and
                                                                 subject to customs duties at the time when the products are
products to Bulgaria.
                                                                 removed and placed in Bulgaria on a territory outside the
                                                                 zone.


                                                     Deloitte & Touche                                                        41
IX.      COMPETITION                                                 market conduct so that practically they are doing jointly
                                                                     business on the market and exclude the competition among
                                                                     themselves.
IX.1. Legal Framework                                                All agreements, decisions or concerted practices meeting
The Protection of Competition Act (1998, being                       the above characteristics are subject to notification with the
subsequently amended as of then to reflect the EU                    Commission.
competition rules) is the main legislative instrument, which         There is an exception provided by the law whereas
regulates the issues pertaining to the competition. It               agreements, although limiting the competition, but are being
prohibits any act or conduct which results in limitation or          concluded with purposes to improve the production of
exclusion of the competition on the Bulgarian market,                certain goods or contribute to the economic and
including but not limited to contractual and other                   technological growth, are permitted in principle. Still, such
arrangements, concerted commercial practices of the                  agreements shall not be permissible when they impose or
parties, misuse of monopolistic and dominant position,               result in creation of limitations which are not required for
concentration (merger, acquisition, establishment of                 the purposes of the agreement or provide for a possibility to
control).                                                            eliminate the competition on the respective market.
                                                                     It is advisable for the investor to report an agreement with
                                                                     restrictive clauses to the Commission. The obligation to
IX.2. General Review
                                                                     notify the Commission arises within a 3-day period as of
The authority responsible for the observation and                    conclusion of the particular agreement. The commission
compliance of the competition rules is the Commission for            makes a decision on the notification within a 2-month
Protection of Competition (the “Commission”). The                    period whereas it may decide that there are not any grounds
Commission is fully independent from the executive and               for applying the general prohibition or if there are such, the
court authorities and reports only to the National Assembly.         Commission prohibits the agreement.
There are four types of relationships that may be subject to
an examination by the Commission:
                                                                     IX.4. Monopolistic and dominant position
(1)   certain types of agreements, decisions and concerted
      practices;                                                     A monopolistic enterprise shall be the one, which by virtue
                                                                     of law, is entitled to carry out exclusively certain business
(2)   misuse of monopolistic and dominant position;                  activities.
(3)   mergers and acquisitions (concentrations)                      Further, a competitor shall be considered having a dominant
(4)   unfair competition.                                            position if it has such a market share, financial resources,
                                                                     access to other markets, technological level and economic
                                                                     relations with other companies, which would allow it to
                                                                     infringe the competition. There is the legal assumption that
IX.3. Agreements and concerted practices, generally                  an enterprise is dominant if it has a market share exceeding
       prohibited by law
                                                                     35% of the respective market unless the requirements as
The law imposes general prohibition towards agreements               per the preceding sentence are not available.
and concerted practices, which are concluded with purposes
                                                                     A dominant position itself is not prohibited while it is rather
or result in direct or indirect determination of the prices,
                                                                     the misuse of a monopolistic and dominant position which
division of markets or of sources of supplies; agreements,
                                                                     is prohibited.
which aim to limit or control the production, commerce, the
technical development or the investments; agreements                 A monopolistic or dominant position shall be misused if the
which impose different conditions towards the respective             activities of the monopolistic and the dominant company are
parties to the agreements whereby the different parties are          directed or result in infringement of the competition or the
put into non-equal position; agreements, whose conclusion            interests of the consumers, such activities being for
is subject to the assumption by the other party to the               instance: imposing sales prices and other unfair conditions;
agreement of additional obligations or undertaking to                limitation of the markets, commerce and the technological
conclude another agreement, which in its scope and with a            development which adversely affect the consumers;
view of the commercial practice are not related to the               imposition of unusual conditions with regard to different
subject of the agreement or with the performance of the              parties while only some parties are favored by these
rights and obligations arising out of it. Such agreements are        conditions, etc.
null and void by virtue of law. An exception from this rule,
                                                                     One of the typical examples of misuse of monopolistic and
i.e. such agreements and concerted practices will be valid
                                                                     dominant position, which serves as a pattern of misuse in
provided that the total market share of the parties to the
                                                                     both the Bulgarian and EU competition practices, is when
respective agreement is less than 5% of the respective
                                                                     the consumers have to pay a high price for goods or
market but only if the parties are not competitive; or is less
                                                                     services, which is not based on the expenses required for the
than 10% of the respective market if the parties are
                                                                     production, i.e. the expense when compared with the final
competitive.
                                                                     price, is very small. Another typical example of misuse of
The Commission treats as concerted practices the case                monopolistic and dominant position is when a company
when two or more companies coordinate among them their               imposes fixed sales prices for the goods and services


                                                            SEPLEX                                                                 42
distributed by other companies as it is deemed that this               the competitors and the consumers. Such an unfair
does not improve the quality of the goods and services                 competition is generally prohibited. The Commission has
produced which finally results in infringement of the                  ruled on numerous case pertaining to unfair competition and
interests of the consumers.                                            practically has established certain criteria and requirements,
                                                                       which if being kept or avoided, will prevent the investor
                                                                       from unfair competition.
IX.5. Concentrations
Concentrations (mergers and acquisitions) or        the
                                                                       IX.7. Incentives (scope, requirements, procedure)
establishment of control by a company, (which already
exercises control over another company) over a company is              Depending on the infringement of the law, and in particular
subject to the prior written notification to the Commission            its prohibitions, the Commission, among other measures, is
provided the total turnover of the participants for the                entitled to impose fines. In case of non-permitted
preceding year exceeds BGL, 15,000,000, i.e. such intended             concentrations which have already taken place, the
concentrations must be reported to the Commission before               Commission is entitled to prescribe other measures
their completion.                                                      appropriate for restoration of the situation that existed
                                                                       before the concentration, for example: to order the control
It should be noted that the Protection of Competition Act
                                                                       to be stopped, or the company’s property to be split, etc.
applies to any and all enterprises operating at the territory of
Bulgaria or outside the territory of the state if these
enterprises infringe or may infringe the competition in the
state. This is to say that even though a transaction is carried        IX.8. Foreign investors related measures
out abroad, if it leads to the described consequences, it will         With the exception of the agreements, decisions and
still fall under the provisions of the law.                            concerted practices reviewed first above which are null and
Within one month as of the submittal of the notification, the          void once being concluded or made, the remaining
Commission valuates the concentration and may issue a                  infringements of the competition rules does not result in
decision with which it prohibits the concentration or decides          their considering as being null and void. Even if the
that the concentration does not fall under the prohibitions            Commission has imposed fines having decided that there is
established by the law. It is also possible for the                    for instance, concentration of economic activity in breach of
Commission to decide that even there is a concentration,               the provisions of the law (the breach being failure of the
then it is permissible as it does not lead to creation or              parties concerned to notify the Commission in advance
increase of the monopolistic or dominant position of the               about the concentration), any measures (fines) imposed by
participants involved in the market.                                   the Commission shall not affect the validity of the
                                                                       transaction.
                                                                       Nevertheless, it is recommendable that a foreign investor
IX.6. Unfair competition                                               always notifies the Commission about its business
                                                                       intentions in case of doubt whether the Commission should
Unfair competition is deemed to be each action or failure to
                                                                       be involved in terms of the contemplated transaction. This
perform an action which contradicts the standard
                                                                       will protect the investor from paying fines for infringement
commercial practice and infringes or may infringe on the
                                                                       of the provisions of the law.
other side, the interests and relations among the competitors
and on the other side, the interests and the relations between




                                                              SEPLEX                                                                43
X.       CURRENCY REGIME                                             between the BNB and the commercial banks. There are no
                                                                     restrictions as to the amount of money which may be paid in
                                                                     cash neither there are restrictions as to the type of currency
X.1. Legal Framework                                                 used for payment.
                                                                     Legal and natural, local and foreign persons are also entitled
                                                                     to have their own accounts opened with local banks in
X.1.1. Laws and Regulations                                          various currencies. For opening a bank account by an entity
                                                                     banks in Bulgaria require a court of law resolution for
The most important acts pertaining to this matter are the            registering the company, tax and statistical number of the
Currency Act, the Banks Act, the Measures against Money              company and in case a natural person opens it - an identity
Laundering Act, the Bulgarian National Bank Act, etc.                card/passport of the natural person. A signature pattern of
There are numerous regulations that have been issued in              the person authorized to operate with the bank account is to
implementation of the provisions of said acts.                       be provided to the bank. A notarized power of attorney will
                                                                     also be required in case a proxy of the person willing to
                                                                     open the bank account is going to open it.
X.1.2. International Institutions
                                                                     Foreign persons are entitled to transfer abroad amounts
Bulgaria is a member of: the International Monetary Fund             arising out of different grounds, as the amount may be:
as of 1990. The quota of the state is BGL, 640.2 million             income earned from investments, liquidation quota received
SRI; International Bank for Reconstruction and                       upon termination of the investment; revenues from sale of
Development as of 1990 whereas the shareholding of the               the object of the investment, etc.
state is 0.34% of the bank’s capital; the European Bank for
Reconstruction and Development as of 1990 as the                     Normally, upon the moment of remittance of the amount the
shareholding of the state towards 31 December 2003 is                banks requite a document proving that the respective taxes,
158.0 mln. Euro; The Republic of Bulgaria adjoins to the             if any, have been paid in Bulgaria.
Agreement for Setting up the Black Sea Bank for                      Notwithstanding the liberalization of the currency regime,
Commerce and Development on 23 December 1994 thus                    still the money flow is controlled by the state through the
being among the members, which have incorporated the                 measures contemplated by the Currency Act and
bank. The shareholding of the state in the bank is 13.5% of          specifically by the measures and instruments provided by
the capital.                                                         the Money Laundering Act.
                                                                     According to the latter act, money laundering shall
X.2. General Review                                                  represent the preparation, carrying out and acceptance of the
                                                                     result of those actions through which money or other
The national currency of the Republic of Bulgaria is the             property have been illegally (criminally) acquired and
Bulgarian lev (BGL). After the introduction of a Currency            which have become a part of the economic turnover. In
Board Arrangement on July 1, 1997, the exchange rate is              addition to this general definition of money laundering, the
currently fixed by law at 1.95583 Levs per Euro. The                 law provides that the following specific cases shall also be
Bulgarian National Bank (BNB) is the body responsible for            considered as money laundering: transformation and
maintaining and conducting the monetary and credit policy,           transfer of properties acquired through crimes, the hiding or
printing and issuing banknotes and coins, which is its               concealing of the nature, location, etc. of the properties
exclusive right, supervising banks and the payment system            acquired through crimes; other specific cases.
and performing other tasks assigned to it by virtue of law.
For supervision and inspection purposes the BNB may                  Measures and activities for discovering and preventing
inspect the documentation of all banks in Bulgaria. The              money laundering are to be undertaken in the course of
BNB is the authority which determines by regulations the             depositing, withdrawing and exchanging money, conclusion
specific rules pertaining to the currency regime and the             of acquisition property transactions and in other forms of
various obligations which must be performed by the                   use of money and other property which could be used for
participants in the foreign exchange market and the payment          money laundering. The persons responsible for carrying out
system.                                                              the measures specified in the Money Laundering Act are
                                                                     numerous and among them are: the Bulgarian National
The Currency Act regulates the transactions and payments             Bank, the commercial banks, the foreign banks which have
between local and foreign persons, the cross border                  obtained a license by the Bulgarian National Bank to
transfers and payments, the foreign exchange transactions in         conduct bank operations in Bulgaria through a branch,
the course of business, the transactions with precious metals        financial houses, exchange bureaus, insurers, pension funds,
and precious stones as well as their import, export and              privatization bodies, leasing enterprises, tax authorities,
processing, import and export of levs and foreign exchange           notaries public, certified public accountants and specialized
cash, the collection, maintenance and reporting of statistical       auditing enterprises, customs authorities, persons organizing
information on Bulgaria’s balance of payment and                     tenders for public procurement, etc.
exercising of foreign exchange control.
                                                                     The persons, which are obliged to apply mandatory
The Currency Act does not impose any restrictions as to the          measures against money laundering, have to determine the
buying and selling of foreign currency and these activities          identity of their clients upon establishing a permanent
may freely be done between licensed commercial banks and             commercial relations with them, incl. upon opening a bank
other persons, between commercial banks themselves and               account, or in the course of a transaction, which exceeds


                                                            SEPLEX                                                                44
BGL 30,000 or the equivalent in other currencies, or if the           - amounts up to BGL 8,000 or their equivalent in other
transaction exceeds BGL 10,000 when it is executed with              currency may be exported freely – no written declaration
banks, financial brokerage house or an exchange bureau. In           before the customs authorities is required;
addition, the origin of the funds should also be declared.
                                                                     - amounts between BGL 8,000 and BGL 25,000 or their
Apart from the identification of clients, other measures to be       equivalent in other currency – must be declared at the
undertaken may be: data collection on the substantial                customs;
elements of the transaction, data safe-keeping and reporting
                                                                     - amounts over BGL 25,000 or their equivalent in other
suspicious transactions to the Financial Intelligence Agency
                                                                     currency – may be exported only after they have been
(The “Agency”). The Agency is authorized to collect,
                                                                     declared before the customs authorities whereas the
process, analyze, store the data received from the respective
                                                                     declaring persons should point out the origin of the money
persons and disclose it to the state authorities. The Agency
                                                                     exported.
is an administrative unit to the Minister of Finance.
                                                                     Cash transactions being within the scope of the regular
                                                                     business may be carried out by a person, registered as trader
X.3. Licenses, Permits. Procedure - competent authority,             as per the Commerce Act and only after it has been entered
       documents required, terms, fees                               into the public register of persons, operating as an exchange
                                                                     bureau. For entering into this register a state fee is gathered.
The transactions enumerated bellow being not less than
BGN 5,000 require declaration with the BNB within 15-                A written permit (license) issued by the BNB is required for
days as of their execution as the declaration is made with           carrying out cash and non-cash transactions in foreign
statistical purposes (for the payment balance statistics) and        currency by a brokerage financial house. A regulation
does not represent a step towards obtaining an approval on           issued by BNB determines the documents and fees required
the deal. Failure to declare a transaction is subject to fines       for issuance of the permit. A regulation issued by the
as set out in the Currency Act. The transactions are:                Council of Ministers determines the documents and
                                                                     requirements for registration in the public register of
- initial direct investments abroad effected by local legal          persons, operating as an exchange bureau.
entities or sole proprietors, and
                                                                     Persons who carry out business activities on extracting and
- any contract for granting financial credit between local           processing of precious metals and precious stones, and
legal entities and sole-proprietors and a foreign person in          produce articles made of such materials, or who carry out
excess of BGL 5,000 must be reported to the BNB for the              business activities with them shall be obliged to register
purpose of national monetary statistics.                             themselves with the Ministry of Finance within a 14-day
Currency transfers and payment transfers abroad may be               period before starting their activity. The Ministry of Finance
made through banks only after informing the bank of the              maintains a public register of persons engaged in extracting,
purpose of the transfer. If a person wishes to transfer abroad       processing and trading with precious metals and precious
currency exceeding BGL 25,000 – that person, apart from              stones and articles made of them in the course of business.
declaring the ground for the transfer, should provide BNB            A Tariff approved by the Council of Ministers provide for
with additional data and documents, which are determined             the fees to be collected for this registration.
by a regulation issued by BNB.
Local and foreign persons may export currency in cash (in
levs or foreign exchange currency) under the following
conditions:




                                                            SEPLEX                                                                  45
XI.      CONCESSIONS REGIME                                        developed in the Concessions Act and the Municipal
                                                                   Ownership Act on the basis that although the state and the
XI.1. Legal Framework                                              individual municipalities respectively, should continue to
The primary legislative acts, which set the framework for          enjoy exclusive rights and powers in relation to certain
concessions in Bulgaria, are the Constitution of the               property and activities, the private sector should not be
Republic of Bulgaria (promulgated in State Gazette, Issue          excluded from investing in such property or activities and
No. 56 of 1991, as subsequently amended), the Concessions          that public property may be utilised by private entities under
Act (promulgated in State Gazette, Issue No. 92 of 1995, as        a grant of concession.
subsequently amended) and the Municipal Ownership Act              As mentioned above, concessions may be granted by both
(promulgated in State Gazette, Issue No. 44 of 1996, as            the State and the individual municipalities in their capacity
subsequently amended). The sector specific legislation             as public authorities owning public property, and different
applying to the different types of property and activities in      procedures are provided for by the Concessions Act and the
respect of which a concession could be granted includes the        Municipal Ownership Act, respectively.
Underground Resources Act 1999, the Waters Act 1999, the
Forests Act 1997, the Civil Aviation Act 1972, the Railway         The Constitution exhaustively lists property and resources,
Transport Act 2000, the Law on Sea Waters, Inland                  which may be owned only by the State and the utilisation of
Waterways and Ports of the Republic of Bulgaria 2000 and           which by a private entity may therefore be permitted only
the Roads Act 2000.                                                by way of concession granted by the State. Such property
                                                                   includes underground resources, seashore beaches, the
XI.2. Legal Definitions                                            national road network, waters, forests and parks of national
Under Bulgarian law, a concession is commonly defined as           importance, and natural and archaeological reserves. The
a legal means whereby the State or municipality, while             possible objects of State concession are further developed in
retaining its responsibility for the public interest, is able to   the Concessions Act to include biological, mineral and
grant rights to a private party to utilise public property and     energy resources of the continental shelf and the exclusive
resources and to engage in public services, which are              economic zone, as regards exploration, development,
otherwise exclusively reserved for the State/municipalities.       extraction and utilisation thereof, national railway roads,
                                                                   ports of national importance used for public transportation
A concession has two aspects. The first is the right to use        and civil airports for public use, waters, inclusive of mineral
public property or resources (the so called “utilisation”          waters, which are in the exclusive domain of the State,
concession); the second is a permit for carrying out public        irrigation and water-supply facilities and systems, provided
services, which are otherwise exclusively reserved for the         they are in the exclusive domain of the State. State
State/municipalities (the so called “permit” concession). A        “permit” concessions may be granted for utilisation of
“permit” concession may be granted either together with or         nuclear energy or manufacturing of arms, explosive and
independently of an “utilisation” concession, depending on         biologically “powerful” active substances.
the nature of the grantor and the rights sought by the
potential concession holder. For example, where a                  The objects of municipal concessions are defined by the
concession holder is granted a permit to provide water             Municipal Ownership Act as water sources, including
services on the basis of property which is not public              mineral waters, which are used only by the respective
property, but is owned by the State or a municipality in its       municipality, together with the water intaking equipment
private capacity, an “utilisation” concession is not required.     and the water distribution network and equipment, sewerage
However, “permit” and “utilisation” types of concession are        networks and facilities, aggregate and other materials used
also capable of being granted together, as would be the case       to meet the construction needs of the population, produced
if a concession were granted to utilise a publicly owned           by quarrying in quantities not exceeding 10,000 cubic
water and sewerage network together with a concession to           meters per year, water basins, together with their adjacent
provide water supply and sewerage services in respect of           beaches of municipal significance, local roads constituting
that network.                                                      municipal property, municipal forests. Municipal “permit”
                                                                   concessions may be granted for any of the following
Over time in relation to certain types of resource (such as in     activities: water supply and sewerage, use of networks and
the case of telecommunications and energy services) the            equipment of the transportation infrastructure and transport
original concession regime has been abolished and replaced,        services for the public, commercial activity performed on
by virtue of special sector legislation, by different              real property constituting public municipal property.
procedures, including those for licenses and other permits.
Such special licenses and other permits grant rights similar       XI.4. Procedures for Granting Concessions
to concessions, but they do not constitute a concession.           XI.4.1.Procedures for Granting Concessions. Regulatory
XI.3. General Review                                               (Issuing) Authority
Bulgaria’s concession law provides a basic framework to            The concession procedure encompasses the following
facilitate the granting of concessions and the execution of        underlying steps:
concession agreements in Bulgaria, thus creating the legal            adoption of a resolution for granting of concession;
environment for private sector investments in infrastructure
development in the country.         The Constitution first            carrying out of competitive bidding (tender or auction)
introduced the concept of a concession and the types of                for determining of a concessionaire or, direct award of
property and activities in respect of which a concession               the concession in the cases explicitly provided for by
could be granted. The concession concept was further                   law; and


                                     Djingov, Gouginski, Kyutchukov& Velichkov                                                   46
   execution of a concession agreement.                         Further, still another exception to the tender or auction rule
                                                                 is envisaged in the case of “commercial discovery” of
Except for limited exceptional cases provided for by law         underground resources under the Underground Resources
(see below), concessions are awarded by way of                   Act. In the latter case, a right to be granted a concession for
competitive tenders or auctions. When a concession is            extraction of underground resources arises by operation of
proposed, the Council of Ministers, respectively the             the law for a person or entity, which has obtained a permit
Municipal Council, are the competent issuing authorities         for prospecting and exploration, or for exploration only, of
responsible for granting concessions in Bulgaria over            underground resources, provided that such person or entity:
property owned by the State, and over property owned by          (i) has made a discovery of deposit of underground
municipalities respectively. The procedure for granting          resources during the term, and within the area, for which the
State concessions may be conducted at the initiative of the      permit has been granted to it, which discovery qualifies as
relevant minister responsible for running the procedure or,      “commercial discovery” within the meaning of the
at the request of any third party. The procedure for granting    Underground Resources Act, (ii) the person or entity has
municipal concessions may be conducted at the initiative of      registered such commercial discovery under the terms of the
the mayor of the respective municipality or, at the request of   Underground Resources Act, (iii) has received a certificate
any third party. The tender and auction procedure, including     of the commercial discovery made, and (iv) has requested in
appointing the tender or auction commission, the documents       writing the granting of a concession for extraction of
required to be submitted for participation in the procedure,     underground resources within 6 months as of obtaining a
announcement of the successful bidder, execution of the          certificate for the registered commercial discovery.
respective agreement, etc., is set forth in details in the
Concessions Act, and the Municipal Ownership Act                 XI.4.2.Validity Term of the Concession
respectively.
                                                                 A concession by the State or a municipality is granted for an
A concession without a tender or auction is granted only in      initial term not to exceed 35 years, or a total of 50 years
exceptional cases explicitly provided for by law. In the first   following an extension.
place, an exception to the tender/auction rule as provided by
                                                                 XI.4.3.Concession Holder
Bulgarian law relates to the case of privatisation of
commercial companies with State interest. In particular,         Both Bulgarian and foreign natural persons or legal entities,
pursuant to the Privatisation and Post-privatisation Control     registered as merchants, may enjoy rights under
Act commercial companies with State interest and                 concessions. However, in practice it is often required that
announced procedure for privatisation, which use sites           the applicant for concession be a natural person or a legal
and/or carry out activities, subject to a grant of concession,   entity, registered as a merchant (i.e. as a commercial
shall be granted concessions for the sites used and/or the       company or as a sole proprietor) under the Bulgarian
activities carried out without tender or auction. However,       Commerce Act.
this “direct award” rule does not apply to companies using
                                                                 XI.4.4.Transferability and Exclusivity. Restrictions
the following objects of State concessions: national roads
                                                                 Applicable to a Transfer of Concession to a Third Party
part of the railway infrastructure, one or more terminals of
ports for public transport of national importance or             In general, a concession is non-transferable, unless
technologically separated parts thereof and civil airports       transferability has been allowed by exceptional provision of
open to public use. Concession with respect to these assets      a specific statute, which applies to the particular concession.
can be granted only through a competitive tender or auction      Such case is provided for by the Underground Resources
under the Concessions Act. The concession agreement shall        Act (Article 25), whereby the rights and obligations under a
take effect as of the date of the property transfer under the    concession may be assigned fully or partly to certain
privatisation agreement. Similarly, in the event of              qualifying third parties following a permit by the regulatory
privatisation of a self standing unit of a company, in which     authority (the Council of Ministers). Third parties have to
the State holds over 50% of the shares, where such self-         meet the requirements applicable to licence holders as
standing unit has direct technologic connection to an unit or    specified above.
activity that are subject to concession, the concession is
                                                                 XI.4.5.Financial Terms. Concession Fee
granted to the purchaser of the self-standing unit under the
privatisation agreement. In this case the privatisation          The rights exercisable under a concession are granted
agreement takes effect upon the execution of the concession      against a consideration. So far, a special regulation has
agreement.                                                       been adopted by the Council of Ministers only with respect
                                                                 to determining the royalty to be paid by a concessionaire in
In the second place, an exception to the tender or auction
                                                                 consideration of the granted concession for mining of
rule arises in the case where an entirely state-owned
                                                                 underground resources (Regulation on the Principles and
company owns a significant shareholding in the potential
                                                                 Methodology for Determination of the Royalty under
concession holder. In particular, pursuant to the
                                                                 Underground Natural Resources Concessions pursuant to
Concessions Act a concession may be awarded by the
                                                                 the Underground Natural Resources Act, promulgated in
Council of Ministers without a tender or auction to a
                                                                 State Gazette Issue No. 59 of 1999). As a general rule, the
company in which (i) a state-owned company owns at least
                                                                 terms and conditions for the payment of the concession fee
25% of the equity of such company, and (ii) the value of
                                                                 are to be specified in the respective concession contract.
such equity exceeds BGN 300,000 (three hundred
                                                                 Generally, the concession fee is payable regardless of
thousand).
                                                                 whether the concessionaire is making profit or suffering
                                                                 losses. The law provides for specific cases where the


                                    Djingov, Gouginski, Kyutchukov& Velichkov                                                  47
concessionaire may be temporarily exempted from payment        The said Ordinance exempts from customs duties the import
of the concession fee or, the concession fee may be reduced.   of machinery, equipment, appliances and other items by
                                                               foreign entities, holding permits for prospecting and/or
XI.4.6.Environmental Aspects of Concession Activities
                                                               exploration or, concessions for extraction, of oil and gas on
Carrying out of concession activities could have diverse       shore and in the continental shelf of the Republic of
environmental effects and therefore it is associated with      Bulgaria in the Black Sea and in pursuance of the respective
numerous environmental legislative requirements and            prospecting and/or exploration agreement or concession
standards. These standards and requirements are set forth in   agreement.
various legislative acts. Each concessionaire shall perform
                                                               XI.4.8.Foreign Investors Related Measures
the operations under the granted concession in accordance
with the applicable environment permitting requirements.       As long as the rights under concession agreements are not
                                                               explicitly excluded from the scope of application of the
XI.4.7.Incentives
                                                               recently amended Encouragement of Investments Act, such
An incentive relating to concessions granted under             rights may enjoy the favourable treatment provided for by
Bulgarian law was introduced by the Bulgarian Government       the said law with regard to investments meeting certain
in 1995 by the adoption of Ordinance No. 120 of the            criteria.
Council of Ministers of 12 June 1995 (promulgated in State
Gazette, Issue No. 56 of 1995, as subsequently amended).




                                   Djingov, Gouginski, Kyutchukov& Velichkov                                               48
XII.  PERMITS AND LICENSES ACCORDING TO                           ruled on such application within a period set forth by the
SPECIAL LEGISLATION                                               law, the consent of the respective authority shall be deemed
                                                                  given, unless otherwise provided for by law. Under
XII.1. Legal Framework                                            Bulgarian law special permits and licenses are generally
Permits and licenses for performance of specific industrial       granted by way of a decision of the competent regulatory
activities are governed by general legislation applicable to      authority. Such decisions of regulatory authorities represent
regulatory and controlling activity of regulatory authorities,    administrative acts, which may be (i) individual
as well as by special legislation applicable to specific          administrative acts, granting rights or, assigning obligations,
industry areas. The general legal framework of regulatory         or affecting the rights or obligations of individuals, for
and controlling activity of regulatory authorities is set forth   example an individual license, or (ii) general administrative
in the Constitution of the Republic of Bulgaria                   acts, granting rights or assigning obligations to an undefined
(promulgated in State Gazette, Issue 56 of 1991, as               scope of addressees, for example a general license. As a
subsequently amended), the Administrative Procedure Act           general rule, decisions of regulatory authorities granting or,
(promulgated in State Gazette, Issue 90 of 1979, as               refusing to grant, special permits or licenses are subject to
subsequently amended), the Administrative Breaches and            appeal before the Supreme Administrative Court under the
Sanctions Act (promulgated in State Gazette, Issue 92 of          terms and procedure of the Supreme Administrative Court
1969, as subsequently amended) and the Restricting                Act. Herein, we have provided a summary of the regulatory
Administrative Regulation and Administrative Control over         regime of only some of the country’s main industry areas,
Industrial Activity Act (promulgated in State Gazette, Issue      and in particular banking, insurance, securities trading,
55 of 2003 as subsequently amended, hereinafter referred to       energy, telecommunications, audio-visual sector, and
as the “Administrative Regulation Act”). The legal                tobacco industry.
framework of specific industry areas is set forth in special
                                                                  XII.4. Permits and Licenses According to Special
laws and the secondary legislation on their implementation.
                                                                         Legislation. Procedure - Competent Authority,
XII.2. Legal Definitions                                                 Documents Required, Terms, Fees
Special legislation often sets forth definitions of particular    XII.4.1. Banking
industrial activities. For example, the Telecommunications        The legal framework of banking is set forth in the Banks
Act     defines     the    terms   “communications”       and     Act (promulgated in State Gazette, Issue 52 of 1997, as
“communications service”, etc. Special legislation may            subsequently amended), the Commerce Act (promulgated in
further define objectives and principles of regulation,           State Gazette, Issue 48 of 1991, as subsequently amended),
powers of the regulatory authorities, special procedures to       the Bulgarian National Bank Act (promulgated in State
be followed by regulatory authorities, such as public             Gazette, Issue 46 of 1997), the Bank Insolvency Act
hearing or consultation procedures, etc.                          (promulgated in State Gazette, Issue 92 of 2002, as
XII.3. General Review                                             subsequently amended), as well as in the numerous
                                                                  regulations on their implementation. Banking activities may
The Constitution of Bulgaria proclaims the principle of free      be conducted only by a bank registered in Bulgaria or by a
economic initiative. The Administrative Regulation Act,           Bulgarian branch of a foreign bank. The law treats local and
effective as of 18 December 2003, aims at facilitating and        foreign ownership of banks on an equal footing. Only joint
encouraging economic activity by restricting administrative       stock companies may register as banks, as the minimum
regulation and control exercised by the state and municipal       share capital of a bank is set at BGN 10 million. A banking
regulatory authorities. The said law sets forth the general       license is granted by the Bulgarian National Bank, pursuant
principle that licensing or registration regimes for              to detailed procedure provided for by the law. The legal
performing an industrial activity, or permit, certification or    regime of banking is further discussed in Section XV.2 of
notification required for performing a specific transaction or    this brochure.
action, may be established only by law. Further, any
requirements for starting and performing a particular             XII.4.2. Insurance
industrial activity, as well as for executing a particular        Insurance industry area is governed by the Insurance Act
transaction or action, shall also be set forth by law. The        (promulgated in State Gazette, Issue 86 of 1996, as
Administrative Regulation Act enlists in an exhaustive way        subsequently amended), the Financial Supervision
the industry areas, which may be subject to a licensing           Commission Act (promulgated in State Gazette, Issue 8 of
regime due to posing higher risk for the national security or     2003, as subsequently amended, “FSCA”), and the
public order, the environment or the rights of citizens or        regulations on their implementation. Insurance activities
legal entities. Such industry areas amount to 38 and are          may be conducted only by an insurance company registered
listed in an Appendix hereto. In addition, a licensing regime     in Bulgaria or by a Bulgarian branch of a foreign insurance
may only be introduced for industrial activities related to       company, which have obtained a license for insurance
sites which are exclusive state property or, over which the       activity. Only joint stock companies may register as
State exercises sovereign rights pursuant to the Constitution.    insurance companies. The minimum share capital of a local
The rights under a license may not be transferred, or             insurance company and the minimum deposit of a branch of
assigned, to third parties. Further, the Administrative           a foreign insurance company shall be as follows: (i) for life
Regulation Act introduced the principle of implicit consent,      and accident insurance – BGN 2 million; (ii) for property
i.e. where an application is submitted for issuance of a          insurance – BGN 3 million; (iii) for reinsurance – BGN 4
permission or, a certificate, for performance of a single         million; and (iv) for insurance and reinsurance – BGN 4
transaction or action, and the competent authority has not        million. Only monetary contributions can be made against


                                     Djingov, Gouginski, Kyutchukov& Velichkov                                                  49
shares subscribed from the capital of a local insurance           of electricity or natural gas - as only one license shall be
company. The law treats local and foreign ownership of            issued for one detached area; (iv) storage of natural gas; (v)
insurance companies on an equal footing. Licenses for             trade in electricity; (vi) organizing a regulated electricity
insurance activity are granted pursuant to a detailed
                                                                  market - only one license for the territory of the country;
procedure and upon submission of required documents
provided for by the law, by the Financial Supervision             (vii) public procurement of electricity or natural gas - only
Commission (FSC), a specialised state body for regulation         one license for the territory of the country; (viii) public
and supervision over the activity of investment                   supply of electricity or natural gas - only one license shall
intermediaries and public companies, insurance companies          be issued for one detached area; and (ix) transit
and additional social security companies. The FSC is to rule      transmission of natural gas. Licenses are issued by the State
on the application within 2 months as of submission of a          Commission on Energy Regulation (“SCER”), being the
proposal by its Deputy-Chairman, head of Insurance
                                                                  independent specialised state regulatory body in the energy
Supervision Department. The fees for issuance of licenses
are provided for in a tariff, representing an appendix to Art.    sector, pursuant to a detailed procedure and upon
27(2) of the FSCA, and vary according to the type of the          submission of required documents provided for by the law.
insurance activity.                                               Only legal entities registered under the Bulgarian
                                                                  Commerce Act may apply for a license. Licenses are issued
XII.4.3. Securities Trading
                                                                  for a term of up to 35 years with a possibility for extension
Securities trading is governed by the Public Offering of          for another up to 35-year period. The SCER shall issue or,
Securities Act (promulgated in State Gazette, Issue 114 of        refuse to issue, a license within 3 months as of submission
1999, as subsequently amended, “POSA”), the FSCA and
                                                                  of the application. Licensed entities shall pay (i) initial
numerous regulations on their implementation. Securities
trading as a dealer or a broker may be carried out only by        license fee - for issuance or, amendment, of a license; and
licensed      investment     intermediaries.        Investment    (ii) annual license fees - for the regulatory activity of the
intermediary capacity may be acquired by a Bulgarian joint        SCER. The amounts of licensee fees are to be set forth in a
stock company or a limited liability company, or a branch         tariff which pursuant to the Energy Act is to be approved by
of a foreign legal entity authorised to perform securities        the Council of Ministers upon proposal of the SCER.
trading under its national law and provided that the
respective national securities market controlling authority       XII.4.5. Telecommunications
exercises control over it on a consolidated basis. The share      The telecommunications sector is governed by the
capital of an investment intermediary must at any time            Telecommunications Act (promulgated in State Gazette,
equal at least BGN 250,000 (two hundred and fifty                 Issue 88 of 2003, “TA”) and the secondary legislation on its
thousand). The law treats local and foreign ownership of          implementation. Pursuant to the TA public telecoms
investment intermediaries on an equal footing. A license for      activities may be provided: (i) freely, i.e. without any
investment intermediary activities is granted by the FSC          licensing or registration (such services are listed in the TA
pursuant to a procedure and upon submission of required           and include inter alia access to Internet); (ii) based on
documents, provided for by the POSA. The FSC shall rule           registration under a general license (such services are listed
on the application within 3 months as of its receipt, and if      in the TA and include inter alia services provided (a) via
additional information is requested - within 1 month as of        telecoms network or radio equipment using radio frequency
its receipt. The fees for issuance of licenses are provided for   spectrum for common use; or (b) via a public telecoms
in a tariff, representing an appendix to Art. 27(2) of the        network without using a scarce resource, whereas the latter
FSCA, and differ for activity only in the country and             is legally defined to include numbers from the National
abroad. Investment intermediary activities may also be            Numbering Plan, the radio frequency spectrum and the
carried out by Bulgarian banks or, Bulgarian branches of          positions of geo-stationary orbit, allocated for Bulgaria by
foreign banks, if the banking license issued by the Bulgarian     virtue of international treaties); and (iii) based on an
National Bank provides for securities trading. The legal          individual license (such services are listed in the TA and
regime of securities trading is further discussed in Section      include (a) telecoms services provided by using individually
XV of this brochure.                                              allocated scarce resource; (b) fixed voice telephone services
XII.4.4. Energy                                                   and/or universal telecoms service; or (c) providing leased
                                                                  lines, including international leased lines).
The energy sector is governed by the Energy Act
                                                                  Licenses are issued, and registrations under a general
(promulgated in State Gazette, Issue 107 of 2003, as              license are performed, by the Communications Regulation
subsequently amended), the Energy Efficiency Act                  Commission (“CRC”), being the independent specialised
(promulgated in State Gazette, Issue 18 of 2004, as               state regulatory body in the telecommunications sector,
subsequently amended) and the regulations on their                pursuant to procedures and upon submission of required
implementation. Pursuant to the Energy Act, the activities        documents, set forth in the TA. Where a scarce resource is
subject to licensing regime are: (i) production of electricity    used, individual licenses are granted after holding of an
                                                                  auction or a tender, except for cases enumerated in the TA.
and/or thermal energy; (ii) transmission of electricity or
                                                                  The CRC shall rule on an application for an individual
thermal energy or natural gas, as only one license for the        license within 6 weeks as of its submission, as the term may
territory of the country shall be issued for transmission of      be prolonged in cases of needed international co-ordination.
electricity or natural gas, and one license for one detached      Individual licenses are granted for up to 20 years with a
area - for transmission of thermal energy; (iii) distribution     possibility for extension. The CRC shall register eligible


                                     Djingov, Gouginski, Kyutchukov& Velichkov                                                 50
applicants under a general license within 30 days as of the      XII.4.7. Tobacco Industry
application. As a general rule, fees payable by undertakings
providing telecoms registrations are of unlimited time. The      Tobacco industry is governed by the Tobacco and Tobacco
TA provides for license fees and registration services, as       Products Act (promulgated in State Gazette, Issue 101 of
well as for fees for using scarce resources (radio frequencies   1993, as subsequently amended, “TTPA”), and the
and numbering capacity). The amount and the terms and            secondary legislation on its implementation. The TTPA
methods of payment of the fees are further specified in the      governs a large scope of activities, related to tobacco
Tariff for the Fees Collected by the CRC under the TA.           industry, including growing, qualifying, purchase, industrial
XII.4.6. Audio-visual Sector                                     processing and trading in tobacco, as well as production and
                                                                 trading in tobacco products. Most of these activities could
Audio-visual sector is governed separately from the
                                                                 only be performed on the grounds of a license or a special
telecoms sector. The legal framework is set forth in the
                                                                 registration. Thus, tobacco growers may only be persons
Radio and Television Act (promulgated in State Gazette,
                                                                 entered into a public registry kept with the respective
Issue 138 of 1998, as subsequently amended, “RTA”) and
                                                                 municipality and who have been allocated a tobacco
the secondary legislation on its implementation. Depending
                                                                 growing quota. Purchase of raw tobacco may only be
on the means used for broadcasting, radio and/or television
                                                                 carried out by entities registered under the Commerce Act
activity may be carried out based on a license or a
                                                                 (i.e. a Bulgarian sole trader or a commercial company) or
registration. Radio and/or television activity using available
                                                                 under the Co-operatives Act (i.e. a co-operative), holding a
and/or building, maintaining and using new terrestrial
                                                                 permission granted by the Council of Ministers to carry out
telecoms networks is carried out on grounds of a license for
                                                                 industrial processing of tobacco. Industrial processing of
radio and/or television activity, issued by the Council for
                                                                 tobacco and trade in processed tobacco at the local market
Electronic Media (“CEM”), being the independent
                                                                 may only be carried out by persons who have received a
specialised state body for regulation of audio-visual activity
                                                                 permission for industrial processing of tobacco as explained
and supervision over the broadcasters, and an individual
                                                                 in the preceding sentence. Tobacco products, legally
license for telecoms activity, issued by the CRC (see
                                                                 defined as cigarettes, cigars, papyruses, cigarillos, tobacco
Section XII.4.5 above). Broadcasting through cable and
                                                                 for pipe, chewing and sniffing tobacco, may only be
satellite is carried out on grounds of a registration. Only
                                                                 produced by entities registered under the Commerce Act
sole traders and legal entities, registered under Bulgarian
                                                                 (i.e. a Bulgarian sole trader or a commercial company) or
law, may apply for a license for radio and television
                                                                 under the Co-operatives Act (i.e. a co-operative), which
activity. Licenses are granted by the CEM after holding an
                                                                 have received permission for production of tobacco
auction, as the overall procedure may take 5 to 8 months.
                                                                 products granted by the Council of Ministers. Trade at the
Licenses are issued for a term of up to 15 years with a
                                                                 local market in tobacco products, whether locally produced
possibility for extension, but in total not longer than 25
                                                                 or imported, may be carried out by merchants who have
years. The CEM shall register eligible applicants within 14
                                                                 received a permission for sale of tobacco products issued
days as of the application, as registrations are of unlimited
                                                                 under terms and following a procedure determined by the
term. The RTA provides for license and registration fees, as
                                                                 Council of Ministers. Permits for retail trade in tobacco
the amounts and the manner of imposition of such fees are
                                                                 products are granted by the mayor of the respective
further specified in the Tariff on the Fees for Radio and
                                                                 municipality where the commercial premises are located.
Television Activity.




                                    Djingov, Gouginski, Kyutchukov& Velichkov                                                51
     XIII.     INDUSTRIAL & INTELLECTUAL PROPERTY                              Convention for the Protection of the Producers of
     XIII.1. Legal Framework                                                    Phonograms against Unauthorized Reproduction of
     XIII.1.1. Laws and Regulations                                             their Phonograms.

          Copyright and Neighboring Rights Act, published in           (ii)        Patents
           State Gazette No. 59 of June 29, 1993 as in force from              Patent Cooperation Treaty of June 19, 1970 as in force
           August 1, 1993                                                       from May 21, 1984
          Patents Act, published in State Gazette No. 27 of April             European Patent Convention of October 05, 1973 as in
           02, 1993 as in force from July 01, 1993, last                        force from July 01, 2002
           amendments published in State Gazette No. 17 of
                                                                        (iii)       Trademarks
           February 21, 2003
                                                                               Madrid     Agreement    Concerning     the   International
          Marks and Geographical Indications Act, published in
                                                                                Registration of Marks of April 14, 1891 in force as of
           State Gazette No. 81 of September 14, 1999 as in force
                                                                                August 01, 1985
           from December 15, 1999
                                                                               Protocol Related to the Madrid Agreement Concerning
          Industrial Design Act, published in State Gazette No.
                                                                                the International Registration of Marks of June 27,
           81 of September 14, 1999 as in force from December
                                                                                1989 in force as of October 02, 2001
           15, 1999, last amendments published in Stare Gazette
           No. 17 of February 21, 2003                                  (iv)        Industrial Design

          Topography of Integrated Circuits Act, published in                 Hague Agreement Concerning the International Deposit
           State Gazette No. 81 of September 14, 1999 as in force               of Industrial Designs of June 02, 1934 as in force from
           from December 15, 1999                                               December 11, 1996

          Protection of New Plant Varieties and Animal Breeds          (v)         Others
           Act, published in State Gazette No. 84 of October 10,
                                                                               Madrid Agreement for the Repression of False or
           1996 as in force from January 04, 1997, last
                                                                                Deceptive Indications of Source оf Goods of April 14,
           amendments published in No. 18 of March 05, 2004
                                                                                1891 as in force from August 1, 1975
          Different Regulations on drafting up, filing and
                                                                               Lisbon Agreement for the Protection of Appellations of
           examination of corresponding objects of Industrial
                                                                                Origin and their International Registration of October
           Property.
                                                                                31, 1958 as in force from August 12, 1975
     XIII.1.2. International Treaties (bilateral and multilateral)
                                                                               Budapest Treaty on the International Recognition of the
a)       General                                                                Deposit of Microorganisms for the Purposes of Patent
          Paris Convention for the Protection of Industrial                    Procedures of April 28, 1977 as in force from August
           Property of March 20, 1883 as in force from September                19, 1980
           27, 1965                                                            International Convention for the Protection of New
          Agreement on Trade-Related Aspects of Intellectual                   Plant Varieties (UPOV) of December 02, 1961 as in
           Property Rights (TRIP’s Agreement) of April 15, 1994                 force from April 24, 1998

b) Specific International Agreements                                    XIII.2. Legal Definitions
                                                                        The copyright over literary, artistic and scientific works
     (i)       Copyright and Neighboring Rights
                                                                        arise for the author with the creation of the literary, artistic
          Berne Convention for the Protection of Literary and          and scientific work.
           Artistic Works of 1886                                       According to the Patents Act patents are granted for
                                                                        inventions from all area of the technics which are new,
          International    Convention   for   the   Protection    of   have inventive step and are industrially applicable.
           Performers,      Producers    of    Phonograms         and
                                                                        Patents for utility models are granted for utility models
           Broadcasting Organizations                                   which are new and industrially applicable.
                                                                        The discoveries, scientific theories and mathematical
                                                                        methods, results from artistic work, schemes, rules and

                                                            BOYANOV & CO                                                                 52
methods of intellectual activity, for playing games or doing     their   re-broadcasting,       re-transmission,     recording,
business, computer programs as such, or presentation of          reproduction and distribution.
information are not regarded as inventions.                      The computer programs are copyright objects and the law
The following objects are not patentable: (i) invention the      provides for their protection for 70 years. The copyright
exploitation of which would be contrary to the public order      over such a program belongs to the person, whose work has
or morality; (ii) methods for treatment of human or animal       resulted in the creation of computer program. In case the
body by therapy or surgery, as well as diagnostic methods        computer program was created under an employment
practiced on the human or animal body. This provision is         contract and unless otherwise agreed, the copyright over it
not related to products, in particular substances or             shall belong to the employer.
compositions used in these methods; (iii) plant varieties or     XIII.3.2. Patents
animal breeds or essentially biological processes for
obtaining them. This provision does not apply to                 The exclusive right on invention or utility model is obtained
microbiological methods and the products thereof.                by issuance of a patent by the Bulgarian Patent Office. The
Mark - a sign which is capable of distinguishing the goods       procedure includes (i) a formal examination and (ii) an
or services of one person from those of other persons, and       examination whether the criteria for patentability are
which can be presented graphically. Such signs can be            fulfilled.
words, including names of persons, letters, numerals,
drawings, figures, the shape of the products or the packing      Any patent application may enjoy a priority from earlier
thereof, combination of colors, sound signs or any               application filed in a Member-State of the Paris Convention
combinations of such signs.
                                                                 within 12-months.
Geographical indications means appellations of origin and
indications of source.                                           The scope of protection is determined by the patent claims.
                                                                 The exclusive right on an invention includes the right of
Industrial Design is the appearance of the whole or a part
of a product resulting from the specific features of the         usage of the invention, the right to prevent third parties
shape, lines, contours, ornamentation, colours or                from usage and the right to dispose of the patent. Where the
combination thereof. Product means any industrial or             subject matter of the patent is a method, the patent owner
handicraft item, including parts intended to be assembled
                                                                 shall have the right to prohibit others from performing the
into a complex item, sets or composition of items,
packaging, graphic symbols and typographic typefaces.            following acts: (i) application of the method; (ii) offering or
                                                                 putting on the market, using or importing, or stocking for
XIII.3. General Review
                                                                 offering or putting on the market or use of a product
XIII.3.1. Copyright and Neighbouring Rights
                                                                 obtained directly by the patented method.
The law provides for protection of copyright during the
whole life of the author and for 70 years after his death,       The term of validity of a patent for invention is 20 years,
irrespective of the date when the work is lawfully made          and for patent for utility model – 10 years.
available to the public.
                                                                 In order to maintain the validity of a patent annuity fees are
The author is entitled to the exclusive right to use the work
created by him and to permit its use by other persons. The       due.
reproduction of the work, regardless whether it is related to    XIII.3.3. Marks
the distribution, presentation, broadcasting, transmission or
public exhibition and if it is addressed to unlimited number     The exclusive right on a mark is obtained by its registration
of people or to a limited number of people (in certain cases),
                                                                 in the Bulgarian Patent Office. The law provides protection
is considered as a use of this work.
                                                                 for trademarks, service marks, certificate marks and
The copyrights of performers, producers of phonograms and
                                                                 collective marks. The procedure of registration consists of
broadcasting organizations are protected for a period of 50
years.                                                           two        stages:   (i)    formal      examination,       and
The performer has the exclusive right to permit against          (ii) examination about the absolute and relative grounds for
compensation: (a) the broadcasting of his/her performance        refusal.
by wireless, cable or other technical means, as well as a
sound and video recording of the performance, the                Any trademark application may enjoy a priority from an
reproduction of the recording on video or video carriers and     identical application filed in member-state of the Paris
their distribution; (b) the public performance, broadcasting     Convention within a 6-month period.
by wireless, cable or other technical means of such
recordings; (c) offering by wireless, cable or other technical   The exclusive right on a mark includes the right of the
means of access to the recording of unlimited number of
                                                                 owner to use it, to dispose of it and to prevent other parties
people and (d) import and export of the recording in
commercial quantities. The broadcasting organizations, as        from unauthorized use in the course of business activity of
far as their programs are concerned, have the right to permit    any sign which: (i) is identical with the mark in relation to


                                                      BOYANOV & CO                                                             53
goods or services which are identical with those for which          The scope of protection of registered industrial design is
the mark is registered; (ii) due to the identity or similarity to   determined by its representation(s) and includes every
the mark, and the identity and similarity of the goods or           design which does not create different overall impression in
services, there is a likelihood of confusion among the              the consumers. The exclusive right on registered industrial
consumers and a possibility of association with the mark;           design includes the right of its owner to use it, to dispose of
(iii) is identical or similar to the mark in relation to goods or   it and to prevent third parties from copying or using in the
services which are not identical or similar to those for which      course of business activity a design included in the scope of
the mark is registered, where the mark is known on the              protection.
territory of the Republic of Bulgaria, and where the use of
                                                                    The term of protection of registered industrial design is 10
the sign takes without due cause unfair advantages of the
                                                                    years from the date of filing the application. It could be
distinctive character or renown of the mark or is detrimental
                                                                    extended three times for further periods of 5 years, i.e. the
to them.
                                                                    maximum term of protection is 25 years.
The term of protection of a registered mark is ten years            XIII.3.6. Licenses
from the date of filing the application. The registration may
                                                                    The owner of a patent, registered mark or industrial design
be renewed for an unlimited number of ten-year periods.
                                                                    could assign the right of usage through a license agreement
The registration of a trademark may be revoked if within a          which should be recorded with the Patent Office. The
period of five years following the date of registration the         License Agreement or at least an extract thereof has to be
owner has not put the mark to genuine use on the territory          submitted to the Patent Office, containing the identification
of Bulgaria or if such use has been suspended during an             data of the licensor and the licensee, bibliographic data
uninterrupted period of five years.                                 about the patent, trademark or industrial design, the kind of
The registration of a mark may be cancelled when (i) it has         the license (exclusive or non-exclusive), the term of the
been registered in breach of the absolute or relative grounds       agreement. The license agreement is in effect with regard to
for refusal; (ii) it is registered in the name of an agent or a     third parties as of the date of its recordal in the State
representative of the owner without its consent; (iii) the          Register.
applicant has acted in bad faith which has been established         XIII.4. Protection against infringement of IP rights
with a court decision; (iv) the usage of the trademark could        XIII.4.1. Civil Protection
be prohibited on the grounds of earlier right such as a right
                                                                    In any case of unlawful use of a patent, trademark,
on a name, and a portrait, copyright, a right on a name of          industrial design or geographical indication the rightful
new plant variety or animal breed, industrial property right.       owners are entitled to lodge a claim with the competent
                                                                    first-instance court – the Sofia City Court - against the
XIII.3.4. Geographical Indications                                  infringer in order to:
The protection of a geographical indication is obtained by              (i) establish the infringement;
its registration. Entitled to apply for registration is any             (ii) claim compensation for the damages suffered because
person who carries out his production activity in the                   of the infringement,
corresponding geographical region and the goods which he                (iii) require the termination of the infringing actions.
produces conform to the established properties and features.        In case the court rules in favor of the claimant the latter may
                                                                    require the decision to be published in two dailies, as well
The geographical indication can be used by any recorded
                                                                    as the infringing objects to be destroyed or reprocessed.
user.
                                                                    Sofia City Court is the competent first-instance court to rule
XIII.3.5. Industrial Designs                                        on disputes on the authorship of inventions, utility models
                                                                    and industrial design.
The exclusive right on industrial design is obtained by its
registration at the Patent Office.                                  In any case of infringement of a copyright or a neighboring
                                                                    right the rightful owners or, as the case may be, the persons
The criteria for registration of industrial designs are world       entitled to exclusive rights of use are entitled to lodge a
                                                                    claim with the competent district court against the infringer
novelty and originality.
                                                                    in order to:
The procedure of registration consists of two stages: (i)                receive a compensation for the damages suffered
formal examination, and (ii) examination about the presence               because of the infringement. In case the claim’s ground
of the criteria for registration.                                         is established but the amount of the damages may not



                                                        BOYANOV & CO                                                               54
    be estimated the above persons may, instead of               The administrative penalties on infringers of rights of the
    compensation, receive:                                       owners of copyrights or neighboring rights are imposed by
                                                                 the Minister of Culture or a person authorized by him.
         o   the proceeds obtained as a result of the
             violation;                                          In addition in all cases mentioned above the infringing
                                                                 goods shall be seized, regardless of the ownership thereof,
         o   the value of the subject of infringement
                                                                 and shall be destroyed.
             calculated on the basis of the retail prices of
             lawfully reproduced copies; or                      Border control measures are also established for goods
                                                                 carried through the borders of the state bearing a registered
         o   sum amounting between BGN 50 and BGN
                                                                 mark or geographical indication without the consent of the
             50,000 determined by the court upon its
                                                                 holder or an imitation thereof or such goods for which there
             discretion;
                                                                 are grounds to consider that they infringe a right protected
   require the termination of the infringing actions;           by the Law on Copyright and Neighboring Rights. The
                                                                 customs authorities will detain such good at the written
   require the seizure and destruction of the infringing        request of the holder or, as the case may be, at the request of
    copies and the equipment exclusively used for their          the owner of the copyright or persons entitled to exclusive
    production.                                                  rights of use.
XIII.4.2. Criminal Protection
According to the Criminal Code:                                  XIII.5. Foreign investors related measures
- Any person who, without the consent of the owner of the        Foreign authors will enjoy the same rights as Bulgarian
copyright, records, reproduces, circulates, broadcasts or        authors unless otherwise provided by international treaties
transmit by a technical device or uses in any other way          and agreements. In case Bulgarian law is applicable to
another's work of science, literature or art, or a sound         foreign authors or the object of copyright was first created
record, video record or radio program, TV program,               or published in a foreign country, the holder of the right will
software or computer program shall be punished by                be
imprisonment of up to three years and a fine of BGN 1,000
to BGN 3,000. If these acts are committed for a second time      determined by the respective foreign law and the term of
or substantial harmful consequences have been caused the         protection will be the one provided by the foreign law if
provided punishment would be imprisonment of one to five         Bulgarian law provides for a longer period.
years and a fine of BGN 3,000 to BGN 5,000.                      Foreign physical and juridical persons and all persons with
- Anybody who issues or uses under his name or under a           a domicile or seat outside Bulgaria may apply for the
pseudonym another's work of science, literature or art or a      registration of a patent, trademark, geographical indication,
substantial part of such a work shall be punished by             industrial design only through their local industrial property
imprisonment of up to two years or by a fine of BGN 100 to       representatives listed with the Patent Office.
BGN 300, as well as by public reprobation. The same
                                                                 The provisions of Bulgarian law will apply to foreign
punishment is provided for any person who, without having        physical and juridical persons whose respective country of
participated in the creative work, by abusing his authority      origin is a member to international agreements, to which
joins as a co-author of a work of science, literature or art.
                                                                 Bulgaria is a party. To other foreigners Bulgarian laws will
- Any person who, without the consent of the owner, uses in      apply only in case of reciprocity, which will be established
his trade a trademark, industrial design or the topology of      by the Patent Office in case-by-case basis. Where bilateral
integrated circuits, shall be punished by imprisonment of up     international agreements exist their provisions will apply.
to three years or by a fine of up to BGN 5 000.                  The international registrations of patents under the Patent
- Anybody who sends, exports, registers, concedes, sells or      Cooperation Treaty; of trademarks in conformity with the
realizes recognized or not recognized inventions,                Madrid Agreement; of geographical indications under the
rationalizations or technical documentation abroad or            Lisbon Agreement; and of industrial designs under the
concedes them, delivers or sells to foreign citizens or          Hague Convention, have the same effect as if the
companies in the country by an order not established, unless     applications were directly lodged and the registrations were
this represents a more serious crime, shall be punished by       made in Bulgaria according to the relevant Bulgarian law.
imprisonment of up to three years or by a fine of BGN 100
up to 300.
XIII.4.3. Administrative Protective Measures
The President of the Patent Office is empowered to impose
administrative penalties - fines or monetary sanctions
between BGN 500 and 5 000 - on infringers of rights of the
owners of trademarks or geographical indications.




                                                         BOYANOV & CO                                                          55
XIV.     PUBLIC PROCUREMENT                                        An example for such a clause is the assignors’ right to
                                                                   unilaterally terminate the awarded contract under some
XIV.1. Legal Framework                                             special conditions, explicitly set for in the law.
The specific character of the budgetary and public funds           The candidates for the award of a public procurement
requires a special procedure for their spending. Therefore,        contract can be any Bulgarian or foreign natural person or
the Public Procurement Act (“PPA”) sets forth the state            legal entity, as well as alliances thereof. This definition
policy on the award of public procurement contracts.               makes it obvious that unlike the old Law, the new Law does
The Bulgarian legislator has provided for special procedures       not require the candidates to be registered as free lancers,
for spending of the funds provided for or accumulated by           sole entrepreneurs or companies. Hence, for the award of
public services. Thus it aims at increasing the effectiveness      public procurement contract there can apply all kinds of
of the use of budget and public resources and at the               merchants, regardless of their organizational form. Foreign
protection of the consumers of public services.                    persons and entities can also apply in the public
                                                                   procurement procedures regardless whether they are
The effective Public Procurement Act of 1999 codifies the          registered as merchants under Bulgarian or under their
public procurement legal framework. This law is hereinafter        respective local legislation.
referred to as the ‘old law.’ In March 2004 the Bulgarian
Parliament adopted a new Public Procurement Act that will          For some business activities the respective special
become effective on 1st October 2004 – hereinafter referred        legislation imposes specific requirements thus limiting the
to as the ‘new law.’                                               circle of possible candidates. For example, public
                                                                   procurement contracts for the supply of insurances can only
One of the principal goals of the newly adopted law is to          be awarded to insurers.
harmonize the Bulgarian legislation concerning public
procurement with the four major public procurement                 The Contractor is a candidate who has taken part in the
directives of the European Union. The Bulgarian                    public procurement procedure and who has concluded a
legislation acknowledges the importance of the public              public procurement contract.
interest related to the award of public procurement contracts      Objects of public procurement can be various types of
and provides the rules for the protection and control over         activities that can be assigned to contractors under the
public and budgetary spending. The provisions are                  procedures for the award of public procurement contracts
imperative and regulate all material aspects of public             under the rules of the PPA. Instead of enumerating all the
procurement.                                                       objects of public procurement procedures, the Law only
XIV.2. Legal Definitions                                           marks most of them, but expressly indicates all the
                                                                   exceptions of this scope. The exceptions refer to the
The PPA regulates the terms and procedures for the award           character of the activity or the value of the contract. In
of public procurement contracts, the objects and subjects of       general, the new Law benchmarks higher contract values
the public procurement procedures, the bodies                      above which a public procurement procedure must take
implementing the state policy in this area, the procedures on      place.
awarding contracts and the procedure on appeal against
public procurement related decisions.                              XIV.3. Procedures
The PPA defines the parties in the contract award                  The law regulates the types of procedures for the award of
procedures – assignors, candidates and contractors.                the public procurement contracts. According to the old law
                                                                   these types include the open procedures, the restricted
The assignors are enumerated in the law and classified in          procedures and the negotiated procedures. The new Law
several categories. These are the state bodies, the diplomatic     however provides for two kinds of negotiated procedures –
and consular representations of the Republic of Bulgaria           with or without announcement, and also introduces a new
abroad, organizations of the public law, the medical               type of procedure – the design contest procedures. The
establishments, public companies and commercial                    main criterion for distinction between the various types of
companies when they perform some of the activities                 procedures is the circle of possible participants in each
specified in the law, etc.                                         procedure. In general, the announcements for the start of a
One of the new terms adopted by the law is “organization of        procedure are published in the State Gazette. In an open
the public law”. As defined in §1 of the additional                procedure all interested persons and entities can obtain the
provisions of the PPA, the “organization of the public law”        documentation, present their offers and participate in the
is a legal entity created for the satisfaction of a given public   procedure as candidates. In a restricted procedure the
interest, having no commercial or industrial character, and        assignor conducts a preliminary selection among an
satisfying the conditions set in the law.                          unlimited number of candidates and invites the approved
                                                                   candidates to present their offers. Similarly, in the
According to the PPA the assignors are private law entities.       negotiated procedure contracting with an announcement, the
They are not vested with state powers as to the contract           procedure is open to all interested candidates, but the
award procedures, being thus equal with the candidates.            assignor conducts a preliminary selection and invites in the
Hence, the acts of the assignors issued in the contract award      negotiations only the approved candidates. In the negotiated
procedures are no administrative acts.                             procedure without an announcement, the assignor invites for
The assignors benefit from a special legal protection, as the      negotiations a limited number of candidates, and an
law provides that several imperative clauses in their favor        announcement for the start of a procedure is not published
should be implemented in any public procurement contract.


                                                      MODUS CONSULT                                                           56
at all. The design contest procedure can be conducted either    XIV.4. Appeals
as an open procedure or as a restricted procedure.
                                                                According to the old law, the decisions taken by the
The assignors are free to choose the type of procedure that     assignors in the course of the public procurement procedure
they can conduct. However, the negotiated procedures with       were considered to be individual administrative acts and
and without announcement can only be applied in a limited       were subject to judicial review. According to the new law
number of cases explicitly set forth in the law.                these decisions will no longer be classified as individual
                                                                administrative acts and because of that will not be subject to
The new Law, alike the European legislation, introduces
                                                                appeal. Instead a limited number of decisions expressly
special rules for the award of public procurement contracts
                                                                determined by the new law could be challenged in front of
by entities operating in the water, energy, transport and
                                                                the civil courts. The civil claims will be filed with the
telecommunications sectors. The main difference from the
                                                                lowest courts of general jurisdiction – the regional courts.
general rules is the right for the assignors in this group to
choose and apply any procedure, the only restriction being      The interested parties could seek for the annulment of the
that the assignor can conduct a negotiated procedure            decision of the assignor in cases expressly enumerated in
without an announcement only in a small number of cases,        the law and on the following grounds: *when a decision
expressly limited by Law. Besides, only this group of           contradicts the law, *when the approved candidates,
assignors can award framework contracts with their chosen       respectively the chosen contractors, do not meet the
contractors.                                                    requirements for the award of the contract, or *when the
                                                                evaluation criteria are disregarded. The new Law gives
The procedure for awarding public procurement contracts is
                                                                every candidate the right to turn to the court for the
opened by a Decision of the assignor, with which the
                                                                annulment of an assignor’s decision. The procedure can
assignor approves the public announcement and the
                                                                develop in two instances. The decision of the lower court
documentation for the candidates’ participation in the
                                                                can be appealed before the district court the decision of
procedure. The Decision and the announcement are sent
                                                                which is final.
simultaneously to the State Gazette and to the Agency for
the Public Procurement for registration in the Register of      The new Law provides for the creation of an Arbitration
Public Procurement. The announcement shall meet the             Court for the Public Procurement related disputes. This
requirements of the Law concerning its form and minimum         Arbitration Court is created at the Public Procurement
content. Further, the announcement for the opening of a         Agency as an institutional arbitration. The list of the court is
public procurement procedure must be sent in electronic         open, each party being entitled to appoint as an arbitrator
form as well.                                                   any person that meets the legal requirements. The
                                                                arbitrators can only be adults having a clean criminal record
The Law provides that a “preliminary announcement” for
                                                                and at least 5 years of legal practice.
the opening of a public procurement procedure shall be
made whenever the value of the contract exceeds certain         The judicial power of the Arbitration Court is subject to the
levels. The preliminary announcement is also sent to the        existence of an arbitration agreement. Every assignor can
State Gazette and the Register of Public Procurement. This      offer to the candidates such an agreement to be signed
obligation affects a circle of assignors defined in the Law.    before filing of the offers. Any candidate for the award of a
The preliminary announcement should be sent before 1st          public procurement contract can also offer the adoption of
March each year and shall contain all public procurement        an arbitration clause. The arbitration clause can only refer to
procedures that the assignor plans to open during the same      the arbitration court at the Public Procurement Agency.
year.                                                           Whenever an arbitration clause is adopted, the Arbitration
                                                                Court shall solve the dispute according to the rules of the
The assignor appoints a special commission for the purpose
                                                                LPP, with the subsidiary application of the Bulgarian law on
of conducting the procedure. The commission’s task is to
                                                                the international commercial arbitration.
review, evaluate and rate the candidates’ offers according to
the terms set by the assignor. The commission’s final act is    XIV.5. Public Procurement Agency
the protocol for the candidates’ classification.
                                                                According to the provisions of the new Law, the State
Based on that protocol, the assignor has to adopt a decision    policy in the area of the public procurement shall be carried
that announces the classification of all candidates and the     out by the Minister of Economy, unlike the old law, which
candidate that has been chosen for a contractor. Then the       assigned this competence to the Minister of the State
assignor signs a public procurement contract with the           Administration. A new state body – the Public Procurement
candidate who won the first place according to the              Agency - shall assist the minister. The Agency shall create
commission’s protocol and therefore obtains the award of        and manage a register of the Public Procurement, where the
the contract.                                                   decisions and announcements on the opening of public
                                                                procurement procedures will be registered, information on
                                                                the awarded public procurement contracts and other data as
                                                                provided by the law will be available.




                                                   MODUS CONSULT                                                               57
XV.      SECURITIES & BANKS                                      overall operations on the Bulgarian Stock Exchange - Sofia.
XV.1. Securities                                                 It determines the listing requirements, the trading
                                                                 components and all related and pursuant proceedings,
XV.1.1. Overview                                                 membership provisions, disclosure, surveillance as well as
After the discontinuity of the public trade in securities in     procedures pertaining to disputes and discipline subjects.
Bulgaria after World War II, the First Bulgarian Stock
Exchange started functioning in 1991. The first law              The Bulgarian National Bank is vested with the powers to
regulating the trade in securities – the Law on Securities and   adopt regulations, some of which affect the trade in
Stock Exchanges – was adopted by the Bulgarian                   securities as well. Such regulations of the Central Bank
Parliament adopted in 1995. This law provided for the            govern the Control over Transactions in Book-entry
creation of the State Securities Commission (SSEC) – the         Government Securities, the Central Depository of Securities
State regulator of the stock market. At the same time most       and the Government Securities Settlement.
stock exchanges merged to the Bulgarian Stock Exchange.
In 1997 the SSEC officially licensed the Bulgarian Stock         XV.1.3. Legal Definitions (The Market Players)
Exchange to organize a regulated market, and in 2001 – to        The Stock Exchange is a joint stock company with a special
organize an unofficial market. In the end of 1999 the            status. The main business activity of a stock exchange is to
Bulgarian Parliament adopted the Public Offering of              organize an official securities market. The stock exchange
Securities Act, which is currently in force. This law set the    can also organize an unofficial market. The stock exchange
grounds for the development of a market working under            cannot give loans, pledge obligations of third parties, or
criteria and conditions similar to those in the European         issue bonds. Its minimum registered capital should be equal
Union. Further positive development was seen in 2000 with        or exceed BGN 100,000. At the time of receipt of the
the launch of a modern trading system and of an official         license to organize an official securities market, the entire
index – SOFIX. The latest trends in the securities market        capital should be paid-in. At least 2/3 of the capital should
development were marked by the replacement of the SSEC           be owned by investment intermediaries or institutional
with a new state regulator – the Financial Security              investors. No shareholder can own more than 5 % of the
Commission. An additional step for bringing Bulgarian            stock exchange’s capital. The stock exchange can establish
securities market closer to local and international investors    or join already established system for clearing, settlement
is the launch of the Client Order-Book Online System, a.k.a.     and guaranty of the transactions taking place at its market.
COBOS. COBOS allows clients or stock exchange
members to place real-time orders over the Internet. Now         The FSC is responsible for the issuance of stock exchange
orders can be placed not just from the whole country, they       licenses. The applicant for such a license should present
can be placed from all over the world.                           together with its application the Articles of Association
                                                                 adopted by the founders; particulars about the capital paid
XV.1.2. Legal Framework                                          in and its structure; particulars about the persons involved in
The most important legal rules related to securities and to      the management of the applicant, and information about
their trade in Bulgaria are contained in the Public Offering     their professional qualification and experience; the stock
of Securities Act. The law governs all material aspects          exchange rules and the rules of the arbitration panel; data
related to the trade in securities, securities markets and the   about the premises and the technical equipment of the stock
State control over them. The law is aimed at the investor’s      exchange; other documents. The FSC shall pronounce on
protection; the creation of a fair, transparent and efficient    the application within three months as from its receipt, and
securities market and the establishment of a strong public       where additional information and documents have been
confidence in the securities market overall. The other           requested – as from their receipt. Without the license,
important laws in that area include the Commerce Act, the        Bulgarian courts will refuse the company’s incorporation. If
Privatization Funds Act, the Encouragement of the                the FSC refuses a license, the applicant can apply again
Investments Act, the Privatization and Post-Privatization        after at least 6 months.
Control Act, the Financial Supervision Commission Act.           Investment Intermediaries are the only companies who may
The Financial Supervision Commission (“FSC”) has the             carry out by way of occupation transactions in securities for
power to adopt ordinances related to the public trade of         their own account or for the account of a third party and
securities. Such ordinances are the ordinance on the licenses    intermediation for entering into such transactions;
for the performance of activities of a stock exchange,           underwriting issues of securities; management of individual
unofficial market, investment intermediary, investment           portfolios of securities and/or money (with the exception of
company, management company; the ordinance on the                portfolios of investment funds and pension funds); holding
requirements for the activities of the investment                of securities and money of clients at a depository institution
intermediaries; the ordinance on the capital adequacy and        (custodian activity). Banks can also be licensed to carry out
liquidity of the investment intermediaries; the ordinance on     investment      intermediaries’      activities.  Investment
the requirements for the natural persons who directly            intermediaries can also trade foreign currencies, if they
perform the trade in securities or investment consultations      obtain the necessary license. The investment intermediary
and the procedure to obtain the right to perform such            registered capital should be equal to or exceed BGN
activity etc.                                                    250,000. A special ordinance regulates the requirements for
                                                                 the structure of the capital, for the company’s liquidity and
The Bulgarian Stock Exchange adopted its rules and               capital adequacy.
regulations, which provide the principles governing the


                                                    MODUS CONSULT                                                              58
In order to carry out investment intermediary’s activities the   legal entities authorized to manage and represent the
applicants, except banks, need a license issued by the FSC.      investment company, and information about their
Together with the application to issue a license the applicant   professional qualification and experience; the contract with
should present the Articles or the Memorandum of                 the management company, in accordance with Art. 168, and
Association; particulars for the capital; particulars for the    the contract for depository services; the names or business
management and the persons carrying out transactions, and        names of and particulars about the persons who hold,
about their professional qualification and experience; the       directly or through related parties, more than 10 per cent of
general conditions applicable to contracts with clients;         the voting shares of the applicant or may control it
names or business names and particulars for the persons          otherwise; etc.
who hold, directly or through related persons, more than 10
                                                                 Management Companies, the companies that manage
per cent of the votes in the general meeting of the applicant
                                                                 investment companies, should have no less than BGN
company, or may otherwise control it; etc. The FSC shall
                                                                 100,000 registered capital and should also be licensed by
decide on the application within three months as from its
                                                                 the FSC. The commission will issue the license within 3
receipt, and where additional information and documents
                                                                 months of submission of the application form, together with
have been requested – within one month as from their
                                                                 the documents required by law.
receipt.
                                                                 XV.1.4. Conclusion
Public Companies are those companies traded on the stock
exchange. Many companies listed on the exchange are              Bulgaria keeps on attracting ever growing interest with its
former state companies. They were listed on the exchange         investment opportunities. Foreign investors are interested to
before or during their privatization. Therefore, many            invest in Bulgarian securities market in many forms. They
companies went public after being privatized.                    can just invest in listed securities or create an investment
                                                                 company or investment intermediary. Foreign investors
To go public, a Bulgarian company should generally
                                                                 should always keep in mind that they are treated equally
publish a prospectus and make an IPO. The Public Offering
                                                                 with local investors, thus enjoying the special investors’
of Securities Act contains special requirements towards the
                                                                 protection provided by the local legislation.
content of a prospectus and the other requirements to be met
in order the company to go public.                               XV.2. The Banks
The Bulgarian legislation provides for a series of special       The banking sector is crucial for the proper functioning of
rules which grant the shareholders’ rights and protect their     country’s economy. For many years now Bulgaria has been
interests. For example, unlike general rules provide,
                                                                 publishing data on its macro-economic stability. These data,
whenever a public company wants to increase its capital, it
has to grant the right of the minority shareholders to           in combination with the fiscal discipline of Bulgarian
participate proportionately in the capital increase, thus        governments enhance the confidence to Bulgarian economy
effectively protecting the minority shareholders against         and contribute to the high rate of economic growth over the
dilution of their participation. The legislation also provides   recent years. All this was only possible after a series of
some rules to secure the principle of equal access to            measures that Bulgaria had to undertake following a wave
information, such as the rules on information disclosure or      of banks bankruptcies about a decade ago. These measures
the insider information.
                                                                 cover both the introduction of currency board arrangements
Investment Companies are joint stock companies with a            and pegging of the BGN exchange rate to EUR, and the
capital of no less than BGN 500,000. Investment companies        robust regulatory framework of the banking sector.
carry out the activity of investing cash into publicly traded
securities. Investment companies can either be open-end or       The major pillars of this framework are the Bulgarian
closed-end.                                                      National Bank Act and the Banks Act adopted in 1997. It
                                                                 also includes the Special Pledges Act (1996), the
An open-end investment company must permanently offer            Information about Non-performing Loans Act (1997), the
its shares to the investors at their issue price based on the    Bank Deposits Guaranty Act (1998), the Measures against
net asset value and, upon request of its shareholders, to        Money Laundering Act (1998), the Foreign Exchange Act
redeem those shares at the price based on the net asset          (1999), the Mortgage Bonds Act (2000), The State Debt Act
value. The issue price and the redemption price shall be         (2002) and the Bank Insolvency Act (2002). Rules related to
calculated at least twice a week. A closed-end investment        banking are also adopted by the Council of Ministers and by
company redeems its shares under the general legislation.        the Central Bank.
Open-end investment companies can only be managed by
management companies, while closed-end investment                XV.2.1. The Central Bank
companies can be managed by either a management                  The Bulgarian National Bank (BNB) is the Central Bank of
company or the company’s own managing bodies.                    the Republic of Bulgaria. Its major tasks are – through the
Bulgarian legislation requires a license for carrying out        mechanisms of monetary and credit policies – to maintain
investment company’s activities. This license is granted by      the national currency stability, to secure the functioning of
the FSC within 3 months of application. The application          effective payment mechanisms, and to regulate and
form is filed together with the Articles of Association;         supervise the activity of banks in the country. The BNB is
particulars about the capital subscribed and paid-in;            responsible for the stability of the banking system and the
information about the members of the management and              protection of depositors’ interests.
supervisory bodies or about the natural persons representing


                                                    MODUS CONSULT                                                            59
The Central Bank is the only institution in the country         The procedures for issuance and revocation of banking
authorized to issue banknotes and coins. It is also obliged     licenses are defined in Chapter III of the Banks Act and
upon request to exchange without limitation Euro for            Ordinance No. 2 on Licenses and Permits Issued by BNB.
Bulgarian levs at a fixed rate. Thus the Bulgarian Lev is
“pegged” to the Euro.                                           A license for banking operations in the country can only be
                                                                issued by BNB to (i) a joint-stock company based in
The BNB has the power to adopt regulations on conducting        Bulgaria, or (ii) a local branch of a foreign bank.
banking business in the country to the extent provided by
the law.                                                        The application of a local company should be accompanied
                                                                by the founding documents, the names of the members of
The BNB is managed by a Governor and three Deputy               the boards, documents providing evidence for the
Governors. The Board of the BNB comprises of the                subscribed capital and the paid-in contributions, a business
Governor, the Deputy Governors and three other members.         plan, certificates of the qualification and experience of the
BNB’s activities are organized in three departments, each       members of the Managing Board or the Board of Directors,
reporting to one of the three Deputy Governors.                 respectively, together with information on the shareholders
The Issue Department maintains full coverage of the total       and the origin of capital, etc.
amount of monetary obligations of BNB and manages the           The application for a license for banking operations in
international currency assets of the bank. In case of           Bulgaria through a branch of a foreign bank should be
occurrence of a system risk for the banking system stability,   submitted together with documents for the registration of
the Banking Department performs the function of a creditor      the bank in its homeland, the banking license issued by the
of last resort. Supervision over the banking system is          competent local authority to the applicant bank, a business
exercised by the Deputy Governor in charge of Banking           plan, annual financial statements for the last three years, a
Supervision Department.                                         written consent of the banking supervision authority for
XV.2.2. Banks and Their Scope of Business                       opening of a branch, etc. In case the applicant is not by
                                                                itself a first-class bank on the world financial market, it
The law defines the bank as a joint-stock company that          should submit guarantees from such a bank.
attracts deposits and utilizes borrowed funds to extend loans
and to make investments in its own behalf and on its own        BNB shall conduct all necessary investigations within 6-
account and at its own risk. The bank is entitled to conduct    month period as of application filing. Having been assured
only the business transactions comprehensively listed in the    in the validity of submitted documents and the financial
law. In addition to the transactions in the definition above,   viability of the applicant, it shall issue the banking license.
banks can accept valuables at a safe deposit; perform           XV.2.3. Banking Sector Stability
transactions of non-cash payments and clearing of checking
accounts of other persons; issue and management of bank         The legal framework of the banking sector is meant to
cards; provide bank safe deposit boxes. The above               provide a high level of stability. This is an important
transactions can be carried out only a) by entities which       prerequisite for the development of the economy overall.
have been granted a banking permit (license); or b) by
                                                                Therefore, the Banks Act, together with the BNB
licensed by BNB branches of foreign banks.
                                                                regulations and the Bank Deposits Guaranty Act form a
Banks can also perform some additional transactions             modern framework providing for the necessary strict
indicated in the law. But banks are limited to only perform     requirements for banking in Bulgaria.
those business transactions listed in the law. They are         Banks have to maintain liquidity, i.e. to always be prepared
forbidden to perform any other business activity except         to perform without any delay their daily obligations both in
when required in relation to the performance of banking         a normal banking environment and in a crisis situation.
operations.                                                     Banks also have to maintain obligatory minimum reserves
                                                                in their current accounts in local and foreign currency with
a)      Establishment and Management
                                                                BNB against their borrowed funds in BGN and foreign
According to the Banks Act banks can only be incorporated       currency, respectively. Capital adequacy of banks is
in the form of joint-stock companies. At the time of their      guaranteed through requirements to the minimum amount
establishment, the paid-in capital should be equal to or        and structure of banks’ equity.
exceed BGN 10,000,000. Contributions can only be made in
                                                                Security of cash deposited in banks is also guaranteed by
cash.
                                                                the statutory requirements to the admissible risk
Banks shall be managed and represented by at least two          concentration as a total for the bank or the banking group to
individuals jointly. The members of the Managing Board or       each individual customer or related parties. Banks and
of the Board of Directors can only be individuals with          banking groups should not exceed the ratios of great
                                                                exposures to equity, as provided in the regulations. In the
university education, master’s degree or higher, in addition
                                                                meaning of the law, an exposure to an individual customer
to many other requirements they have to meet.                   or to related parties is considered to be great when equal or
b)      Licensing Procedures                                    exceeding 10 per cent of the equity of the bank or banking
                                                                group.
The BNB issues the banking permits (licenses) to the banks.
Conducting banking operations without such a license is         The Bank Deposits Guaranty Act provides for the creation
illegal.                                                        of a Fund, insuring the bank deposits with local banks and


                                                   MODUS CONSULT                                                              60
with branches of foreign banks, licensed to operate in the       identify their customers, to collect, keep and disclose
country, provided the home country of the bank does not          information on transactions. Banks identify their clients
have an adequate system of deposits insurance. This Fund         when establishing business relations, including opening of a
guarantees full repayment of client’s deposits with a bank
                                                                 bank account or securities account, and when conducting a
up to the amount of BGN 15,000 in case the banking license
is revoked by BNB. Depositors’ claims exceeding the              transaction in cash in BGN or foreign currency over BGN
repayments of the Fund are satisfied from the assets of the      10,000. In addition, persons and entities are obliged to
bank.                                                            declare the origin of funds when conducting a bank
                                                                 transaction over BGN 30,000 or a transaction in cash over
XV.2.4. Bank Secret and Information
                                                                 BGN 10,000, or their equivalent in foreign currency.
Confidentiality of banking operations is crucial for the
activities of each entity using banking services. Every          The Financial Investigation Agency is an administrative
legislator has to balance between the personal privacy and       state body under the Ministry of Finance. The law assigns to
the public security in the combat against the money              a broad range of entities, including banks, to inform the
laundering and terrorism.                                        Agency of any cash payment over BGN 30,000, or its
                                                                 foreign equivalent made by or to a customer of theirs. This
By virtue of the Banks Act, banks and bank employees do          information can be used only for the needs of money
not have the right to disclose and to use to their personal      laundering combat.
benefit facts and circumstances concerning assets and
movements in accounts and deposits of bank’s customers.          XV.2.5. Conclusion
Pursuant to the Bulgarian National Bank Act banks are            A significant number of foreign banks are already present
obliged to submit to BNB all requested documents and             on the Bulgarian market. Most of these entered the
information in relation to the execution of central bank’s       Bulgarian market through the privatization process rather
functions. Beyond such cases, a bank may provide                 than through a licensing of a branch or subsidiary in
information on the transactions and balances of accounts of      Bulgaria. It is worth noting that the banking sector was one
individual customers only with the consumer’s consent or         of the first sectors of Bulgarian economy where
by decision of the court. The court may order the bank to        privatization was completed successfully.
disclose information in a limited scope of cases and by
request of a limited scope of state bodies, for example in the   The banking system in Bulgaria makes stable progress. The
case of data pointing to a committed crime.                      trends currently observed are credit expansion, wide spread
                                                                 of banking cards, Internet banking development, etc. The
The bank secret is further limited by the Measures against       robust legal framework and the development of the
Money Laundering Act. As defined by law “money                   Bulgarian economy provide good business opportunities in
laundering” is the preparation, conducting and receiving the     the banking sector at equal conditions for both local and
outcome of actions through which cash or property, as well       foreign investors. The Bulgarian banking market still
as what is acquired through these, coming into possession of     provides business opportunities for both new-coming and
an individual through or in relation of a crime, are             existing banks.
introduced in the economic turnover”.
The BNB, banks, investment companies, as well as a wide
range of legal entities listed in the law are obliged to




                                                    MODUS CONSULT                                                           61
XVI.     PRIVATISATION                                                      Organising and Conducting Centralised Public
                                                                            Auctions for Sale of State-owned Shares
                                                                            (promulgated in State Gazette, Issue No. 89 of 20
XVI.1. Development of the Privatisation Process                             September 2002, as amended);

Bulgaria launched its privatisation process as a means for         (iv)     The Regulation on the Information to be Contained
selling state participations (shares, stakes or assets) in                  in the Declaration under Art. 7, Paragraph 3 of the
commercial companies in 1992, when the National                             Privatisation and Post-privatisation Control Act,
Assembly adopted the first law governing privatisation. The                 and the Procedure and Authorities for Control over
privatisation law currently in force replaced the 1992 law in               the Data Declared (promulgated in State Gazette,
2002. The Bulgarian state is gradually reducing its                         Issue No. 96 of 11 October 2002);
involvement in all sectors of the economy, including               (v)      The Structural Rules of the Privatisation Agency
through the sale to private investors of government-owned                   (adopted by a Decree of the Council of Ministers
equity in nationalised industries or other commercial                       No. 163 of 24 July 2002, promulgated in State
enterprises. As a result, private ownership now                             Gazette, Issue No. 75 of 2 August 2002, effective
predominates the economy.                                                   as of 2 August 2002);
According to statistical data published by the Privatisation       (vi)     The Structural Rules of the Post-privatisation
Agency, from 1 January 1993 to 30 June 2004, 5,107 state-                   Agency (adopted by a Decree of the Council of
owned companies were sold through privatisation, out of                     Ministers No. 245 of 1 November 2002,
which 2,835 are whole enterprises and 2,272 are self-                       promulgated in State Gazette, Issue No. 105 of 8
standing units. Some 3,517 transactions for the privatisation               November 2002, effective as of 8 November
of “minority” or “residual packages” of shares were carried                 2002.);
out as well. By mid-2004, the Government had privatised
almost completely the major branches of the economy, such          (vii)    The Regulation on the Obligatory Information to
as the main industrial sectors (chemical industry,                          be Provided to the Persons Having Expressed
metallurgy, mechanical engineering, electrical engineering                  Interest to Participate in the Privatisation under the
and electronics, food and manufacturing industry), as well                  Law on Privatisation and Post-privatisation
as agriculture, construction, transport and services. As at 30              Control, and on the Documents and Data
June 2004, there were 146 remaining majority packages of                    Representing Official Secret (adopted by Decree of
shares in state-owned enterprises, subject to future                        the Council of Ministers No. 205 of 5 September
privatisation. These are companies offering specific services               2002, promulgated in State Gazette, Issue No. 87
or products, e.g., road maintenance, experimental seeds                     of 13 September 2002, effective as of 13
stations, two enterprises active in the defence industry, trade             September 2002); and
companies, etc. As at the same date, 36 enterprises in the         (viii)   The Regulation on the Terms and Conditions for
energy sector were still state-owned. Their privatisation is                Determination of the State’s Liability and for the
currently ongoing or still upcoming.                                        Elimination of Damages Caused to the
The Privatisation Plan for 2004 adopted by the Supervisory                  Environment as a Result of Past Acts or Omissions
Board of the Privatisation Agency calls for the sale of 119                 upon Privatisation (adopted by Decree of the
majority packages of shares in state-owned companies, 100                   Council of Ministers No. 173 of 19 July 2004,
minority packages and 45 self-standing units. The revenues                  promulgated in State Gazette, Issue No. 66 of 30
expected from those sales amount to BGN 500 million in                      July 2004).
cash and BGN 11.4 million in non-cash payments. Under              Secondary legislation includes regulations governing the
the Privatisation Plan, the priority for 2004 is to sell certain   assigning of specific activities related to the preparation of
large state-owned enterprises, such as Bulgartabac, the            the privatisation procedure such as preparation of legal due
Bulgarian tobacco monopoly, Commercial and River Fleets,           diligence reports and privatisation valuations, court
and Balkancar Holding (in insolvency) with its 14 local            representation, as well as regulations setting out the
companies manufacturing motor trucks and electric trucks           conditions and the procedure for licensing valuators and the
and 9 other subsidiaries for sales and servicing abroad.           data which has to be registered in the relevant public
                                                                   registers. In addition, the Organisational Rules of the
                                                                   Privatisation Agency and the Post-privatisation Control
XVI.2. Legal Framework. Relevant Public Authorities                Agency cover the formation and procedural rules of the
The primary legislative acts that set forth the framework of       privatisation authorities in this country. Finally, the
privatisation in Bulgaria are:                                     privatisation legal framework contains also certain
                                                                   provisions regulating various specific sectors, such as public
(i)      Privatisation and Post-privatisation Control Act          offering of securities, foreign investments, state and
         (promulgated in State Gazette, Issue No. 28 of 19         municipal property, state aid, corporate entities,
         March 2002, as amended) (hereinafter the                  concessions, etc.
         “Privatisation Act”);
                                                                   The Privatisation Agency is the governmental regulatory
(ii)     The Regulation on Auctions and Competitive                authority primarily responsible for the organising and
         Tenders (promulgated in State Gazette, Issue              carrying out the privatisation process in Bulgaria. The law
         No. 85 of 26 September 2003);(iii) The Regulation         gives the Privatisation Agency regulatory authority over the
         Co-ordinating the Terms and Conditions for


                                     Djingov, Gouginski, Kyutchukov & Velichkov                                                  62
privatisation of state-owned companies in all sectors of the      (viii)   the special rules for transfer of shares in companies
economy, including in the energy sector.                                   in the process of privatisation and the transfer of
                                                                           rights over privatised real estate;
The Privatisation Act divides the function of privatisation
from that of post-privatisation control. It establishes the       (ix)     the special rules for privatisation of companies that
Post-privatisation Control Agency as an independent                        are important with respect to the national security
authority, responsible for monitoring the performance of                   of Bulgaria; and
executed privatisation agreements.
                                                                  (x)      the rules for granting concessions and licenses
The Privatisation Agency and the Post-privatisation Control                related to the activities of companies in the process
Agency are both administrative agencies of the Council of                  of privatisation.
Ministers. Each of the Privatisation Agency and the Post-
                                                                  The Privatisation Act explicitly excludes from its scope of
privatisation Control Agency have a Supervisory Board and
                                                                  application the privatisation of medical establishments with
an Executive Board as their management bodies. The
                                                                  State and/or municipal interest, as well as the privatisation
members of the Executive Board are appointed by the
                                                                  of non-residential estates wherein such medical
Council of Ministers, while the members of the Supervisory
                                                                  establishments are located. In addition, the privatisation of
Body are appointed by the National Assembly.
                                                                  State’s interest in banks is also excluded from the scope of
                                                                  application of the Law on Privatisation.
XVI.3. Legal Definition of Privatisation                          Under the Privatisation Act, the privatisation of all state-
                                                                  owned companies (with a few exceptions) is considered
The term “privatisation,” as defined in the Privatisation         “commenced” as from the entry into force of the act itself.
Law, includes the transfer by sale to Bulgarian individuals,      Despite this however, the Privatisation Agency is also
Bulgarian private legal entities (i.e., entities in which the     required to adopt a specific decision in order to effectively
State and/or municipal equity interest does not exceed 50         start any privatisation procedure, which decision must
per cent), or to foreign persons of (a) any interests or shares   specify, inter alia, the method and subject of the
owned by the State or the municipalities in any commercial        privatisation. The exceptions to the above rule that all state-
corporation; (b) any self-standing units owned by                 owned companies are offered for sale by virtue of the
commercial corporations wherein the State and/or a                enactment of the Privatisation Act itself are those
municipality holds an interest exceeding 50 per cent of the       companies explicitly included in Annex No. 1 of the
share capital; (c) municipal non-residential estates not          Privatisation Act. Among those companies are, inter alia,
included in the property of any municipal owned                   29 regional water supply and sewerage companies, the
commercial corporation and used for business purposes             Bulgarian State Railways, the airports of Sofia, Varna,
(shops, studios, warehouses, service stations, workshops,         Bourgass, Gorna Oryahovitsa, Plovdiv, Stara Zagora, and
etc.), as well as construction sites with work in progress        Rousse, the Free Trade Zones of Bourgass, Vidin, Rousse,
which are not included in the property of any municipal           Plovdiv, and Svilengrad, etc. The privatisation of the
owned commercial corporation.                                     companies covered by Annex No. 1 will be carried out
                                                                  under specific procedures, determined by the privatisation
                                                                  body for each of them separately. The procedure can begin
XVI.4. Scope of the Privatisation Act                             only upon a decision of the National Assembly, at the
The Privatisation Act is the keystone of the privatisation        behest of the Council of Ministers.
legal framework, providing for:                                   The Privatisation Act sets out the general rules of procedure
(i)      determination of the companies subject to                which apply to privatisations. The principles on which the
         privatisation and the rules for adoption of decisions    procedure is based are transparency, efficiency and equal
         related to privatisation by the competent public         treatment of investors. The exceptions to the equal
         authorities;                                             treatment rule are related to (i) bad debtors under the Law
                                                                  on the Information on Bad Debts and (ii) persons who have
(ii)     the participants in the privatisation process;           a conflict of interest. Natural or legal persons falling within
(iii)    the rules related to revenues from privatisation;        the purview of these exceptions are prohibited from
                                                                  participating in the privatisation process.
(iv)     the administrative bodies in charge of the
         privatisation process, in particular the Privatisation
         Agency, the Post-privatisation Control Agency,           XVI.5. Methods for Privatisation
         and the municipal councils or council-mandated
         bodies in charge of the privatisation of municipal       Privatisation is carried out through the sale of shares held in
         property;                                                limited liability or joint-stock companies or the sale of
                                                                  assets (so called “self-standing units”). Pursuant to the now
(v)      the rules related to conflicts of interests;             effective privatisation law privatisation may be carried out
(vi)     the information that has to be made available with       only through the following competition-based methods:
         respect to the privatisation process, the due            (i)      public offering of shares;
         diligence reports, the privatisation valuations and
         the publicly available registers;                        (ii)     sale of shares or assets by public auction;
(vii)    the privatisation methods;                               (iii)   sale of shares or assets by a publicly announced
                                                                  tender;


                                      Djingov, Gouginski, Kyutchukov & Velichkov                                                63
(iv)    centralised public auction of shares (the shares       announced competitive tender. The list includes, inter alia,
acquired in a centralised public auction may be paid by non-   Bulgartabak Holding AD (the Bulgarian tobacco
monetary means of payment, such as compensatory                monopoly), Vazovski Mashinostroitelni Zavodi EAD (a
instruments and investment bonds); and                         major military and civil machine-building plant), Bulgaria
                                                               Air EAD (the national air carrier), etc.
(v)     acceptance of tender offer as per Articles 149, 149a
        and 149b of the Public Offering of Securities Act.
State-owned shares in joint-stock companies may be sold        XVI.6. Incentives
through any of the above-mentioned methods, while state-
owned shares in limited liability companies and self-          In accordance with the provisions of Chapter Eight of the
standing units of commercial companies with more than          Privatisation Act, certain companies, for which a
50% State interest may only be sold by way of a public         privatisation procedure has been initiated, may be granted
auction or publicly announced tender. The specific method      concessions or licenses related to their activities without a
of privatisation is determined by a decision of the            tender or an auction.
Privatisation Agency, which is published in the State          XVI.7. Foreign Investors-Related Measures
Gazette and in at least two central newspapers.
                                                               The Encouragement of Investments Act allows foreign
The companies that are deemed of national security             investors to exercise the same scope of rights as local
importance are listed in appendix No. 2 to the Privatisation   investors (unless otherwise provided for by law) or to refer
Act. They may be privatised only through a publicly            to the more favourable treatment of an international treaty
                                                               to which Bulgaria is a party.




                                   Djingov, Gouginski, Kyutchukov & Velichkov                                              64
XVII. INVESTMENT DISPUTES AND DISPUTES                           XVII.2.2.         Average Dispute Resolution Mechanism
RESOLUTION IN BULGARIA
                                                                 Most of the Treaties provide for three potential institutions a
XVII.1. Legal Framework                                          dispute between a foreign investor and the host-state
                                                                 (Bulgaria) could be referred to:
XVII.1.1.           Laws and Regulations
                                                                  o   ad-hoc arbitration;
      o         Civil Procedure Code (promulgated in State
                                                                  o   International Centre for Settlement of Investment
                Gazette, issue 12 of 1952, as amended);               Disputes (ICSID);
      o         International Commercial Arbitration Act          o   the competent national (Bulgarian) courts / arbitration.
                (promulgated in State Gazette, issue 60 of
                                                                  The different Treaties provide for a number of potential
                1988, as amended);
                                                                  combinations of these institutions. Few of the Treaties
XVII.1.2.           International Treaties (bilateral and         admit only the jurisdiction of the national courts or refer all
multilateral)                                                     disputes directly to arbitration ad-hoc. Some of the Treaties
                                                                  grant to the investor the possibility to choose upon its own
      o     1958 New York Convention for recognition              discretion the institution to which to refer the dispute. The
            and Enforcement of the International                  majority of the Treaties, however, provide for a
            Arbitral Awards (ratified by Bulgaria in 1961);       differentiation of the procedure and institution disputes
      o     1958      European       Convention   on    the       should be referred to depending on the nature of the
            International       Commercial      Arbitration       dispute itself.
            (ratified by Bulgaria in 1964);                       The most frequently stipulated mechanism involves:
      o     1978 European Convention on Mutual                    o   Ad-hoc or ICSID arbitration for disputes concerning
            Assistance in Penalty and Civil Matters                   nationalization or expropriation of investments /
            (ratified by Bulgaria in 1994);                           property and especially due compensations as well as
      o     1965 Washington Convention for Settlement                 concerning repatriation (transfer) of investments
            of Investment Disputes Between States and                 income, profit and other related funds;
            Other States’ Citizens (ratified by Bulgaria in       o   Jurisdiction of national (Bulgarian) courts in all
            2000);                                                    remaining cases.
      o     Number of bilateral treaties on protection of        However, any investor considering the possibilities to
            investments (over 50) and in the field of legal      protect its interests in an investment dispute should in any
            assistance (over 25) entered into by Bulgaria.       case thoroughly examine the provisions of the particular
XVII.2. Investments Disputes. General Review                     Treaty between its country and Bulgaria.

XVII.2.1.           Investments Protection Treaties              XVII.2.3.         Arbitration Ad-hoc

Bulgaria is a party to more than 50 bilateral Investments        As a principle, ad-hoc arbitration stipulated in the Treaties
Protection Treaties (“Treaties”), and all of them explicitly     would be held by three arbitrators. Each party would
provide for certain dispute resolution mechanism. The            appoint one arbitrator whereas the third to be appointed by
overwhelming majority of the Treaties stipulate for two          the other two should in most cases be national of a third
separate mechanisms applicable depending on the type and         country which keeps diplomatic relations with both
level of the dispute: i) a dispute between a signatory state     contracting states. Some of the Treaties stipulate the third
and an investor from the other state; and ii) dispute between    arbitrator to be appointed by a respected international
the signatory states themselves.                                 institution. Many of the Treaties explicitly refer to
                                                                 UNCITRAL                     arbitration                rules
According to most of the Treaties the disputes between the       (http://www.uncitral.org/english/texts/arbitration/arb-
signatory states would be referred to an ad-hoc arbitration in   rules.htm).
case the parties fail to reach settlement through friendly
negotiations. Each Treaty provides for the specifics of the      XVII.2.4.       International Center for Settlement of
arbitration in each separate case. However, this particular      Investment Disputes (ICSID)
mechanism concerns only disputes between the states and          ICSID is an autonomous institution closely linked to the
it could be initiated only by a contracting state in the event   World Bank. ICSID was established by the 1965
of breach by the other, i.e. at a governmental level.            Washington Convention on the Settlement of Investment
Nevertheless, it may still be used as a (last) indirect          Disputes between States and Nationals of Other States. The
possibility for protection of the interest of a particular       purpose of the Convention is to stimulate larger flow of
investor but only if undertaken by its own state.                private international investment between participating
The direct means of action available to an investor in case      countries. ICSID procedures are specifically designed for
of a dispute with the host- state (i.e. Bulgaria) will be        the settlement of disputes between foreign investors and
reviewed separately below.                                       host nations. ICSID is a de-localized system operating
                                                                 independently and exclusively of domestic legal systems.
                                                                 The role of domestic courts is limited to judicial assistance
                                                                 in recognition of ICSID awards.



                                                       BOYANOV & CO                                                             65
Further information on ICSID                  is   available     at:      court shall not enter into considering the merits of the
http://www.worldbank.org/icsid/.                                          dispute resolved by the foreign judgment but will only
                                                                          ascertain weather the submitted decision contains
XVII.3. National (Bulgarian) Court / Arbitration                          pronouncements contradictory to the legal order of the
XVII.3.1.           Court Dispute Resolution                              Republic of Bulgaria or to the morals. The court shall not
                                                                          recognize and enforce the foreign judgment as well in cases
The Bulgarian Judicial System and the hierarchy of                        where the foreign court had no jurisdiction to decide the
Bulgarian courts include four types of judicial bodies:                   case or there was a breach of procedural rules depriving the
district courts, regional courts, courts of appeal, and topping           defendant - Bulgarian citizen of taking part in the trial etc.
the hierarchy are the two highest courts – the Supreme
Court of Cassation and the Supreme Administrative Court.                  The state fee for applying for recognition and enforcement
                                                                          of a foreign judgment depends on the value of the claim and
The resolution of disputes by the courts is generally                     is 4 % on the respective amount
regulated by the Civil Procedure Code (“CPC”). According
to the CPC Bulgarian courts are exclusively competent to                  XVII.3.2.         Alternative Dispute Resolutions
consider all civil cases (including disputes) with the                    Being faster and less expensive compared to the court
exception of the cases, which by virtue of special laws are               proceedings, the arbitration is the most popular out-of court
submitted within the powers of other bodies (such as                      disputes’ resolution in Bulgaria. Arbitration in Bulgaria is
administrative bodies). Further, Bulgarian courts are                     based on the regulations of the International Commercial
competent to administer justice against all persons                       Arbitration Act (“ICAA”) and the relevant international
(individuals and legal entities) in Bulgaria except in cases of           treaties to which Bulgaria is a party.
extraterritoriality14.
                                                                          ICCA applies to international commercial arbitration, based
Court proceedings may develop in three or in some cases                   on an arbitration agreement when the place of arbitration is
with interest under a certain limit - in two, instances.                  within the territory of the Republic of Bulgaria. The
Prior to the lodging of the claim or after the claim has been             arbitration is only competent to settle civil disputes arising
lodged the claimant may request the court to impose against               out of international economic relations, as well as disputes
the assets of the (future) defendant specific injunction                  related to the filling gaps in contracts or their adaptation to
measures for a total amount of up to the size of the claim .              newly arisen circumstances when the residence or the
Such injunction may be enforced by placing interdict on a                 domicile of at least one of the parties is not within the
real estate; distraint on movables and receivables of the                 territory of the Republic of Bulgaria. The CPC explicitly
debtor and by other appropriate measures, determined by                   excludes from the competence of the arbitration court the
the court, including by stopping of the implementation of                 disputes having as their subject matter any real rights or
some actions of the debtor.                                               possession over a real estate, alimony or a right under a
                                                                          labor relation.
The court fees involved in a dispute resolution procedure
depend on the scenario of the particular case. Generally,                 Following the adoption of the new Public Procurement Act
they may be summarized as follows:                                        (in force after October 1, 2004) a specialized arbitration
                                                                          court at the Public Procurement Agency will be
o    Court fee for the first instance court – 4 % of the                  established to deal with public procurement disputes. Due to
     claim’s value but not less than BGN 15.                              the specific activity of this arbitration court its Chairman,
o    Court fee for the second (and third, when applicable)                the Rules on Arbitration and the Tariff on fees are to be
     instance court – 2 % of the amount of the appealed part              approved by the Council of Ministers.
     of the ruling.                                                       There are more than a dozen arbitration institutions in
In addition parties may have to pay court expenses for the                Bulgaria at the moment such as the Marine Court of
appointment of court experts, summons of witnesses, etc.                  Arbitration at the Bulgarian Marine Chamber, Sofia Court
                                                                          of Arbitration at the Association for Internal and
The Bulgarian CPC provides for specific rules applicable to               International Arbitration, Court for Small Civil Disputes at
the recognition and enforcement of foreign judgements.                    the Bulgarian Association for Civil Society and Legal
According to the CPC the decisions of foreign courts and                  Initiatives, etc. The most famous and reputable among them
other authorities competent under the respective foreign law              are the Court of Arbitration at the Bulgarian Chamber of
shall be recognized and enforced in Bulgaria in case there is             Commerce                      and                   Industry
an agreement between Bulgaria and the respective foreign                  (http://www.bcci.bg/arbitration/index.html)      and     the
country to that effect, and on the basis of reciprocity.                  Arbitration Court at the Bulgarian Industrial Association
The competent first-instance court to hear the case on the                (http://www.bia-bg.com/arbitration/).
recognition and enforcement is the Sofia City Court. The


14
  However persons enjoying extraterritoriality, as well as the foreign
countries, shall be subject to the jurisdiction of the Bulgarian courts
under the following circumstances: when they have initiated the
proceedings themselves; under cases related to their companies in
Bulgaria and under cases for rights on real estates located in
Bulgaria.



                                                           BOYANOV & CO                                                                 66
The fees attributable to the arbitration institutions in      recognition and enforcement of foreign arbitration awards.
Bulgaria differ from one another and are specified in their   Unless otherwise provided in an international convention to
respective Rules on Arbitration. In principle the fees are    which Bulgaria is a party the competent court is the Sofia
formed on the basis of the value of the claim as they         City Court.
increase in proportion to it.
                                                              Sofia City Court may in some specific cases refuse the
The state fee for the enforcement of an arbitration award     recognition and enforcement of the award, f. ex. where there
issued by an arbitration court in Bulgaria is 0.2% on the     was no valid arbitration agreement or in case of breach of
interest for which the enforcement is requested.              the procedural rules or the provisions of the arbitration
                                                              agreement as well as when the recognition or enforcement
With regard to the recognition and enforcement of foreign
                                                              of the award would be contrary to the public order in
arbitration awards the ICCA refers to the international
                                                              Bulgaria.
agreements to which Bulgaria is a party. In view of the
above mentioned such awards shall be recognized and           The fee collected by the Sofia City Court for the
enforced in compliance with the provisions of the New         recognition and enforcement of foreign arbitration awards is
York Convention for Recognition and Enforcement of            fixed to 0,4 % of the amount for which enforcement is
Foreign Arbitration Awards (the “Convention”) to the          requested.
extent it is not conflicting to the bilateral agreements
concluded by Bulgaria which provide for specific rules for




                                                   BOYANOV & CO                                                          67
                   APPENDIX TO SECTION XII.3                               21. Production and preparation of seeds from agricultural
                                                                               plants, testing different sorts of agricultural plans
          List of the Industry Areas that May be Subject to a
                                                                               designated for production of seeds, distribution and
                                                                               trade in seeds which deviate from the minimum
                           Licensing Regime15
                                                                               quality requirements;
                                                                           22. Carrying out activity as a public warehouse for grain;
     1.     Banking activities;
                                                                           23. Extraction, processing and storage of sperm and ova,
     2.     Insurance activity and activity as an insurance broker;
                                                                               transplantation of embryos in institutions for artificial
     3.     Activity as an organized securities market, an                     insemination and carrying out an activity as a
            investment intermediary, an investment company or a                breeding association for selection of production
            managing company, as well as a special purpose                     within the system of veterinary medicine;
            company limited by shares;
                                                                           24. Production of veterinary medicine products and
     4.     Carrying out of additional voluntary and mandatory                 active ingredients therefor, wholesale and retail trade
            pension insurance and carrying out of activity as an               in veterinary products;
            actuary to pension insurance companies;
                                                                           25. Fishing for industrial purposes;
     5.     Carrying out of activities related to voluntary
                                                                           26. Carrying out trade in scraps from ferrous and non-
            unemployment and/or professional qualification
                                                                               ferrous metals;
            social security;
                                                                           27. Activities in the field of energy;
     6.     Carrying out of activities related to health security;
                                                                           28. Carrying out of activities related to use of nuclear
     7.     Carrying out of activity as a stock exchange;
                                                                               facilities and nuclear material and other sources of
     8.     Carrying out of activity as a customs agent;                       ionizing radiation;
     9.     Carrying out of duty-free trade;                               29. Exercising construction supervision in construction
                                                                               activities;
     10. Carrying out of gambling activity;
                                                                           30. Carrying out railway transportation of passengers
     11. Production, transportation, trade and export of                       and/or cargo and checking the technical condition of
         weapons and explosives, as well as of certain goods
                                                                               the vehicles and the professional qualification of the
         and technologies of possible dual use;
                                                                               respective personnel;
     12. Carrying out of private bodyguard activities;
                                                                           31. Carrying out public transportation, including
     13. Design, production, import, trade, repair, installation               international transportation, of passengers and cargo
         and maintenance of anti-fire equipment, and                           by cars;
         performing fire precautions activities;                           32. Carrying out checks of the technical condition of
     14. Production of compact disks (optical disks) and/ or                   vehicles, repair and technical service of such
         matrix therefor;                                                      vehicles;
     15. Carrying out of activity as a health institution for              33. Carrying out universal post service or part of it on the
         hospital care or a social care institution;                           territory of Bulgaria;
     16. Conducting clinical tests, production, trade or import            34. Carrying out of an activity as an airport enterprise,
         of medicines and medical products;                                    terrestrial service operator or aircraft carrier;
     17. Production, processing, transportation, trade, import,            35. Technical service and repair of aircraft equipment;
         export and storage of drugs for medicinal and
                                                                           36. Production, import and/ or distribution of radio
         veterinary purposes;
                                                                               transmission devices for civil needs;
     18. Industrial processing of tobacco and production of                37. Radio and television activity;
         tobacco products;
                                                                           38. Telecommunications activities.
     19. Carrying out of technical supervision over risky
         facilities and checks over measurement devices;
     20. Production of spirits;


15
     The list represents Appendix to Article 9, Section 1, item 2 of the

Restricting Administrative Regulation and Administrative Control

over Economic Activities Act (promulgated in State Gazette, Issue 55

of 2003, as subsequently amended).



                                                                                                                                       68

								
To top