Legal Guide Legal Guide indd legal credit repair

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Legal Guide Legal Guide indd legal credit repair Powered By Docstoc
					         InvestBulgaria 2009

                               36 Shipka Str.
                               Sofia 1504, Bulgaria
                               Tel.: +359 (2) 946 33 48; +359 (2) 946 33 49
                               Fax/Phone: +359 (2) 943 40 66

                               Alexander Zendov Str., 6th floor, Nr. 38
                               Sofia 1113, Bulgaria
                               Tel: +359 (2) 971 55 33
                               Fax: +359 (2) 971 55 31

                               82, Patriarch Evtimii Blvd.
                               Sofia 1463, Bulgaria
                               Tel. +359 (2) 8 055 055
                               Fax: +359 (2) 8 055 000

                               10 Tsar Osvoboditel Blvd.
                               Sofia 1000, Bulgaria
                               Tel.: +359 (2) 932 1100
                               Fax: +359 (2) 980 3586

                               27 Parchevich Str.
                               Sofia 1000, Bulgaria
                               Tel.: +359 (2) 9376500
                               Fax: + 359 (2) 9376525

                               3 William Gladstone Str.
                               Sofia 1000, Bulgaria
                               Tel.: +359 (2) 852 75 11; +359 (2) 852 75 07
                               Fax: +359 (2) 852 75 07
                               Mob: + 359 898 600 116

                               37 Fridtjof Nansen Str.
                               1142 Sofia, Bulgaria
                               Tel: + 359 (2) 9697 600
                               Fax: + 359 (2) 9805 340

                               8 Iskar Str., floor 5
                               Sofia 1000, Bulgaria
                               Tel.:/Fax: +359 (2) 9802730; +359 (2) 9813620
                               +359 (2) 9866794; +359 (2) 9867383

                               78, Hr. Smirnenski Blvd., fl.4
                               1164 Sofia, Bulgaria
                               Tel.:+359 (2) 963 4737; +359 (2) 963 4700
                               Fax: +359 (2) 963 4878
                               Mob: + 359 886 834 806
Former MODUS                   e-mail:

                               19A, Patriarch Evtimii Blvd.
                               1142 Sofia, Bulgaria
                               Tel.: +359 (2) 930 0970,
                               +359 (2) 980 0838, +359 (2) 988 8036
                               Fax: +359 (2) 930 0978

                               Iztok District, Block 22,
                               1113 Sofia, Bulgaria
                               Tel.: +359 (2) 971 39 35
                               Fax: +359 (2) 971 11 91
                       InvestBulgaria Agency

              INTRODUCTORY NOTES       3
             II. SET UP OF COMPANIES   8
                   V. CONSTRUCTION     23
                       VII. TAXATION   39
               VIII. CUSTOMS REGIME    58
               X. CURRENCY REGIME      70
            XI. CONCESSIONS REGIME     74
                         IN BULGARIA
           XV. PUBLIC PROCUREMENT      98
          XVI. SECURITIES AND BANKS    102
               NEW DEVELOPMENTS
           XX. AUDIO-VISUAL SECTOR     119
                XXI. ENERGY SECTOR     124
                XXII. CONSUMER LAW     135

                                  InvestBulgaria Agency


     In the last few years Bulgaria has been in the focus of the investors’ interest. The political
stability and predictability due to the NATO membership and to the EU accession, the stable
economic perspective and the growing credit rating of the country and its institutions were
only some of the elements attracting the investors’ interest. External investors have been
attracted by rapidly developing national industry, highly skilled workforce and significant
new market. Now, in the present situation, with the world financial and economic crises,
the macroeconomic framework of Bulgaria remains favorable for entry of investments. The
Bulgarian government is taking steps and has elaborated measures to meet the challenges of
the global economic crises, to maintain Bulgaria’s financial and macroeconomic stability and
to improve the business climate.
     A good understanding of the legal system is a key to optimize new and existing
opportunities for doing business in Bulgaria.
     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. Тhe process of harmonization of our legal system with the
acquis communitaire has finished successfully. In Bulgaria investors will find out that many
legal provisions are similar to those regulating other markets on which they are used to do
business. 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.
     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.
     The answers of these and of many other questions which investors pose could be found in
the present Legal Guide.

                                        InvestBulgaria Agency

I   ENTRY, STAY AND WORK OF                                 Foreigners may work in Bulgaria only after
    FOREIGN NATIONALS IN BULGARIA                         obtaining a work permit, unless otherwise
                                                          stipulated by the law.
I.1. General Principles

      The legal status of foreign nationals in Bulgaria   I.2. Visas
    is governed by the Constitution of the Republic
    of Bulgaria, the Foreign Nationals Act (effective       According to the effective Bulgarian legislation,
    1998), the Regulation on the Application of the       certain categories of Foreigners must obtain a
    Foreign Nationals Act and the Ordinance on            visa before entering the territory of the Republic
    the Terms and Procedure for Issuing Visas and         of Bulgaria.
    Determination of the Visa Regime (effective             The Ordinance on the Terms and Procedure
    2008). Generally, the Bulgarian legislation           for Issuing Visas and Determination of the Visa
    concerning foreign citizens is in compliance          Regime and the Council Regulation 539/2001
    with the EU aquis communautaire related to            of 15 March 2001 /L81/2001 determine the list
    immigration policy.                                   of those countries whose nationals must be in
      The Foreign Nationals Act considers as              possession of visa when crossing the borders
    foreigners all persons who are not citizens of any    of the Republic of Bulgaria and those whose
    of the member states of the European Union,           nationals are exempt from that requirement.
    the European Economic Area and the Swiss                Foreigners who are exempt from the
    Confederation (hereinafter “Foreigners”).             requirement for obtaining a visa can enter and
      The Foreign Nationals Act does not apply to the     stay the Republic of Bulgarian without visa for up
    status of the citizens of any of the member states    to 90 days within a period of six months, starting
    of the European Union, the European Economic          from the date of first entrance.
    Area and the Swiss Confederation (hereinafter           The visa is a clearance, issued to the
    “European citizens”). Their legal status in           Foreigners, for entry and/or stay on the territory
    Bulgaria is governed by the Law on Entry,             of the Republic of Bulgaria for a certain period of
    Residence and Departure of European Union             time.
    Citizens and Members of Their Families from the         A valid visa is not a guarantee of entry into
    Republic of Bulgaria, as well as by the applicable    Bulgaria. The border control officers will
    Acts of the EU legislation.                           determine whether the Foreigner meets the
      European citizens who wish to enter and stay        requirements for admission. If there has been a
    in Bulgaria do not need a visa. Foreigners are        change in the circumstances between the date of
    divided into two categories – such who must be        the application and the arrival, or if subsequent
    in possession of visa when crossing the borders       information is given which was not originally
    of the Republic of Bulgaria and such who are          available to the visa office, then the Foreigner
    exempt from that requirement.                         may be refused entry.
      Visa requirements and the exemption of such           The Foreign Nationals Act provides for the
    requirements for Foreigners are governed by           following main visa categories: air transit visa,
    the EU legislation, agreements of the European        transit visa, short-stay visa and long-stay visa.
    Union with third countries for visa regime and the      Air transit visa is issued to a Foreigner who
    effective Bulgarian legislation.                      travels by aircraft from a certain country and
      Foreigners who wish to reside in Bulgaria on a      stays in the international transit zone of an
    long term or permanent basis (more than three         airport on the territory of the Republic of Bulgaria
    months within each six-month period) shall be         with the aim of continuing his/her travel with
    issued residence permit. European citizens            the first next flight to a different country. Air
    who intend to stay in Bulgaria longer than three      transit visa allows the Foreigner one, two or, as
    months are issued residence certificates instead       an exception, multiple entries in the territory of
    of residence permits.                                 Bulgaria. Air transit visa can be with a term of

     4                                          KPMG BULGARIA
                                      InvestBulgaria Agency

validity of up to three months.                         representation in acceptance of visa applications
  A transit visa is required for travel through         and issuance of visas. In exceptional cases
Bulgaria to another country. A transit visa allows      (e.g. the state’s interest or extraordinary
the Foreigner one, two or, as an exception,             circumstances) border control officers, after
several transit passages, of 36 hours each. The         coordination with the Foreign Nationals
validity of the transit visa can be up to 12 months.    Administrative Control Office, can issue transit
  A short-stay visa allows a Foreigner single or        visas with a term of 36 hours and short-term
multiple entries into Bulgaria for up to 90 days        residence visas for a term of 15 days.
within a period of six months. Multiple entry short-      European citizens who wish to enter and stay
stay visa can be issued with a term of validity         in Bulgaria do not need a visa. They enter
of up to one year, and, as an exception, with a         and leave the country with an identity card or a
term of validity of up to five years. Among the          passport. They can stay and reside in Bulgaria
grounds for issuance of a multiple entry short-         for a period up to three months starting from the
stay visa are: (i) the Foreigner is a member of         date of their first entry without need to obtain any
the family of a Bulgarian citizen, (ii) the Foreigner   permits or certificates.
is a member of the family of a European citizen,
who has been granted a residence permit, (iii) the
Foreigner maintains permanent business contacts         I.3. Residence permits and residence
with Bulgarian individuals or legal entities, which     certificates
perform commercial activity in Bulgaria, etc.
  A long-stay visa allows a Foreigner to enter into       Foreigners who wish to reside in Bulgaria on a
Bulgaria and thereafter to apply for a long-term        long term or permanent basis (more than three
or permanent residence permit. The validity of          months within each six-month period) shall be
the long-stay visa is 6 (six) months and it allows      issued residence permits.
its holder of stay up to 90 days. For certain             European citizens who intend to stay in
categories of foreigners the validity of the long-      Bulgaria longer than three months are issued
stay visa is up to 1 (one) year and it allows its       residence certificates.
holder of stay up to 360 days (e.g. foreigners            Both the residence permits for Foreigners and
conducting scientific research, foreigners on            the certificates for European citizens are issued
business trips on behalf of a foreign employer for      by the Migration Directorate at the Ministry
performing specific tasks related to control and         of Internal Affairs and can be divided into two
coordination of the implementation of a tourist         groups – long-term and permanent ones.
services contract, foreigners on business trips
on behalf of a foreign employer for effecting           I.3.1. Residence permits
investments certified under the procedure of the
Investment Promotion Act, etc.).                          A. Long-term residence permits – up to one
  The long-stay visa allows its holder multiple              year, and
entries to the territory of the Republic of Bulgaria      B. Permanent residence permits – for an
within its validity term.                                    indefinite period of time
  The calculation of the period commences on              The most common grounds for issuance of
the day of first arrival into Bulgaria as indicated      long-term residence permits are:
in the Foreigner’s international passport. All            • The Foreigner is a member of the
visa applications should be submitted to the                 management or supervisory bodies of
respective Bulgarian diplomatic missions and                 a Bulgarian company, provided that
consular departments around the world. In                    such company has employed at least 10
case there is no diplomatic mission or consular              Bulgarian nationals
department in certain country, visa applications          • The Foreigner is a trade representative of
can be submitted to such authorities of a member             a company registered with the Bulgarian
state, with which Bulgaria has an agreement for              Chamber of Commerce and Industry, and

                                             KPMG BULGARIA                                               5
                                    InvestBulgaria Agency

 •     The Foreigner has been issued a work           Bulgarian citizens, with the exception of such
       permit by the Bulgarian Employment Agency      rights and obligations for which Bulgarian
   The Foreign Nationals Act provides for specific     citizenship is required. For example, they can be
grounds for obtaining a long-term residence           employed by Bulgarian employers, receive social
permit by Foreigners who have been granted            security compensations, health care insurance,
long-term residence permit in a member state of       etc. Long-term residence status for a foreign
the European Union. The long-term residence           citizen is usually evidenced by the issuance of a
permits for such Foreigners are issued for a term     Bulgarian ID card for the foreign national.
of five years.
   In order to apply for a residence permit the          Permanent residence permits are issued to
Foreigner should initially obtain a long-stay visa.   Foreigners: (i) of Bulgarian descent, (ii) who
   The documents required for issuance of a           have been married for more than five years to a
long-term residence permit are as follows: (i)        Foreigner with permanent residence in Bulgaria,
the valid international passport of the applicant;    (iii) who have resided within the territory of
(ii) document evidencing that the applicant has       Bulgaria on a legal ground without interruption
been provided with a place to live during his/        during the preceding five years, etc.
her stay in Bulgaria (e.g. rental contract); (iii)
a standard application form; (iv) document            I.3.2. Residence certificates
evidencing of payment of the relevant state fees,
and (v) document evidencing that the applicant          A. Long-term residence certificates – up to five
has sufficient financial means to meet the costs              years, and
of his/her stay in Bulgaria. Additional documents       B. Permanent residence certificates – for an
may be required depending on the specific                    indefinite period of time
ground for issuance of the permit.                      The most common grounds for issuance of
   The application for obtaining a long-term          long-term residence certificates are:
residence permit must be filed before the                • The European citizen is employed or self-
Migration Directorate not later than 7 days prior           employed in the Republic of Bulgaria
to the expiration of the term of the long-stay          • The European citizen has medical insurance
visa. Applications are considered and reviewed              and enough financial resources to cover the
within 7 working days of their submission and               expenses for his/her residence and that of
the decision of the Migration Directorate is then           the family members without having recourse
presented in writing to the applicant.                      to the Bulgarian social security system, and
   The long-term residence permit can be                • The European citizen has enrolled in a
renewed if the grounds for its issuance still exist         school/college/university in Bulgaria for
at the time of the renewal. It should be noted              study, including professional training, and
that an extension of the long-term residence                has medical insurance and enough financial
permit can be refused if it is established that the         resources to cover his/her expenses, etc.
Foreigner has not stayed on the territory of the        In order to apply for a residence certificate the
Republic of Bulgaria for at least 6 months and        European citizen should submit an application
one day during the preceding calendar year.           to the Migration Directorate within three months
   Once the Foreigner has been granted a long-        after his/her first entry in the Republic of Bulgaria.
term residence permit, he/she may live, reside          The documents which should be enclosed
and travel in the Republic of Bulgaria while the      to the application are as follows: (i) a valid
permit is valid. The Foreigner may freely choose      identity card or a passport of the applicant; (ii)
and change his/her place of residence, or leave       documents evidencing the existence of the
the country and enter it again.                       ground on which the European citizen applies for
   Foreigners who have obtained a long-term           his/her residence certificate (e.g. labour contract,
residence permit have all the rights and              valid medical insurance, documents proving
obligations granted to or imposed on the              the current education, etc.); (iii) documents

 6                                         KPMG BULGARIA
                                   InvestBulgaria Agency

evidencing the payment of the relevant state fee,    and conditions for its issuance are still valid, the
and (iv) evidence that the applicant has sufficient   work permit may be renewed for an additional
financial means to meet the costs of his/her stay     one-year term.
in Bulgaria (if required). Additional documents
may be required depending on the specific             I.4.2. Foreign nationals who generally do
ground for issuance of the permit.                   not require a work permit in Bulgaria
  Applications are considered and reviewed
and the certificate should be issued on the day         Outlined below is a list of the main categories
of submitting the application. The certificate        of foreign nationals who may work in Bulgaria
contains the full name of the person and the         without a work permit:
registration date.                                     • Managers of companies or branches of
  In case some of the necessary documents are              foreign legal entities
missing or not valid, the European citizen shall       • Members of the Managing Board or Board
be granted a seven-day term to correct them. If            of Directors of local companies, who are not
the person fails to correct the omissions within           employed on a labour contract
this term the competent authority shall deny the       • Trade representatives of foreign companies
issuance of a long-term residence certificate.              registered at the Bulgarian Chamber of
  The right of entry and the right of residence in         Commerce and Industry, and
the Republic of Bulgaria of a European citizen         • Foreign nationals with permanent residence
may be restricted in exceptional cases and on              in Bulgaria
grounds related to national security, public order
or public health.                                    I.4.3. Foreign nationals who may work
  Permanent residence certificates are issued to      on short-term assignments without a
European citizens who have resided continuously      work permit
in the Republic of Bulgaria for a period of five
years and who meet other special requirements          Foreign nationals may also be engaged to
set forth in the law.                                perform short-term assignments without a work
                                                     permit under the following conditions:
                                                       • They are sent on a business trip to Bulgaria
I.4. Work permits                                          by their foreign employer
                                                       • The assignment in Bulgaria is no longer
I.4.1. General rules                                       than 3 months within a period of one year
                                                       • The assignment encompasses any of
  Foreigners may work in Bulgaria only after               the following: (i) the installation or the
obtaining a work permit, unless otherwise                  warranty repair of imported machinery and
stipulated by the law. The bases for obtaining             equipment; (ii) training in the operating
a work permit are an employment contract, or a             of equipment or the delivery of ordered
business trip to undertake certain activities.             equipment, machines or other items; (iii)
  As from the date of joining of Bulgaria the EU           training as part of an export contract for the
European citizens may be employed, self-                   supply of goods under a license agreement;
employed or commissioned to a business trip                (iv) control and coordination of the
and may work in Bulgaria without restrictions and          performance of a tourist services contract
without the need of work permits.                          between a foreign tour-operator and a
  Work permits required for Foreigners should be           Bulgarian tour-operator or hotel-keeper.
requested by the local employer and are issued         Employers must register Foreigners and
by the Bulgarian Employment Agency. A number
of legal terms and conditions must be met for the
permit to be issued. Work permits are issued
for a maximum duration of 1 year. If the terms
                                                     European citizens at the National Revenue
                                                     Agency within 3 days from the start of
                                                     their employment even if no work permit is
                                          KPMG BULGARIA                                                 7
                                            InvestBulgaria Agency
                                        CHAPTER TWO: SET UP OF COMPANIES

II   SET UP OF COMPANIES                                       years. The Public Offering of Securities Act 1999
                                                               sets forth the general legal framework of public
II.1. Legal Framework                                          companies.
                                                                  In addition to the five types of commercial
       The primary legal act governing the types,              companies mentioned above, business may
     corporate structure and governance, as well as the        also be conducted in one of the following
     requirements for the establishment of commercial          organisational forms: (i) sole trader; (ii) holding;
     companies in Bulgaria is the Commerce Act 1991            (iii) branch; (iv) trade representative office
     (the „Commerce Act“). The new Commercial                  (“TRO”); and (v) co-operative.
     Register Act 2008 regulates the requirements                 Under Bulgarian law, sole traders, partners in
     and procedure for registration in a centralised           general partnerships and unlimited partners in
     electronic-based register of commercial legal             limited partnerships and in companies limited
     entities operating under Bulgarian law and of             by shares have unlimited personal liability to
     changes in the corporate status of such entities          the company’s creditors. On the other hand,
     (the „Commercial Register“). Other relevant               the shareholders’ exposure in limited liability
     primary legislation governing specific corporate           companies and joint stock companies, as well
     matters includes the Corporate Income Tax Act             as the liability of limited partners in a limited
     2006, the VAT Act 2006, the Foreign Investments           partnership and in a company limited by shares is
     Promotion Act 1997, the BULSTAT Register Act              capped at the amount of their shareholding in the
     2005, the Social Security Code 1999, the Tax              company’s capital.
     and Social Security Procedure Code 2005, the
     Protection of Personal Data Act 2002, etc.
                                                               II.3. Establishment of a Company

     II.2. General Review                                        The procedure for incorporation of a company
                                                               in Bulgaria does not differ when local or foreign
       Bulgarian law recognizes the following types of         persons participate in its establishment. Under
     commercial companies exhaustively listed in the           Bulgarian law there are no restrictions as to the
     Commerce Act: (i) general partnership; (ii) limited       size of the foreign participation in the capital of a
     partnership; (iii) limited liability company (“LLC”) or   Bulgarian company and, therefore, up to 100% of
     one-person-owned limited liability company; (iv)          the registered capital of a local company can be
     joint stock company (“JSC”) or one-person-owned           held by foreign persons.
     joint stock company; and (v) company limited                As of 01 January 2008 all types of commercial
     by shares. All of the above organisations are             companies and all branches of foreign commercial
     recognized as separate legal entities. Regardless         companies are incorporated by way of registration
     of the nationality of its founder(s), each company        in the Commercial Register administered by the
     registered in Bulgaria is considered as Bulgarian         Registry Agency developed under the authority
     legal entity and should be governed in compliance         of the Ministry of Justice. This is a one-stop
     with the effective Bulgarian laws and regulations.        shop registration upon which the registered
       A joint stock company can be publicly listed            company shall obtain a Unified Identification
     or private. Under Bulgarian law, joint stock              Code (“UIC”) which shall serve for all commercial,
     companies are the only type of companies that             tax, social security, statistics and other public
     may become listed, provided that they have                purposes. The company shall be identified by
     conducted an initial public offering or have a            the UIC throughout its entire existence. No other
     registered share issue for the purposes of trading        secondary registration is any more required from
     on a regulated securities market. As public               newly incorporated companies and branches to
     companies further qualify joint stock companies           start effectively performing their business activity.
     with more than ten thousand shareholders as               In this relation, as of 01 January 2008 BULSTAT
     of the last day of two consecutive calendar               registration is no more applicable to newly

      8                         DJINGOV , GOUGINSKI, KYUTCHUKOV & VELICHKOV
                                       InvestBulgaria Agency
                                   CHAPTER TWO: SET UP OF COMPANIES

incorporated companies and branches.                      II.4.1. Limited Liability Company
   The requirements for the registration of each
particular type of commercial company or branch             The limited liability company is the type of
are set forth in the Commerce Act, while the              business organization most widely used among
registration procedure and applications and               investors because of the minimum capital
documents relevant to each particular type of             requirements and the simplicity of its corporate
commercial company or to a branch thereof,                governance structure. LLC can be established
in the Commercial Register Act, respectively.             by one or more persons, individuals and/or legal
The new registration procedure currently takes            entities. As a type of LLC, the solely owned LLC
approximately ten business days as of filing the           is subject to the same regulation as the LLC, with
relevant documents, the idea being such term              certain exceptions relating to its specific structure
period to be decreased down to one or two                 of shareholding. Shareholders in a LLC may be
business days. The incorporated company or                Bulgarian and/or foreign individuals and/or legal
branch becomes a capable legal entity as of the           entities.
date of its entry in the Commercial Register.               The minimum share capital required by the
   Unlike commercial companies and branches               Commerce Act for incorporation of an LLC is
of foreign commercial companies, a TRO of a               BGN 5,000 (five thousand Bulgarian Leva),
foreign company is established by means of                which equals to approximately EUR 2,600 (two
registration in the Commercial Register with              thousand and six hundred Euros), distributed in
the Bulgarian Chamber of Commerce and                     shares with value of not less than BGN 10 (ten
Industry (the “BCCI”) and is subject to secondary         Bulgarian Leva). At the time of incorporation of the
registration in the BUSLTAT Regsiter, a united            company and as a condition precedent for such
national administrative register also held by the         incorporation, at least 35% of the initial registered
Registry Agency under the BULSTAT Register Act            capital must be paid in, and every shareholder
2005. This secondary registration serves as tax,          must have paid in at least 1/3 of its shareholding.
social security and statistics registration.              The part of the capital, which has not been paid
   Although a local company or a branch should            before registration, should be effectively paid not
register its scope of activities, it is free to conduct   later than two years following the registration of
any type of activities not prohibited by law, even if     the company.
the respective activity is not expressly included in        The shareholders can make both cash and
its registered scope of activities (under Bulgarian       in-kind contributions. The in-kind contribution
commercial law, there is no applicable ultra              is subject to mandatory evaluation by three
vires rule in this respect). Where a license or           independent experts, appointed by the Bulgarian
permit is required by virtue of special laws for the      Registry Agency.
performance of a specific activity, such activity            The shares in an LLC are not tradable
may be performed after obtaining the respective           instruments. They may be transferred by a
license or permit. By way of example, activities          notarised share transfer agreement. The transfer
subject to licensing/permit regime include                of shares between shareholders does not require
banking, insurance, gambling, trade in medicines,         a resolution of the general meeting, while a
trade in tobacco, etc.                                    transfer of shares to third parties requires such
                                                          a resolution, as well as an approval for the
                                                          admission of the new shareholder(s).
II.4. Most Commonly Used Forms of                           The corporate governance structure of an
Business Organisations                                    LLC consists of (i) a general meeting of the
                                                          shareholders; and (ii) one or more managers
  The types of business organisations most                who manage the company and represent it vis-
commonly used for establishment of foreign                a-vis third parties. Under Bulgarian law only an
presence in Bulgaria are the LLC, the JSC, the            individual may be appointed as manager of the
branch and the TRO.                                       LLC. The manager can be a partner, as well as

                            DJINGOV , GOUGINSKI, KYUTCHUKOV & VELICHKOV                                     9
                                      InvestBulgaria Agency
                                 CHAPTER TWO: SET UP OF COMPANIES

a third person and there are no restrictions for a      thousand euro). However, special legislation may
foreign person to be appointed as manager of a          require higher minimum share capital for carrying
LLC.                                                    out certain types of activities, for example banking
  The general meeting of the shareholders               or insurance activity. The share capital of a JSC
of the LLC consists of all shareholders in the          must be distributed in shares with a nominal value
company and has the exclusive power, among              of not less than BGN 1 (one Bulgarian Leva).
other powers, to: (a) amend and supplement              At the time of incorporation of the company and
the articles of association; (b) approve new            as a condition precedent for such incorporation,
shareholders and dismiss shareholders, and              at least 25% of the nominal value (or issuing
give consent for the transfer of shares to a            value determined in the articles of association)
new shareholder; (c) resolve on the increase            of each share must be paid in and the rest of
or decrease of the registered capital, etc. If          total amount of the capital shall be paid in within
the LLC is a wholly owned subsidiary, the sole          two years. Similarly to the LLC, the shareholders
owner of the capital resolves on all matters within     of a JSC can also make both cash and in-kind
the competence of the general meeting of the            contributions.
shareholders.                                             A JSC is usually preferred for a lower extent of
  However, qualified majority is required by law         publicity of its shareholders. The general rule is
for transfer of shares to third parties, admission      that the shareholders in a JSC are not registered
of new shareholders and accordingly, unanimity          in the Commercial Register. Notwithstanding
- for capital increase or decrease. These rules         this, they can become known to the public: (i)
may to some extent decrease the flexibility of           upon the initial registration through the corporate
the company’s operations. An LLC is usually             documents which are filed into the Commercial
recommended for a small number of shareholders          Register, or (ii) upon mandatory registration with
and for business relations, envisaged and               the Commercial Register of resolutions of the
intended to involve a long-term business                General Meeting of Shareholders.
relationships.                                            The corporate governance structure of a
                                                        JSC consists of: (i) a general meeting of the
II.4.2. Joint Stock Company                             shareholders, and (ii) a board of directors (in
                                                        the case of a one-tier governance system), or
  The joint stock company is another widely used        a supervisory board and a managing board (in
type of business organisation. It is preferred          the case of a two-tier governance system). The
because of the lack of statutory restrictions           powers vested by law in the general meeting
on the transfer of shares and the absence of            of the shareholders of a JSC are similar to
personal engagement of the shareholders in the          those of the general meeting of an LLC. These
operation of the company. However, the corporate        powers include, among others: (a) amendment
governance structure is more complex compared           and supplement of the articles of association
to the one of the LLC and the Commerce Act sets         of the company; (b) increase and decrease
forth mandatory rules governing the formation of        of the registered capital; (c) appointment and
a reserve fund, distribution of profit and minority      dismissal from office of the members of the
shareholders rights. A JSC may be established by        board of directors, or of the supervisory board,
one or more Bulgarian and/or foreign individuals        respectively, etc. If the JSC is a wholly owned
and/or legal entities. As a type of a JSC, the solely   subsidiary, the sole owner of the capital resolves
owned JSC is subject to the same regulation as          on all matters within the competence of the
the JSC, with certain exceptions relating to its        general meeting of the shareholders.
specific structure of shareholding.                        The members of the board of directors, or the
  The minimum registered capital required for           managing board, respectively, represent the
establishment and operation of a JSC is BGN             company jointly, unless the articles of association
50,000 (fifty thousand Bulgarian leva), which            provide otherwise. The board of directors (in the
equals to approximately EUR 26,000 (twenty six          case of the one-tier governance system), or the

                                     InvestBulgaria Agency
                                 CHAPTER TWO: SET UP OF COMPANIES

managing board subject to the approval of the          as foreign individuals or persons other than
supervisory board (in the case of the two-tier         legal entities can register a branch in Bulgaria,
governance system), may authorise one or more          provided that they are properly incorporated and/
persons to serve as executive director(s) of           or entitled to conduct business under the national
the JSC and to represent the company vis-a-            law of their home country.
vis third parties. The law does not impose any           A branch of a foreign company is established
restrictions for appointing foreign persons as         by means of registration into the Commercial
executive directors of a JSC. Due to the more          Register. After its proper registration according to
complicated management system in the JSC, the          Bulgarian law, the branch of a foreign company,
one-tier system, i.e. with a Board of Directors,       although not a separate legal entity, will have
is considered as more flexible system from              a certain degree of independence from the
operational point of view, compared to the two-tier    parent company. Thus, it will be required to
system.                                                keep commercial books as a separate business
  The shares of a JSC are tradable instruments.        establishment and prepare a separate balance
The shares of a JSC may be: (i) registered             sheet. However, as the branch is not a separate
or bearer shares; (ii) common or privileged            legal entity, its assets and liabilities are deemed
shares, (iii) materialised or book-entry form          to be assets and liabilities of the parent company.
shares. The articles of association of a JSC           Therefore, the branch is not required to comply
may provide that privileged shares grant to the        with capital registration requirements or to have
respective shareholder additional voting rights, a     separate by-laws or a distinct management
guaranteed or additional dividend or liquidation       structure, except for a manager.
quota, or special management rights, such as             From tax point of view a branch of a
veto rights. Shares granting equal rights form a       foreign company is considered a “permanent
separate class of shares, as the rights of different   establishment” and it triggers corporate income
shareholders from one and the same class may           tax liability in Bulgaria for the foreign parent
not be restricted.                                     company.
  Registered shares are transferred by
endorsement, whereas bearer shares are                 II.4.4. Trade Representative Office
transferred by mere delivery. The transfer of
shares in the JSC is not subject to registration          Foreign persons can register a trade
in the Commercial Register. The transfer of            representative office in Bulgaria, provided that
registered shares must be entered into the book        they are entitled to conduct business under the
of shareholders of the JSC to have effect against      national law of their home country. As mentioned
the company. In most cases new shareholders            above, a TRO is established by means of
may easily enter the JSC which implies easier          registration with the BCCI. A TRO is not a
transferability of the JSC’s shares. Nevertheless,     separate legal entity and it may not carry out
restrictions on the transfer of shares may be          business activities. Thus, a TRO is meant to carry
provided for in the articles of association of the     out non-proprietary activities such as organising
company, and such restrictions shall be binding        promotions, exhibitions or demonstrations,
on the company and on the shareholders.                training or advertising of products or services,
Restrictions on transfer may relate to any type of     etc. Consequently, in general a TRO does not
shares.                                                generate income and is not subject to corporate
                                                       income taxation in Bulgaria. However, should a
II.4.3. Branch                                         TRO engage in business activities in the country,
                                                       it would qualify as a “permanent establishment”
  The incorporation of a branch is one of the
alternatives to the establishment of business
operations of a foreign company in Bulgaria.
Foreign companies registered abroad, as well
                                                       for tax purposes and the foreign parent company
                                                       will be liable in Bulgaria for corporate income tax
                                                       on the profit made as a result of the business
                                                       activity of the TRO..
                          DJINGOV , GOUGINSKI, KYUTCHUKOV & VELICHKOV                                   11
                                             InvestBulgaria Agency
                                     CHAPTER THREE : INVESTMENT LEGISLATION

III   INVESTMENT LEGISLATION                                          of the output of an enterprise or activity into
                                                                      new additional products or to a fundamental
III.1. Legal Framework                                                change in the overall production process of
                                                                      an existing enterprise or activity;
      III.1.1. Laws and Regulations                               • they must be implemented in the following
       •   Investment Promotion Act (promulgated State                economic activities:
           Gazette, issue 41 of 2009);                            • of the industrial sector: manufacturing industry
       •   Regulations for Application of the Investment              and production of electricity from renewable
           Promotion Act (promulgated in State Gazette,               energy sources;
           issue 20 of 2009);                                     • of the services sector: high technology
                                                                      activities in the field of computer technologies,
      III.1.2. International Treaties                                 research and development, as well as
      (Bilateral and Multilateral)                                    education and human health care;
       •   Convention for the establishment of                    • at least 80 per cent of the future income
           Multilateral Investment Guarantee Agency;                  must be from the products produced by the
       •   Convention for the establishment of                        economic activities listed above;
           International Center for Settlement of                 • at least 40 per cent of the eligible costs of the
           Investment Disputes;                                       investment must be financed by the investor’s
       •   Convention for the establishment of the World              own or borrowed resources;
           trade organization;                                    • the investment must be maintained for at
       •   Bilateral investment promotion and protection              least five years for large enterprises and three
           treaties;                                                  years for SMEs, reckoned from the date of
       •   Double tax treaties.                                       implementation of the investment;
                                                                  • the investment project must lead to a net
      III.2. Foreign Investors                                        increase in the number of employees in
                                                                      the establishment/organisation concerned,
        Under the Investment Promotion Act, foreign                   compared with the average number of
      investors are:                                                  employees over the previous 12 months;
        • legal entities which are not registered in              • employment must be created and maintained
           Bulgaria;                                                  for at least three years for SMEs and five
        • partnerships which are not legal entities and               years for large enterprises;
           are registered abroad;                                 • the period of implementation must not exceed
        • physical persons - foreigners with permanent                three years, reckoned from the date of award
           residence abroad.                                          of an investment class certificate;
                                                                  • the tangible and intangible fixed assets
      III.3. Certification measures and                                acquired must be new and purchased
      procedures                                                      at market conditions from third parties
                                                                      independent from the investor;
        The Investment Promotion Act introduces                   Promotion according to the procedure
      a system of promotion measures for initial                established by the Investment Promotion Act
      investments in tangible and intangible fixed assets        is not extended to enterprises in difficulty, for
      and new employment linked thereto, according              implementation of privatisation contracts or
      to Commission Regulation (EC) No. 800/2008 on             concession contracts under the Privatisation
      the application of Articles 87 and 88 of the Treaty       and Post-privatisation Control Act, respectively,
      to national regional investment aid. The following        under the Transformation and Privatisation of
      requirements must be fulfilled:                            State-Owned and Municipal-Owned Enterprises
        • the investments must be related to the setting-       Act as superseded and the Concessions
           up of a new enterprise, to the extension of an       Act, and in implementation of compensatory
           existing enterprise or activity, to diversification   (offset) arrangements, as well as investments

      12                                       INVESTBULGARIA AGENCY
                                      InvestBulgaria Agency
                               CHAPTER THREE : INVESTMENT LEGISLATION

for production of products in the coal and steel         of limited real rights of private state or private
industry, the shipbuilding and synthetic fibres           municipal property, without a tender procedure
sectors, fisheries and aquaculture, as well as            or competitive bidding, at market or lower prices
in activities linked to the primary production of        with the constructed physical infrastructure to the
agricultural products listed in Annex I to the Treaty    borders of the site *
establishing the European Community, according             5. financial aid for construction of physical
to Commission Regulation (EC) No 800/2008 on             infrastructure elements needed for the
the application of Articles 87 and 88 of the Treaty to   implementation of one or more investment
national regional investment aid.                        projects: Class A;
  Depending on their value, investments are                6. financial aid for vocational training for
divided into two classes. Their threshold amount,        attainment of professional qualification by the hired
fixed in the Regulations for Application of the           staff, including interns from the higher schools in
Investment Promotion Act, is as follows (in BGN          Bulgaria, who have occupied the new jobs created
leva):                                                   upon implementation of the investment project:
  for Class A: BGN 32 million;                           Class A and B.
  for Class B: BGN 16 million.                             7.opportunities for other forms of state aid,
  Where the initial investment is implemented            institutional support, public-private partnership
entirely within the administrative boundaries of         of establishing of joint companies for investment
municipalities where the rate of unemployment            projects of high priority *
for the year last preceding the current year is            8.different types of transactions closed
equal or higher than the national average, the           between the investor and a commercial company
threshold amount of investments within a single          established for the purpose of construction and
establishment is:                                        development of industrial zones.*
  for Class A: BGN 16 million;                             *A new Regulations for Application of the
  for Class B: BGN 8 million.                            Investment Promotion Act is due to be elaborated
  The threshold amount of investments within             and promulgated in State Gazette at the beginning
a single establishment in the high technology            of October 2009 concerning the “Investment
activities of the industrial sector of the economy is:   projects of high priority” and the development of
  for Class A: BGN 16 million;                           “Industrial zones” and “High Tech parks” to which
  for Class B: BGN 8 million.                            the above star marked measures correspond.
  The threshold amount of investments within             * PRIORITY INVESTMENT PROJECTS
a single establishment in the high technology              A new figure has been introduced with the last
activities of the services sector is:                    amendments in the Investment Promotion act.
  for Class A: BGN 11 million;                           (State Gazette, issue 41 of 2009) The Priority
  for Class B: BGN 5.5 million.                          Investment projects.
  The certificate determines the investment class           Priority investment projects shall be investment
and the rights of the investor under the law.            projects which are related to all sectors of the
  According to the measures established by               economy in accordance with the requirements of
the Investment Promotion Act, investments are            Regulation (EC) No 800/2008 and are particularly
promoted through:                                        important for the economic development of the
  1. shorter term for administrative services: Class     Republic of Bulgaria or for the regions in Bulgaria.
A and B;                                                 They shall satisfy one or more of the following
  2. personalised administrative services for            requirements:
implementation of the investment project: Class A;         1. the amount of the investment shall exceed
  3. sale or establishing, against a consideration             at least three times the threshold amount for
of limited real rights of private state or private             Class A – general case of 32 mil. leva
municipal property, without a tender procedure or          2. the investment shall create employment
competitive bidding: Class A and B;                            through investments in disadvantaged regions
  4. sale or establishing, against a consideration             or high technology activities

                                         INVESTBULGARIA AGENCY                                            13
                                      InvestBulgaria Agency
                              CHAPTER THREE : INVESTMENT LEGISLATION

  3. the investment shall envisage the                 entity within the meaning given by the Independent
      development of industrial zones with the         Financial Audit Act, for the current year and for the
      technical infrastructure necessary for           last three consecutive years or, respectively, for
      attracting of investments under conditions       less than three years, if the person commenced
      and according to a procedure specified in the     the activity thereof during the last three years;
      Regulations for Application of IPA                 (b) the full annual financial statements or,
  4. the investment shall envisage development         respectively, an interim financial statement, where
      of high technology parks with the technical      the person has carried out activity for less than a
      infrastructure necessary for attracting          year, must be attached to the analysis referred to
      of investments in scientific research             in letter (a);
      and/or education and/or information                6. documents certifying previously implemented
      technologies, including innovative activities    investment projects commensurate to the project
      for technological renovation of production       presented, if any;
      products and technologies under conditions         7. documents certifying the capacities to finance
      and according to a procedure specified in the     the investment project and the sources of financing
      Regulations for Application of IPA               of the investment project:
  The promotion of priority investment projects          (a) own resources;
shall be done under conditions and according             (b) loan contracts;
to a procedure specified in the Regulations for           (c) bank guarantees and other guarantees;
Application of IPA, in accordance with Regulation        (d) financial lease contracts;
(EC) No 800/2008 as a state aid scheme and/or            (e) letters of commitment whereby the owners of
in accordance with the requirements of the State       the capital undertake to finance the project;
Aid Act.                                                 (f) other documents on financing or on furnishing
Award of investment class certificate                   security;
  The promotion measures under the Investment            8. a declaration of the origin of the financial
Promotion Act (IPA) apply only in respect of           resources, completed in a standard format
investors who have been awarded an investment          endorsed by the Executive Director of the Agency;
class certificate. The certification procedure and         9. a document certifying the absence of any
the requirements of the plan for implementation        pecuniary obligations to the State or to a muni-
of the investment project are provided for in the      cipality within the meaning given by Article 162 (2)
Regulations for Application of the Investment          of the Tax and Social-Insurance Procedure Code,
Promotion Act (RAIPA). The relevant investment         issued not more than 3 months before the deadline
class certificate is awarded by the Minister of         for its submission - original or notarised copy;
Economy, Energy and Tourism or by an official             10. a conviction status certificate;
empowered by him/her, on the basis of an                 11. a declaration whereby the person undertakes
application, submitted by the investor to the Invest   to notify the Minister of Economy, Energy and
Bulgaria Agency.                                       Tourism and the Executive Director of the
Required documents to be submitted with                Agency forthwith of the occurrence of any of the
the application:                                       circumstances covered under Article 13 or 13a of
 1. investment project;                                the Investment Promotion Act, as well as of any
 2. if the company has not been entered into the       change in the circumstances covered under Article
Commercial Register -                                  12 of the Investment Promotion Act;
 a court certificate of current status (original or a     12. a document certifying the rights of the
notarized copy), issued within three months before     investor in respect of the built-up or vacant site
submission of the application                          wherein the investment is to be implemented, if
 5. documents certifying the financial state of the     there is such a site.
person(legal entity):                                    13. declaration in a standard form, that the
 (a) an analysis of the financial state, confirmed       person/entity has not entered into any out-of-court
by a registered auditor or a specialised auditing      agreements with its creditors in the meaning of

14                                      INVESTBULGARIA AGENCY
                                      InvestBulgaria Agency
                              CHAPTER THREE : INVESTMENT LEGISLATION

Article 740 of the Commerce Act                         empowered by him/her designate officers of
  14. declaration in a standard form about the          the Invest Bulgaria Agency to verify the plan for
category of the undertaking - defined as a               implementation of the investment project and
„small and medium-sized enterprise“ or a „large         the documents attached. On the basis of the
enterprise“ based on the information about the          assessment performed, the empowered person
financial year preceding the year of filing the           prepares an opinion on the award of an investment
application                                             class certificate conforming to the terms
The investment project must contain the                 established by the Investment Promotion Act and
following essential elements:                           the Regulations for Application of the Investment
  1. title of the project and designation of the        Promotion Act. On the basis of the opinion so
applicant;                                              prepared, the Executive Director provides the
  2. presentation of the investor as a legal entity     Minister of Economy, Energy and Tourism with a
and economic operator, with the following essential     reasoned proposal to award or to refuse to award
elements:                                               a certificate within thirty days after receipt of the
  • legal status of the investor:                       application.
  (a) business name, registered office,                    The Minister of Economy, Energy and Tourism
identification numbers and particulars identifying       or an official empowered by him/her examines
the investor and the representative authority of        the proposal and awards or refuses to award
the person who represents the investor, where the       a certificate, or returns the proposal and the
investor is a resident legal person or sole trader;     documents attached thereto for re-assessment
  (b) particulars identifying the investor under the    in the cases of non-conformity with any of the
national legislation thereof, where the investor        requirements of the Investment Promotion Act and
is a non-resident legal person, and identification       the Regulations for Application of the Investment
numbers of the subsidiary and of the non-resident       Promotion Act.
person, where the investor is a subsidiary wholly       Infrastructure subsidy
owned by a non-resident person;                           Financial support for the construction of
  (c) personal data, where the applicant is a natural   elements of the physical infrastructure from the
person;                                                 nearest constructed element of infrastructure to
  • presentation of the persons holding more than       the property boundary is provided to an investor
       10 per cent of the registered capital of the     who has been awarded a Class A investment
       investor company;                                certificate or for implementation of two or more
  • legal entity for implementation of the              certified investment projects implemented
       investment project and benefit of the             within the territory of an industrial zone. The
       promotion measures;                              investor submits a written request at the Ministry
  • in the event the applicant is a natural             of Economy, Energy and Tourism presents an
       person or a combination of natural and/or        approved design (conceptual, schematic or
       legal persons, the investment project must       working) with a fully itemised cost estimate for
       mandatorily provide for incorporation of a       the construction of the elements of the physical
       legal person within the meaning given by         infrastructure, which may serve for the issuing of a
       Article 17 of the Investment Promotion Act,      building permit and for the award of a construction
       with the newly incorporated legal person         contract under the Public Procurement Act.
       being bound by the application and the             A competitive procedure for the assessment
       investment project as submitted by the natural   and selection of investment projects is held in two
       person or by the combination;                    sessions during a calendar year:
  3. detailed characteristics and plan for                • in January of the current year: in respect of
implementation of the investment project.                     any requests received by 31 December of the
Progress of the procedure                                     preceding year;
  Upon receipt of an application for certification,        • in July of the current year: in respect of
the Executive Director of the Agency or an official            any requests received by 30 June of the

                                        INVESTBULGARIA AGENCY                                            15
                                     InvestBulgaria Agency
                              CHAPTER THREE : INVESTMENT LEGISLATION

      current year.                                     •   in January of the current year: in respect of
  The Minister of Economy, Energy and Tourism               any requests received by 31 December of the
lays before the Council of Ministers a motion for           preceding year;
promotion of the investment projects observing           • in July of the current year: in respect of any
the order of the ranking. The Council of Ministers          requests received by 30 June of the current
adopts a decree on allocation of resources                  year.
under the project for construction of physical-          The Minister of Economy, Energy and Tourism
infrastructure elements and authorises the Minister    lays before the Council of Ministers a motion for
of Economy, Energy and Tourism to conclude the         promotion of the investment projects observing
requisite contracts.                                   the order of the ranking. The Council of Ministers
Training subsidy                                       adopts a decree on allocation of resources under
  On a motion by the Minister of Economy, Energy       the personnel training project and authorises
and Tourism, the Council of Ministers may allocate     the Minister of Economy, Energy and Tourism to
resources for financial support for training for        conclude the requisite contracts.
attainment of professional qualification by the hired
staff, including interns from the higher schools in    III.4. InvestBulgaria Agency
Bulgaria, who have occupied the new jobs created
upon implementation of a Class A and Class B             The Investment Promotion Act transforms
investment, where:                                     the Bulgarian Foreign Investment Agency into
  1. the investment is implemented in high             executive agency under the power of the Ministry
technology activities or entirely within the           of Economy, Energy and Tourism. The basic
administrative boundaries of economically              function of the Agency after the transformation
disadvantaged regions;                                 shall be to support the Minister of the Economy,
  2. the new employment, created upon                  Energy and Tourism in the implementation of the
implementation of the investment is maintained         investment encouraging state policy.
for at least three years for SMEs and five years for      In this connection the Agency shall:
large enterprises after the date of implementation       • provide information and individual
of the investment;                                           administrative services to the investors after
  3. the annual labour remuneration of the persons           the issuance of a certificate for investment
hired under an employment relationship at the                category by the executive director of the
enterprise is higher than the national average               Agency or by a state servant authorized by
for the relevant economic activity in which the              him;
investment project is implemented, according to          • carry out marketing and other studies on the
data of the National Statistical Institute.                  account of the investors;
  The employing investor may deliver training for        • carry out investment marketing by presenting
the attainment of professional qualification through          and advertising abroad the investment
a training organisation or independently within the          opportunities in the country;
limits of the projected resources. The relationships     • prepare an annual report on the investments
in connection with the training for attainment of            in the country and on the conditions for
professional qualification are regulated according            their encouragement, which report shall be
to Commission Regulation (EC) No 68/2001, as                 submitted to the Council of Ministers via the
amended by Commission Regulation (EC) No                     Minister of Economy, Energy and Tourism.
363/2004, on the application of Articles 87 and 88       A key function of the Agency is to assist
of the EC Treaty to training aid, and according to     companies in the investment process. It provides
a procedure established by the Regulations for         to prospective investors up-dated information on
Application of the Investment Promotion Act.
  A competitive procedure for assessment and
selection of investment projects is held in two
sessions during a calendar year:                                  .
                                                       the investment process in the country, legal advice,
                                                       searching for suitable Bulgarian partners and
                                                       co-ordination of the investment policy with other

16                                     INVESTBULGARIA AGENCY
                                         InvestBulgaria Agency
                                 CHAPTER FOUR: OWNERSHIP OF REAL ESTATE

IV   OWNERSHIP OF REAL ESTATE                             reside permanently in the Republic of Bulgaria
                                                          and who are registered in that capacity in
IV.1. Legislative Framework                               Register BULSTAT with the Bulgarian Registry
      and General rRules                                  Agency. They may acquire ownership title over
                                                          agricultural and forestry lands for agricultural
     IV.1.1. Legislative framework                        purposes as from 1st January 2007 - the date
                                                          of the entry into force of the Accession Act of
      The major legislative acts governing the real       Bulgaria to the EU.
     estate and real estate transactions in Bulgaria        Citizens (“non resident citizens”) and entities
     are the Bulgarian Constitution, Property             of countries – not members of the EU and the
     Act, State Property Act, Municipal Property          EEA may acquire the ownership title over land
     Act, Agricultural Land Ownership and Use             under the terms of an international agreement
     Act, Forestry Act, Civil Procedures Code,            ratified under the terms provided for in the
     Encouragement of Investments Act, Territorial        Constitution of the Republic of Bulgaria, which
     Development Act, Contracts and Obligations Act       has been promulgated and entered into force.
     and Common Parts Management Act.
                                                            Foreigners (non-resident or resident citizens)
                                                          may acquire ownership title over land in case of
     IV.1.2. Direct acquisition of real estate            legal succession.
     in Bulgaria by foreigners and foreign                  In case of inheritance of agricultural land,
     companies                                            forests or forest land, if the foreigners do
                                                          not fulfill the conditions provided for in the
       In Bulgaria foreign citizens and foreign           Accession Act of Bulgaria to the EU, or when
     companies can directly acquire buildings,            something else is not provided for in an
     premises within a building and limited property      international agreement, shall be obliged,
     rights (e.g., a construction right, right of use).   within three years following the revealing of the
       On 20 March 2007 changes to the Bulgarian          inheritance, to transfer the ownership to persons
     Ownership Act, Forestry Act, Protected Areas         who have the right to acquire such estates.
     Act and Agricultural Land Ownership and Use
     Act were promulgated in the State Gazette. The
     changes reflect the provisions of the Accession       IV.1.3. Indirect acquisition of real estate
     Act of Bulgaria to the European Union (“EU”)         in Bulgaria by foreign companies or
     into the national legislation.                       foreigners
       After the changes citizens (“resident citizens”)
     and entities of the member states of the EU            Indirectly, foreign companies and foreign
     and the European Economic Area (“EEA”) may           citizens can acquire any type of real estate,
     acquire ownership title over land in Bulgaria in     including land, by registering a Bulgarian
     compliance with the provisions of the Accession      company to act as acquirer. It is possible for
     Act of Bulgaria to the EU. The latter provides       such a company to be 100% owned by the
     that Bulgaria, upon its discretion, can keep the     foreign investor.
     restrictions for acquisition of land by citizens       Another possibility for indirect acquisition of
     and entities from the member states: (i) for five     a real estate in Bulgaria for a foreign company
     years starting from 1 January 2007 – for the         or a foreign citizen is to buy the shares in
     land provided for second residence, and (ii) for     the capital of an already existing Bulgarian
     seven years starting from 1 January 2007 – for       company, which then may act as acquirer.
     agricultural land, forests and forest land.            Foreign companies and foreign citizens,
       The above restrictions are not applicable          furthermore, can acquire the shares in the
     to the resident citizens, who are individually       capital of a Bulgarian company, which already
     occupied farmers who wish to settle and              owns a real estate in Bulgaria.

                                                KPMG BULGARIA                                             17
                                     InvestBulgaria Agency
                             CHAPTER FOUR: OWNERSHIP OF REAL ESTATE

IV.1.4. The transaction                                     by a certified translator and legalized in
   The general rule under Bulgarian law is              •   Certificate for Good Standing of the
that transactions involving real estate (e.g. a             foreign company (applicable only in
purchase, exchange, etc.) should be executed                case of acquirer - company) – apostilled/
with a notary deed before a registered notary               legalized in the respective country and
in the region where the real estate is located.             translated in Bulgaria by a certified
The form of notary deed is mandatory not only               translator and legalized in Bulgaria, and
for transactions for transfer of ownership title        •   Power-of-attorney, signed before a notary
over real estate properties, but also regarding             and apostilled/legalized in the respective
establishment of limited property rights over real          country of signing and translated in
estate properties (e.g. construction right, right of        Bulgaria by a certified translator and
use, etc.).                                                 legalized in Bulgaria, for the person who
   After execution of the deed, the notary is               will represent the foreign investor before
obliged, by law, to register the transaction into           the Bulgarian notary (if the investor is not
the Property Registry in order to make the                  represented in person).
title of the acquirer defendable against third
parties.                                               IV.1.6.2. Indirect acquisition by foreign
   A notary deed is not required for disposal of       companies or foreigners
state or municipal property or in privatization
transactions where the simple written form is            Where foreign companies or foreign citizens
sufficient for a valid title transfer. There are        indirectly acquire real estate in Bulgaria through
also special rules and procedures governing            a Bulgarian subsidiary company, they should
the acquisition of real estate arising from            ensure that at least the following documents are
enforcement, insolvency and similar procedures,        presented:
and for in-kind contributions of real estate.            • Resolution of the competent corporate
                                                            body of the Bulgarian subsidiary approving
                                                            the acquisition of the targeted real estate
IV.1.5. The price                                        • Certificate for Good Standing of the
                                                            Bulgarian subsidiary – original or a
  The purchase price is freely negotiable and               certified copy
may be stipulated and paid in BGN or in any              • Power-of-attorney signed by the legal
other currency.                                             representative(s) of the Bulgarian
                                                            subsidiary before a notary for the person
                                                            (if this is not the person referred to in
IV.1.6. Legitimacy of the buyer                             the Certificate for Good Standing as
                                                            the person representing and binding
IV.1.6.1. Direct acquisition by foreign                     the Bulgarian subsidiary) who will
companies or foreigners                                     represent the Bulgarian subsidiary before
                                                            the Bulgarian notary executing the
  Where foreign companies or foreign citizens               transaction. If the power of attorney is
acquire directly buildings, premises or limited             signed before a foreign notary, it should
property rights they should ensure that at least            be apostilled/legalized in the respective
the following documents are presented:                      country of signing and translated in
  • Resolution of the competent corporate                   Bulgaria by a certified translator and
     body approving the acquisition of the                  legalized in Bulgaria, and
     targeted real estate (applicable only               • Unified identification code (UIC) or
     in case of acquirer - company). The                    BULSTAT (statistics) registration card (if
     resolution has to be translated in Bulgaria            applicable) of the Bulgarian subsidiary.

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IV.1.7. Statutory costs and expenses for                aware as to whether there are any
execution of a notary deed                              registered liens and/or encumbrances
                                                        over the targeted real estate, e.g.
 •   Transfer tax – specified by the Municipal           mortgages, interlocutory injunctions,
     Council of the respective municipality,            going-concern pledges, limited property
     where the real estate is located, which            rights established in favor of third parties.
     transfer tax may vary between 1,3% and             A general principle in Bulgarian law is
     2,6% over the higher of the purchase               that liens and encumbrances “follow the
     price agreed between the parties and the           property”, i.e. the registered liens and
     tax valuation made by the tax office prior          encumbrances can be enforced against
     to the transaction. According to the law           the new owner
     the transfer tax is due by the acquirer.       •   no other registered rights in favor of third
     The parties may agree that the tax is split        parties – if there are registered rental or
     between the parties or be paid by the              lease agreements over the targeted real
     seller                                             estate then the buyer shall be bound by
 •   Fee for registration in the Real Estate            them until the expiration of their term, and
     Registry – 0.1% over the higher of the         •   no court or restitution claims.
     purchase price agreed between the
     parties and the tax valuation made by the
     tax office prior to the transaction. The fee   IV.3. Special cases
     may be shared between the parties or be
     borne by just one of them, and                IV.3.1. Acquisition of ownership title and
 •   Notary fee – according to the statutory       limited property rights over marketable
     Notary Tariff, but not more than              state owned real estate properties
     BGN 3,000 (approx. Euro 1,550) per
     transaction. The fee may be shared              The ownership title or limited property rights
     between the parties or be borne by just       (e.g. construction right, right of use, etc.) over
     one of them.                                  marketable state owned real estate can be
                                                   acquired through:
                                                     • a sale purchase transaction
IV.2. Title review                                   • exchange with other real estate owned
(Real estate legal due diligence)                        by the foreign investor or its Bulgarian
                                                         subsidiary only in the cases explicitly
  Before purchasing real estate it is                    provided in the law, or
recommended that the buyer ensure verification        • an in-kind contribution into the capital of a
of the ownership status of the targeted real             Bulgarian company.
estate, including that there is/are:                 In general, the person authorized to dispose
  • a clean, valid and marketable ownership        of marketable state owned real estate is the
     title held by the seller. The seller has to   Regional Governor of the administrative region
     be, and his predecessors should have          where the property is located
     been the valid owner of the targeted            Currently the sale of the ownership title or
     real estate in order to avoid any risk        of limited property rights over marketable
     of termination or annulment of the            state owned real estate has to be performed
     transaction. Usually, this title review       through a tender. The Regional Governor
     covers the last 10 years since the            determines the tender procedure with an
     maximum acquisitive prescription term in      administrative order. After the issuance of a
     Bulgaria is 10 years                          further administrative order announcing the
  • no liens or encumbrances over the              winner of the tender, a sale-purchase contract
     property. The buyer should be fully           is concluded. The contract has to be registered

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in the Property Registry in order to make the          In cases of disposal with state owned
ownership title (or the limited property right) of   agricultural lands, forestry lands and forests
the acquirer defendable against third parties.       special disposal procedures shall be followed,
   Where the tax valuation of the property (or of    and the competent authorities are: (i) the
the construction right) is over BGN 500,000 the      Minister of Agriculture and Foods in the case
sale can only be performed after a decision of       of agricultural lands, and (ii) the Director of the
the Council of Ministers that has been initiated     State Forests Agency in the case of forests and
upon the proposal of the Minister of Regional        forestry lands.
Development. In such circumstances the                 For agricultural lands, besides the above
Minister of Regional Development performs a          specified cases of exchange of state owned
tender and on the basis of the tender results        real estates, a specific case is added, when the
issues an administrative order and then              respective real estates are included in a project
concludes the contract for the sale.                 for consolidation of agricultural lands.
   A state owned real estate may be sold without       Exchange of state owned forests and forestry
tender by the Regional Governor to a legitimate      lands with forests and lands of third parties
acquirer who has constructed lawfully a building     is permitted only in case of (i) termination of
on the said real estate (e.g. if the acquirer        existing co-ownership between the State and
possess the construction right over the said real    third parties and (ii) realization of projects of
estate).                                             the municipalities, related to construction of
   General principle provided for in the State       infrastructure objects and facilities, which are
Property Act is that an exchange of marketable       municipal property.
state owned real estate or of the construction
right over such real estate with other real estate   IV.3.2. Acquisition of ownership title
owned by individuals or legal entities may not       and limited property rights over
be performed. Such exchange is permitted by          marketable municipality owned real
the law only in the following explicitly defined      estate properties
cases: (i) the exchange is the only possible way
for termination of existing co-ownership between       The person entitled to conclude a contract
the State and individuals or legal entities and      for the sale or exchange of the ownership title
(ii) the exchange is the only way for fulfillment     and limited property rights over marketable
of obligations arising from international treaty.    municipal real estate is the Mayor of the
The exchange procedure starts with an                municipality in which the property is located.
administrative order issued by the Regional            Currently the sale of the ownership title or of
Governor, which order has to be approved by          limited property rights over marketable municipal
the Minister of Regional Development. Based          real estate has to be performed through either
on this order a contract is concluded. The           a tender or an auction. The Municipal Council
contract has to be registered in the Property        of the respective municipality should pass a
Registry in order to make the ownership title        resolution for the sale on the basis of which the
(or the construction right) of the acquirer          tender/auction is initiated. Once the result of the
defendable against third parties.                    tender/auction is determined the Mayor issues
   Where the tax valuation of the property           an order and concludes a formal contract. The
(or of the construction right) is over BGN           contract has to be registered in the Property
1,000,000 the exchange can only be performed         Registry in order to make the ownership title
after a decision of the Council of Ministers         (or the limited property right) of the acquirer
that has been initiated upon the proposal of         defendable against third parties.
the Minister of Regional Development. In               A municipal owned real estate may be sold
such circumstances the Minister of Regional          without tender by the Mayor to a legitimate
Development issues an administrative order and       acquirer who has constructed lawfully a building
then concludes the contract for the exchange.        on the said real estate (e.g. if the acquirer

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possess the construction right over the real           (or the limited property right) of the investor
estate).                                               defendable against third parties.
  General principle provided for in the Municipal        Non-implementation of the investment project
Property Act is that an exchange of marketable         of the above investor within the implementation
real estate owned by a municipality or of the          term and regarding the amount of the
construction right over such real estate with          investment should be included in the relevant
other real estate or of the construction right         contract as termination grounds.
thereof owned by individuals or legal entities           The investor may not dispose of the real
may not be performed. Such exchange is                 estate property (or of the limited property
permitted by the law only in the following             rights), acquired according the procedures
explicitly defined cases: (i) the exchange is the       under the EIA, prior to the expiry of a five-year
only possible way for termination of existing          term as from the date of implementation of the
co-ownership between the municipality and              respective investment project.
individuals or legal entities and (ii) the exchange
is the only way for fulfillment of obligations          IV.3.3.1. Sale of marketable real estate
arising from international treaty and (iii) the real   properties owned by the state without a
estates subject to the exchange are included in        tender/auction
a project for consolidation of agricultural lands.
In case of exchange the Municipal Council                The sale of marketable real estate properties
passes a resolution to effect the exchange.            owned by the state without a tender/auction is
On the basis of the said resolution, the Mayor         started by the preparation of an evaluation by
issues an order and concludes a formal                 an independent certified evaluator. The Minister
contract. The contract has to be registered            of Regional Development and Public Works and
in the Property Registry in order to make the          the Minister of Economy and Energy provide
ownership title (or the limited property right) of     a written opinion on the sale of the real estate
the acquirer defendable against third parties.         and on the evaluation. The relevant Regional
                                                       Governor can then issue an administrative order
IV.3.3. Transactions with state and                    and conclude the sale contract.
municipal owned real estate properties
without tender/auction under the                       IV.3.3.2. Sale of marketable real estate
Encouragement of Investments Act                       properties owned by the municipality
                                                       without tender/auction
  Upon the request of an investor, who has
obtained a certificate for class investment under         The sale of marketable real estate properties
the Encouragement of Investments Act (“EIA”),          owned by a municipality without a tender/
the competent state or municipal bodies may:           auction is started by the preparation of an
  • conclude with the investor a contract for          evaluation by an independent certified evaluator.
     sale purchase of marketable real estate           The Municipal Council then passes a resolution
     owned by the state or municipality without        with an administrative order issued by the Mayor
     tender/auction, or                                of the region where the real estate is located.
  • conclude with the investor a contract for          On the basis of the said resolution the Mayor
     establishment, against remuneration,              can conclude a formal contract with the investor.
     of limited property rights in favor of the
     investor over real estate owned by the            IV.3.3.3. Establishment of limited property
     state or municipality, without tender/            rights over marketable real estate
     auction.                                          properties owned by the state without a
  The above contracts must be concluded                tender/auction
in writing and be registered in the Property
Registry in order to make the ownership title           The establishment of limited property rights

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over marketable real estate properties owned         special legal entity under a simplified procedure
by the state without a tender/auction is started     at the municipal (regional) administration,
by the preparation of an evaluation by an            competent for the region where the building is
independent certified evaluator. The Minister of      located.
Regional Development and Public Works and              The general meeting of owners or the
the Minister of Economy and Energy provide           association of owners may decide to transfer
a written opinion on the sale of the real estate     by means of a contract the maintenance of the
and on the evaluation. The relevant Regional         building to a third party – individual or legal
Governor can then issue an administrative order      entity.
and conclude the sale contract.                        For the purposes of maintenance of the
                                                     common parts of a building a special “Repairs
IV.3.3.4. Establishment of limited property          and Renewal” Fund should be created. The
rights over marketable real estate                   general meeting of owners/the association of
properties owned by a municipality without           owners adopts a plan for performance of repair
a tender/auction                                     works, reconstructions, reorganizations and
                                                     others in the building. In case the competent
  The establishment of limited property rights       authorities give instructions, related to such
over marketable real estate properties owned by      activities, the repair works, reconstructions,
a municipality without a tender/auction is started   reorganizations or others should be complied
by the preparation of an evaluation by an            with them.
independent certified evaluator. The Municipal          The CPMA provides for financial sanctions in
Council should pass a resolution and the Mayor       case of breach of the decisions of the general
should issue an administrative order. On the         meeting of owners/association of the owners.
basis of the said resolution the Mayor can             Another provision of the CPMA is that the
conclude a formal contract with the investor.        management of the common parts of buildings,

IV.4. Common Parts Management

  The new Common Parts Management Act
(“CPMA”), promulgated on 23 January 2009,
which will enter into force on 1 May 2009,
                                                     and the owners of separate objects. .
                                                     constructed in a closed residential complex, is
                                                     to be arranged in a written contract, certified by
                                                     a notary public, concluded between the investor

regulates the management of the common
parts of the buildings, as well as the rights and
obligations of the owners of and the residents
in separated objects or parts thereof of the said
  The CPMA provides that the management
of the common parts of the building may be
performed either by the general meeting of the
owners of separate objects in the building or
through an association of the owners.
  The CPMA sets forth an explicit procedure for
convocation of the general meeting of owners,
as well as its rights related to the management
and maintenance of the common parts.
  A new moment in the Bulgarian legislation is
the possibility the owners of separate objects in
buildings with common parts to get registered as

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V   CONSTRUCTION                                      Minister of the Exterior, respectively issue
                                                      the same documents with respect to special
V.1. Legislative and Administrative Framework.        projects related to national defense and
     Categories of Construction Works                 security.
                                                        Administrative control for observing and
    V.1.1. Legislative framework                      applying the relevant laws and regulations
                                                      is exercised by the National Construction
      The major legislative acts governing the        Supervision Directorate (“NCSD”), as well as
    construction process in Bulgaria are the          by the municipal authorities. The municipal
    Territorial Development Act (“TDA”), the          authorities have powers that cover all
    Chamber of Constructors Act, the Chambers         phases of the construction process, including
    of Architects and Engineers in the Project        inspection of sites and all construction
    Design Act and the various Ordinances, such       documents, issuance of mandatory
    as: Ordinance No. 1 on the categorization         instructions to all project participants,
    of construction works; Ordinance No. 2            suspension of works, imposition of penalties,
    on putting into operation of completed            prohibition of access, etc. NCSD has the
    construction works and the minimum warranty       same powers and it is in addition entitled to
    periods for them; Ordinance No. 3 on the          review appeals against construction permits
    acts and protocols executed in the course         issued, ban the use of materials, restrict the
    of construction works; Ordinance No. 4 on         operation of construction projects, which are
    the scope and contents of project designs;        not properly put into operation, and to order
    Ordinance No. 7 on the rules and norms            the demolition of illegal construction works.
    for development of the different types of
    territories and development zones, etc.
      Provisions concerning separate aspects          V.1.3. Categories of construction works
    of the design and construction process are
    contained in a number of other acts not            Construction projects are divided by
    directly related to construction, as well as in   TDA into 6 categories depending on their
    the ordinances issued by each municipality        characteristics, significance, complexity and
    with respect to works executed on their           operational risks:
    territory.                                         I - big infrastructure projects of national
                                                            significance such as highways; class I
                                                            and II roads; railways; public ports and
    V.1.2. Administrative bodies                            airports; electric power plants and heating
                                                            plants with a capacity of over 100 MW;
      The issuance of the principal documents in            industrial plants with over 500 working
    the construction process – visas, approvals             places; metallurgical and chemical plants,
    of project designs, construction permits and            mines, quarries, cultural monuments of
    operation permits (with a few exceptions) –             national or international significance, etc.;
    typically falls within the competence of the       II - smaller projects of national or regional
    chief architect of the respective municipality,         significance such as roads of class III;
    against payment of a fee that is determined by          facilities and installations for treatment
    each municipality on the basis of the type and          of waste; public service buildings and
    size of the works. Where projects concern               facilities for over 1000 visitors; industrial
    more than one municipality, or more than one            plants with 200–500 working places;
    district, these documents are issued by the             25–100 MW electric power plants and
    relevant district governor, or by the Minister          heating plants, cultural monuments of
    of Regional Development and Public Works,               local significance, etc.;
    respectively. The Minister of Defense, or the      III - projects of local significance such as

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       municipal roads and streets; tall residential       employing such individuals. Designers
       and multi-purpose buildings; public service         are responsible for the preparation
       buildings and facilities of more than 5000          of the project design and, if explicitly
       m2 or for 200–1000 visitors; industrial             assigned by the investor, for carrying out
       buildings with 100–200 working places;              preliminary research and investigation.
       up to 25 MW electric power plants and               They also exercise author’s supervision
       heating plants; parks and gardens of over           for compliance of the construction works
       1 ha, etc.;                                         with the design, and are authorized to
  IV - private roads; medium-height residential            issue instructions in that respect, which
       and multi-purpose buildings; public service         are mandatory for other participants in
       buildings and facilities of 1000–5000 m2            the process. In all categories of projects
       or for 100–200 visitors; industrial buildings       except VI, the author’s supervision is
       with 50–100 working places; parks and               mandatory for the structural part of the
       gardens of up to 1 ha, etc.;                        works; an extension of the designer’s
  V - low-height residential and multi-purpose             scope may be agreed in the contract with
       buildings; villas; public service buildings         the investor.
       and facilities of less than 1000 m2 or for      •   The contractor is a registered trader
       less than 100 visitors; industrial buildings        that executes the construction works
       with less than 50 working places, etc.;             under a contract with the investor. The
  VI - temporary structures erected for the                contractor can be local trader registered
       purpose of construction and other minor             under the Bulgarian Commercial Act
       works for which no approval of the design           or a foreign trader registered under its
       is required and a construction permit only          national legislation. As from 3 January
       is issued.                                          2008 a precondition for execution of
  It is important to categorize the project                construction works by the contractors is
properly, as the requirements for its                      the registration at the Central Constructors
implementation vary depending on the                       Register, administrated by the Chamber of
category.                                                  Constructors. Exempted from registration
                                                           are the contractors executing villas,
                                                           residential and commercial-residential
V.2. Participants in the construction                      buildings with 10 meter height, executing
process. Insurance                                         VI category construction works, and
                                                           performing repair or reconstruction of
  The persons recognized by the law as                     V category construction works. The
participants in the construction process with              contractor is responsible for execution of
their specific obligations are: the investor, the           the works in compliance with the approved
designer, the contractor, the consultant, the              design and permits, and the legal
structural engineer, the technical controller              requirements concerning construction
and the supplier of plant and equipment. The               works, methods, materials and products,
relations between the project participants                 as well as for preparing the “as-made”
must be settled by written contracts.                      documentation for the works, if this role
  • The investor is the person, individual or              is explicitly assigned to him under the
     legal entity, that has ownership title, or the        construction contract.
     right to construct on the land plot on which      •   The consultant is a trader that has been
     construction works are to be carried out.             licensed by the Minister of Regional
  • The designer of the construction                       Development and Public Works for
     works can be an individual who has a                  exercising independent supervision over
     degree in his area of specialization, as              construction works and for carrying out
     well as designer capacity, or an entity               compliance evaluations of project designs.

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    Apart from these two activities, such a         •   The structural engineer is an individual
    person may be appointed by the investor             possessing the special capacity for
    also to carry out preliminary research              exercising technical control over the
    and investigation, preparation of the               structural part of detailed project designs
    design process and/or co-ordination of the          (technical and execution designs). He
    construction process until the completed            must also countersign the “as-made”
    works are put into operation.                       documentation.
                                                    •   The technical controller is an individual
  TDA mandates that a consultant be                     with technical education (secondary
appointed by the investor for supervising               professional diploma or university
the construction works categories I to IV.              degree) managing the execution of the
The supervision of category V works can                 construction works on behalf of the
be exercised by the technical controller.               contractor. If the works are executed
Category VI construction works are not                  by the investor himself, he is obliged to
subject to supervision. The supervisor                  appoint a technical controller. Technical
(consultant or technical controller):                   controllers are also responsible for the
  • is responsible for the lawful                       supervision of works in category V, where
     commencement and execution of the                  no consultant has been appointed by the
     construction works, the completeness               investor.
     and correctness of all acts and protocols      •   If the investor has assigned the supply
     executed during the construction, the              and the assembling of the construction
     fitness of the completed works for putting          plant to a supplier, then the latter is, by
     into operation, the assessment of their            virtue of the law, responsible for its due
     energy efficiency and their accessibility to        and timely supply and assemblage, as
     disabled persons;                                  well as for the passing the relevant tests
  • is obliged to inform the regional branch            thereof.
     of NCSD of any breach of the technical
     norms and regulations it has identified in        Designers, consultants, contractors,
     the course of the construction works;         structural engineers and supervisors are
  • is authorized by law to certify the order      obliged to insure for professional liability for
     book for the construction works and to        damage caused as a result of unlawful acts
     issue mandatory instructions and orders to    or omissions in the course of the fulfillment
     the contractor, that can be appealed within   of their obligations. A special Ordinance
     3 days before NCSD;                           determines the minimum liability limits under
  • must sign almost all of the acts and           the insurance policies for different project
     protocols executed in the course of the       participants and for different categories of
     construction works and issue a final report    works.
     to the investor upon their completion;           As the mandatory insurance covers the
  • is jointly liable with the contractor for      minimum liability of the insured under
     any damage resulting from breach of           any project in which it participates during
     the technical norms and regulations, or       its term of validity, the investor may, in
     deviation from the approved designs.          its contracts with the respective project
  When appointing a consultant, investors          participants, require that they undertake
should bear in mind that a consultant              additional insurance especially for their own
cannot act as a supervisor or carry out the        project. Extended insurance coverage (e.g.
compliance evaluation of designs for projects      contractor’s-all-risks, employer’s liability, etc.),
in which it or its employees or related parties    if required by the investor, has to be agreed
are involved as designers, contractors or          contractually, as it is not mandatory under the
suppliers.                                         law.

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V.3. Preliminary research and                        Project designs must be subjected to
investigation                                      an evaluation of their compliance with the
                                                   detailed development plan, the territorial
V.3.1. Preliminary research and                    development norms and regulations, the legal
investigation                                      requirements concerning construction works,
                                                   the requirement for coordination between
  Prior to commencing any works, the investor      the separate parts of the design and for
may require that preliminary research and          completeness, and the structural integrity of
investigation be made in order to determine        the engineering calculations.
the most appropriate location and to estimate        Compliance evaluation for projects in
the legal admissibility and expedition of the      category I or II must be made by a consultant
project. Though not a mandatory phase              (different from the designer), who issues
of the process, it is often necessary and          a report on its findings. In addition, the
useful for the investor to obtain in advance       structural part of the technical and execution
data on the site specifics (e.g. geological,        designs must be evaluated by a structural
seismic, hydrological, climatic and other          engineer.
conditions, existing structures and networks         In lower construction categories the
in and around the site). The scope of such         appointment of a consultant is optional; if such
preliminary research and the person(s) to          is not appointed, the compliance evaluation
which it is assigned will vary depending           is made by the municipal Expert Council, but
on the type of project and the investor’s          only after the structural part of the design has
requirements.                                      been approved by a structural engineer.

V.3.2. Visa                                        V.4.2. Approval of the project design.
 In specific cases listed in TDA the investor
must, before commencing the design of the            Project designs must be approved by the
project, obtain permission for drafting the        respective administrative bodies before
project design entered on an excerpt from the      commencement of the construction works.
detailed development plan covering the plot        For the purpose of getting an approval, the
and the surrounding properties (a visa). As        investor must present to the competent
per TDA, the visa should be issued by the          authorities the design itself, the compliance
chief architect of the municipality within 14      evaluation report, preliminary agreements with
days after being requested.                        the utility companies for connection to their
                                                   technical infrastructure networks, as well as
                                                   approvals from the controlling authorities (e.g.
V.4. Project design                                fire safety department, sanitary inspection
                                                   agency, environmental authorities), if such are
V.4.1. Execution. Compliance evaluation            necessary. The prescribed term for approval
                                                   is 7 days after submission of all required
 Execution and approval of the project’s           documents, or 1 month – in the event that the
design is a precondition for commencing the        compliance evaluation was not made by a
construction works for all construction projects   consultant.
with the exception of category VI projects.          The approved project design serves as
 The design’s scope depends on the specific         grounds for the issuance of a construction
project and it should be stipulated in a written   permit. The investor may apply simultaneously
contract, signed between the investor and the      for this with the submission of the design for
designer.                                          approval. The approval of the design loses

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its validity if within 1 year the investor has not   also to execute an ex officio inspection on the
applied for a construction permit.                   issued construction permit within 7 days after
  The refusal to approve project designs can         its announcement. Construction permits that
be appealed by the investor before NCSD              have entered into force cannot be repealed.
within 14 days after the refusal.

                                                     V.5.3. Changes in the project design
V.5. Construction permit                             after the issuance of the construction
V.5.1. Required documents. Procedure.
Validity                                               Such changes are allowed only if they are
                                                     not substantial, and are reflected in the “as-
  An issued construction permit is the second        made” documentation. Substantial changes
precondition for commencing the construction         such as changes in: the type of structure;
works.                                               structural elements and/or loads; in the
  For issuance of a construction permit the          purpose of separate parts of the works; the
investor must submit an application to the           type and location of installations in buildings;
respective authority, supported with the             or the type, level or location of technical
ownership title/construction right documents,        infrastructure or transportation networks,
the visa (if applicable), three copies of the        can be made only after the design thereof
project design, the compliance evaluation            has been approved and attached to the
report, along with the approvals of the              construction permit.
controlling authorities (if applicable).
  As per TDA, the permit should be issued
within 7 days after the request. The approved        V.6. Commencement and execution of
project design is an integral part of the            construction works
construction permit.
  The permit expires if construction works           V.6.1. Acts and protocols executed
have not commenced within 3 years or if the          during construction works
rough construction has not been completed
within 5 years of its issuance, but it can be          The date of commencement of the
revalidated within 1 year after it being expired     construction works is deemed to be the
against payment of 50 % of the fee due for a         date on which the protocols of opening of
newly issued permit.                                 the construction site and of determining the
                                                     construction line and level (Protocol 2) are
                                                     signed by the supervisor. As from 3 January
V.5.2. Appeals                                       2008 precondition for signing of Protocol
                                                     2 is signing of a construction contract with
  The issuance of, or the refusal to issue, a        a contractor duly registered at the Central
construction permit can be appealed by the           Constructors Register. Protocol 2 is one of
interested parties before the regional branch        the most important records to be compiled
of NCSD, within 14 days of them being                during construction: in it, the supervisor
notified thereof. Determination of who are the        enters the results of all inspections it has
interested parties depends on the scope of           made upon reaching the major levels of
the construction project. Such parties could         construction, before authorizing the contractor
be, for example, the owners of the land plot         to proceed with the next level. It is mandatory
where the construction project is located or         for all categories of works except those in
the owners of the neighbouring land plots.           category VI.
  The regional branch of NCSD is entitled              Within 3 days of signing of Protocol 2, the

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                                 CHAPTER FIVE: CONSTRUCTION

supervisor certifies the order book for the        which contains a full set of drawings of the
works and informs the municipality, NCSD and      works as they were actually executed. The
the utility companies of certification. The book   “as-made” documentation is countersigned
will contain all orders and instructions of the   by the investor, the contractor, the supervisor
competent persons and authorities concerning      and the structural engineer, and is submitted
the works.                                        to the administrative body that has issued the
  In addition to the above protocols and an       construction permit, which must stamp each
order book, a number of other standard-form       page.
acts and protocols have to be compiled during       If it is evident from the “as-made”
the construction process, such as acceptance      documentation that the works were executed
of the executed works before covering,            with a substantial deviation from the approved
interim and final acts of acceptance of the        design, the respective administrative body
various stages of works, etc. Ordinance           notifies NCSD or the respective municipal
No. 3 determines in detail the 17 standard        authorities.
types of acts and protocols, their contents,
and the persons who compile and sign them.
The acts and protocols serve as evidence          V.7.2. Acceptance of the completed
for the circumstances recorded therein and        works by the investor and the
concerning the commencement, execution            supervisor
and completion of the works.
                                                    The completion of construction is certified by
                                                  execution of a protocol (the so called “Act 15”)
V.6.2. Legal requirements concerning              which is signed by the investor, the designer,
construction works                                the contractor and the supervisor. Act 15 is
                                                  the document evidencing the delivery and
  Construction works must be executed             acceptance of the completed works between
in compliance with the legal requirements         the contractor and the investor. With it, they
contained in various laws and regulations         certify that the works have been executed in
concerning: bearing capacity, the stability and   compliance with the approved design, the “as-
durability of structures and the foundation       made” drawings, the legal requirements for
base under operational and seismic loads;         the construction works and the terms of the
fire safety; protection of people’s lives,         construction contract.
health and property; safety of operation;           Based on Act 15, the supervisor prepares a
preservation of the environment during            final report on the execution of the works.
the time of construction and of use of the
completed works; economy of heat energy
and heat insulation; accessibility, etc. The      V.8. Permitting the use of completed
responsibility for compliance with these          works. Warranty periods
requirements is borne jointly by the contractor
and the supervisor.                                 Completed works or parts thereof can only
                                                  be used after having been put into operation
                                                  in the manner prescribed by TDA.
V.7. Completion                                     Works of categories I to III are put into
                                                  operation on the basis of a permit for
V.7.1. “As-made” documentation                    operation and/or occupancy issued by
                                                  NCSD following the procedure established
  Upon completing the works the contractor        in Ordinance No. 2. For the purpose of its
(or another person appointed by the investor)     issuance, a special committee is appointed
must prepare the “as-made” documentation          by the Director of NCSD upon request of

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                                  CHAPTER FIVE: CONSTRUCTION

the investor, supplemented with: (i) the final      V.9. Limitation of Liability
report of the supervisor; (ii) the major acts
and protocols signed during the construction;        Our advice in this document is limited to the
(iii) certificate of registration of the works in   conclusions specifically set forth herein and
the Cadastral Agency; (iv) signed contracts        is based on the completeness and accuracy
with the utility companies for connecting          of the above-stated facts, assumptions and
the completed works to the technical               representations. If any of the foregoing facts,
infrastructure networks. All costs related         assumptions or representations is not entirely
to the committee’s work are borne by the           complete or accurate, it is imperative that we
investor.                                          be informed immediately, as the inaccuracy or
   The committee includes the investor, the        incompleteness could have a material effect
supervisor, representatives of NCSD and the        on our conclusions. In rendering our advice,
special supervisory authorities. The chairman      we are relying upon the relevant provisions
of the committee is entitled to appoint other      of the current legislation in Bulgaria, the
persons involved in the construction process.      regulations thereunder, and the judicial
Upon inspection of the completed works             and administrative interpretations thereof.
and the relevant documents, the committee          These authorities are subject to change,
issues Protocol 16 for accepting or rejecting      retroactively and/or prospectively, and any
the works (the so called “Act 16”). Based on       such changes could affect the validity of our
it, the Director of NCSD issues the permit for
operation and/or occupancy. The legislative
term for completing the procedure, is about
40 days.
   The procedure for works in categories IV
and V is simplified and involves just a desktop
review of the documents for the construction
                                                   conclusions. We will not update our advice
                                                   for subsequent changes or modifications to
                                                   the law and regulations or to the judicial and
                                                   administrative interpretations thereof.

(which are substantially the same as those
necessary for Act 16) and their registration for
commencement of operation. It is performed
by the chief architect of the municipality, and
ends with the issuance of a certificate that
permits operation and/or occupancy, which as
per TDA should be done within 7 days after all
necessary documents have been submitted by
the investor.
   Works of VI category can be used without
issuance of permit for operation, respectively
– certificate for operation.
   The contractor remains responsible for the
works executed by him for a specified period
after their completion. The minimum warranty
periods are prescribed by the law and vary
from 5 to 10 years, depending on the type
of work. The warranty period for road repair
works is usually 1 year. Longer periods can
be determined contractually.

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                                        InvestBulgaria Agency

VI   LABOUR AND SOCIAL SECURITY                          Higher Education Act, State Employee Act, ,
     LEGISLATION OF BULGARIA                             Ministry of Internal Affairs Act, Defense and
                                                         Armed Forces Act, Judicial System Act and
VI.1. Bulgarian Labour Legislation                       Civil Aviation Act.
                                                           The most important sub-legislative
     VI.1.1. Normative Provision                         normative acts that fall within the field of
                                                         labour law are: Regulation on Working
       The Bulgarian legislation related to labour       Hours, Rests And Leaves, Regulation on the
     law is characterized by codified and detailed        structure and the organization of the labour
     provisions established in our Constitution,         remuneration, Regulation of Business Trips
     the Labour Code, a number of legal acts and         and Specialization Abroad and Regulation of
     many regulations and rules. The Labour Code         Business Trips in the Country, Regulation No 7
     lays down the principles, rules and manner for      on the minimum requirements for healthy and
     labour implementation at the territory of the       safe working conditions in the place of work
     Republic of Bulgaria within the framework of an     and in case of the use of working equipment,
     employment relationship.                            etc.
       The Labour Code determines the territorial          Of course, along with the national legislation,
     scope of the effect of the Bulgarian labour         the Republic of Bulgaria has ratified a number
     legislation; scope of persons in relation to        of Conventions in the field of employment
     which it is applied; trilateral cooperation;        relationships, such as: the Convention
     levels of labour negotiation; employees’            on working hours, the Convention on
     organizations; employers’ organizations; basic      unemployment, the Convention on employees’
     labour rights and obligations; types and content    representatives, the Convention on annual paid
     of labour contracts; general contents and           leaves and the Convention on discrimination
     amendment of the employment relationship;           in the labour sphere and professions, etc.
     preserving employment relationships in case of      These conventions аre an integral part of the
     change of the employer; working hours, rests        Bulgarian legislation and in case of controversy
     and leaves; labour remuneration; termination        between any internal law and any of these
     of employment relationships and explicitly          Conventions, Bulgarian courts are obliged to
     listed grounds for it; compensations related to     apply directly the provisions of the respective
     employment relationships; safe and healthy          Convention.
     working conditions; special protection of certain     As of 01.01.2007 integral parts of the
     categories of employees; labour disputes and        Bulgarian legislation are also all labour related
     control for protection of the labour legislation.   Regulations and Directives of the European
       Laws containing provisions for employment         Union. In case of controversy between any
     relationships may be divided into two               internal law and any of EU regulations,
     basic groups: general laws developing the           Bulgarian courts are obliged to apply directly
     Labour Code and special laws regulating             the provisions of the latter.
     employment relationships of special categories
     of employees. There are numerous acts in
     both groups which makes their exhaustive            VI.1.2. Legal Definitions
     enumeration impossible for the format of
     such an overview. Within the first group               The labour legislation indicates legal
     fall: Protection Against Discrimination Act,        definitions of the basic labour terms as follows:
     Safe and Healthy Working Conditions Act,            Employer - is any natural person, legal entity or
     Encouragement of Employment Act, Settling           its division, as well as any other organizational
     Collective Labour Disputes Act, Employees’          and economically separated formation
     Secured Claims in Case Of Employer’s                (enterprise, establishment, organization,
     Insolvency Act. The second group includes:          cooperation, economy, institution, household,

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company, etc.) which independently employs           or joint ventures, and of foreign nationals
employees under employment relationship;             appointed to work in this country in Bulgarian
  Enterprise – is any place - enterprise,            enterprises or joint ventures pursuant to
establishment, organization, cooperation,            treaties shall also be regulated by the Labour
establishment, site, etc – where employed            Code, insofar as not provided otherwise in
labour is implemented;                               a law or a treaty to which the Republic of
  Place of Work – is any premises, workshop,         Bulgaria is a party.
room, location of machinery, equipment or any
other similar territorial specific place within the   Labour Contracts
enterprise where the employee implements the
labour assigned by his employer in pursuance           The Bulgarian law codifies two types of
of his obligations arising out of the employment     labour contracts: individual and collective ones.
relationship;                                        Both of them are concluded in writing and are
  Working time - is any period during which the      subject to subsequent registration.
worker or employee is obligated to execute the         There is no collective labour agreement
work on which the said worker has agreed.            in Bulgaria established at a national level
                                                     but there is a National Council for trilateral
                                                     cooperation comprising representatives
VI.1.3. General Review of the Labour                 of the Council of Ministers, representative
Legislation                                          organizations of employees and employers.
                                                     The Council has advisory functions and its own
  The Bulgarian labour legislation is based on       formations on a branch, trade and municipal
principles generally applicable to the labour        level.
law of the European Union: freedom and                 Collective labour bargaining exists on three
protection of labour, social dialogue between        levels: enterprise, branch and industry field.
the state and employees’ and employers’              For businesses that are financed by the
organizations for regulation of employment           budget of a municipality a Collective Labour
relationships, a ban on discrimination, sexual       Agreement (CLA) is possible at the level of the
equality regarding the right to employment           respective Municipality. The Collective labour
and remuneration, guaranteeing the labour            bargaining regulates issues of the labour and
remuneration, fixed working hours, limitation         social security relations of employees, which
of overtime work, guaranteeing rests and             are not regulated by mandatory provisions of
leaves, preserving the labour relation in            the law. A collective labour agreement shall not
case of change of the employer, collective           contain clauses which are more unfavourable
arrangements and freedom of association of           to the employees than the provisions of the law
employers and employees.                             or of a higher grade of CLA, which is binding
  According to the last amendments of the            upon the employer.
Labour Code , the Bulgarian labour legislation         A CLA should be registered, depending on
is applicable to all employment relationships        their level, with a special register of the local
of Bulgarian citizens, citizens of the European      or Central Labour Inspectorate. The term of
Union and citizens of the countries parties of       validity of the CLAs may not exceed 2 years.
the Agreement of the European Economic Area          CLA are applicable only to the employees
and of the Confederation of Switzerland with         that are members of syndicalist organization
employers in the Republic of Bulgaria, as well       - party to the contract. In case they are not
as with Bulgarian employers abroad insofar as        members of such an organization, they may
not provided otherwise in a law or a treaty to       choose to participate to the CLA, conducted by
which the Republic of Bulgaria is a party. The       their employer, upon written declaration to the
employment relationships of Bulgarian citizens       employer or to the syndicalist organization –
sent to work abroad in foreign enterprises           party to the contract.

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  The individual labour contract are to be           or short-term work and activities, as well
concluded between the employee and the               as with newly hired workers or employees
employer before the commencement of the              in enterprises that have been adjudicated
job. Individual labour contracts are subject to      bankrupt or put into liquidation. As an
registration within three days as of their signing   exception, a fixed-term employment contract
with the respective division of the National         may be concluded for a period of not less than
Revenue Agency.                                      one year and for work and activities that are
  Upon conclusion of the labour contract the         not of a casual, seasonal or short-term nature.
employer shall introduce the employee to the         Such an employment contract may also be
labour obligations ensuing from the position         concluded for a shorter period upon request
occupied or the nature of the work performed.        in writing by the worker or employee. Any
According to the latest amendments of the            employment contract, concluded in violation
Labour Code, the employer has to provide             of these principles shall be considered as a
the employees with a copy of the description         contact of an indefinite duration.
of their activities and scope of responsibilities
before the conclusion of the contract. The           Working hours, rests and leaves
obligatory contents of the individual labour
contract was extended and it must now                  The normal duration of the workday,
specify the place, position occupied and             according to Labour Code, is eight hours. The
nature of work, duration of the labour contract,     working week consists of five days, with normal
date of execution and commencement of                duration of 40 hours. Along with the normal
performance, amount of basic and extended            working hours, the Labour Code defines
annual paid leave and additional annual paid         extended and shortened working time, flex
leaves, identical term of advance notices            time, shift work, night work, etc.
for both parties in case of termination of the         There should be one or several rests during
labour contract, basic and additional labour         the day. The lunch break should not last less
remunerations of constant nature as well as          than 30 minutes.
the periodic terms for their payment and the           Each worker or employee is entitled to a paid
duration of the working day or week.                 annual leave. In case of beginning work for
                                                     the first time, the worker or employee may use
  The employment contract may be concluded:          his or her paid annual leave after acquiring
  • for an indefinite period; or                      at least eight months’ length of employment
  • as an employment contract for a fixed             service. The amount of basic paid annual
      term.                                          leave is not less than 20 working days. Certain
  Fixed term employment contracts are: for a         categories of workers or employees, depending
definite period which shall not be longer than 3      on the special nature of work, are entitled to
years, insofar as a law or an act of the Council     extended paid annual leave. The categories of
of Ministers does not provide otherwise;             such workers or employees and the minimum
until completion of some specified work; for          amount of such leave are determined by the
substitution of an employee who is absent from       Council of Ministers.
work; for working at a job which is to be taken        According to the new amendments of the
through a competitive examination, for the time      Labour Code the maternity leave is extended
until it is taken on the basis of the competitive    from 315 to 410 days, 45 of which are taken
examination; for a certain mandate, where            before the birth of the child. It should be noted
such has been specified for the respective            that no other European country provides such
body or an employment contract for a trial           a long maternity leave. Another innovation is
period.                                              the right granted to the father to use the rest of
  A fixed-term employment contract shall be           the maternity leave once the child is 6 months
concluded for execution of casual, seasonal          old, subject of the mother’s consent. Moreover

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the father of a new-born child is entitled to take   Termination of the employment
15 days leave upon the birth of a child.             relationship

Preserving employment relationships                    As with the signing of labour contracts,
in case of change of the employer                    termination of labour contracts is done in
                                                     writing. The termination procedures and
  With similarities to the legislation of the        grounds for termination of labour contracts are
European Union, the Bulgarian labour                 specified in detail in the Bulgarian labour law.
legislation envisages retention of the               The types of termination of labour contracts
employment relationship in case of a change          may be divided in several basic groups:
of employer. The employment relationship with          • Procedures where termination requires
the employee shall not be terminated in the                consent of the other party or procedures
event of a change of employer as a result of:              where termination involves the will and
  • merger of enterprises by the formation of a            actions only of the party entitled to initiate
     new enterprise;                                       termination – termination by mutual
  • merger by acquisition of one enterprise by             consent or unilateral termination of the
     another;                                              contract;
  • distribution of the operations of one              • Termination procedures via advance
     enterprise among two or more enterprises;             notice or termination procedures where no
  • passing of a self-contained part of one                advance notice is required. The maximum
     enterprise to another;                                terms of the advance notice are specified
  • change of the legal form of business                   in the Labour Code: 1 month for non-fixed
     organization;                                         term contracts unless anything else is
  • change of the ownership or of a self-                  specified in the contract, but in any event
     contained part thereof;                               not more than 3 months, and 3 months for
  • cession or transfer of activity from one               fixed term contracts, but not more than the
     enterprise to another, including transfer of          remainder to the expiry of the contract;
     tangible assets.                                  • Termination procedures of the contract
                                                           upon a motion of the employer and
  In these cases, the rights and obligations               termination procedures upon a motion
of the transferor employer arising from the                of the employee. However, while the
employment relationships existing on the                   employee may terminate the labour
date of the change shall be transferred to the             contract without stating any grounds, the
new transferee employer. The employment                    employer cannot use such a procedure.
relationship with the employee does not                    Within seven days after the termination of
terminate also in the event of a change of                 the employment contract, the employer or
employer as a result of renting, leasing or                a person authorized thereby is obligated
granting under concession of the enterprise or             to send a notification of this to the relevant
of an autonomous part thereof. In these cases              territorial directorate of the National
the rights and obligations of the old employer             Revenue Agency.
arising from employment relationships existing         The Labour Code provides for a special
on the date of the change shall be transferred       termination of the labour contract whereby
to the new employer. Upon expiry of the              the employer can propose, at his initiative,
contract for rental, lease or concession, the        to the worker or employee termination of the
employment relationships with the workers or         employment contract against indemnification.
employees shall not be terminated but shall          If the worker or employee makes no comment
revert to the old employer thereof. The old and      in writing on the proposal within 7 days it
the new employer shall be jointly liable for all     shall be considered rejected. If the worker or
obligations towards the workers or employees.        employee accepts the proposal for termination

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against indemnification the employer shall                stipulated);
owe him/her an indemnification amounting to               - Upon termination of the employment
not less than the quadruple size of the last             relationship due to an illness: 2 months’
received monthly gross remuneration, except              pay (provided service of at least 5 years
if the parties have agreed upon a larger size            and during the last 5 years of service not
of the indemnification. If such indemnification            received any compensation on the same
is not paid within one month from the date of            grounds);
termination of the labour contract, the grounds          - Upon termination of the employment
for its termination shall be considered dropped.         relationship after employee has acquired
   There are no special Bulgarian courts for             the right to a pension for insured service
consideration of labour disputes as in certain           and age, irrespective of the grounds for
other European countries, but the Bulgarian              the termination: 2 months’ pay; by service
legislation establishes a special procedure for          with the same employer for ten years: 6
consideration of labour disputes. A particular           months’ pay;
feature of considering labour disputes is that           - Compensation for unused paid annual
employees are released from paying fees and              leave.
taxes related to the court procedure. The new
Civil Procedure Code implements a special           VI.1.4. Incentives
legal procedure for cases concerning the rights
of the workers or employees which aims to             Incentives in the sphere of labour law are
facilitate and shorten the proceedings.             aimed mainly at decreasing unemployment
                                                    and enhancement of employment. Those
Compensations related to the                        are established in the Encouragement
employment relationship                             of Employment Act and the Rules on its
                                                    application. The incentives are payment
 The Labour Code provides for certain               of funds from the Employment Agency to
compensations, as briefly scheduled below:           employers who open new job positions,
 • Compensation for failure to observe the          preserve opened job positions in case of
   termination notice - equal to the amount of      decrease of the working volume, hiring
   the employee‘s gross labour remuneration         unemployed women over the age of 50
   for the remainder of the notice period;          years and unemployed men over the age
 • Compensation for terminating the                 of 55, engaging unemployed persons of
   employment relationship without notice           decreased working ability, hiring unemployed
   - to the extent of the gross pay for the         women mothers or single parents, employing
   notice period in case of a labour contract       permanently unemployed persons, etc.
   for an indefinite period; and to the amount       An employer wishing to apply for an
   of the real damages (on the basis of the         encouragement of employment program
   gross pay for the period during which the        should be registered pursuant to the existing
   employee was unemployed but not more             legislation and lack any claimed public liability.
   than the remainder of the employment             Depending on the particular program, other
   relationship) in case of a labour contract       requirements may also be specified.
   for a fixed term;                                   Further, the Bulgarian Corporate Income Tax
 • Compensation for dismissal on other              Act stipulates some incentives and stimuli as
   grounds:                                         follows:
   - Upon dismissal due to closing down of            • incentives for hiring unemployed persons
   the enterprise or part of it, staff reduction,        which find expression in reduction of
   reduction of the volume of work and                   the accounting financial result with the
   work stoppage for more than 15 working                installments made by the employer in
   days: 1 month’s pay (unless otherwise                 Personal Income Tax Fund and National

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     Health Insurance Fund for the period of 12       by codification: its basic provision is grounded
     months;                                          in the Social Security Code. The procedure
  • the corporate tax is assigned to the              provisions are newly settled in the Bulgarian
     amount of 60 % to agricultural producers         Tax and Social Security Procedure Code.
     under the condition that they invest the           The legal acts representing part of the
     assigned tax into long-lasting material and      normative provision on social security are
     non-material assets;                             The Budget of the State Social Security
  • the corporate tax is assigned to the              Acts, which are adopted annually. Issues of
     amount of 100% for the period of 5 years         general importance from the sublegislative
     to companies that operate in agriculture,        acts in the sphere of social security are: the
     manufacturing industry, manufacture, high        Regulation on elements of remuneration
     technologies and infrastructure, when they       and income over which are deposited social
     invest up to 10 million BGN annually and         security installments; Regulation on granting
     assets are acquired, which are new to the        and payment of financial compensations for
     company and are not utilized before their        unemployment; Regulation on pensions and
     acquisition, and this incentive does not fall    security length of service; Regulation on social
     under the category of a minimal state aid;       security funds and the Regulation on social
  • the corporate tax is assigned to the              security of self-secured persons and Bulgarian
     amount of 100% when manufacturing                citizens working abroad.
     activity is performed in municipalities with       The Republic of Bulgaria is a party to a
     unemployment higher than the average for         number of international agreements in the
     the country, as this right is preserved for      sphere of social security such as: Contracts
     the following 5 years after the municipality     for social security between the Republic of
     is no longer in the list with municipalities     Bulgaria and Spain, Republic of Macedonia
     with higher unemployment than the                and the Ukraine; Agreements with the Slovak
     average for the country.                         Republic, Czech Republic, Federal Republic of
  In accordance with the principle that the           Germany, Hungary and Libya, etc.
granting of state aid should be in appliance            As of 01.01.2007 integral parts of the
with the common market regulations, the               Bulgarian legislation are also all social
Bulgarian tax legislation, as well as the             security related Regulations and Directives of
special State Aid Act stipulate for various           the European Union. In case of controversy
restrictions for the granting of tax incentives,      between any internal law and any of EU
which are qualify as state aid, including the         regulations, Bulgarian courts are obliged
infrastructure development aids. The Bulgarian        to apply directly the provisions of the latter.
Corporate Income Tax Act provides for certain         Some of the more important Community law
exceptions from the above restrictions within         legislation includes the following: Directive
the framework of the minimal state aid (De            86/378/EEC on the implementation of the
minimis aid).                                         principle of equal treatment for men and
                                                      women in occupational social security
                                                      schemes, Regulation (EEC) No 1408/71 of the
VI.2. Bulgarian Social Security                       Council on the application of social security
Legislation                                           schemes to employed persons and their
                                                      families moving within the Community, Council
VI.2.1. Normative Provision                           Regulation (EEC) No 574/72 laying down
                                                      the procedure for implementing Regulation
  The right to social security and social relief is   (EEC) No 1408/71 on the application of social
determined in the Constitution of the Republic        security schemes to employed persons, to
of Bulgaria. Similarly to the labour legislation,     self-employed persons and to members of their
the provision of social security is characterized     families moving within the Community.

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VI.2.2. Legal Definitions                                 registered as sole practitioners /as
                                                         freelancers and/or exercising craftsmen
  Of all legal definitions specified in the                activity; persons performing work as
provisions of the social security, we shall              sole traders, owners or partners in
review just the three basic terms.                       commercial corporations; registered
  • Obligatory insured persons for all social            agricultural producers and tobacco
     risks (i.e. general disease and maternity,          producers; persons who perform work
     disability because of general disease,              without entering into an employment
     old age and death, accident at work and             relationship and who receive a monthly
     professional disease, unemployment) –               remuneration equal to or exceeding one
     pursuant to article 4 of the Social Security        minimum wage less the expenses allowed
     Code such persons are: the workers or               for standard deduction, unless insured
     employees hired to work for more than               on different grounds during the relevant
     five working days or 40 hours, within a              month; persons who perform work without
     calendar month, regardless of the nature            entering into an employment relationship
     of the work, the mode of pay, and the               and who are insured on different grounds
     source of funding. Persons included in              during the relevant month, regardless of
     the From Social Welfare to Employment               the amount of the remuneration received.
     Programme and the Maternity Support             •   Social Insurance Contributors – according
     Programme shall not be insured against              to article 5 of the Social Security Code
     unemployment; the civil servants; the               this is any natural person, legal entity or
     judges, prosecutors, investigating                  non-personified entity, as well as any other
     magistrates, executive judges, recording            organizations obligated by the law to make
     magistrates, and judicial officers; the              social security contributions for other
     career servicemen under the Defence                 natural persons.
     and Armed Forces of the Republic                •   Self-insured person – a natural person
     of Bulgaria Act and the civil servants              obligated to make his social insurance
     under the Ministry of Interior Act and              contributions entirely at its own account.
     the Implementation of Penal Sanctions
     Act; the co-operative members, who
     perform work and receive remuneration          VI.2.3. General Review
     at the co-operative; the co-operative
     members, who work at the co-operative             The authorities governing the social
     without entering into an employment            insurance system are the Ministry of Labour
     relationship, shall not be insured against     and Social Policy and the National Social
     unemployment; the persons who work             Security Institute. The Ministry develops,
     under a second employment contract or          coordinates and implements state policy in the
     under and additional employment contract;      field of public social insurance.
     the contractors under contracts for               The National Social Security Institute directly
     management and control of commercial           administers social insurance. As a structure,
     corporations; persons performing work          it consists of a Supervisory Board, Governor
     and receiving income from elective office,      and Deputy Governor. The Supervisory
     with the exception of the ministers holding    Board comprises one representative of each
     a spiritual title of the Bulgarian Orthodox    representative organization of workers or
     Church and other registered religions          employees and of employers and an equal
     under the Religious Denominations Act.         number of governmental representatives
  • Obligatory insured persons for limited          designated by the Council of Ministers, one
     social risks (disability due to a general      of whom is the Executive Director of the
     disease, old age and death) are persons        National Revenue Agency. The Governor and

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the Deputy Governor of the National Social           the social insurer and the social secured
Security Institute are elected by the National       person. The security installment for the funds
Assembly for a term of office of four years.          Unemployment and Maternity and general
                                                     disease are kept at a 60 to 40 ratio, instead
State social security                                of the initially planned for year 2009 55 to 45
                                                     ratio. Also a new method of distribution of the
  Social security relations in the Republic          security installment for the fund Pension has
of Bulgaria may be divided in two general            been introduced as of 1.1.2009.
groups: relations regarding the state social           Security installments for state social security
security and relations regarding the additional      which are to the account of social insurers are
social security. The state social security           deposited simultaneously with the payment of
covers the risks of general disease, labour          remunerations. Social security installments to
accident, professional illness, maternity,           the account of socially secured persons are to
unemployment, old age and death. There are           be deducted and deposited upon payment of
special funds collecting the resources allocated     the remuneration. Security installments for self-
to each of them. The basic principles of the         secured persons and persons employed under
state social security are: equality of socially      no employment relationships are deposited by
secured persons, compulsory compliance,              the tenth day of the month following the month
universal coverage, solidarity of socially           they refer to.
secured persons, and fund organization of
the social insurance sources. This means that        Supplementary social insurance
all members of the society contribute to the
collection of the resources in the social security     The principles of functioning of the
funds, but the social security compensations         supplementary social insurance differ
are paid only to those for which the socially        considerably from those of the mandatory
covered risks arise.                                 social insurance. The additional social
  The income over which security installments        security consists of: additional obligatory
are assessed includes all remunerations and          pension security in case of old age and death;
other income received from labour activity.          additional voluntary pension security in case
The Budget of the State Social Security Act          of old age, disability and death; additional
for the respective year determines the amount        voluntary security for unemployment and/
of social security installments depending on         or vocational training. Supplementary social
the encompassed social risks as well as the          insurance is implemented by participation in
minimum and maximum security income for              universal and/or occupational pension funds,
the year. With the new amendments of the             funds for supplementary voluntary pension
Social Security Code as of 1.1.2009 a more           insurance on occupational schemes and
complex system of distribution of the security       funds for supplementary voluntary insurance
installments was introduced. For the year 2009       for unemployment or vocational training.
the amount of security installments regarding        The latter are managed by licensed pension
employees working at the third (basic)               insurance companies or insurance companies
category of labour for the fund „Pension“ range      for unemployment and/or vocational training.
between 13-18%, depending on the age of the          Individual lots are opened for each insured
secured person; for fund “General Disease and        person and the amounts collected therein
maternity” – 3,5%; for fund “Unemployment” –         are paid in the event of the respective social
1% and for labour accident and illness - from        risk or may be withdrawn from the lot by the
0,4% up to 1,1%.                                     beneficiary, that is, the principles of mutual
  There are considerable amendments in               participation and solidarity do not apply to
the Social Security Code concerning the              supplementary social insurance. The money on
distribution of security installments between        individual lots is calculated in leva and in units.

                  BELOKONSKI GOSPODINOV & PARTNERS IN COOPERATION WITH                               37
                           KARASEK WIETRZYK RECHTSANWÄLTE
                                   InvestBulgaria Agency

The value of one unit depends not only on the       to inheritance pension if the insured person
contributions made, but on the profitability of      dies. Supplementary voluntary insurance for
the investment of the money which is subject to     unemployment and/or vocational training is
imperative rules. Insured persons may transfer      made in funds for supplementary voluntary
the money on their individual lot to another        insurance for unemployment or vocational
fund, or withdraw them on certain conditions.       training. Insurance in such funds entitled the
                                                    insured persons to benefits in the event of
Supplementary mandatory and                         unemployment and/or money for attendance of
voluntary pension insurance                         vocational trainings.

  Supplementary mandatory pension insurance
is made in universal and occupational               VI.2.4. Incentives
pension funds in keeping with the principle for
mandatory nature of the insurance. Persons            Incentives in the area of social security are
born after 31 December 1959 are insured             directed mainly at tax reliefs:
for supplementary pension in case they are            • Income of universal and professional
insured in the manner of the mandatory state             pension funds is not subject to taxation
social insurance, as well as persons working             pursuant to the Corporate Income Tax Act;
under the conditions of first and second               • Income from investments of pension funds
category of labour, regardless of their age.             distributed to the individual lots of secured
  As of 1.1.2009 the social security contribution        persons is not subject to taxation pursuant
for persons insured in an universal pension              to the Taxation of Income of Natural
fund is 5% and is distributed between the                Persons Act;
social insurer (2,8%) and the social insured          • Individual security installments for
person (2,2%), while for an occupational                 additional obligatory pension security
pension fund it is 12% for persons working               are deducted from the income prior to
under the conditions of first category of                 taxation;
labour and 7% for persons working under
the conditions of second category of labour,
and the contributions are entirely borne by
the social insurer. Persons insured in an
universal pension fund acquire entitlement to
supplementary pension for old age for life, and
those insured in an occupational pension fund
                                                      • Installments made by employers for
                                                         additional obligatory pension security are
                                                         acknowledged as costs related to their
                                                         business activity.

– occupational pension for early retirement for
a certain period.
  Supplementary voluntary pension insurance
is made in a supplementary voluntary
pension insurance fund and supplementary
voluntary pension insurance on occupational
schemes in keeping with the principle for
voluntary nature of the insurance. Insured
persons are those 16 years of age and
older. Social security contributions for
supplementary voluntary pension insurance
have no fixed amount. Insured persons acquire
entitlement to personal pension for old age,
personal pension for disability, and if certain
prerequisites are met, their heirs are entitled

                           KARASEK WIETRZYK RECHTSANWÄLTE
                                           InvestBulgaria Agency
                                            CHAPTER SEVEN: TAXATION

VII   TAXATION                                                •   the natural persons who are merchants
                                                                  within the meaning given by Article 1
VII.1. Direct Taxation of Corporations                            (3) of the Commerce Act (persons who
                                                                  have established a business, which in
        The taxation of corporate income and profits               accordance with its purposes and volume
      is governed by the Corporate Income Tax Act                 requires that its activities be conducted on a
      (“CITA”). In connection with the accession of               commercial basis) : in the cases specified in
      Bulgaria to the European Union since January                the Income Taxes on Natural Persons Act ;
      1st 2007, a new CITA was adopted to meet the            •   the employers and the commissioning
      necessity of harmonization of Bulgarian taxation            entities under contracts for management
      legislation with the requirements of the European           and control: in respect of the tax on the
      directives concerning direct taxation. Another              expenses on fringe benefits.
      reason for passing a new act in the field herein
      is to make perception and application of the             For the purposes of taxation of income from
      corporate taxation easier for the taxable persons      a source inside the Republic of Bulgaria, any
      and for the revenue administration.                    non-resident organizationally and economically
                                                             distinct formation (trust, fund and other such),
        Apart from the corporate income tax which            which independently carries out economic
      is charged on the corporate profits, CITA also          activity or performs and manages investments,
      regulates certain other taxes, such as:                shall likewise be a taxable person where the
        • A tax alternative to corporation tax shall be      owner of the income cannot be identified.
           levied on: gambling businesses; the income          A significant amendment in corporate taxation
           accruing to public-financed enterprises from       is that legal entities are no longer liable to final
           commercial transactions, as well as from          annual (license) tax whatever their activity is.
           letting movable and immovable property;           Pursuant to the previous CITA legal entities
           the vessels operation activity;                   that perform specific activities and have annual
        • Taxes on corporate expenses. Any                   turnover less than 50000 lv were liable to the
           expenses defined as compulsory by a                mentioned final tax.
           statutory instrument shall be recognized for
           tax purposes and shall not attract a tax on
           expenses;                                         VII.1.2. Corporate Income Tax
        • Withholding tax on income accruing to any
           resident and non-resident legal persons.            Corporate income tax in Bulgaria applies in a
                                                             single rate of 10%.

      VII.1.1. Taxable Persons
                                                             VII.1.3. Profits Subject to Tax
       Taxable persons are:
       • the resident legal persons;                           Bulgarian resident companies are subject
       • the non-resident legal persons which                to Bulgarian tax on their world-wide profits.
          carry out economic activity in the                 Companies that are non-residents in Bulgaria
          Republic of Bulgaria through a permanent           are liable to taxes in respect of the profits gained
          establishment or which receive income from         through a permanent establishment in the
          a source inside the Republic of Bulgaria;          Republic of Bulgaria and of the income specified
       • the sole traders: in respect of the taxes           in the CITA accruing from a source inside the
          withheld at source and in the cases                Republic of Bulgaria.
          specified in the Income Taxes on Natural              A company is resident in Bulgaria if it is
          Persons Act (when they perform activities          incorporated (registered) pursuant to Bulgarian
          liable to taxes alternative to corporation tax);   legislation. Resident companies are also

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                                    InvestBulgaria Agency
                                     CHAPTER SEVEN: TAXATION

any companies incorporated under Council             •     The permanent tax differences are sums
Regulation (EC) No 2157/2001, and any                      which affect the tax financial result only
cooperative society incorporated under Council             once.
Regulation No 1435/2003, where the registered         They are accounting income or expenses
office thereof is situated in the country and they   which are not recognized for tax purposes and in
are entered into a Bulgarian register.              this regard for the purposes of determination of
  Most of the taxation rules, including the major   the tax financial result, where this CITA indicates
rules relating to tax incentives, apply equally     that:
to resident and non-resident corporations             - a cost (loss) is not recognized for tax
conducting activities through a Bulgarian                  purposes, the accounting financial result
permanent establishment.                                   shall be credited with any such cost (loss)
                                                           in the year of accounting for the said cost
                                                           (loss), and the accounting financial results
VII.1.4. Determination of Profits for                       shall not be adjusted during the succeeding
Tax Purposes                                               years;
                                                      - an income (profit) is not recognized for tax
  Profits are determined in accordance with                 purposes, the accounting financial result
the generally accepted accounting principles               shall be debited with any such income
(provided for in the respective accounting                 (profit) in the year of accounting for the said
standards), subject to adjustments for tax                 income (profit), and the accounting financial
purposes. Currently, the corporate taxpayers               results shall not be adjusted during the
should mandatory apply the International                   succeeding years.
Financial Reporting Standards (IFRS)                  Thus, the expenses or income, not recognized
adopted by the European Commission for              for tax purposes, defined as a permanent
accounting purposes and approved by the             tax difference, shall never be recognized, i.e.
Bulgarian Council of Ministers. There is a          the taxable result shall be increased with the
statutory requirement for banks, insurance          relevant expense in the year of its accounting
companies, other financial institutions and          and thus shall increase the taxable profit, and
public companies to apply IFRS as a primary         shall not affect the tax result any more.
accounting basis. Legal entities that qualify         For example the following accounting
for small and medium size enterprises (SME)         expenses shall not be recognized for tax
may choose whether to apply the IFRS or             purposes: any non-business expenses; any
the Bulgarian Generally Accepted Accounting         expenses on fines charged, forfeitures and
Principles (BGAAP). SMEs that are eligible          other sanctions imposed for violation of statutory
to apply the BGAAP are enterprises with             instruments, any default interest charged
personnel less than 250 people and annual           for late payment of public state or municipal
turnover up to BGN 15 million or with total         debts; expenses which are considered hidden
value of the non-current tangible assets not        distribution of dividends, expenses made without
exceeding BGN 8 million.                            justifying documents, etc. The accounting
  Accounts are to be prepared in Bulgarian          expenses on donations to a total amount of up
Leva (BGN), regardless of the functional            to 10 per cent of the positive accounting financial
currency of the respective company.                 result (accounting profit) shall be recognized for
  Generally, the taxable profit (pursuant to the     tax purposes where the expenses on donations
terminology in the CITA the taxable profit is        are incurred in favor of specific institutions or
called “tax financial result”) is determined in      enterprises and many others (such as medical
accordance with the accounting financial result      facilities, social housing within the meaning
adjusted for tax purposes for: the permanent        of the Social Aid Act, kindergartens, schools,
tax differences; the temporary tax differences      etc.). The following accounting income shall not
and specific amounts provided in the CITA.           be recognized for tax purposes: any income

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                                     CHAPTER SEVEN: TAXATION

resulting from distribution of dividends by          time the amount of the penalty is decreased to
resident legal persons; any income from interest     20 % of the expense.
payments on unduly remitted or collected               • The temporary tax differences affect the
public obligations, as well as on value added              tax financial result for more than one
tax not refunded within the statutory time limits,         accounting period. They are accounting
charged by the central-government or municipal             income or expenses which are recognized
authorities.                                               for tax purposes in a tax period other than
  For the first time in Bulgarian corporate tax             the year of accounting of the said income or
legislation the new CITA provides regulation               expense, which is due to the specific of the
regarding accounting expenses on incorporation             respective transactions. The mechanism by
of a legal entity. These expenses are not                  which the temporary tax differences affect
recognized for tax purposes at the incorporators.          the tax result is similar to the one pointed
The unrecognized expenses shall be recognized              out above concerning the permanent tax
for tax purposes upon determination of the                 differences. In particular, where an expense
tax financial result of the newly established               is defined as a temporary tax difference,
legal person in the year of commencement                   in the period of its accounting the taxable
of the legal existence thereof. The tax law                profit shall be increased thereby, but in a
provides the hypothesis that the legal entity              subsequent tax period upon occurrence of
is not established despite all the efforts of the          certain circumstances, determined by the
incorporators. In this case expenses referred              law, these expenses shall be recognized for
to herein shall be recognized for tax purposes             tax purposes and thus shall affect again the
upon occurrence of circumstances determining               tax result by decreasing it.
that the legal existence of a new legal person         An example of temporary tax differences
will not commence. The said expenses shall be        are interest costs. Interest costs are
recognized in the year of occurrence of the said     normally deductible on accrual basis, subject
circumstances.                                       to the limitations provided in the Bulgarian
  Since 1 January 2008 a new type of expenses        thin capitalization rules. The latter apply to
is included in the expenses which are not            substantially all forms of financing, except for:
recognized for tax purposes and represent            1) any interest payments on financial leases
a permanent tax difference. These are the            and bank loans, except where the parties to
expenses which constitute hidden profit               the transaction are related parties or the lease
distribution. The definition of “hidden profit         or the loan, as the case may be, is guaranteed
distribution” is also amended – it shall be: any     or secured by or is extended on the order of
expenses, charged by a taxable person without        a related party; 2) any penalty charges for
being connected with the economic activity           late payments and damages; 3) any interest
carried out thereby or exceeding the customary       unrecognized for tax purposes on other grounds
market levels, in the cases where made in favour     in CITA.
of shareholders, members or any parties related        Under the thin capitalization rules, if the debt-
thereto; any expenses on interest payments           equity ratio of the taxpayer does not exceed 3:1
charged (unless the conditions of the loan are       as of the end of the respective calendar year the
agreed in conformity with requirements provided      interest costs can be deducted for tax purposes
for in a statutory instrument) where certain         in full. If the debt equity ratio is higher than 3:1,
conditions are fulfilled. Till the end of 2007 only   then the maximum tax deductible portion could
the income from such distribution was regulated      not exceed the sum of the interest income of the
and a penalty in the amount of 50 % of the           taxpayer and 75% of the accounting financial
expense was provided for entities, performing        result before all expenses on interest payments
such distribution. Presently, these expenses are     and income from interest receivable. The portion
not recognized for tax purposes and the taxable      that appears to be non-deductible in the current
profit shall be increased with them. In the same      year can be carried forward and deducted in

                                   PENKOV · MARKOV & PARTNERS                                          41
                                    InvestBulgaria Agency
                                      CHAPTER SEVEN: TAXATION

the following five years, subject to the formula            thereof by a judicial procedure or has
described above.                                           redeemed the said claim; the crediting shall
  A general rule is that an accounting expense             be effected by the amount redeemed;
shall be recognized for tax purposes where it is       -   before the lapse of the prescription period,
supported by an accounting source document                 the debts have been extinguished by virtue
within the meaning given by the Accountancy                of a law;
Act. An accounting expense shall be recognized         -   the taxable person has submitted a motion
for tax purposes even where part of the                    for expungement.
information required under the Accountancy Act
is missing in the accounting source document,
provided that documents certifying any such           VII.1.5. Valuation of Depreciable
missing information are available. There are          Assets for Tax Purposes.
some other exceptions, provided in the law.           Depreciation and Amortization
  The law enumerates some amounts with which
the tax financial result is adjusted:                    Tax depreciable assets are
  • Where the disposition of any shares and             • the tax tangible fixed assets;
      any negotiable rights attaching to shares         • the tax intangible fixed assets;
      in public companies, shares in and units of       • the investment properties, with the
      collective investment schemes, is effected            exception of land;
      on a regulated Bulgarian securities market,       • the subsequent expenses associated with
      upon determination of the tax financial                asset written off from the tax depreciation
      result the accounting financial result:                schedule
  - shall be debited with the profit determined          Goodwill generated as a result of a business
      as a positive difference between the            combination is not a tax depreciable asset.
      selling price and the documented cost of        Any loss from impairment and upon write-off
      acquisition of the said securities, and         of goodwill shall not be recognized for tax
  - shall be credited with the loss determined        purposes.
      as a negative difference between the              Taxable persons who form a tax financial result
      selling price and the documented cost of        prepare and keep a tax depreciation schedule,
      acquisition of the said securities.             posting therein all tax depreciable assets.
  • Tax treatment of debts. Upon determination        The tax depreciation schedule is a tax ledger
      of the tax financial result, the accounting      wherein the information, regarding the process
      financial result shall be credited with the      of acquisition, subsequent keeping, depreciation
      amount of the debts of the taxable person,      and write-off of the tax depreciable assets, shall
      and the said crediting shall be effected        be posted.
      in the year in which one of the following         Depreciable assets are valued for tax purposes
      circumstances occurs:                           at historical acquisition cost. Additions and
  - the debts are extinguished by prescription,       improvements to such assets are recognized
      but not more than five years after the time      as separate depreciable assets and are subject
      when the debt became exigible;                  to depreciation in accordance to the tax rates
  - the bankruptcy proceedings against the            applicable to the main asset.
      taxable person have been closed by a              The depreciable assets are divided into several
      confirmed plan for rehabilitation which          categories:
      provides for incomplete satisfaction of the       • Category I: solid buildings, including
      creditors; the crediting shall be effected by         investment properties, plant, transmission
      the amount of the diminution in the debt;             facilities, electric power carriers,
  - an effective judgment of court has decreed              communication lines;
      that the debt or part thereof is undue;           • Category II: machinery, process equipment,
  - the creditor has relinquished the claim                 apparatus;

42                                  PENKOV · MARKOV & PARTNERS
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                                         CHAPTER SEVEN: TAXATION

 •  Category III: means of transport excluding           loss during the first year after incurrence of
    automobiles; surfacing of roads and of               a tax loss, during which the said person has
    runways;                                             formed a positive tax financial result before
 • Category IV: computers, computer                      deduction of the tax loss. If the taxable person
    peripheral equipment, software, and right            has not formed a positive tax financial result
    to use software, mobile phones;                      before deduction of the tax loss until the date
 • Category V: automobiles;                              of tax control, the person shall be presumed
 • Category VI: tax tangible and intangible              to have exercised the right thereof to election
    fixed assets whereof the period of use                which means that the term is preclusive. The
    is restricted according to contractual               company is not obliged to submit any returns,
    relationships or a legal obligation;                 therefore it notifies the revenue administration
 • Category VII: all other depreciable assets.           by its annual return.
 The annual rate of tax depreciation is                    Another innovation is that the tax loss must
determined on a single occasion for the year             be deducted upon determination of the tax
and may not exceed the following amounts:                financial result within the total amount of the
                                                         positive tax financial result before deduction of
 Asset category    Annual rate of tax depreciation (%)   the tax loss. Where the tax loss is less than the
        I                          4
                                                         positive tax financial result before deduction
                                                         of the tax loss, the full amount of the said
        II                         30
                                                         loss shall be deducted upon determination
        III                        10                    of the tax financial result. The tax loss shall
        IV                         50                    furthermore be deducted upon determination of
        V                          25                    the quarterly prepayments of corporation tax.
                    100/years of legal restriction         Any tax loss, formed during the current
        VI            The annual rate may not            year in a State wherewith the Republic of
                           exceed 33 1/3                 Bulgaria has concluded a convention for the
       VIII                        15                    avoidance of double taxation and the method
                                                         of avoidance of double taxation with respect
   Der Tax depreciation rates can be freely              to profits is exemption with progression, shall
chosen by taxpayer, within the above                     not be deducted from the tax profits from
maximum rates, and are not linked to the                 a source inside the country or other States
accounting depreciation rates or the useful              during the current or succeeding years. The
life of the asset. The choice of the applicable          tax loss referred to herein shall be deducted
tax depreciation rates can be changed                    in compliance with the requirements of this
each calendar year and the change applies                Chapter successively solely from the tax profits
prospectively.                                           from the source outside Bulgaria from which
                                                         the said loss has been incurred during the next
                                                         succeeding five years.
VII.1.6. Utilization of Losses                             Where a taxable person has formed a tax
                                                         loss and the said loss or a part thereof has its
  The tax loss can be carried forward for five            source outside Bulgaria in respect of which
consecutive years to offset the taxable profit            source the credit method for avoidance of
reported in these years. Losses cannot be                double taxation is applied, the loss which is
carried back.                                            not deducted during the current year shall be
  According to the new CITA (unlike the                  deducted during the next succeeding five years
previous one) the taxable person is entitled             in compliance with the requirements of this
to choose whether to carry forward losses                Chapter successively solely from the tax profits
or not. The taxable person can exercise the              from the source outside Bulgaria from which
right thereof by means of deduction of the tax           the said loss has been incurred.

                                       PENKOV · MARKOV & PARTNERS                                      43
                                     InvestBulgaria Agency
                                      CHAPTER SEVEN: TAXATION

VII.1.7. Group Taxation. Transactions                tax prepayments are made for the fourth quarter.
Between Related Parties                                An annual balancing payment is made before
                                                     the 31st day of March of the next succeeding
  There is no group taxation in Bulgaria. Each       year. It is calculated as a balance between the
entity is taxed as a separate taxpayer.              annual tax liabilities reported in the tax return
  Bulgaria has tax rules regulating the tax          and monthly provisional installments paid.
deductions and the taxable revenue from
transactions between related parties (“the
transfer pricing rules”). Transfer pricing rules     VII.1.9. Intra-community Dividends
apply to both domestic and international
transactions between related parties. The              With regard to the accession of the Republic of
Bulgarian transfer pricing rules are broadly         Bulgaria since January 1st 2007 a new chapter
similar to the generally accepted OECD               of the CITA was passed – “Intra-community
standards that could be seen in the EU and           dividends” which implements Directive 90/435.
OECD countries.                                      Pursuant to these provisions the pressure
                                                     of taxation and tax treatment is equal for
                                                     transactions between Bulgarian legal entities
VII.1.8. Tax reporting and Tax Payments              and between companies seated in different
                                                     member states.
  In Bulgaria the tax year coincides with the
calendar year. The taxable persons must
submit an annual tax return in a standard form       VII.2. Corporation Tax Reduction,
regarding the tax financial result and the annual     Retention and Exemption
corporation tax due on or before the 31st day
of March of the next succeeding year. Any            VII.2.1. Corporation Tax Retention
taxable person, who fails to submit such a tax
return or fails to submit it within the legal term     Corporation tax retention is the right of a
or fails to state or misstates any particulars or    taxable person not to remit to the executive
circumstances leading to underassessment of          budget the amounts of corporation tax, which
the tax due or to undue reduction, retention of or   subsist in the patrimony of the taxable person
exemption from tax, shall be liable to a pecuniary   and are spent for purposes prescribed by a law.
penalty of BGN 500 or exceeding this amount          CITA provides some specific requirements for
but not exceeding BGN 3,000.                         the taxable persons in order to be entitled to take
  The corporate income tax is paid through           advantage of tax retention.
making monthly/quarterly provisional tax
payments. Monthly tax prepayments are made           VII.2.2. Corporation Tax Exemption
by taxable persons who have formed a tax
profit for the last preceding year. Quarterly tax       Collective investment schemes, which have
prepayments are made by taxable persons              been admitted to public offering in the Republic
who are under no obligation to make monthly          of Bulgaria, and licensed investment companies
tax prepayments. The monthly prepayments             of the closed-end type under the Public Offering
are generally based on the tax profit for             of Securities Act, are exempt from the levy of
the preceding year, adjusted for economic            corporation tax.
indicators. Monthly tax prepayments are remitted       Special purpose investment companies under
on or before the 15th day of the month to which      the Special Purpose Investment Companies Act
the said prepayments apply. Quarterly tax            are exempt from the levy of corporation tax, too.
prepayments are remitted on or before the 15th
day of the month next succeeding the quarter to      VII.2.3. Corporation Tax Incentives
which the said prepayments apply. No quarterly

44                                  PENKOV · MARKOV & PARTNERS
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                                     CHAPTER SEVEN: TAXATION

  Corporation tax incentives are divided into             aid – it is limited within certain amounts
General tax incentives and Regional incentives.           of state aid, determined by law. The
  The General incentives on their part are:               retained tax must be invested in material
1) tax incentives upon hiring of unemployed               or immaterial fixed assets within four years
persons (such legal entities are entitled to debit        after the beginning of the year for which
the accounting financial result by the amounts             the tax is retained. Again, a precondition
paid for labor remuneration and the contributions         for the availability of this aid is the taxable
remitted for the account of the employer to the           person to perform its manufacturing activity
public social insurance funds and the National            only in municipalities where the rate of
Health Insurance Fund during the first twelve              unemployment for the year preceding the
months after the hiring); 2) incentives for               current year is by 35 per cent or more
enterprises hiring people with disabilities (these        higher than the national average for the
taxable persons are allowed to retain 100 % of            same period. In this case the taxable
the corporation tax under certain conditions); 3)         person is entitled to retain 100 % of the
incentives for agricultural producers (they are           corporate tax.
allowed to retain 60 % of the corporation tax         •   Tax Relief for Activity Carried Out in
under specific conditions) etc.                            Agriculture, the Manufacturing Industry,
                                                          Production, High Technologies and
  The regional tax incentives.                            Infrastructure - Any taxable persons shall
  Bulgarian Corporate Income Tax Act was                  be allowed to retain 100 per cent of the
recently (in force as of 01.01.2008) heavily              corporate tax for a period of five years in
amended in the area of state aid. The new                 respect of the taxable profit accruing thereto
provisions, basically arrange specific forms               from activity carried out in agriculture, the
of tax retention, admissible under certain                manufacturing industry, production, high
conditions, as defined by law.                             technologies and infrastructure, where the
  • Tax relief, representing state aid for                certain conditions are fulfilled (such as for
     regional development – it is allowed under           example: the contemplated investment to
     the condition that the retained tax shall            exceed BGN 10 million annually, the assets
     be invested in assets, necessary for the             acquired as part of the investment referred
     performance of initial investment. The               to in above are new as fabricated and have
     law also requires the initial investment             not been exploited prior to the acquisition
     to be made within four years after the               thereof, etc.)
     beginning of the year for which the tax
     was retained; the initial investment to be        The tax legislation provides for specific
     made in municipalities where the rate of        requirements for the different types of state aid.
     unemployment for the year of retention is by
     35 per cent or more higher than the national
     average for the same period etc. The            VII.3. Alternative Taxes
     taxable entity is required to perform all its
     manufacturing activity only in municipalities   VII.3.1. Gambling businesses
     where the rate of unemployment for the
     year preceding the current year is by 35          The taxable amount for assessment of the tax
     per cent or more higher than the national       on gambling activities of toto and lotto, betting
     average for the same period. In this case       on the outcome of a sports competition and
     the taxable person is entitled to retain 100    uncertain events is the value of the bets taken
     % of the corporate tax. A positive opinion of   for each game and the tax rate is 10%.
     the European Commission is required for           The taxable amount for assessment of the tax
     providing of such state aid;                    on gambling activities of lotteries, raffles and
  • Tax relief, representing minimum state           bingo and keno numbers lotteries is the nominal

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value of the bet as specified in coupons, cards,         •   they do not refuse to train apprentices on
tickets or other tokens certifying participation and        board the vessels, with the exception of the
the tax rate is 12%.                                        cases where the number of apprentices
  The taxable amount for assessment of the tax              exceeds one per fifteen officer members of
on gambling activity of games where the value               the ship’s complement;
of the bet consists in an increased charge for a        •   they man the vessel with Bulgarian citizens
telephone or another telecommunication link is              or with nationals of other Member States
the increase in the charge for the telephone or             of the European Community or of the
telecommunication link. The tax rate is 12%                 European Economic Area;
                                                        •   vessels flying the Bulgarian flag or a flag
VII.3.2. Tax on Public-financed                              of another Member State of the European
Enterprise Income                                           Community or of the European Economic
                                                            Area account for at least 60 per cent of the
  Any income accruing to public-financed                     net tonnage of the vessels operated.
enterprise from commercial transactions
covered under Article 1 of the Commerce Act,             These persons may elect their activity to attract
as well as from rent of movable and immovable          a tax on vessels operations activity. The tax
property, shall attract a tax on income. The           shall be levied on the taxable persons who have
monthly taxable amount is the income accruing          elected to be liable for the said tax for a period
to the public-financed enterprise during the            not exceeding five years. The tax rate is 10%.
relevant month. The annual taxable amount is
the respective income accruing to the public-
financed enterprise during the relevant year.           VII.4. Tax on Corporate Expenses
  The tax rate is 3 %. The rate of tax on income
accruing to the municipalities is 2 %.                   Bulgaria levies taxes on certain expenses. The
                                                       taxes are charged monthly. The expense and the
VII.3.3. Tax on Vessels Operation                      tax thereon shall be recognized for tax purposes
Activity                                               in the year of charging and shall not form a
                                                       temporary tax difference. In case the taxable
  Taxable persons are the persons carrying             person has over remitted any tax on expenses
out maritime merchant shipping which                   or any corporation tax, the said tax may be
simultaneously fulfill the following conditions:        deducted from the tax on expenses due.
  • they are corporations registered under               The tax rate for taxes on all kinds of expenses
     the Commerce Act, or permanent                    is 10%. With regard to the fact that the tax on
     establishments of a corporation which             expenses is recognized for tax purposes, the
     is resident for tax purposes in another           effective tax rate is 9%
     Member State of the European Community,             The following expenses, supported by
     or a Member State of the European                 documents, are subject to tax on expenses:
     Economic Area, according to the relevant
     tax legislation and by virtue of a convention     VII.4.1. Business Entertainment
     for the avoidance of double taxation with a       Expenses
     third State is not considered to be resident
     for tax purposes in another State outside           Taxable persons are the persons which are
     the European Community or the European            subject to levy of corporation tax. Therefore the
     Economic Area;                                    expenses of legal entities, subject to alternative
  • they operate their own vessels or chartered        tax, are not levied with the tax herein.
     vessels, or manage vessels under a                  The tax is levied on the gross amount of
     contract of management, as well as charter        business entertainment expenses for the
     vessels;                                          respective month.

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VII.4.2. Benefits to the Personnel                     benefits provided in kind debited with the income
(“Social Expenses”)                                   related to the said expenses for the relevant
                                                      month. The taxable amount for assessment of
  The taxable expenses are expenses on                the tax on expenses on contributions (premiums)
fringe benefits provided in kind to factory and        for voluntary retirement and health insurance
office workers and to persons hired under              and voluntary unemployment and/or vocational-
a management and control contracts (hired             training insurance, and/or life assurance and life
persons). These expenses furthermore include:         assurance linked to an investment fund is the
  • the expenses on contributions (premiums)          excess of the said expenses over BGN 60 per
     for voluntary retirement and health              month per hired person. The taxable amount
     insurance and voluntary unemployment             for assessment of the tax on expenses on food
     and/or vocational-training insurance, and/or     vouchers is the excess of the said expenses
     life assurance and life assurance linked to      over BGN 60 per month per hired person.
     an investment fund;
  • the expenses on food vouchers
                                                      VII.4.3. Expenses Relating to Use and
   Expenses on fringe benefits, which are not          Maintenance of Company Vehicles
provided in kind and which constitute income of
a natural person, are taxed under the terms and         The taxable amount for assessment of the
according to the procedure established by the         tax on these expenses are the expenses on
Income Taxes on Natural Persons Act.                  maintenance, repair and operation of means of
   Taxable persons are all employers or               transport, charged during the calendar month,
commissioning entities under management and           debited with the income charged from insurance
control contracts.                                    benefits associated with the means of transport,
   No tax shall be levied on expenses on fringe       up to the amount of the expenses on repair
benefits not exceeding the amount of BGN 60            incurred whereto the benefit applies. If means
per month per hired person, where the taxable         of transport are used concurrently to carry out
persons do not incur any coercively enforceable       activity as a regular business and to service
public obligations at the time of incurrence of the   management operations, upon determination of
expenses. No tax shall be levied on expenses          the taxable amount:
not exceeding the amount of BGN 60 per month,           • the expenses on operation shall relate to
provided in the form of food vouchers to each               the management operations on the basis
hired person if certain conditions are fulfilled.            of the total kilometers covered for the said
  No tax shall be levied on any expenses on                 operations during the current month;
fringe benefits incurred on transportation of            • the expenses on maintenance and repair
factory and office workers and of persons hired              shall relate to the management operations
under a management and control contract                     on the basis of the kilometers covered for
from the place of residence to the place of                 the said operations in relation to the total
work and back. The latter does not apply if any             kilometers covered by the relevant means
such transportation is carried out by passenger             of transport during the last preceding twelve
car or by extra bus services. However the                   months, including the current month.
expenses herein shall not be levied with tax if
the transportation of factory and office workers
is carried out by passenger car to inaccessible       VII.5. Withholding Tax Obligations
and remote areas and the taxable person cannot
ensure the implementation of the activity thereof       Subject to such a tax is only the income of
without incurrence of the expense.                    resident and non-resident legal entities whereas
  The taxable amount for assessment of the tax        the income of natural persons is regulated by
on social expenses is the expenses on fringe          Income Taxes on Natural Persons Act.

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  Corporate taxpayers are subject to the              •    income from financial assets issued by
following main withholding obligations:                    resident legal persons, the Bulgarian State
                                                           and the municipalities;
VII.5.1. Repatriation of Profit/Dividend                • income from transactions with such
Withholding Tax                                            financial assets;
                                                       • the following income, charged by resident
  Bulgarian resident corporations which distribute         legal persons, resident sole traders or
dividends have to withhold dividend withholding            non-resident legal persons and sole traders
tax from dividend distributions in favor of:               through a permanent established or a fixed
  • non-resident legal persons, with the                   base in the country or paid by resident
      exception of the cases where the dividends           natural persons or by non-resident natural
      accrue to a non-resident legal person                persons who have a fixed base in the
      through a permanent establishment in the             country:
      country;                                         - interest payments, including interest within
  • resident legal persons which are not                   payments under a financial lease contract;
      merchants, including any municipalities.         - income from rent or other provision for use
                                                           of movable or immovable property;
 No withholding tax is levied if the dividends         - copyright and license royalties;
are distributed in favor of resident legal person      - technical assistance fees;
who participates in the capital of the company         - payments received under franchising
as a representative of the State, common fund              agreements and factoring contracts;
or foreign legal person who is resident for tax        - compensations for management or control
purposes in a Member State of the European                 of a Bulgarian legal person.
Union or in another State which is a Contracting       • income from agriculture, forestry, hunting
Party to the the Agreement on the European                 ground management and fisheries within
Economic Area..                                            the territory of the country;
                                                       • income from immovable property or
  The taxable amount for assessment of the                 from transactions in immovable property,
tax withheld at source on dividends is the gross           including an undivided interest or a limited
amount of the dividends distributed.                       right in rem to any immovable property
  Since 1 January 2008 the tax rate of the                 situated in the country.
withholding tax on dividends is decreased from         The income pointed out above, shall be subject
7% to 5%.                                            to levy of a tax withheld at source where not
                                                     accruing through a permanent establishment.
VII.5.2. Withholding Obligations with                  The tax shall be withheld by the resident legal
Respect to Payments to Non-residents                 persons, the sole traders or the permanent
                                                     establishments in the country which charge the
  Certain items of business and investment           income to the non-resident legal persons, with
income of non-resident legal entities earned         the exception of the income referred to in Items
from sources in Bulgaria are subject to flat final     2 and 4 herein.
income tax, which is normally levied by means          Where the payer of the income is not a taxable
of withholding. The domestic rate of tax is 10%.     person under the CITA and in respect of the
Where the recipient of the payments resides          income referred to Items 2 and 4 herein, the
in a country with which Bulgaria has a Double        tax shall be withheld from the recipient of the
Tax Treaty, the tax rate could be reduced or         income.
an exemption could be available subject to the         Income from disposition of shares in public
provisions of the respective treaty.                 companies, negotiable rights attaching to shares
  The following income of non-resident legal         in public companies, and shares in and units of
entities is subject to withholding tax:              collective investment schemes, shall not attract a

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tax withheld at source where the said disposition       The non-resident person is entitled to appeal
is effected on a regulated Bulgarian securities       the refusal of the revenue authorities to allow
market.                                               direct application of the tax treaty.

VII.6. Treaties for Avoidance of Double               VII.7. Local Taxation
Taxation (Double Tax Treaties)
                                                        Local taxes are charged by the municipalities.
  Bulgaria has concluded more than sixty double       According to the latest developments in the
tax treaties which provide for a relief of tax or a   applicable law the Municipal Council determines
reduced rate of tax.                                  the amount of the taxes within the range
                                                      established by the law. Till the end of 2007 the
                                                      rates and amounts of local taxes were provided
VII.6.1. Procedures for Claiming Relief               for by the law. The main local taxes are:
Under a Double Tax Treaty

  In order to benefit from the reliefs in a double     VII.7.1. Real Estate Tax
tax treaty a non-resident person must submit
application in a standard form with the revenue         Taxable properties are built up land, non-
authority proving that the said person:               built construction plots and buildings with tax
  • is a resident of the other State within the       valuation more than BGN 2,520. No tax shall
      meaning given by the relevant treaty;           be levied on agricultural land tracts and forests,
  • is an owner of the income from a source           with the exception of developed land in respect
      inside the Republic of Bulgaria;                of the actually developed surface area and the
  • does not own a permanent establishment            adjoining ground.
      or a fixed base within the territory of the        Taxable persons are the owners or holders of
      Republic of Bulgaria, whereto the income is     limited real rights over the taxable property.
      effectively connected;                            The Municipal Council determines the amount
  • fulfills the special requirements for              of the tax within a range of 1.5 to 2 per mille of
      application of the treaty or separate           the assessed value of the property. A reduction
      provisions thereof in respect of persons        of 50% of the tax is allowed if the property is a
      specified in the treaty itself, where such       main residence.
      special requirements are contained in the
      relevant treaty.
                                                      VII.7.2. Transfer Taxes
  Written evidence regarding the type, the
grounds for realization and the amount of the           Tax shall be levied on any properties acquired
relevant income should be attached to the claim.      by donation, as well as on any onerously
  The revenue authorities exercise control as         acquired real estates, limited real rights thereto,
to the application of convention and conduct an       and motor vehicles. The tax shall be paid by the
examination or an audit. Where an examination         transfee of the property of by the transferor in
is conducted, an opinion on the existence or          case the transfee is abroad.
non-existence of grounds for application of the         The tax rate is determined by the Municipal
tax convention shall be issued to the non-            Council within 1,3 and 2,6 per cent of the
resident person within 60 days after submission       assessed value of the transferred property.
of the request. Non-pronouncement within                Donation and disposal without consideration of
this time limit is presumed as an opinion on          any property are subject to tax at the following
existence of grounds for application of the           rates:
double tax treaty.                                      • from 0.4 to 0.8 per cent: applicable to

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     donations between siblings and the children       VII.8. Capital Taxation.
     of siblings;                                      Ecological Levies
 •   from 3,3 to 6,6 per cent: applicable to
     donations between any persons.                    VII.8.1. Taxes on Capital

 Exemption from transfer taxes is provided for           Except as mentioned above, no specific taxes
privatization of assets, for in-kind contribution of   are charged on the capital of the businesses or
assets to the share capital of a company as well       their net worth or on their assets. In particular,
as in some other cases provided in law.                no capital duties or material stamp duties are
                                                       payable on the incorporation of a Bulgarian
                                                       company or on its capital or on subsequent
VII.7.3. Vehicle Tax and Road Charge                   contributions to the capital.

  Vehicle tax is payable by the owners of
road means of transport, ships and airplanes           VII.8.2. Packing Charge
registered in Bulgaria. The rate of tax depends
on the type and the characteristics of the               As of 2004 Bulgaria introduced a packing
respective mean of transport, e.g. the vehicle tax     charge levied on the import of packed products
for cars is determined by the engine power. The        or on the sale of locally manufactured packed
tax is due on an annual basis.                         products on the Bulgarian market. The charge
  The owners of vehicles are subject to service        is collected for the provision of the public
charge for use of the public roads payable to the      services related to management of packing
Ministry of Transport. Such tax is paid through        waste. The charge is not payable if the importer/
purchase of certificates/stickers for the use on        manufacturer put in place a proper system of
the roads for a specific period (calendar year,         management and recovery/recycling of the
month or week).                                        packing waste.
  In addition to the above taxes, the municipalities
also collect some service charges for performance
or maintenance of public services such as waste        VII.9. Income Taxation of Individuals
collection charge, tourist charge, charges for
various administrative services.                       VII.9.1. Taxable Persons

                                                        Taxable persons are resident and non-resident
VII.7.4. Final Annual (License) Tax                    natural persons, who earn income from sources in
                                                       Bulgaria and resident and non-resident persons,
  A significant amendment in Bulgarian tax              who are obligated to withhold and remit taxes.
legislation is that this tax is charged by the          “Resident natural person,” whatever the
municipalities as of 1 January 2008 and is not         nationality, is any person:
income to the central budget. The license tax is        • who has a permanent address in Bulgaria,
applicable to natural persons and sole traders              or
only (not legal entities) and under the following       • who is present within the territory of
conditions:                                                 Bulgaria for a period exceeding 183 days in
  • performance of certain activities pointed out           any twelve-month period, or
     in the Income taxes on natural persons act;        • who is sent abroad by the Bulgarian State,
  • turnover of the person for the last preceding           by bodies and/or organizations thereof, by
     not exceeding BGN 50,000, and                          Bulgarian enterprises, and the members of
  • the person is not registered under the                  the family of any such person, or
     Value Added Tax Act, with the exception of         • whose centre of vital interests is situated in
     registration for intra-Community acquisition.          Bulgaria.

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  Any person, who has a permanent address in              to certain limits and under certain
Bulgaria but whose centre of vital interests is not       conditions etc.
situated in the country, is not a resident natural
person. Where a Double Tax Treaty applies,
the residency status could be impacted by the         VII.9.3. Tax Rate
provisions of the Treaty.
  Resident natural persons are liable to taxes           A significant amendment in income taxation of
in respect of any income acquired thereby from        individuals is that the progressive tax rate which
sources inside and outside the Republic of            depended on the amount of the annual taxable
Bulgaria while non-resident natural persons are       income and was within the range of 20 % to 24
liable to taxes in respect of any income acquired     % is replaced with a flat rate of 10 % regardless
thereby from sources inside the Republic of           of the amount of taxable income. Thus, in
Bulgaria.                                             general the amount of tax on the aggregate
  Bulgarian law contains detailed rules on when       annual taxable amount is determined by
an activity or investment is sufficiently related to   multiplying the aggregate annual taxable amount
Bulgaria to give rise to Bulgarian taxation.          by a tax rate of 10 per cent.
                                                         Certain items of income of residents or
                                                      non-residents are not included in the taxable
VII.9.2. Taxable Income                               annual income and are subject to special rules
                                                      of taxation with respect to the rates and the
  The annual taxable income is defined as an           basis for tax. Some tax rates, applicable thereto,
aggregate of the total income received by the         are decreased since 1 January 2008. Thus,
individual during the calendar year with the          dividends are subject to tax of 5 % instead of 7
exception of the income which is non-taxable          %; income from supplementary voluntary social
by virtue of a law and the income specifically         insurance, from voluntary health insurance and
excluded from the annual income which is taxed        life assurances and income acquired by the
separately under specific rules.                       person upon the sale or exchange of movable
  The taxable income and the taxable amount           property under certain conditions is levied with
shall be determined for each source of income         tax of 10 % instead of 15 %
separately under specific procedures, provided
in the law. The aggregate annual taxable amount
is the sum total of the annual taxable amounts        VII.9.4. Exemptions
determined for each type of income, depending
on the sources, net of the tax relieves provided       Taxability does not apply to:
for by law.                                            • income acquired during the tax year from
  The sum total of the annual taxable amounts is           the sale or exchange of:
debited with:                                          (a) one residential immovable property,
  • personal voluntary social insurance                    regardless of the date of acquisition of the
      contributions made during the year to an             said property;
      aggregate amount not exceeding 10 per            (b) up to two immovable properties, as well
      cent of the sum total of the annual taxable          as any number of agricultural and forest
      amounts, as well as with any personal                properties, provided that more than five
      voluntary health insurance contributions             years have elapsed between the date
      and premiums/payments paid during the                of acquisition and the date of sale or
      year under contracts of life assurance to            exchange;
      an aggregate amount not exceeding 10 per         • income accruing from the sale or exchange
      cent of the sum total of the annual taxable          of movable property, with the exception of:
      amounts;                                         (a) means of transport by road, air and water,
  • donations made during the year up                      provided that the period from the date of

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     acquisition to the date of sale or exchange        (a) compensations for lost profit and damages
     is less than one year;                                 of such nature;
 (b) works of art, collectors’ items and antiques;     (b) scholarships for study in Bulgaria and
 (c) shares, interests, compensation                        abroad;
     instruments, investment vouchers and other        (c) interest payments, including interest within
     financial assets, as well as the income                 payments under a lease contract etc.
     accruing from trade in foreign exchange;          The provisions determining the income which
 (d) movable property delivered to persons           is not subject to tax do not apply to the items
     who have the right to carry out collection,     herein. However, no final tax shall be levied on
     transport, recovery or disposal of waste in     such items exempted from taxation under the
     accordance with the Waste Management            mentioned provisions and charged/paid in favor
     Act;                                            of non-resident natural persons established for
 • interest paid on accounts and deposits with       tax purposes in a Member State of the European
     any domestic commercial bank, branch of a       Union, as well as in another Member State of the
     foreign bank and with domestic mutual aid       European Economic Area.
     funds;                                            The tax rate is 10%.
 • interest paid and discounts made on                 • Income of resident and non-resident natural
     Bulgarian government, municipal and                    persons.
     corporate bonds etc.                              Unlike the tax legislation prior to January 1st
                                                     2007 the income deriving from dividends and
                                                     from shares in liquidation surplus of resident
VII.9.5. Wage Withholding Taxes                      and non-resident natural persons is not taxed
                                                     with withholding tax which had to be withheld
  Salaries and other payments due for                by the legal entity, distributing the dividend/
employment are included in the annual taxable        share of liquidation surplus. Pursuant to the
income and are subject to personal income tax.       present Income taxes on natural persons act the
The employer is required to withhold provisional     income from dividends and from shares in any
tax from the wages of the employees on a             liquidation surplus in favor of resident or non-
monthly basis. The law provides specific rules        resident natural person, where accruing thereto
for determining the taxable amount for tax on        from a source inside Bulgaria and resident
income from labor relationships. The wage            natural person, where accruing thereto from a
withholding tax is charged with the flat tax rate     source outside Bulgaria attract a final tax.
of 10 %.                                               The tax rate is 5%.
  When during the respective year the employee         • Under certain conditions a final tax shall be
received only employment income, he/she is                  levied on the gross amount of the taxable
not liable to file a tax return. Where the wage              income from supplementary voluntary social
withholding tax exceeds the annual tax liability            insurance, from voluntary health insurance
(for reasons of being employed for part of                  and life assurances. A final tax shall be
the year, etc.), the refund is determined and               levied on the gross amount of the income
provided through the employer.                              acquired by the person upon the sale or
                                                            exchange of movable property.
                                                       The tax rate is 10%.
VII.9.6. Final Taxes

  • Taxation of non-resident persons’ income.        VII.9.7. Businesses of Individuals/Sole
  Certain items of income are not included in the    Traders
annual taxable income but are taxed separately
with a final tax. This treatment applies to the         A specification in taxation with respect of sole
following items of income:                           traders is that the tax basis of the registered

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sole traders is the taxable profit in accordance     VII.9.9. Double Taxation Treaties
with the tax rules applicable to corporations.
The latter applies to the income from economic        As mentioned above Bulgaria has concluded
activity of a natural person who is a merchant      more than 60 double tax conventions. They also
within the meaning given by the Commerce            provide rules regarding the natural persons.
Act but is not registered as a sole trader. The       If no such treaty exists with the respective
taxable income referred to herein excludes the      country pursuant to the Income taxes on natural
accounting financial result formed by activities:    persons act resident natural persons are allowed
  • on which alternative taxes are levied under     foreign tax credit in respect of identical or similar
     the Corporate Income Tax Act ;                 foreign taxes levied abroad by the respective
  • on which a final annual (license) tax is         competent authorities.
  The annual taxable amount shall be
determined by debiting the taxable income           VII.10. Excise Duties
referred to herein for the tax year with the
contributions for social and health insurance.        On November 15 2005 the existing Excise
                                                    Duties Law has been abolished and substituted
                                                    by a new excise law, which introduced the
VII.9.8. Tax Returns and Payment of                 system of the tax warehouses. A tax warehouse
Taxes                                               is the place where excise duty goods are
                                                    produced, stored, entered or sent by traders
  Natural person should file an annual tax return.   under the term of delayed excise duty payment.
The obligation to submit an annual tax return         Certain luxury products, as well as certain
does not apply to persons who have received         other goods listed in law are subject to excise
solely:                                             duties. Excise duties are payable as one-time
  • income from employment relationships,           consumption tax on the import of dutiable
  • non-taxable income;                             products in Bulgaria, or on the first sale of locally
  • income on which a final tax is leviable;         manufactured products in Bulgaria by their
  • income accruing to non-resident persons,        manufacturer.
       on which a final tax has been levied.
  The return should be filed before the 30th day      The following main categories of products are
of April of the year next succeeding the year of    subject to excise duties:
acquisition of the income.                           • liquors and beer, and raw materials with a
  The tax should be remitted on or before the            content of alcohol; wine is zero-rated for
30th day of April of the year next succeeding the        excise duty purposes, but the producers
year of acquisition of the income. Certain items         of wine may be subject to excise duty
of income are also subject to provisional tax            registration and control;
payable through the year on monthly or quarterly     • tobacco products such as cigars, cigarettes,
basis                                                    tobacco for consumption;
  If the annual tax return is submitted on or        • certain automobiles (with maximum 9 seats)
before the 10th day of February of the next              with an engine power exceeding 120 Kw
succeeding year, a rate rebate of 5 per cent             under the DIN system;
of the balance of tax due under the annual tax       • energy products and electricity;
return where remitted on or before the same
date is allowed. If the return is submitted on       As of 1 January 2008 coffee and extracts from
or before this date by electronic means, a rate     coffee are not subject to excise duties. Another
rebate of 5 per cent of the balance of tax due      amendment are the increased tax rates for
under the annual tax return where remitted on or    some types of fuels, coal, electrical energy for
before the same date is provided.                   business and administrative needs etc.

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  Excise duties are normally charged as a flat            Non-taxable persons should be these which
amount per measurement unit for the respective          are not a taxable within the meaning given
product (BGN per piece/ton/liter, etc.).                above and which effects intra-Community
  Exports are exempt from excise duties. Where          acquisition of goods. The intra-Community
excise duties have been paid for products that          acquisition of goods is defined in details in the
are subsequently exported, a refund could be            Value Added Tax Act.
  Where excise duties are charged on row
materials with a content of alcohol which have          VII.11.1. Registration of Persons
been used for production of dutiable liquors
or non-dutiable food products or medicines, a             Pursuant to VAT Act some of the persons which
refund could be claimed for the duties paid on          fall within the requirements of the law are obliged
the row materials.                                      to register with the National Revenue Agency,
                                                        which maintains VAT Persons Register. Upon
                                                        registration each persons is issued a unique ID
VII.11. VAT System                                      number for VAT purpose having BG prefix.
                                                          The requirement for registration applies to
  Pursuant to Bulgarian legislation the following       each taxable person who is established within
transaction should be VAT taxable:                      the territory of the country and who affects
  • each taxable supply of goods or services            taxable supplies of goods or services. Also the
     effected for consideration;                        person is required to register under the VAT
  • each intra-Community acquisition effected           Act it is a taxable person who is not established
     for consideration, whereof the place of            within the territory of the country and who effects
     transaction is within the territory of the         taxable supplies of goods or services covered
     country, by a person registered under this         under Article 12 other than those for which the
     Act or by a person in respect of which an          tax is chargeable from the recipient.
     obligation to register has arisen;                   According to the VAT Act there are two types of
  • each intra-Community acquisition of                 registration – compulsory and optional.
     new means of transport effected for                  • The compulsory registration applies to
     consideration, whereof the place of                      taxable person having a taxable turnover
     transaction is within the territory of the               of BGN 50,000 or more for a period not
     country;                                                 exceeding twelve consecutive months
  • the importation of goods;                                 last proceeding the current month. These
     each intra-Community acquisition whereof                 persons should file an application for
     the place of transaction is within the territory         registration within 14 days after the lapse of
     of the country of excisable goods.                       the tax period during which such turnover
                                                              has accrued. These requirements should
  Under Bulgarian legislation taxable person                  not apply to persons to whom the following
shall mean any person who independently                       conditions are simultaneously fulfilled:
carries out an economic activity, whatever the            - they supply services electronically to
purpose and results of that activity. As of 19                recipients who are non-taxable persons,
December 2007 subject to obligations under                    who are established or have a permanent
the Value Added Tax Act are also persons who                  address or usually reside within the territory
practice a liberal profession, including as private           of the country;
bailiffs, lawyers and notaries. However, services,        - they are not established within the territory
representing procedural representation whereby                of the Community;
the right to defense of natural persons in                - they are registered for VAT purposes for
preliminary, legal, administrative and arbitration            their activity referred to in Item 1 in another
proceedings is exercised, are exempt from VAT.                Member State.

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  In case of intra-Community Acquisition the            may file an application.
taxable and non-taxable persons which do                   An amendment in the applicable law, effective
not cover the presented above conditions are            since 19 December 2007, aiming to reduce
required to register, are required to register if       the participation of companies with pending
they conduct intra-Community acquisitions. This         obligations in the VAT system is the right of the
requirement should not apply to persons which           revenue authorities to require security in cash,
sum of the acquisitions does not exceed 20 000          in government securities or in unconditional and
BGN for the current calendar year.                      irrevocable bank guarantee for a term of one
  Notwithstanding the taxable turnover, the             year in order to register a person on which data
registration requirement under the VAT Act shall        exist that one or more of its owners, managing
apply to each person who is established in              directors, procurators, majority partners or
another Member State, who is not established            shareholders are or have been, at the time of
within the territory of the country and who affects     occurrence of the liabilities, owners, procurators,
taxable supplies of goods which are assembled           majority partners or shareholders, members of
or installed within the territory of the country by     managing or controlling bodies of persons with
or for the account of the said person.                  unsettled value added tax liabilities exceeding
  Obligation for registration occurs also for           BGN 5,000, or have unsettled value added tax
a person who performs distance supplies -               liabilities exceeding BGN 5,000 in the capacity
supplies whereof the place of transaction is            as natural persons or are persons against whom
within the territory of the country, the recipient of   penal proceedings have been initiated or have
the supply is not registered for VAT purposes in        been convicted for offenses against the tax system
the country and the supplies effected under the
terms of distance selling for the territory of the       •   In some cases the tax authorities may
country exceed the amount of BGN 70,000 for                  initiate a registration procedure for a person
the current calendar year or have exceeded the               who has fallen within the requirements for
said amount for the last preceding calendar year             compulsory registration. In this case the tax
                                                             authority would issue an ordinance stating
 •   The optional registration under the VAT Act             the grounds and the date on which the
     provides the persons which satisfy a certain            obligation to register has arisen.
     requirement the right to register (but not the
     obligation) and to benefit from the regime
     of the VAT system. Pursuant to Article 100,        VII.11.2. Tax Rates
     para. 1 any person which do not cover the
     condition for compulsory registration may            The rate of tax is 20% and is applicable to:
     register under the VAT Act.                          • the taxable supplies, except for those
                                                              expressly specified as subject to the zero
  Any taxable and non-taxable legal person,                   rate;
which does not cover the compulsory registration          • the importation of goods into the territory of
conditions, has the right to register under the               the country;
VAT Act for intra-Community acquisition. Also             • the taxable intra-Community acquisitions.
any taxable person may register provided                  The rate of tax applicable to accommodation
that the said person has notified the tax                provided by a hotelier, where part of a package
administration of the Member State where the            tour, is 7%.
said person is registered for VAT purposes that
the said person wishes the distance selling
effected thereby to have a place of transaction         VII.11.3. VAT Exemptions
within the territory of the country.
  The optional registration is administered by the       The following major transactions are entitled to
National Revenue Agency where the persons               zero rate of VAT:

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                                       CHAPTER SEVEN: TAXATION

 •   supplies of goods dispatched or transported       ownership of goods, as well as the actual receipt
     to destination outside territory of the           of goods, which are dispatched or transported
     European Community;                               to the territory of the country from the territory
  • certain transactions related to international      of another Member State, where the supplier is
     transportation;                                   a taxable person registered for VAT purposes in
  • supply for handling of goods;                      another Member State.
  • supply related to duty-free trade;                   Intra-community supplies with the exception
  • supply of goods provided by agents,                of the exempt intra-community supplies referred
     brokers and other intermediaries.                 are liable to tax at the zero rate.
  Since 19 December 2007 the Value Added Tax             Regarding intra-community acquisition, the
Act regulates the forwarding services and treats       recipient charges 20% VAT and is entitled to
them as equivalent to transport services.              deduct credit for input tax.
  Main transactions which are exempt from VAT
  • supply linked to health care;                      VII.11.5. VAT Documents, Reporting and
  • supply linked to welfare and social security       Payment
  • the transfer of the right of ownership of land,     Tax documents are:
     the creation or transfer of limited rights in      • the invoice;
     rem to land, as well as the letting or leasing     • the advice to an invoice;
     of land Transactions with buildings or parts       • the memorandum.
     thereof, which are not new, with building
     land, as well as the creation and transfer of       1. Invoice. Each taxable person who is a
     other rights in rem thereto, are an exempt        supplier is obligated to issue an invoice for a
     supply. The letting of a building or part         supply of goods or service affected thereby
     thereof for residential use to a natural          or upon receipt of an advance payment
     person who is not a merchant shall likewise       before affecting such a supply except in the
     be an exempt supply. However the transfer         cases where the supply is documented by a
     of a right of ownership of a regulated lot        memorandum. The invoice to contain some
     within the meaning given by the Spatial           compulsory requisites. The invoice shall
     Development Act, with the exception of the        mandatory be issued not later than five days
     building land of buildings which are not new      after the date of occurrence of the chargeable
     is not exempt from VAT.                           event for the supply, and in the cases of advance
                                                       payment, not later than five days after the date
                                                       of receipt of the payment. However, upon an
VII.11.4. Intra-community Supply of                    intra-Community supply, including in the cases of
Goods                                                  advance payment, the invoice shall mandatory
                                                       be issued not later that the 15th day of the
  The new VAT Act provides the intra-                  month following the month during which the
community supply of goods which actually               chargeable event occurred
replaces the regulation of export under the              2. Advice to an invoice. It is issued if the
previous VAT Act as far as transaction between         taxable amount has changed or where other
merchants from different member states is              circumstances have occurred which result
concerned. Intra-community supply of goods             in change of the due tax and an invoice has
is any supply of goods, transported from the           already been issued.
territory of the country to the territory of another     3. Memorandum. It is a new tax document,
Member State, where both supplier and recipient        issued where the VAT is due by the recipient. As
are registered for VAT. Intra-Community                of 19 December 2007 the memorandum shall
acquisition is acquisition of the right of             be issued not later than 15 days after the date

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on which the tax became chargeable instead            assets needed for the project without effective
of 5 days as it was provided for before the           payment of import VAT. In addition, such
amendment of the law.                                 investors are entitled to refund VAT incurred
                                                      on local purchases within 30 days after filing
  VAT is generally reported and paid monthly.         of the tax return. In order to benefit from the
The monthly VAT returns are to be filed and            special investment rules, the investor needs to
monthly VAT payments by the 14-th day of the          obtain an advance approval from the Minister
following month.                                      of Finance. In order to receive the approval, the
  The tax under this Act shall become                 investment project must meet certain conditions,
chargeable in respect of the taxable supplies         such as:
and an obligation for the registered person to          • the time limit for implementation of the
charge the said tax shall arise on the date when           project does not exceed two years;
the supply of goods or services is affected.            • the amount of investment exceeds BGN
The tax upon an intra-Community acquisition                10 million for a period not longer than two
shall become chargeable on the 15th day of                 years;
the month following the month during which              • more than 50 new jobs are created;
the supply of goods or services is affected.            • the person is capable of financing
Any registered person, in respect of whom the              the project, as well as of constructing
tax has become chargeable, shall be obliged                and maintaining facilities ensuring the
to charge the said tax and, to this end, must              implementation of the said project.
issue a tax document and indicate the tax on a
separate line therein
                                                      VII.11.8. Special VAT Regulations for
                                                      Tourist Sector
VII.11.6. VAT Refunds
                                                         There are two regimes in the new VAT Act
  Where VAT incurred on purchases exceeds             regarding the tourist sector depending on the
VAT charged on sales, the excess VAT deduction        services provided. The rate of tax applicable to
is first carried forward for a period of three         accommodation provided by a hotelier to foreign
months to offset VAT debt due in these three          tour operators for organized group of foreign
months. If at the end of the three-month period       tourists (which is called “basic tourist service”),
the excess VAT or part thereof has not been           where part of a package tour, shall be 7% The
recovered, the balance is refunded within 45          provision by a tour operator or a travel agent,
days after the date of filing of the VAT return for    acting in his own name, of goods or services
the third month (i.e., within approximately five       in connection with the journey of a tourist for
months after the excess VAT has been incurred),       the direct benefit of the tourist, is treated as
except where the tax person has declared in           a supply of a single service to tourists. The
written to deduct the excess VAT from the input       goods and services directly benefiting the tourist
VAT on purchases incurred in the next 9 months.       shall be the goods and services which the
The period for refund could be extended by the        tour operator or the travel agent has received
tax authorities if they commence a tax audit, but     from other taxable persons and has provided
generally by not more than three months.              to the tourist without alteration. If the place
                                                      of transaction of a single service to tourists
                                                      is in Bulgaria, the tax rate is 20%. However,
VII.11.7. Special Rules for Material                  if the supplies of goods and services for the
Investment Projects

  VAT-registered investors who perform certain
eligible investment projects are entitled to import                                             .
                                                      direct benefit of the tourist have a place of
                                                      transaction within the territory of third countries
                                                      and territories (i.e. outside the territory if the
                                                      Community) they are taxed at zero rate.

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                                       CHAPTER EIGHT: CUSTOMS REGIME

VIII   CUSTOMS REGIME                                     and Euratom (the European Atomic Energy
                                                          Community) and of the Single European
                                                          Act of 1986, whereby the procedure for
                                                          establishment of a Single Market by the end of
         Following Bulgaria’s accession to the            1992 was introduced. After the EC (now EU)
       European Union (EU) and its gaining full           institutions adopted the respective regulatory
       member status as of 01.01.2007, a number of        acts – Directives, Regulations and others, the
       changes and specific developments occurred          Single Market (SM) started functioning as of
       in the foreign trade and customs regime in         the beginning of 1993. Mainly the following
       regard to exports and imports of goods. More       aspects are typical for the SM:
       specifically, the new developments concerned          • Establishment of a Customs Union;
       the direct application of Community acquis,          • Ensuring free movement of goods;
       which regulates the common procedures,               • Implementation of a common trade policy.
       tariff and non-tariff measures (prohibitions
       and restrictions) on exports and imports of          As a full EU member, on 01.01.2007
       goods “to” and “from” non-member states and        Bulgaria became also an equal participant
       uniform customs control instruments. The           in the Single Market of the EU. Likewise,
       basic acts in the area of EU customs acquis        domestic legislation in the respective
       are as follows:                                    areas was brought into conformity with the
         • Council Regulation (EEC) No. 2913/92           legislation of the Community – the acquis
             of 12 October 1992 establishing the          communautaire.
             Community Customs Code;                        Thus Bulgaria gained access to the vast
         • Commission Regulation (EEC) No.                European market with a population of more
             2454/93 of 2 July 1993 laying down           than 500 million consumers and should
             provisions for the implementation of         now take up its niche in the manufacturing
             Council Regulation (EEC) No 2913/92          specialization of unified Europe, as well as
             establishing the Community Customs           an appropriate share in intra-European trade.
             Code, as amended and supplemented.           In addition it must actively participate in the
                                                          process of achievement of one of the basic
         It must be pointed out that Bulgaria’s           goals of European integration - transition to
       national legislation in this area was not          economic and monetary union of the countries
       superseded entirely. The issues, related           of the EU.
       to the status and powers of the customs
       administration, as well as those, related to
       performance of post-clearance control, are         VIII.1. CUSTOMS UNION
       regulated at the national level. Likewise,
       the administrative and penal provisions of           The introduction of the Customs Union
       the Customs Act, more specifically the texts        as of 01.01.1993 required elimination
       defining components of customs violations,          of customs duties in mutual trade of the
       as well as the rules for establishment of such     Community Member States, as well as of
       violations and for sanctioning of offenders, are   quantitative restrictions and measures having
       also in effect.                                    equivalent effect. Thus, in the process of
         The Single Market of the EU was built in         crossing of internal borders between the
       the course of three decades in compliance          Member States, the customs formalities and
       with three founding documents: The Treaty          documents were limited only to the existing
       establishing the European Community                fiscal, statistical and other control documents
       (EEC) of 1957, the Merger Treaty of 1967,          and procedures. The customs legislation of
       which merged the activities of EEC, ECSC           the EU was harmonized by the Community
       (the European Coal and Steel Community)            Customs Code, which eliminated differences

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of interpretation of customs provisions in the    must be deemed as measure having an
individual Member States.                         effect, equivalent to a quantitative restriction”
  At its accession to the EU Bulgaria             (Decision on the so-called Dessonville
eliminated the customs duties in its trade with   Case). The White Paper identified three
the other European Union Member States and        types of barriers, impeding free movement
started applying the Common Customs Tariff        of goods, which must be eliminated: physical
of the EU in its trade with non-member states.    (administrative), technical and fiscal (indirect).
The Common Customs Tariff requires levying          Physical barriers, subject to elimination,
of the same duties on products, imported          comprise:
from third countries. In addition, it is used       • differences in foreign trade documents,
by the EU as an instrument for regulation              such as customs declarations, certificates
of international trade. EU keeps adapting              of origin, etc.;
the Common Customs Tariff to the results            • differences in foreign trade statistics and
of negotiations for tariff reduction within the        in the forms for obtaining the respective
framework of the General Agreement on                  data;
Tariffs and Trade (GATT), recently applied          • treatment of intra-Community transit as
by the World Trade Organization (WTO). In              external transit, which requires different
respect of Bulgaria, the agreements reached            formalities, leading to waste of time and
as a result of tariff negotiations led to a            resources;
decline in imports from non-EU states of            • performance of customs, veterinary and
industrial goods on average from 9% to 4%              phyto-sanitary checks on internal borders
and for agricultural and food products - on            of the Community, as well as on its
average from 22% to 16%.                               external borders.

                                                    As of 01.01.1993 physical control of
VIII.2. FREE MOVEMENT OF GOODS                    goods at their passage through the internal
                                                  boundaries of the Community was eliminated.
  Although the abolition of duties in intra-      A control system is in place for verifying
European trade took place easily, the             conformity of goods to the mandatory
elimination of taxes, charges and other stamp     veterinary, phyto-sanitary and technical
duties, viewed as measures having equivalent      norms for access to the Single European
effect, turned out to be a serious problem.       Market, in which control bodies are controlling
The issue is whether a certain domestic           the manufacturers, the wholesale trade
tax or charge ought to be classified among         warehouses and the store networks within
the prohibited barriers, which are subject to     each individual country.
elimination. Nearly 300 draft Directives are
included in the White Paper on Completing          Technical barriers are divided into two main
the Internal Market, prepared by the European     groups.
Commission, whereby a significant number of         • barriers, related to differences in national
barriers in mutual trade, which persisted also        standards and other mandatory technical
after the introduction of the Customs Union,          requirements and norms:
would be removed.                                  • barriers, resulting from differences in
  An important precedent in the drive against         the procedures of obtaining certificates.
the hidden restrictive measures, which pose           Problems and expenditures arise in the
obstacles to mutual trade, was the 1974               process of proving conformity of certain
decision of the EC Court, reading: “Each              products to the mandatory national
trade regulation measure of a Member State,           standards and other requirements for
which may, directly or indirectly, actually or        obtaining certificates from laboratories in
potentially impede intra-Community trade,             the importing country.

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  Fiscal barriers are related to differences in     this sense the changes, related to introduction
the rates of indirect taxes (VAT and excise         of non-Community goods into the territory of
duties) in the individual EU Member States,         the Community and their placing under any
as well as to absence of a uniform system           customs regime, by declaring them under the
for collection and allocation of indirect taxes.    respective procedure, are not of essential
With the view to reduce the impact of those         importance.
barriers in the European Community, from the
beginning of 1993 a provisional system for
uniform collection of VAT and other indirect        VIII.3. COMMON TRADE POLICY
taxes was introduced, which is based on the
following rules:                                      The EU Member States implement a
  • preserving national sovereignty over tax        Common Trade Policy in their foreign
     policy;                                        economic relations. It is formulated in Article
  • preserving the practice in foreign trade,       133 of the Treaty of the European Community
     under which importers pay VAT on               (TEC). The new version of this Article of TEC
     imports and VAT is refunded to exporters;      from the Treaty of Nice (2000) expanded the
  • the rates of VAT and other indirect taxes       powers of the EU in the areas of services
     would be approximated and a minimum            and intellectual property. In parallel, the
     standard rate of 15 % and a reduced rate       opportunities for making of decisions by the
     of 5% would be introduced for VAT;             Community were limited, by introducing the
  • introducing a uniform tax registration          requirement for unanimity when adopting
     for VAT and a uniform procedure for            internal orders. In terms of scope, the
     refund of tax credits in mutual trade of       Common Trade Policy is sub-divided into
     EU Member States, which in practice            autonomous and contractual policy.
     equalized tax liabilities in instances of        The autonomous trade policy comprises
     imports with tax credits in instances of       the measures, relevant to imports and
     exports.                                       exports of goods by Community Member
                                                    States, outside the framework of specially
  It must be noted that by analogy with the         undertaken contractual obligations with third
manner, in which Bulgarian “local” goods            parties. This policy includes application
would be moved, handled and warehoused              of common rules (regulations) on imports
on the territory of this country, without any       and exports, of anti-dumping measures, of
intervention on the part of the customs             measures against subsidized imports and
administration, goods enjoying “Community           prohibited trade practices, of quantitative
status” would be handled in the same way            restrictions (quotas), of externally motivated
on the territory of the any of the EU Member        trade sanctions, such as embargoes, etc.
States.                                             An important trade policy instrument is the
  As regards movement of goods “from” and           Regulation adopted, authorizing the EU
“to” third countries the Community acquis           to react swiftly in instances of unfair trade
would apply, as related to the customs control      practice in exports to third countries. The
in regard to goods and transportation means,        international procedure for consultation and
customs regimes and procedures, the rules           dispute settlement is applicable and in cases
on customs debt, etc. It may be stated in           of failure to reach agreement, more stringent
general that the currently applicable Customs       measures are applied, such as cancellation of
Act and the Regulation on the Implementation        trade preferences, extended to the respective
of the Customs Act largely regulate those           country, increase of levels of duties on
relationships in a way similar to the regulation,   imports from it and imposition of quantitative
contained in the Community Customs Code             restrictions.
and the Regulation for its Implementation. In         The contractual trade policy incorporates all

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                               CHAPTER EIGHT: CUSTOMS REGIME

agreements of the EU with individual countries    and speeding up of the customs procedures
or groups of countries, related to imports or     in the Member States. The programme shall
exports of goods. The agreements within the       respond to the necessity of defining a policy
framework of the Common Trade Policy may          concerning safety (management of external
relate both to foreign economic relations in      borders and control of the whole international
general, as well as to individual goods or        supply chain), the creation of electronic
commodity groups (“sectoral agreements”).         customs environment and the fight against
The trade and cooperation agreements              counterfeiting and piracy. For these purposes
transcend the boundaries of purely                the programme consists of activities in the
commercial relations and include cooperation      field of:
in the fields of industrial production,              - communication and information-exchange
investments, science, technologies and                 systems;
environmental protection. These agreements          - benchmarking;
are of a very high importance for Bulgaria,         - seminars and workshops;
because they help the accelerated
development of an effective economy, in
particular by fostering high technology and
export-oriented types of manufacturing.
  The Association agreements also occupy an
important place in European integration. They
contributed greatly to the formation in the        .
                                                    - project groups and steering groups;
                                                    - working visits;
                                                    - training activities;
                                                    - monitoring actions..
1990’s of the so-called European Economic
Area, which encompassed all non–member
states of EU or those, which prepared
themselves for full membership, as was the
case with Bulgaria. With the view to create a
broader free trade area, the EU entered into
association agreements with a number of
Mediterranean states, and a Customs Union
with Turkey entered into force as of 1996.
  As of the date of its accession to the EU
Bulgaria adopted entirely also the Common
Customs Tariff of the EU. To check the
applicable duty in imports of any product
into the EU after 01.01.2007, please consult
the database of the EU TARIC information
system, accessible at the European
Commission site on the Internet at http://
tarhome.htm. The search may be performed
either by the CN code of the commodity, or
using its description.
  In 2008 the new Community action
programme Customs 2013 was established
(Decision No 624/2007/EC of the European
Parliament and of the Council of 23 May
2007). The programme scheduled to be
completed by 31 December 2013, aims at
facilitation of legitimate trade, simplification

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IX   EU STRUCTURAL FUNDS                                      (EAGGF), established in 1962, aims at
     IN BULGARIA                                              implementing the Common Agriculture
                                                              Policy. The Fund funds measures
IX.1. General Review                                          for development of rural areas and
                                                              investment help for farmers.
       The acceptance of Bulgaria to the European         (v) The Financial Instrument for Fisheries
     Union has brought the opportunity of                     Guidance (FIFG) was established in
     becoming part of the financial mechanisms                 1993 and its ultimate goal is restructuring
     in the European Union. The Community                     the branch funding the modernization of
     has established financial instruments for                 fishing industry.
     implementation of the Regional policy of             The European Commission has approved
     the European Union as laid down in the             National Strategic Reference Framework
     European Union Treaty. The term Structural         for Bulgaria for programming period 2007 –
     Funds is general, encompassing several             2013 setting out four main priorities:
     different funds, established by the European         (a) Improving basic infrastructure;
     Commission to achieve various goals.                 (b) Increasing the quality of human capital
       With the reform carried out in the Cohesion            with a focus on employment;
            Policy by the European Commission             (c) Fostering entrepreneurship, favorable
            the term Structural funds relates to the          business environment and good
            following financial instruments:                   governance;
       (i) European Regional Development                  (d) Sustainable and balanced territorial
            Fund (ERDF), established in 1975,                 development.
            aims to reinforce social and economic
            cohesion by redressing the main regional     Each priority is passed through any of the
            imbalances between the Member States        seven Operational Programs:
            and among Member States.                     1. Regional Development with project
       (ii) European Social Funds (ESF),                    budget of EUR 1,361,083,545, financed
            established in 1958, aims to contribute         by ERDF, managed by the Ministry
            to strengthening the economic and social        of Regional Development and Public
            cohesion by improving employment and            Works;
            job opportunities, with ultimate goal to     2. Development of Competitiveness of
            achieve full employment and quality             Bulgarian Economy with project budget
            and productivity at work and promote            of EUR 987,883,219, financed by ERDF,
            social integration, including access of         managed by the Ministry of Economy and
            disadvantaged people to employment as           Energy;
            well as diminishing national, regional or    3. Environment with project budget of EUR
            local employment disparities.                   1,800,748, 085 financed by ERDF, CF
       (iii)Cohesion fund (CF) was established in           and national co-financing, managed by
            1993 for the purpose of strengthening           the Ministry of Environment and Water;
            the economic and social cohesion in the      4. Transport with project budget of EUR
            Community and promoting sustainable             2,000,000,000, financed by ERDF, CF
            development. The fund aims at financial          and national co-financing, managed by
            support for underdeveloped Member               the Ministry of Transport;
            States and its priority is funding big       5. Human Resources Development with
            infrastructure projects (trans-European         project finance of EUR 181,000,000,
            transport network and environment               financed by ESF and national budget,
            projects).                                      managed by the Ministry of Labour and
       (iv)The European Agricultural                        Social Policy;
            Guidance and Guarantee Fund                  6. Administrative capacity with project

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    budget of EUR 180 789 087, ESF and             (iii) each Managing Authority is responsible
    national co-financing, managed by the         for management and implementation of
    Ministry of State Administration and         its Operational Program through inviting
    Administrative Reform;                       potential beneficiaries to submit projects
 7. Technical Assistance with project budget     under particular operations or measure,
    of EUR 48,296, 513 financed by ERDF,          assessment of the eligibility of projects;
    managed by the Ministry of Finance.          approval of expenditures under projects
 as well as:                                     and effecting payments as per approved
 • National Strategy Plan for Rural              financing. Managing Authority also reports
    Development, managed by the Ministry of      to Certifying Authority on a monthly basis
    Agriculture and Forestry and                 regarding executed payments and to Central
 • National Strategic Plan for Fisheries         Coordination Unit regarding performance
    and Aquaculture, managed by Executive        under the Operational Program and annually
    Agency for Fisheries and Aquaculture         to European Commission;
    with the Ministry of Agriculture and           (iv) Certifying Authority is National Fund
    Forestry.                                    Department with the Ministry of Finance. Its
                                                 two main functions are (i) receiving funds from
  Each Operational Program is split into         European Structural Funds managed by the
priority axis and various operations or          European Commission and (ii) executing all
measures so that more areas are intervened       payments towards Managing Authorities. The
and better results are achieved. Each axis/      Certifying Authority also verifies expenditures
operation/measure specifies the main              declared by beneficiaries to actually having
intervention area, sets target finance and        been made and certifies all accounting
beneficiaries. The process of putting each        documentation with relation to certain project.
operational program into practice includes the   The Certifying Authority also sends financial
following interrelations:                        reports to Central Coordination Unit.
  (i) Central Coordination Unit with               (v) Audit Authority is Audit of European
the Ministry of Finance is responsible           Funds Department with the Ministry of
for coordination between the European            Finance. It carries out system audit and audit
Commission, Monitoring Committees and            of operations. The Audit Authority issues
Managing Authorities. It observes the            annual control report and audit opinion that all
proper implementation of European policies       financial operations are legal and regular.
and principles in respect of the funding by        (vi) Intermediate Bodies are institutions to
the Structural Funds. It receives reports        which the Managing Authority may delegate
from Managing Authorities with regard to         some of its functions on management of the
performance of the Operational Programs          Operational Program (e.g. project promotion
and from Certifying Authority with regard        and campaigns among publicity, project
to financial performance under Operational        selection and approval, financial control and
Programs;                                        accounting, monitoring). However, the ultimate
  (ii) Monitoring Committee of each              responsibility for management of the Program
Operational Program comprises                    is borne by the Managing Authority.
representatives from Central Coordination          (vii) Beneficiaries are individuals, legal
Unit. It is responsible for review and           entities or public authorities specified in
approval of operations to be financed,            general or in particular in the Operational
monitor of the progress and results of the       Programs. Beneficiaries are the ultimate
implemented projects, approval of reports        recipients of financing from European
on implementation, proposals to Managing         Structural Funds. Eligible beneficiaries
Authorities for current changes in Operational   as per operations or measures submit
Programs;                                        project proposal or claims for funding to the

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Managing Authority or Intermediate Body
and once their project or claim has been             Priority Axis 1 - Sustainable and integrated
approved, funding is admitted. Depending           Urban Development – is meant to deliver
on the operation or measure the Managing           basic environmental, social and economic
Authority may execute follow-up control and        services to all residents of a community
evaluations as to the implementation of the        through implementation of the following
project and expedience of funds received           operations:
under the program.                                   (i) Improvement of social infrastructure in
  Since great number of priority axis,             order to ensure appropriate and cost effective,
operations or measures are meant for               educational, environmental and cultural
beneficiaries that are public authorities or       infrastructure consistent with future demands
institutions the funds will be used by means       of the cities and their surrounding urban
of awarding public procurement. Operational        areas;
agreements between Managing Authorities              (ii) Housing – to provide better living
and Beneficiaries will be signed with regard       conditions for city residents, raising the
to responsibilities for conducting the public      standard of life and improving the conditions
procurement procedure. Beneficiaries will be       for disadvantaged people;
responsible for preparation of tender strategy       (iii) Organization of economic activities
and contract documents, launching public           such as upgrading and development of
procurement procedure, evaluation of offers        existing business-related infrastructure
and concluding contracts. The Managing             (communications links, public lightening, gas
Authority should review and verify tender          delivery); reconstruction and revitalization
documentation required as well as review           of existing industrial zones not affected by
and assess the Beneficiary’s evaluation            contaminations;
of the offers. The contract for awarding             (iv) Improvement of physical environment
procurement is approved by the Managing            and risk prevention – to enhance quality of life
Authority before Beneficiary signs it with         and environmental conditions
the public procurement supplier or service           (v) Sustainable urban transport system.
provider. Beneficiary then submits all invoices      Beneficiaries under this priority axis:
issued for services rendered to the Managing       municipalities, non profit associations, public
Authority for reimbursement within the             authorities and associations of owners
approved funding. All information regarding        of multi-family houses, municipalities or
awarded public procurements is entered into        associations of municipalities, Ministry of
Public Procurement Register kept by the            Interior, National Service “Fire Safety and
Public Procurement Agency with the Ministry        Population Protection”, non-government
of Economy and Energy.                             organizations in conjunction with municipal

IX.2. Operational Programs                           Priority Axis 2 - Regional and Local
                                                   Accessibility is split in several operations:
IX.2.1. Operational Program Regional                 (i) Regional and Local Road Infrastructure
Development                                        – target activities are: rehabilitation and
                                                   reconstruction of 2nd and 3rd class roads;
  The program is managed by the Ministry           maintenance of municipal roads within the
of Regional Development and Public works.          agglomeration areas; (ii) Information and
The program’s main objective is improvement        Communication Technologies Network
of quality of life in all regions of the country   - development of secure, dependable
through modernization of infrastructure and        and trusted public-owned infrastructure,
tourism boost.                                     development of public server parks; support

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of municipal ICT projects; (iii) Access to         IX.2.2. Operational Program
sustainable and efficient energy resources          Competitiveness
through construction of gas distribution
pipeline, construction and installations that        Major target set in Operational Program
use renewable energy resources etc. The            Competitiveness is development of dynamic
operation will support only investment in          economy which is competitive to the European
energy distribution and not production.            and world market with two specific targets
  Beneficiaries under this priority axis are        – encouraging innovation thus increasing
municipalities, State Agency for Informational     the effectiveness of enterprises as well as
Technology and Communication, Republic             improving business environment in Bulgaria.
Road Infrastructure Company, etc.                  Managing authority of the program is Ministry
                                                   of economy and energy.
  Priority Axis 3: Sustainable development of
tourism. This priority axis aims to enhance          Priority Axis 1: Development of a knowledge-
the regional tourism potential of the country      based economy and innovation activities.
and to develop and market territorially specific    The axis is aimed to improve Bulgarian
and diversified tourist products through (i)        innovation system and pro-innovative
Enhancement of tourist attractions and related     infrastructure through (i) support for starting
infrastructure; (ii) Regional tourism product      innovative enterprises, especially in respect
development and marketing destinations             of innovative industrial research and
aiming to increase the awareness of the            experimental development stages and set-up
diverse tourism potential and to maintain          companies that release innovative products
current position of Bulgaria on the tourism        on the market (e.g. business plans, services
market; (iii) National Tourist Marketing.          related to the project, marketing etc.); (ii)
  Beneficiaries are: municipalities, associations   support for development of innovations and
of municipalities, Ministry of Culture, national   their marketing; (iii) support for increasing
and local tourism associations, registered in      the number of research and development
National Tourist Register, municipalities, State   professionals in companies. Funds released
Tourism Agency.                                    under this operation will be designated to
                                                   cover expenses incurred by the companies
  Priority axis 4: Local development and           from payment of remuneration, social
co-operation. The activities planned under         security payments, equipment and material
this axis are designed to contribute to local      for research; (iv) support for industrial
and inter-regional development, especially         property rights protection - financing will
investment projects, introduced by local           cover expenses related to assessment of
communities related to local property, since       innovations, registration fees etc; (v) financing
such projects will reflect local issues and will    various companies providing professional and
have the flexibility to solve them. The axis        consultancy services for set-up companies;
is to be implemented through two projects:         (vi) support for renovation of equipment for
(i) Small scale Local Investments targeted         practical purposes; (vii) establishment of
at small municipalities badly developed due        national innovation network.
to their geographical or economic isolation          Beneficiaries under this priority axis are:
and (ii) Inter-regional cooperation - regional     scientific research organizations, universities,
and local innovations through exchange of          set-up companies, companies that recruit
practices within the European territory.           research and development professionals and
  Beneficiaries are: listed municipalities,         adopt innovations in their production process;
districts, municipalities, Euro regions and non-   Bulgarian companies engaged in inventions,
government organizations in partnership with       scientific organizations and universities,
municipal and district authorities                 municipalities, public or private organizations/

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companies, including non-government                  Invest Bulgaria Agency, being the main
organization.                                      beneficiary under this axis should elaborate
                                                   a long term program to be followed including
  Priority Axis 2: Improvement of effectiveness    campaigns to attract investors, providing
of the companies and establishing supportive       information regarding foreign markets, etc.
business environment. This part of the
program is intended to fund small and medium
sized enterprises in the light of improving        IX.2.3. Operational program
their competitiveness on the market. The           Environment
following operations will be financed under
this priority axis: (i) Technological renovation    The program is meant to meet the need
of companies - aims at providing modern and        of investments in infrastructure, aiming at
effective equipment and technologies through       achieving compliance with EU standards. Its
introducing new machines or innovations;           main objective is to increase the share of the
(ii) Satisfaction of internationally established   population connected to water and sewerage
standards; (iii) Establishment of Business         system as well as to ensure quality and all-
support organizations network; (iv) Creation of    year delivery of water to more remote areas.
regional business incubators.                      Managing Authority of the Program is Ministry
  Beneficiaries: small and medium sized             of Environment and water.
enterprises; large enterprises (for some
operations), public organizations, non-              Priority axis 1: Improvement and
government organizations, companies                development of water and wastewater
providing information-consulting services.         infrastructure. The main aim to be achieved
                                                   under this priority axis is preservation
  Priority Axis 3: Financial resources for         and improvement of the environmental
developing enterprises. Intervention under         condition of the water in the country through
this axis aims to overcome the downsides           construction and modernization of wastewater
of financing small and medium sized                 treatment plants as per the particular need of
enterprises due to lack of credit guarantees       settlements.
and venture capital. Financial engineering will
be implemented through establishment of a            Priority Axis 2: Improvement and
Holding fund pursuant to Art. 44 of Regulation     development of waste treatment infrastructure
1083/2006. The financial instruments to be          resulting in soil and groundwater condition
used by the Holding Fund will be offering          improvement and the existing landfills for
guarantees for certain credit portfolios for       household waste is decreased. Beneficiaries
small and medium enterprises; support for          under this axis are municipal administration
micro-loan funds and support for venture           and regional associations.
capital funds investing in small and medium          Priority Axis 3: Preservation, restoration
enterprises.                                       and support for the entire management
  Beneficiaries are small and medium                of species and natural habitats within the
enterprises, guarantee funds, hedge funds,         National Environmental Network comprising
banks, organizations.                              protected areas and protected zones under
                                                   NATURA 2000. The main priority of the axis is
  Priority Axis 4: Strengthening international     to reduce and hinder the loss of biodiversity
market positions of Bulgarian economy              in the country by improvement and update of
through making popular the advantages of           the management plans regarding protected
investing in Bulgaria; support for Bulgarian       areas; information campaigns to increase
companies playing on the international             public awareness on NATURA 2000 Network;
market.                                            establishment of management bodies of

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NATURA 2000; financing action plans for             Sofia underground and creation of inter-modal
protection of endangered species of national,      connections for passengers in Sofia.
European and global significance etc.
                                                     Priority Axis 4: Improvement of maritime
 Beneficiaries under the program are:               and inland waterway navigation. The main
municipalities and departments in Ministry         aim is improving navigation way – to secure
of Water and Environment and Ministry of           international navigation and all-year passage
Agriculture and Food supply engaged in the         of vessels in the two most critical sections of
management of NATURA 2000, municipal               Danube river.
administration, Water Supply and Sewerage            Beneficiaries under this program are: National
Companies and River Basin Management               Railway Infrastructure Company, National
Directorates.                                      Road Infrastructure Fund, Sofia Municipality
                                                   – Metropolitan EAD Company, Agency for
                                                   Exploration and Maintenance of Danube river,
IX.2.4. Operational Program Transport              Maritime Administration Executive Agency.

 Operational Program Transport aims
at modernization and renovation of road            IX.2.5. Operational Program Human
and railway infrastructure, especially             Resources Development
Trans European road and railway network
and improvement of traveling conditions.             Operational Program Human Resources
Managing authority of the program is Ministry      Development is meant to finance activities
of transport.                                      in respect of overall improvement of labour
                                                   structure and labour conditions in the country.
  Priority Axis 1: Development of railway          The program is managed by the Ministry of
infrastructure along the Trans European and        Labour and Social Policy.
major national transport axes – establishment
and development of nation-wide cross-border          Priority Axis 1: Promotion of economic
railway infrastructure of European importance,     activity and development of labour market
including modernization, rehabilitation and        – increasing the economic activity and
electrification of railway section along the        integration of vulnerable groups and
Trans-European transport network.                  inactive persons on the labour market
                                                   and employment through establishment of
  Priority Axis 2: Development of road             entrepreneurships.
infrastructure along the Trans European and          Beneficiaries are: Employment Agency,
major national transport axes - establishment      educational and training institutions
and development of nation-wide cross-border        and organizations, employers, branch
road infrastructure of European importance.        organizations, social-economic partners,
                                                   NGOs, centers for information and vocational
  Priority Axis 3: Improvement of inter-modality   training, vocational guidance institutions,
for passengers and freight. The priority of        micro-enterprises, consultancy companies,
the axis is to make traveling conditions and       entrepreneurship development centers
transfer of passengers and freight more
environmentally friendly through two main           Priority Axis 2: Raising productivity and
operations: (i) development of combined            adaptability of employed persons – improving
transport, railway connections, logistic related   workforce adaptability and flexibility as well
activities to attract international operators      as mobility through investments in human
and (ii) development of multimodal mobility        capital, improving working conditions at the
for passengers in Sofia through extension of        workplace.

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 Beneficiaries are: Employment Agency,              Beneficiaries: Social Assistance Agency,
educational and training institutions             Agency for People with Disabilities, State
and organizations, employers, branch              Agency for Child Protection, specialized
organizations, social-economic partners,          organizations of people with disabilities,
NGOs, institutions and organizations              consultancy agencies, employers,
exercising control over working conditions,       municipalities, Ministry of Health, State
units and services established to support         Agency for Youth and Support
                                                    Priority Axis 6: Improving the effectiveness
  Priority Axis 3 – Improving quality of          of labour market institutions for social
education and training in correspondence          and healthcare services. The axis aims
with the labor market necessities and building    to improve institutional system in the filed
a knowledge based economy – through               of labour market through (i) development
introducing high quality education and training   and modernization of the labour market
services, modernizing the educational and         system and (ii) strengthening the capacity of
training system.                                  institutions for social integration and provision
  Beneficiaries: Ministry of Education             of health services.
and Science, National Evaluation and                Beneficiaries: Labor market institutions at
Accreditation Agency; National Agency on          national and regional level, control authorities,
Vocational Education and Training, science        institutions exercising control over the working
institutions and centers, employers, branch       conditions in the enterprises, Ministry of Labor
organization, municipalities etc.                 and Social Policy and its secondary budget
                                                  spending units, Ministry of Health and its
  Priority Axis 4 – Improving the access          secondary budget spending units engaged in
to education and training – the ultimate          social and health services, etc.
goal is more productive social and labour
advancement of people through (i) access            Priority Axis 7: Transnational and
to education and training for disadvantaged       interregional cooperation through (i)
groups; (ii) more extensive coverage of           collaboration between projects in different
children and youth in education and society       Member States, (ii) collaboration between
– expansion of extracurricular engagement         national, regional and local institutions and
of adolescents and setting up mechanism for       organizations in Member States.
provision of scholarship for higher education;      Beneficiaries under axis are: public
(iii) development of life long educational        authorities, non-government organizations,
system.                                           educational, scientific and training institutions,
  Beneficiaries for this axis are: Ministry of     employers, branch organizations.
Education and Science, National Evaluation
and Accreditation Agency; National Agency
on Vocational Education and Training,             IX.2.6. Operational Program
kindergartens, non-government organizations.      Administrative Capacity

 Priority Axis 5: Social integration of             Operational Program Administrative
vulnerable groups and promotion of social         Capacity sets its main goal at modernization
economy through (i) support to the social         of Bulgarian State administration leading
economy by investing in social capital; (ii)      to effective functioning of administration
provision of social services to vulnerable        and judicial system, enhancing qualification
groups for prevention of social segregation       of employees in administration as well as
and overcoming its consequences; (iii)            provision of modern and adequate service by
employability through better health;              state administration. Managing authority of

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the program is Ministry of State Administration    (ii) providing integrated and interoperable
and Administrative Reform.                         information and communications environment
                                                   for better administrative service delivery to
  Priority Axis 1: Good governance aiming          citizens and business sector; (iii) development
at effective functioning of the administration     of information technology and integrated
and judicial system through (i) organizational     information system aiming at transparent and
development of the administrative structures;      effective services delivered by judicial system.
(ii) transparency and integrity of state             Beneficiaries under the axis are: central and
administration; (iii) effective coordination       municipal administration, Ministry of Justice,
and partnership in policy making and               Prosecutor’s office,
implementation of policies; (iv) making
administration cooperative towards business;
(v) increasing the confidence of citizens in        IX.2.7. Operational Program Technical
judicial system by making it effective and         Assistance
transparent; (vi) establishing transnational and
inter-regional cooperation.                          The program is aims at strengthening
  Beneficiaries under the axis are: Ministry        the capacity and functioning of central and
of State Administration and Administrative         local administrative structure involved in
Reform, central, regional and municipal            absorbing EU Structural funds and increasing
administrations, Ombudsman, society civil          information and public awareness with respect
structures, Ministry of Justice, Supreme           to the efficient use of EU Funds in Bulgaria.
Judicial Council, Prosecutor’s Office, National     Managing authority of the program is Ministry
Investigation Service.                             of Finance.

  Priority Axis 2: Human resources                  Priority Axis 1 – Support to structures at
management. The main goal of the axis is           central level (e.g. Central Coordination Unit,
improving the qualification and effectiveness       Certifying Authority, Audit Authority).
of state and judicial administration
personnel through (i) improving human               Priority Axis 2 – Further development and
resources management in the in central,            support to the functioning of the Unified
municipal and regional administration; (ii)        Management Information System;
improving professional qualification of state
administration employees; (iii) strengthening        Priority Axis 3 – Promotion of European
the capacity (in terms of knowledge and skills)    Cohesion Policy in Bulgaria and its purposes
of civil society structures; (iv) improving the    in Bulgaria as well as provision of general and
qualifications of magistrates and introducing       statistical information.
overall human resources management policy            Beneficiaries under the program are: Central
in judicial system.
  Beneficiaries are: Ministry of State
Administration and Administrative Reform,
Institute of Psychology, Registry Agency,
Ministry of Justice,

  Priority Axis 3: Quality in administrative
                                                   Coordination Unit, Certifying Authority, Audit
                                                   Authority, NSRF Monitoring Committee, OPTA
                                                   Monitoring Committee, OPTA managing
                                                   Authority, Central Information Office. .
service delivery and E-Governance
Development aims at modern and up-to-date
service provided by administration through
(i) improvement of services to citizens and
business sector; e-government development;

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                                    CHAPTER TEN: CURRENCY REGIME

X   CURRENCY REGIME                                   of the minimal compulsory reserves that
                                                      should be kept with it by the banks;
X.1. Legal Framework                                    (iv) determining the policy regarding
     Laws and Regulations                             sustainable credit system.
                                                        The BNB acts in accordance with the
      The most important acts pertaining to           principle of the open market economy
    this matter are the Currency Act, Credit          and free competition favoring an efficient
    Institutions Act, the Measures against Money      allocation of funds. With the accession of
    Laundering Act, The Bulgarian National Bank       the Republic of Bulgaria to the European
    Act, etc. There are numerous regulations that     Union the BNB supports the general
    have been issued in implementation of the         economic policies of the European
    provisions of said acts.                          Community thus aiming to contribute
                                                      to the achievement of the main goals of
                                                      the European Community as laid down
    X.2. International Institutions                   in article 2 of the Treaty establishing the
                                                      European Community.
      Bulgaria is a member of (i) International         The BNB procures policy of sustainable
    Monetary Fund as of 1990. The quota               and non-inflationary growth. The BNB also
    of the state is BGN, 640.2 million SDR;           promotes establishment and functioning of
    (ii) International Bank for Reconstruction        effective payment system. For supervision
    and Developments as of 1990 whereas               and inspection purposes the BNB may require
    the shareholding of the state is 0.34 % of        and inspect documentation of all banks in
    the bank’s capital; the European Bank for         Bulgaria. The BNB is the authority which
    Reconstruction and Development as of 1990         determines by regulations the specific rules
    as the shareholding of the state towards          pertaining to the currency regime and the
    31 December 2003 is EUR 158.0 million.            various obligations which must be performed
    The Republic of Bulgaria has also joined          by the participants on the foreign exchange
    the Agreement for Setting up the Black Sea        market and the payment system.
    Bank for Commerce and Development on
    23 December 1994 thus being among the
    establishers of the bank. The shareholding of     X.2.2. Payments and transactions
    the state in bank is 13.5 % of the capital.       between local and foreign persons
                                                      and cross-border payments and
    X.2.1. Bulgarian National Bank
                                                        The Currency Act regulates transactions and
      The national currency of the Republic of        payments between local and foreign persons,
    Bulgaria is the Bulgarian lev (BGN). No           the cross border transfers and payments, the
    individual or legal entity is allowed to refuse   currency transactions in cash by occupation,
    payment carried out in the national currency.     transactions with precious metals and
    The exchange rate is currently fixed by law at     gemstones as well a their import, export and
    1.95583 Levs per Euro as per the Currency         processing, import and export of levs and
    Board Arrangement dated July 1, 1997.             foreign currency, collection, maintenance
      The Bulgarian National Bank (BNB) is the        and reporting of statistical information on
    body responsible for:                             Bulgaria’s balance of payment and exercising
      (i) conducting monetary and credit policy;      of foreign exchange control.
      (ii) printing and emitting banknotes and
    coins, which is its exclusive right;                A local person as per the Currency act is:
      (iii) supervising banks through determination   (i) an individual having permanent residency

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                                 CHAPTER TEN: CURRENCY REGIME

in Bulgaria or a legal entity having its seat       earned from investments, liquidation quota
and registered address in Bulgaria or foreign       received upon termination of the companies;
entity operating via a branch in the country;       revenues from sale of the object of the
(ii) Bulgarian diplomatic or consular or trade      investment, etc.
representation offices; (ii) Bulgarian citizens
residing outside Bulgaria for educational or         Registers for payment balance statistics are
medical treatment purposes. A foreign person        kept with:
is any individual or legal entity not meeting the    • BNB and commercial banks – regarding
criteria for a local person as well as foreign           payments and transactions involving
diplomatic, consular or trade representation             local and foreign persons or cross-
offices, international organizations as well as           border transactions in amounts equal or
their members.                                           exceeding BGN 25 000 or its equivalence
                                                         in foreign currency;
  The Currency Act does not impose any               • Ministries and state agencies – regarding
restrictions as to the buying and selling of             funds received from EU Structure Funds
foreign currency and these activities may                or other financial aid in amount exceeding
freely be done between licensed commercial               BGN 5000;
banks and other persons, between                     • Central Depository – regarding capital
commercial banks themselves and between                  market transactions of transfer of
the BNB and the commercial banks. There                  registered securities between local and
are no restrictions as to the amount of money            foreign persons in amount exceeding
which may be paid in cash neither there are              BGN 5000;
restrictions as to the type of currency used for     • Registered securities issuers regarding
payment. Legal and natural, local and foreign            transactions involving transfer of
persons are entitled to possess and operate              registered securities between local and
with various currencies.                                 foreign persons in amount exceeding
                                                         BGN 5000;
  Most Bulgarian banks require the following         • Insurers or pension funds – regarding
documents for opening a bank account:                    paid sums to foreign persons in amount
  (a) if the applicant is a legal entity – a             exceeding BGN 5000;
registration certificate, issued by the Registry      • Notary publics or enforcement agents
Agency (or by the court of registration if the           regarding real estate transactions
company has not been re-registered with                  between local and foreign persons in
the Registry Agency), copy of the company’s              amount exceeding BGN 5000;
by-laws, statistical number of the company
(in case the company has not been re-                 The transactions enumerated below
registered with the Registry Agency); (b) if        notwithstanding of their amount require
the applicant is a natural person - an identity     declaration with the BNB within 15-days as
card or passport. A signature pattern of the        of their execution. The declaration is made
person authorized to operate with the bank          with statistical purposes (for payment balance
account is to be provided to the bank. In case      statistics) and does not represent a step
the individual or the person representing the       towards obtaining an approval on the deal.
company is unable to open the bank account,         Failure to declare a transaction is subject
a notarized power of attorney in favour of the      to fines as set out in the Currency Act. The
person opening the bank account should be           transactions are:
provided.                                             • initial direct investments abroad
                                                         (meaning establishing a company
 Foreign persons are entitled to transfer                abroad, acquisition of real estate abroad,
abroad funds having various origins: income              acquisition of 100% of the capital of a

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                                 CHAPTER TEN: CURRENCY REGIME

     foreign entity or more than 10% of the         X.3. Currency exchange bureau,
     voting rights in the general meeting of        financial house and transactions with
     shareholders of a foreign entity) effected     precious metals - licenses, permits.
     by local legal entities or sole proprietors,
     and                                              Currency transaction in cash by occupation
 •   any contract for granting financial credit      may be carried out by a person, registered
     between local legal entities or sole-          as a trader as per the Commerce Act as well
     proprietors and a foreign person must be       as a person registered as a trader as per the
     reported to the BNB for the purpose of         legislation of a Member State of the European
     national monetary statistics.                  Union or a member state of European
                                                    Economic Area Agreement, and only after it
  Currency transfers and payment transfers          has been entered into the public register of
abroad may be made through banks only after         persons conduction business as currency
informing the bank regarding the purpose of         exchange bureau. The public register of
the transfer. If a person wishes to transfer        persons conducting business as currency
abroad currency exceeding BGN 25,000 that           exchange bureau is kept and maintained with
person should apart from notifying the bank         the Ministry of Finance. Registration in the
regarding the purpose of the transaction            register is made within 14 days from filing all
declare data and present documents, which           the documents requisite under a regulation
are determined by a regulation issued by            issued by the Council of Ministers.
BNB (such as an invoice, a contracts, an
enforceable judgment, other documents                 A written permit (license) issued by the BNB
certifying the reason for the transfer).            is required for carrying out cash and non-
                                                    cash transactions in foreign currency by a
 Local and foreign persons may export               brokerage financial house. A regulation issued
currency in cash (in levs or foreign exchange       by BNB determines the documents and fees
currency) under the following conditions:           required for issuance of the permit.
 • amounts up to BGN 5,000 or their
     equivalent in other currency may be              Persons professionally engaged in
     exported freely- no written declaration        production, processing and trade with
     before the customs authorities is              precious metals and gemstones and items
     required;                                      made with or from them by occupation
 • amounts between BGN 5,000 and                    are obliged to register with the Ministry of
     BGN 25,000 or their equivalent in other        Finance within 14 days of commencement of
     currency- must be declared at the              operation. The Ministry of Finance maintains
     customs;                                       a public register of persons engaged in
 • amounts over BGN 25,000 or their                 production, processing and trade with
     equivalent in other currency- may be           precious metals and gemstones and items of
     exported only after they have been             them by occupation.
     declared before the customs authorities
     whereas the declaring person should            X.4. Measures against money
     point out the origin and the exact amount      laundering
     of the money exported, including payment
     instruments payable to the bearer and            Normally, upon the moment of remittance
     should present a certificate issued by          of the amount the banks require a document
     the respective territorial department          proving that the respective taxes, if any, have
     of The National Revenue Agency,                been paid in Bulgaria. Notwithstanding the
     certifying the lack of tax arrears as          liberalization of the currency regime, still
     well.                                          money flow is controlled by the state through

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the measures contemplated by the Currency          awarding of public procurement orders,
Act and specifically by the measures provided       National Revenue Agency, notaries public,
by the Measures Against Money Laundering           certified public accountants and specialized
Act.                                               auditing enterprises, customs authorities,
                                                   the Central Depository, persons organizing
  According to the latter act money laundering     tenders for public procurement, etc.
shall represent transformation and transfer of
property, acquired through illegal activity or       The persons obliged to apply mandatory
through acts of participation in such activity     measures against money laundering, have
for the purpose of concealing the illegal          to determine the identity of their clients upon
origin of the property or for the purpose of       establishment a permanent commercial
helping a person avoid the legal results of        relations with them, incl. upon opening a bank
such activity; concealing the nature, source,      account, or in the course of a transaction,
location, movement and rights of the property      which exceeds BGN 30,000 or the equivalent
, acquired by illegal activity; acquisition,       in other currencies, or if the transaction
possession or usage of property when the           exceeds BGN 10,000 when it is executed
person at the moment of acquisition of the         with banks, credit institutions or an exchange
property knows the assets are result of            bureau. In addition, the origin of the funds
an illegal activity or participation in such       should also be declared. Should the persons
activity. Furthermore, money laundering            obliged to identify its client are unable to
shall represent obtaining property through         identify it, he should not proceed with the
any of the enumerated acts if committed in         transaction.
a Member State of European Union or in
any other country beyond the jurisdiction of         Apart from the identification of clients, other
Republic of Bulgaria.                              measures to be undertaken may be: data
                                                   collection on the substantial elements of the
  Measures and activities for disclosure           transaction, data safe-keeping and reporting
and prevention of money laundering are to          suspicious transactions to the Financial
be undertaken in the course of depositing,         Intelligence Department with National Security
withdrawing and exchanging money,
conclusion of acquisition property transactions
and in other forms of use and other property
which could be used for money laundering.
  The persons responsible for carrying out
the measures specified in the Measures
against Money Laundering Act inter alia
                                                   State Agency. The Agency is authorized to
                                                   collect, process, analyze, store the data
                                                   received from the respective persons and
                                                   disclose it to the state authorities.

are: the Bulgarian National Bank, credit
institutions, commercial banks, exchange
bureaus, companies performing cash
transfers, insurers, collective investment
vehicles, Postal offices accepting or receiving
money or other valuables, leasing entities,
political parties, trade unions and professional
organizations, non-for-profit legal entities,
sports organizations, merchants dealing in
arms, petrol and petrochemical products,
pension funds, privatization bodies, leasing
enterprises, investment brokers and managing
companies, persons who organize the

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XI   CONCESSIONS REGIME                                XI.1.3. Types of Concessions

XI.1. Legal nature                                       According to its object, a concession may be
                                                       one of the following types:
                                                         a) Public Works Concession
     XI.1.1. Legal framework                             A public works concession has as its
                                                       object the implementation of a construction
       As per Bulgarian law concessions and all        project (the object of the concession) and
     major related matters thereto are set forth       the management and maintenance of
     by the Concessions Act. The latter abolished      the completed facility after its becoming
     the former Concessions Act in order to            operational; the concessionaire’s
     harmonize Bulgarian legislation with the          consideration therefor shall consist either
     EC requirements in the field. Further, there       only of the right to operate the object of the
     are numerous provisions of the sectorial          concession, or of that right in addition to a
     legislation, which provide for specific rules      compensation on behalf of the grantor.
     depending on the objects of concessions -           b) Service Concession
     Subsurface Resources Act (SG 23/1999)               A service concession has as its object
     Water Act (SG 67/1999), Forestry Act( SG          the management and maintenance of the
     125/1997), Civil Aviation Act (SG 94/ 1972)       object of the concession – a service of public
     Energy Act (SG 107/2003), Rail Transport          interest – at the concessionaire’s own risk,
     Act (SG 97/2000),Maritime Space, Inland           as the consideration therefor shall consist
     Waterways and Ports of the Republic of            either only of the right to operate the object
     Bulgaria Act (SG 12/2000), Fisheries and          of the concession, or of that right in addition
     Aquaculture Act (SG 41/2001), Roads Act           to a compensation on behalf of the grantor.
     (SG 26/2000), Physical Education and Sport        The right to manage the service of public
     Act (SG 58/1996), Protected Areas Act (SG         interest encompasses provision of services
     133/1998). However, the basic definitions,         and/or execution of other economic activities
     terms and procedures set out by the               in exchange for acquisition of certain income.
     Concessions Act apply.                            A service concession may also include the
                                                       execution of partial additional construction
                                                       and assembly works in cases when there is a
     XI.1.2. Legal definition                           need for completion of ongoing construction,
                                                       or partial extension, partial reconstruction,
       The Concessions Act (hereinafter referred       partial rehabilitation or renovation of the
     to as ‘CA’) establishes the concession as the     object of the concession.
     right to operate a facility of public interest,     c) Mining Concession
     made available by a grantor to a merchant           A mining concession has as its object the
     (the concessionaire) on the basis of an           extraction of natural resources by means of
     agreement in writing, in exchange for the         their exploitation, effected with funds provided
     merchant’s obligation to build and/or manage      by the concessionaire and at the latter’s own
     and maintain the facility subject to the          risk. Specific cases:
     concession at his/her own risk. It is a long-       (i) a mining concession for mineral deposits
     term legal relation due to its specific objects,   shall be awarded in accordance with the
     agents, terms and main objectives – the most      provisions and procedures of the Subsurface
     essential of which being obtaining ultimate       Resources Act.
     benefit from certain resources of public             (ii) the concession for the production of
     interest.                                         mineral waters has as its subject the use
                                                       of mineral waters by water tapping. The
                                                       concession herein shall be granted following

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                            CHAPTER ELEVEN: CONCESSIONS REGIME

the terms and conditions of the CA in as much      performed.
the Waters Act does not provide for otherwise.       Concession payments to the grantor may
                                                   be provided for as an obligation of the
                                                   concessionaire in exchange for the right of
XI.1.4. Term of Concession                         operation of the object of concession. In each
                                                   specific case the amount of the concession
  Concessions are granted for periods of up to     payment shall be determined depending on:
35 years, without an option for extension. The       (i) the economic advantages, which the
concession period shall be calculated as of        concessionaire would obtain from the
the date of entry into force of the concession     concession;
agreement. In determining the concession             (ii) fair sharing of the economic benefit
period, the financial and economic indicators       between the grantor and the concessionaire;
of the concession, as well as the technical          (iii) ensuring a socially acceptable price of
and/or technological specifications of the          the services provided through the object of the
object of the concession, have to be taken         concession, when such price is determined by
into consideration.                                an act of legislation.
                                                     The procedure and deadlines for making the
                                                   concession payment shall be determined by
XI.1.5. Compensation of the                        the concession agreement.
concessionaire. Concession
payments to the grantor
                                                   XI.2. Objects and Agents of
  Compensation of the concessionaire has           Concession
been set out for the cases of public works
concession and service concession. It              XI.2.1. Objects
shall be effected through reimbursement
of the concessionaire by the grantor for             a) objects – state or municipal property
part of the costs for execution of the               The CA establishes the facilities of public
construction/provision of the services -           interest which can be operated on concession:
object of the concession. It shall not relieve     facilities declared as an exclusive state
the concessionaire of the obligation to            property; facilities, properties or parts of
assume the bulk of the risk pertinent to the       properties - public state property or public
construction and/or the management and             municipal property, by means of which
maintenance, and shall be allowed in cases         economic activity is performed; facilities,
where either it is necessary to ensure a           properties or parts of properties - private
socially acceptable price of the services          state property or private municipal property,
provided through the object of the concession,     by means of which economic activity is
when such price is determined by an act            performed; properties or parts of properties
of legislation, or for reconstruction of the       – owned by a public legal organization,
object of concession after the impact of force     by means of which economic activity is
majeure. Compensation for construction/            performed.
restoration, management and maintenance              The first two types of objects of concession
of the object of concession shall be effected      (facilities declared as an exclusive state
following commencement of its operation,           property; facilities - public state property or
solely provided that the project is operational.   public municipal property, by means of which
Compensation for management and                    economic activity is performed) shall be made
maintenance of the public service – object         available for building and operation only
of concession - shall be effected solely for       through a public works concession, and for
the period during which the service has been       operation purposes - only through a services

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                             CHAPTER ELEVEN: CONCESSIONS REGIME

or a mining concession.                            respectively the entity or association, owns
  In all cases, the grantor retains its title of   the whole capital and accordingly the
ownership over the object of concession.           members of the association own the whole
In the case of public work concessions, the        capital in the same proportion as per their
facility built shall become property of the        articles of association.
grantor as of the date of its commissioning          With the amendments of July, 2008
into operation under the procedure of the          of the Concessions Act a possibility is
Spatial Development Act. Any accretions and        introduced, in alignment with the European
improvements of the object of the concession,      Commission’s Interpretative Communication
including when not taking place in fulfillment      on the application of Community law on
of the concession agreement, shall become          Public Procurement and Concessions to
property of the grantor as of the moment of        Institutionalized Public-Private Partnerships
their materialization.                             (IPPP), for granting of concession to a
  b) objects – property of the concessionaire      newly established company in which one
  Paragraph 2 of art. 13 CA provides               of the partners is the private company of
that in case of services concession, the           the selected bidder and the other partner
object thereof may be property of the              is the state/a municipality or a public law
concessionaire.                                    organization, or a company solely owned
                                                   by the state/a municipality or a public law
XI.2.2. Agents

  a) Grantor                                       XI.3. Procedure
  The grantor of any concession awarded
under the Concessions Act shall be:                 As per the CA, the granting of a concession
  (i) the Council of Ministers, for assets         shall include: taking preparatory action;
constituting state property; or                    conduct of a concession procedure and
  (ii) the Municipal Council, for assets           execution of a Concession Agreement.
constituting municipal property; or
  (iii) a public law organization, represented
by a body in accordance with its act of            XI.3.1. Preparatory activities
establishment – in regard to facilities in its
ownership.                                           In Art.19 CA provides that the respective
  b) Concessionaire                                body with regard to the specific object of
  Any natural person or legal entity or an         concession shall perform the preparatory
association of such persons may participate in     activities and forwarding of proposal for
a concession procedure, provided they do not       granting concession:
come under the regulatory restrictions set out       (i) a minister appointed by force of a law –
in art. 16 of the CA. A concessionaire shall be    for facilities constituting state property;
a participant in a concession procedure with         (ii) the respective municipal mayor – for
whom the grantor has executed a concession         facilities constituting municipal property;
agreement.                                           (iii) the person, running the facility – object
  Concessions shall solely be granted to           of concession – where the facility is owned by
merchants. Therefore, in cases where the           a public legal organization
participant selected as a concessionaire is a        The preparatory activities for granting a
natural person or a legal entity/association       concession shall begin upon resolution of the
other than a merchant, the concession              respective body with regard to the specific
shall be granted to the newly established          type of concession or upon the initiative of
trade company in which the natural person,         any interested party. Due justification of the

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rationale of the concession must be enclosed     concession, rights and obligations as per the
along with the initiative or the resolution      concession agreement; conditions for making
therefor.                                        concession payments where envisaged,
  Based on the said justification, the            form, amount and conditions for the possible
competent body shall prepare drafts for          compensation of the concessionaire etc.
a decision for the launch of a concession        Within seven days from its entry into force,
procedure, an announcement of the conduct        the competent body approves by issuing an
of a concession procedure, a concession          order the announcement of the procedure and
agreement and a bidding documentation.           forwards it for promulgation in State Gazette,
                                                 and for entry into the National Concessions
XI.3.2. General characteristics of the             b) Submission of applications and offers to
concession procedure                             the Commission
                                                   The time limit for receiving applications and
  The concession procedure is based              offers is determined in the announcement
on the principles as determined in the           for launching of the procedure. In preparing
Directive 2004/18/EC. The concessionaire is      the offer, each candidate has to comply
determined by means of an open procedure,        with the conditions stated in the bidding
conducted in keeping with the principles         documentation. Until expiry of the time limit
of transparency, free and fair competition,      for receipt of bids, each candidate under
equal treatment of, and non-discrimination       the procedure may amend, supplement
against, any candidates or participants in the   or withdraw their bid. Any candidate in a
concession procedure.                            procedure for granting a concession shall be
  The procedure for granting a concession is     entitled to submit only one offer. A candidate
conducted by a Commission appointed by the       may propose several variants within the bid,
respective body under Art. 19 of the CA.         except in cases where the possibility for doing
                                                 so is restricted by virtue of the concession
                                                 announcement. Each participant may attach
XI.3.3. Stages                                   a declaration to their bid designating which
                                                 part of the information contained therein is
  a) Decision for launching of concession        confidential. Together with their offers, the
procedure                                        candidates shall submit a guarantee for
  As a result of the completed preparatory       participation in the concession procedure
activities, the competent body shall submits     in the form of a cash deposit or a bank
to the grantor a reasoned proposal to            guarantee. The form of the security can be
launch a concession procedure, along             selected by the candidates themselves.
with the justification of the concession, the       c) Selection of the candidates
draft documentation and other documents            The Commission for conducting the
determined by special law or by the              concession procedure (hereinafter referred to
Regulation on the implementation of the CA.      as ‘the Commission’) carries out the selection
On the basis of the proposal, the grantor        of the candidates or participants that have
adopts a decision for launching a procedure      been admitted to participate in the concession
leading to the award of a concession. The        bidding procedure in accordance with the
decision shall determine all major aspects       following criteria:
of the concession granted: object, business        (i) suitability to pursue the professional
activities which may be performed through        activity;
the object of the concession; terms and            (ii) economic and financial standing;
conditions, maximum period, starting               (iii) technical capability and/or professional
date, conditions for implementation of the       qualification.

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  The minimal required levels thereof shall       10 days of its publication with the Commission
be specified with respect to the object of         for Protection of Competition. The concession
concession and/or the management of               agreement shall be executed after the expiry
the service of public interest, and shall be      of the appeal deadline. In the process of
certified by means of the different papers and     execution of the concession agreement the
references set out in art. 26 of the CA.          participant, selected as concessionaire,
  The candidates that comply with the             shall be bound by the proposals, made by
selection criteria shall be determined by a       means of its offer and of the draft concession
decision of the Commission and shall continue     agreement. A specific attention has to be
their participation in the procedure, while the   paid on the possibility of amendment of the
rest of the candidates shall be eliminated.       concession contract. There are certain explicit
  d) Assessment of the offers                     terms based on which the contract could be
  At this stage the Commission shall assess       amended: changes of legislation; partial loss
the offers, as the main criterion shall be the    of the object of the concession or in the event
economically most beneficial offers. The           of objective impossibility to use it; or in cases
economically most feasible bid shall be           of subsequent emergence of any threat to the
identified on the basis of a comprehensive         national security and defence of the State, to
assessment of bids in accordance with             the environment, human health, to protected
criteria specified in the decision and in the      territories, zones and sites and to public order.
announcement of the launch of the procedure          In case of restructuring or termination
leading to the award of the concession.           of the concessionaire’s company, the
  e) Selection of a concessionaire                legal successor has the right to request
  The body, which organizes the conduct of        an extension of the concession contract
the concession procedure, shall submit to         if matches the requirements of the initial
the grantor a report and a draft resolution for   concessions procedure.
selection of a concessionaire. Based on the
report and the protocol of the commission,
following individual review of the facts          XI.3.5. National Concessions Register
and circumstances described therein, the
grantor shall adopt a decision on: selection        All awarded concessions shall be recorded
of concessionaire of the participant, rated       at the National Concessions Register,
first, or charging the commission to remedy        maintained by the Council of Ministers. The
irregularities established and subsequently       file of each concession shall contain the
to perform a new rating, or termination of
the procedure in the cases provided for
by the CA. The decision for selection of
a concessionaire has to specify the main
parameters of the concession in accordance
with the offer of the participant, nominated as
concessionaire and prescribe a deadline for
                                                  information under art. 97, paragraph 1 CA
                                                  (type of concession, object, period, data
                                                  about the concessionaire etc.) as well as
                                                  subsequent changes in that information.   .
execution of the concession agreement.

XI.3.4. Execution of a concession

 The decision for selection of a
concessionaire shall be published in State
Gazette and may be appealed against within

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XII   COMPETITION LAW REGIME                             imposition of appropriate behavioural and/
      IN BULGARIA                                        or structural measures; making propositions
                                                         to the competent state authorities and local
XII.1. Legislative Framework and                         governmental bodies to revoke or amend
       General Rules                                     their administrative acts that prevent, restrict
                                                         or distort the competition; drafting sector
      XII.1.1. Applicable Legislation                    analyses, etc.
                                                           The decisions of CPC, along with some
        The core legislative act governing and           of its rulings, are subject to appeal before
      protecting the competition in Bulgaria is the      a three-member committee of the Supreme
      Protection of Competition Act, which is entirely   Administrative Court as regards their
      new law introduced at the end of 2008.             compliance with the law. If the Court
      The new Act, revoking the old Protection of        establishes lack of such compliance, the
      Competition Act as of 1998, has been adopted       same is not entitled to resolve the dispute, but
      as a result of the Bulgarian accession to the      to return the case to CPC for deciding with
      EU in 2007 and aimed to introduce: the EU          respective mandatory instructions. Subject
      competition rules, more precisely Council          to appeal before the Supreme Administrative
      Regulation (EC) No1/2003 and Council               Court could be not only the decision in its
      Regulation (EC) No 139/2004, more effective        substantial part but also the amount of the
      measures for protection of competition and         imposed fines.
      entirely new amounts of fines.                        On the other hand, the decisions of the
        Other primary legislation, governing specific     three-member committee are subject to
      aspects of these relations is the Administrative   cassation appeal before a five-member
      Procedure Code and the Civil Procedure             committee of the Supreme Administrative
      Code. The Commission on Protection of              Court. An important aspect of the Bulgarian
      Competition (CPC) has adopted number of            Competition law is the fact that the decision of
      secondary legislation such as Methodology          the Supreme Administrative Court confirming
      for setting fines under the Protection of           CPC’s decision for infringement of competition
      Competition Act, Methodology on Investigation      is binding on the Civil Court regarding cases
      and Definition of the Market Position of            for indemnification of aggrieved persons, i.e.
      Undertakings in the Relevant Market, etc.          legal or natural persons who has suffered
                                                         damages as a result of this infringement are
       Although the Notices of the European              not obligated to prove again within the civil
      Commission are not binding on the Bulgarian        proceedings the fact of the infringement and
      CPC, the latter applies them in its practice.      the identity of the infringing party.
                                                           Citizens or companies suffering damages
                                                         from the infringement of the competition
      XII.1.2. Competent State Authorities               legislation, may claim indemnification before
                                                         the Civil District Court, acting as a first
        CPC is the Bulgarian national competition        instance court in such cases.
      authority responsible for the application
      of Article 81 and 82 of EC Treaty and the
      Bulgarian Protection of Competition Act. The       XII.1.3. Scope of the Protection of
      other main competences of the CPC are:             Competition Act
      imposing fines; imposing interim measures;
      granting authorizations; cooperating with the       There are four groups of legal persons
      European Commission and the other national         having the obligation to comply with the
      competition authorities of the Member States;      provisions of the Protection of Competition
      ruling termination of infringements, including     Act:

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  (i) undertakings and associations of                  by their nature or in accordance with the
undertakings, which operate within or outside           reasonable commercial practise, have no
the territory of Bulgaria, hindering the                connection with the subject matter of the
competition in Bulgaria;                                main contract or with its performance.
                                                    The legal consequence of such infringement
 (ii) state and municipal authorities which       is not only that the agreement, decision or
by their acts hinder or may hinder the            concerned practise shall be rendered as
competition in the country;                       null and void, but also the fact that CPC
                                                  has the right to impose fine on the infringing
  (iii) undertakings to whom the State or the     undertaking.
Municipality have assigned services of public       It should be noted that the concept of
interest insofar as the application of the        “infringing undertaking” includes more than
law does not impede de facto or de jure the       just a company, but also a natural person and
fulfilment of the assigned services and the        an unincorporated civil partnership that carries
competition in the country is not affected to a   out economic activities, regardless of its legal
significant extent;                                or organisational form.
                                                    On the other hand, the agreements,
 (iv) natural persons, infringing this law        decisions and concerned practices with minor
                                                  anti-competition effect shall remain valid and
                                                  enforceable. This concept is known as de
XII.2. Main Forms of Infringement on              minimus rule. An agreement, decisions or
Competition                                       concerned practice is deemed to have a minor
                                                  effect on the competition if the aggregate
  The Bulgarian competition legislation           share of the undertakings, participating in
recognizes four main forms of infringement for    the market and affected by the agreement,
which CPC imposes fines or other measures:         decision or concerned practice does not
  (i) The law prohibits all types of agreements     • 10% of the relevant market if the
between undertakings, decisions by                      participating undertakings are
associations of undertakings as well                    competitors;
as concerned practices of two or more               • 15% of the relevant market if the
undertakings, having as their object or effect          participating undertakings are not
the prevention, restriction or distortion of            competitors
competition on the relevant market.
  Agreements, decisions and concerned               It should be borne in mind that the de
practices with such effect may be those which:    minimus rule does not apply to those
  - directly or indirectly fix prices or other     agreements, decisions or concerned practices
      trading conditions;                         having as a result the so called “hard-
  - share markets or sources of supply;           core restrictions” on the competition, i.e.
  - limit or control production, trade,           restrictions such as: price fixing; limitation of
      technical development or investment;        output or sales; market sharing.
  - apply to certain partners different             Some agreements, decisions and concerned
      conditions for equivalent transactions,     practices are exempted from the above
      thereby placing them at a competitive       prohibition either because they (i) comply
      disadvantage;                               with the specific requirements, provided in the
  - make the conclusion of contracts              Protection of Competition Act or (ii) they have
      subject to acceptance by the other          been explicitly exempted by a decision of CPC
      party of additional obligations or to the   (the so called “block exemption”).
      conclusion of additional contracts which,     In the first case exempted are those

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agreements, decisions and concerned                  In order to impose fines or other measures
practices which contribute to improving the        on such undertaking, CPC should first define
production or distribution of goods or to          what constitutes the “relevant market” in that
promoting technical or economic progress,          particular case and subsequently to establish
while allowing consumers a fair share of the       that this undertaking actually enjoys either
resulting benefit and which do not:                 a monopoly position (position, granted only
  - impose on the concerned undertaking            by law, to carry out exclusively certain type
     restrictions which are not indispensable      of economic activity) or a dominant position
     to the attainment of these objectives;        (an undertaking, which, in view of its market
  - afford such undertakings the possibility of    share, financial resources, possibilities for
     eliminating competition on a substantial      market access, level of technology and
     part of the relevant market.                  economic relations with other undertakings
                                                   may hinder competition on the relevant
  A new important aspect of this exemption,        market, as it is independent of its competitors,
introduced by the new Protection of                suppliers or consumers). Additionally, CPC
Competition Act, is the fact that it is an         should prove that this abusive behaviour
obligation of the undertaking itself to decide     may or in fact has a negative effect on the
on and to prove whether the agreement,             competition and on the consumers’ interests.
decision or concerned practice complies with
the criteria for exemption. No prior notification     (iii) Concentration of undertakings is
to or approval of CPC is required.                 prohibited only if it leads to creation or
                                                   strengthening of a dominant position, as a
  (ii) The law prohibits abuse of monopoly or      result of which the effective competition in
dominant position by an undertaking or by two      the relevant market would be significantly
or more undertakings enjoying a collective         impeded.
dominant position, which may prevent, restrict
or distort competition and impair consumers’        Under the Bulgarian law the concentration
interests. The legislation provides a non-         may take one of the following forms:
exhaustive list of concrete forms of such abuse:
  - price fixing;                                    •   merger or merger by acquisition of two or
  - limitation of output, trade and technical           more independent undertakings;
       development impairing the consumers’         •   acquisition of control over other
       interests;                                       undertakings or part of undertakings –
  - application to certain partners different           such control (direct or indirect) may be
       conditions for equivalent transactions,          acquired through acquisition of shares,
       thereby placing them at a competitive            securities, assets or other rights by
       disadvantage;                                    means of a contract or other relevant
  - making the conclusion of contracts                  way. The essential characteristic of the
       subject to acceptance by the other               term “control” is the decisive influence
       party of additional obligations or to the        that the acquiring undertaking shall have
       conclusion of additional contracts which,        over the acquired undertaking by means
       by their nature or in accordance with the        of:
       reasonable commercial practise, have no      -   acquisition of right of ownership or right
       connection with the subject of the main          to use over the whole or part of the
       contract or to its performance;                  assets of the undertaking;
  - unjustified refusal to supply goods or to        -   acquisition of rights on the grounds
       provide services to actual or potential          of agreement by which the acquiring
       customers in order to impede their               undertaking shall influence over the
       economic activity.                               composition, voting or decisions of the

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     undertaking’s bodies                         better meeting the interests of consumers
 •   establishment of a joint venture acting as   and overall the positive effect outweighs the
     an autonomous economic entity.               negative impact on competition.

 Generally, every concentration of                 (iv) The last form of infringement prohibited
undertakings is subject to notification to         by law is the unfair competition conducted by
CPC, unless they comply with the following        an undertaking.
 - the total turnover during the preceding          As a general rule the law prohibits actions
    business year of the undertakings,            or omission of an undertaking in the course
    participating in the concentration within     of its business activity which is contrary to
    the territory of Bulgaria is less than 25     the good faith in the commercial practice and
    million Bulgarian leva; or                    damages or may damage the interests of the
 - the turnover of each of at least two of        competitors.
    the undertakings, participating in the
    concentration, during the preceding             The interpretation and application of this
    business year within the territory of         general prohibition could be very broad. It
    Bulgaria does not exceed 3 million            may include for example the case whereby
    Bulgarian leva; or                            one undertaking uses the name or the trade
 - the turnover of the undertaking, subject       mark of another undertaking, regardless of
    to acquisition, during the preceding          the fact whether the trade mark in question
    business year within the territory of         has been legally registered. The important
    Bulgaria does not exceed 3 million            factor shall be whether the use of the trade
    Bulgarian leva.                               mark or name may or in fact impedes the
                                                  consumers’ interest and not necessary
  The Protection of Competition Act provides      whether the use has been illegal according to
for additional specific exceptions from the        other regulations.
obligation for notification.
  The parties are bound to notify CPC for          There are seven explicitly regulated and
the contemplated concentration after they         prohibited forms of unfair competition:
conclude the agreement, publicly announce
the offer for concentration or acquire the         •   Damaging the good name of
control, but before taking any actions for             competitors by means of dissemination
actual implementation of the transaction. As           of false information or by way of
an exceptional case, the parties may request           misrepresentation of facts;
from CPC to assess the concentration prior
to conclusion of the agreement or the public       •   Misleading in respect of substantive
announcement of the offer.                             characteristics or in respect of the
                                                       manner of use of goods or services
  As a general rule, CPC shall not authorize           by asserting false information or
concentration which leads to creation or               misrepresenting facts – this infringement
strengthening of a dominant position, as a             occurs most often upon circulation of
result of which the effective competition in           misleading advertising materials;
the relevant market would be significantly
impeded. However, even if the concentration        •   Misleading advertising – any advertising
has such anti-competition effect, the                  which in any way deceives or is likely
same shall be authorized if it aims at                 to deceive the persons to whom it is
modernisation of the respective economic               addressed and is likely to affect his
activity, improvement of market structures,            economic behaviour or to damage

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     its interests or is likely to damage a          quantities of goods during an extended period
     competitor. Most often this infringement        of time at prices lower than the costs of their
     takes the form of misleading statements,        production and marketing, with the purpose to
     exaggerations, conceal of substantial           unfairly solicit clients, etc.
     information, etc.
  • Prohibited comparative advertising                •   Disclosure of manufacturing or trade
  Comparative advertising is such advertising             secrets of competitors contrary to good
that directly or indirectly identifies a competitor        faith commercial practices.
or goods or services offered by him. However,
not every kind of comparative advertising
is prohibited, but only the one that does not        XII.3. Investor’s liabilities and fines
comply with the specific requirements set out         imposed by CPC
in the law. An example for such infringement
shall be the case whereby the advertising              The new Protection of Competition Act
undertaking circulates advertising as a result       contains entirely new concept and amounts
of which the consumers take the advertising          of fines in comparison to the old legislation,
undertaking for its competitor.                      whereby the fines were set by a minimum
                                                     (5000 Bulgarian leva) and maximum (300 000
 • Imitation                                         Bulgarian leva). The new law complies with
 The following forms of imitation are                the European model for assessment of fines
prohibited by law:                                   and sets the latter as a percentage of the
 - imitation by means of appearance of goods         undertaking’s turnover.
     or products – this includes the packaging,
     marking, name or other features. The              The most severe fine amounts to 10% of
     purpose of this infringement should be to       the total turnover of the undertaking for the
     deceive the consumers that this product or      preceding business year. This fine shall be
     service has a specific origin, manufacturer,     imposed by CPC for infringements such as
     seller, method and place of manufacture,        execution of prohibited agreements, decisions
     quantity, quality, nature and other             and concerned practices, abuse of monopoly
     substantial characteristics;                    or dominant position, conduct of unfair
 - imitation of name, trade mark or                  competition, completion of concentration,
     geographical indication identical or similar    prohibited by law, lack of notification to CPC
     to those of other persons, in a manner          upon concentration, non-compliance with
     that may lead to damaging the interests of      decisions or rulings of CPC, etc.
     competitors;                                      A substantially lower fine (1% of the total
 - imitation of domain name or web-site              turnover for the preceding business year)
     design identical or similar to those of other   CPC imposes for actions infringing the
     persons in a manner that may mislead            obligations of the undertakings to cooperate
     and/or injure the interests of competitors.     with CPC, to present to CPC full, accurate
                                                     and not misleading information, etc.
 • Unfair solicitation of clients
 This prohibition includes several different          Heavy burden for the infringing undertakings
ways of unfair solicitation of clients such as       are the so called “periodic penalty payments”
offering or granting either free of charge or at     which CPC imposes for each day until the
an ostensible price a supplement to goods;           end of the infringing behaviour. Depending
conducting a sale by means of conditional            on the type of the infringement the periodic
promise to grant something, provided that the        penalty payments amount to either 5% or 1%
consumer solves a task, puzzle, raffles, etc.;        of average daily turnover for the preceding
sale on the domestic market of significant            business year.

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                                   InvestBulgaria Agency

  While assessing the amount of the                    the transaction does not constitute
fine in each particular case CPC takes                  concentration, it authorizes the
into consideration a number of relevant                concentration, it authorizes the
factors such as gravity and duration of the            concentration in accordance with
infringement along with circumstances                  the amendments proposed by the
mitigating or aggravating the liability. The CPC       participants, it commences a second
has adopted a Methodology for assessing the            stage investigation for assessing the
exact amount depending on the particular type          concentration.
of infringement. The main principle followed
by CPC in determining the fine is that the            CPC commences the second stage
latter should be of such amount as to restore      investigation of concentration if during the
the competition and to allow the infringing        first stage establishes that the contemplated
undertaking after paying it to continue            concentration may have as effect creation
sufficiently its business activity.                 or strengthening of a dominant position or

  However, the infringing undertakings may
elude paying fines for participation in a
secret cartel if they provide CPC with specific
information set out in the law. Further, CPC
may decrease an imposed fine of such
undertaking which provides CPC with a
                                                   hindering of the effective competition on the
                                                   relevant market. This investigation normally
                                                   takes up to 4 months and ends up with a
                                                   decision of CPC resolving on the issue. .
substantial evidence for the infringement by
the end of the proceedings.

  Along with the fines CPC may impose other
measures (structural or behavioural) aiming
to restore the competition such as division
or merger of capitals, shares or assets,
termination of joint control, etc.

XII.4. Proceedings for issuing
authorizations for concentration

 -   The procedure commences with
     notification submitted before the CPC
     by the undertakings, participants in the
 -   Upon acceptance of the notification CPC
     initiates proceeding for assessment of
     the concentration by means of first stage
     investigation within 25 days as of the day
     of acceptance of the notification;
 -   After the end of the first stage
     investigation, the working team drafts a
     report based on which the Chairman of
     CPC schedules the closed session for
     resolving on the case;
 -   In its decision CPC may rule that:

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XIII   PERMITS AND LICENSES ACCORDING                        may only be introduced for industrial activities
       TO SPECIAL LEGISLATION                                related to sites which are exclusive state
                                                             property or over which the State exercises
XIII.1. Legal Framework                                      sovereign rights pursuant to the Constitution.
                                                               Further, with respect to regulatory
         Permits Permits and licenses for performance        authorisations or permits the Administrative
       of specific industrial activities are governed         Regulation Act introduces the principle of
       by general legislation applicable to regulatory       implicit consent, i.e. where an application
       and controlling activity of regulatory authorities,   is submitted for issuance of a permission
       as well as by special legislation applicable          or a certificate for performance of a single
       to specific industry areas. The general legal          transaction or action, and the competent
       framework of regulatory and controlling activity      authority has not ruled on such application
       of regulatory authorities is set forth in the         within the statutory deadline, the authority’s
       Constitution of the Republic of Bulgaria 1991         consent of the latter shall be deemed given,
       (the “Constitution”), the Code of Administrative      unless otherwise provided for by law.
       Procedure 2006, the Administrative Violations
       and Sanctions Act 1969 and the Restricting              Under Bulgarian law special permits and
       Administrative Regulation and Administrative          licenses are generally granted by way of a
       Control over Industrial Activity Act 2003 (the        decision of the competent regulatory authority.
       “Administrative Regulation Act”). The legal           As a general rule, decisions of regulatory
       framework of specific industry areas is set forth      authorities granting or, refusing to grant,
       in special laws and the secondary legislation on      special permits or licenses are subject to
       their implementation.                                 appeal before the Supreme Administrative
                                                             Court under the terms and procedure of the
                                                             Code of Administrative Procedure 2006.
       XIII.2. General Review                                  It is to be noted that special legislation
                                                             often sets forth definitions of particular
          The Constitution proclaims the principle of        industrial activities. Further, such special
       free economic initiative. The Administrative          legislation would usually define, among
       Regulation Act, effective as of the end of 2003,      other issues, the objectives and principles
       aims at restricting administrative regulation         of regulation, the powers of the competent
       and control exercised by regulatory authorities.      regulatory authorities and procedure and
       Said law sets forth the general principle that a      documents required for issuance of relevant
       licensing or registration regime for performing       permits or licenses. Below we have provided
       an industrial activity, or a permit, certification     a summary of the regulatory regime of
       or notification regime for performing a specific        only some of the country’s main industry
       transaction or action, may be established only        areas, and in particular insurance, energy,
       by law. Further, any requirements for performing      telecommunications and audio-visual sector.
       an industrial activity, as well as for executing a
       transaction or action, shall also be set forth by
       law.                                                  XIII.3. Permits and Licenses According
          The Administrative Regulation Act exhaustively     to Special Legislation. Procedure
       lists the industry areas which may be subject         - Competent Authority, Documents
       to a licensing regime due to posing higher risk       Required, Terms and Fees
       for the national security or public order, the
       environment or the rights of citizens or legal        XIII.3.1. Insurance
       entities. (Such industry areas amount to 40 and
       are listed in an Appendix to the Administrative         Insurance activity is governed by the
       Regulation Act.) In addition, a licensing regime      Insurance Code 2005 (effective as of 1

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                                  InvestBulgaria Agency

January 2006, which derogated the Insurance        licensed insurance activity and shall be as
Act 1996), the Financial Supervision               follows: (i) for accident, illness, land, rail
Commission Act 2003 (the “FSCA”), the              and sail transportation vehicles, aircrafts,
Export Insurance Act 1998 and the regulations      freight damages and losses, fire and natural
on their implementation.                           calamities, other property damages, financial
  Insurance activities may be conducted            losses, legal costs and transportation
only by an insurer, whereas an insurer             assistance insurance – BGN 4,400,000; (ii) for
may be (i) a Bulgarian joint stock company         life, health, marriage and children, unit linked,
registered under the Commerce Act 1991             capital purchase, supplementary (including
and licensed under the terms and conditions        additional life and health risks), general tort
of the Insurance Code, or (ii) a co-operative      liability and tort liability for damages related
registered under the Co-operatives Act 1999        to possession and use of transportation
and licensed under the terms and conditions        vehicles, credit and guarantee insurance
of the Insurance Code, or (iii) an insurer         – BGN 6,400,000; and (iii) for a captive
having its registered seat in a member state       re-insurer - BGN 2,000,000. For an insurer
of the EU or the European Economic Area            licensed to perform the activities under item
(EEA) under the terms and conditions of            (i) of the previous sentence, which performs
the freedom of establishment or freedom of         active re-insurance, the minimum amount
services; or (iv) an insurer from a third state,   of the guarantee capital shall be 6,400,000
i.e. a state different from Bulgaria and the EU    provided the premiums registered under
and EEA member states, may also perform            active re-insurance exceed 10 per cent of the
insurance activities in Bulgaria through a         gross amount of the registered premiums or
branch registered under the Commerce Act           BGN 97,800,800 or the technical reserves
and licensed under the terms and conditions        formed in relation to active re-insurance
of the Insurance Code.                             exceed 10 per cent of the gross amount of
  A re-insurer may be (i) a Bulgarian joint        the formed technical reserves. The Insurance
stock company licensed under the terms and         Code regulates separately the minimum
conditions of the Insurance Code; (ii) a person    guarantee capital required for insurers
licensed to perform active re-insurance having     organised in the form of co-operatives, as
its registered seat in a member state of the       well as the capital requirements for Bulgarian
EU or the EEA; and (iii) a person licensed         branches of insurers from third countries. In
to perform active re-insurance having its          certain cases, the minimum amounts of the
registered seat in a third state (a third state    guarantee capital set forth in the Insurance
re-insurer) through a branch registered under      Code shall be updated annually in accordance
the Commerce Act and licensed under the            with the European index of consumer prices,
terms and conditions of the Insurance Code or      as published by Eurostat.
from its registered seat or from a branch in a        Licenses for insurance and/or re-
third state, provided the terms and conditions     insurance activity are granted by the
of the Insurance Code are fulfilled. Further,       Financial Supervision Commission (“FSC”),
a re-insurer is also a captive re-insurer with     a specialised state body in charge for the
a limited scope of provision of re-insurance       regulation and supervision over the activity
activities, as envisaged in the Insurance Code     of, among others, insurers and insurance
2005.                                              intermediaries. Licenses are granted pursuant
  The share capital of an insurer or re-           to a detailed procedure and upon submission
insurer, organised in the form of a local          of documents set out in the Insurance Code.
joint stock company, shall not be less than        The FSC is required to rule on the application
a minimum guarantee capital set out in the         within four months as of submission thereof.
Insurance Code. The minimum amount                    As mentioned above, insurers having their
of the guarantee capital depends on the            registered seat in a EU or EEA member

                                    InvestBulgaria Agency

state may perform the respective licensed             (vii) public contracting of electricity or natural
insurance activity on the Bulgarian market            gas; (viii) transit transmission of natural
under the freedom of establishment or                 gas; (ix) supply of electricity or natural gas
freedom of services, after the FSC has been           by end suppliers; (x) management of the
duly notified pursuant to a procedure set out          electric energy system; and (xi) distribution of
in the Insurance Code.                                electric energy through the railway distribution
  The FSC charges insurers and re-insurers            network. All of these activities are subject to a
a fee for issuance of licenses and an annual          licensing regime, which should be conducted
fee for its regulatory and supervisory activity.      on the basis of objective, transparent and
The amount of the latter fees is set in a tariff      non-discriminatory criteria.
representing an appendix to the FSCA.                   The competent regulatory authority for
                                                      granting, amendment and supplement,
                                                      termination and withdrawal of licences in the
XIII.3.2. Energy                                      energy sector is the State Energy and Water
                                                      Regulatory Commission (the “SEWRC”), an
  The main principles of the Bulgarian legal          independent specialised state regulatory body
regime in the energy sector are set forth in the      in the energy sector. Pursuant to the Energy
Energy Strategy of the Republic of Bulgaria           Act, the SEWRC can grant only one license
2000-2010, the Energy Act 2003, the Energy            in the territory of Bulgaria for (i) transmission
Efficiency Act 2008, the Renewable and                 of electricity or natural gas, (ii) organisation of
Alternative Energy Sources and the Biofuels           the electricity market, (iii) public contracting of
Act 2007, and secondary legislation adopted           electricity or natural gas; and (iv) management
in the implementation thereof.                        of the electric energy system. Furthermore,
  The Energy Strategy of Bulgaria has as its          the SEWRC can grant only one license for a
objective the increase of competitiveness of          specific territory for (i) transmission of thermal
the Bulgarian energy sector in the regional           power, (ii) distribution of electricity or natural
Balkan and integrated European market, as             gas, and (iii) public supply of electricity or
well as to attain liberalisation of the industry to   natural gas.
the fullest possible extent. The achievement            Licenses for activities in the energy sector
of this target requires corresponding                 are granted pursuant to a detailed procedure
development in the following areas: (i)               and upon submission of required documents
financial restructuring and accelerated                provided for by the Energy Act. Only legal
privatisation of Bulgarian energy enterprises;        entities registered under the Bulgarian
(ii) the establishment of a clear and stable          Commerce Act 1991, legal entities originating
regulatory framework; (iii) implementation            from an EU or EEA member country may
of institutional changes, and (iv) gradual            apply for a license. Licenses are issued for
deregulation of the market. As of 1 July              a term of up to 35 years with a possibility for
2007 the electricity market has been fully            extension for another up to 35-year period.
liberalised. However, the thermal power sector        The SEWRC shall issue or, refuse to issue, a
remains subject to higher regulation.                 license within three months as of submission
  The Energy Act sets forth detailed rules            of the application.
on the organisation and functioning of the              Licensed entities shall pay (i) an initial fee -
energy sector. It regulates the relations             on the initial grant or modification of a license;
associated with (i) generation of electricity         and (ii) an annual fee - for the regulatory
and/or thermal power; (ii) transmission of            activity of the SEWRC under the license for
electricity, thermal power or natural gas; (iii)      the respective year. The amounts of license
distribution of electricity or natural gas; (iv)      fees and the terms of payment thereof are
storage of natural gas; (v) trade in electricity;     set forth in the Tariff on the Fees Charged
(vi) organisation of the electricity market;          by the State Energy and Water Regulatory

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                                    InvestBulgaria Agency

Commission under the Energy Act, approved               The governmental policy in the telecoms
by the Council of Ministers.                          sector is implemented by the Council of
  Although, as mentioned above, the electricity       Ministers, the National Radio Frequencies
market is now fully liberalised, the following        Spectrum Council and the Chairman of the
is important to note. In respect of electricity       State Agency for Information Technologies
price formation two parallel markets operate:         and Communications. The Communications
(i) a regulated market where the prices are           Regulation Commission (the “CRC”), an
regulated by the SEWRC and (ii) a non-                independent state body, is vested with specific
regulated market where the participants freely        powers to regulate and control the compliance
negotiate prices. However, the prices of the          of provision of electronic communications with
electric power, at which some generators sell         the applicable law.
to the public contractor for the needs of the           The CRC is vested with the powers, among
end suppliers and the public contractor sells         others, to (i) determine the relevant markets
to the end suppliers, as well as the prices           of electronic communications networks and/
of the thermal power, at which generators             or services subject to regulation under the
sell to the transmission company and the              ECA, (ii) investigate, analyse and evaluate the
transmission company sells to the consumers,          level of competition on the relevant markets,
are subject to regulation by the SEWRC even           and (iii) determine the undertakings having
after the liberalisation of the electricity sector.   significant market power (“SMP undertakings”)
  The Renewable and Alternative Energy                and impose, amend or revoke specific
Sources and the Biofuels Act imposes an               obligations on those undertakings. The CRC
obligation on the public provider and the             is the authority competent to issue, amend,
end suppliers to buy out the entire volume            supplement, transfer, suspend, terminate or
of power generated from renewable energy              revoke permits for use of a scarce resource.
sources and registered with a certificate of           The CRC has the power to (i) resolve disputes
origin, with the exception of the quantities          between undertakings, providing electronic
contracted/offered on the bilateral market            communications, and (ii) review claims
or on the balancing market. The mandatory             submitted by end-users in a limited number of
purchase is carried out on the basis of               cases envisaged in the ECA.
long-term power purchase agreements                     Following the latest amendment in the
(“PPAs”). The term of the PPAs is 25 years            law the functions of the CRC related to
for geothermal and solar power plants and 15          the secondary legislation were extended
years hydroelectric power plants with installed       to include the powers of the CRC to adopt
capacity of up to 10 MW and other power               statutory instruments of secondary legislation
plants utilizing renewable energy sources as          in the cases provided for in the ECA.
of commencement (not later than December              The CRC maintains mutual cooperation
31, 2015) of the generation for all new               with the national regulatory authorities
generators. The preferential tariffs for electric     of other EU member states and with the
power generated from renewable energy                 European Commission in order to procure
sources are regulated by the SEWRC.                   the development of consistent regulation
                                                      practices and implementation of the EU law.
                                                      In compliance with the Authorisation Directive
XIII.3.3. Telecommunications                          (2002/20/EC), the ECA provides that public
                                                      electronic communications services shall be
  As of 26 May 2007 a new Electronic                  provided freely following a submission of a
Communications Act (the “ECA”) entered                notification to the CRC, unless individually
into effect, as such new law transposes the           allocated scarce resource is required. In
principles set out in the EU 2002 regulatory          the latter case, electronic communications
framework.                                            networks and services may only be provided

                                  InvestBulgaria Agency

upon the issuance of a permit by the CRC           communication networks for terrestrial
allowing the use of the respective scarce          digital video broadcasting. In addition,
resource (e.g. radio frequencies, positions        (i) an undertaking which has obtained a
of the geostationary orbit, numbers from the       permit for use of individually allocated
National Numbering Plan).                          scarce resource - radio frequency shall not
  A permit for use of a scarce resource is         be allowed to perform activity as radio or
granted for an initial period of up to 20 years    television broadcasters and shall not create
with a possibility for extension for up to 10      radio or television programs, and (ii) an
more years. The general authorisation is not       undertaking which has obtained a permit for
limited in time and an undertaking operating       use of individually allocated scarce recourse
under such authorisation may terminate the         - radio frequency shall not be allowed to build
provision of public electronic communications      electronic communication network for radio
networks and/or services upon submission of        and television programs transmission, except
a notification to the CRC.                          through the granted individually allocated
  Pursuant to the ECA an undertaking that has      scarce resource and in the way specified in
obtained a permit for use of a scarce resource     the permit itself.
may transfer such permit, or part of the rights      The same amendment also introduced
and the corresponding obligations set forth in     the widely discussed issue related to
the permit for use of a scarce resource - radio    the regulation of the data collection by
frequency, only after the prior approval of the    the undertakings carrying out electronic
CRC.                                               communications. The mentioned amendments
  Undertakings carrying out electronic             provide for the rule that such data collection
communications have to pay: (i) an annual          shall be done only in view of the detection
fee for CRC’s controlling activities (up to 1.2%   and investigation of severe and computer
over the annual gross revenues from provision      crimes and that such data shall be stored for
of electronic communications networks and/         not more than 12 months, after the expiring of
or services, VAT not included and following        which the collected data must be destroyed.
deductions as provided by the law); and (ii)       Furthermore, the amendment sets forth
one-time fee for administrative services.          the type of data that shall be collected and
In addition, undertakings using individually       specifically determines that the collected
allocated scarce resource have to pay: (i) an      information shall not reveal the content of the
annual fee for use of such resource; and (ii)      massage.
a one-time fee for granting a permit for use of
such resource.
  In view of the strategy for switch over          XIII.3.4. Audio-Visual Sector
to terrestrial digital broadcasting several
amendments in the law were introduced                In compliance with the Framework
in 2008 and 2009. The latest of these              Directive (2002/21/EC) transmission is
amendments introduce the principle for             regulated separately from content and
separation of the functions of the network         thus the rules governing the provision of
operator from the functions of the radio or        electronic communications and the media
television broadcaster creating the content        rules are stipulated in two laws (the ECA
through the rule that radio and broadcasters       and respectively the Radio and Television
which create programs broadcasted through          Act 1998 (the “RTA”)) and controlled by
individually allocated scarce resource, shall      two distinctive state bodies - the CRC and
not be eligible to gain permit for use of          the Council on Electronic Media (“CEM”).
individually allocated scarce resource - radio     Whereas the CRC is the authority in charge of
frequency for performance of electronic            the technical parameters, the CEM regulates
communication services through electronic          the audio-visual activity through registration

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                                    InvestBulgaria Agency

or issuance of licenses, and supervises              electronic communication networks for
broadcasters as to the content and manner of         terrestrial digital broadcasting. Such activity
broadcasting of their programs.                      in accordance with the provision of the new
  Depending on the means used for                    Art. 116d can be carried out under a license
broadcasting, radio and/or television activity       issued by the CEM. The license allows
may be carried out based on a license or             programs to be broadcasted by undertaking
registration. Radio and/or television activity       for which the CRC has issued permission for
using available and/or building, maintaining         use of individually allocated scarce resource
and using new telecoms networks for                  - radio frequency for carrying out of electronic
terrestrial radio broadcasting is carried out on     communications through networks for
grounds of a license for radio and/or television     terrestrial digital broadcasting on the territory
activity, issued under the terms of the RTA          determined in the license. The procedure
by the CEM, and an individual license for            for issuing of such license can start either
carrying out of electronic communications            under the initiative of the interested party
through available and/or new electronic              or under the initiative of the CRC or CEM.
communication networks for terrestrial               The number of the licenses that could be
broadcasting issued by the CRC under the             issued is not limited. The programs that are
terms of the ECA. Broadcasting through               mandatory broadcasted through the networks
technical means which do not use individually        for terrestrial digital broadcasting are
allocated scares recourse - radio frequency          determined with motivated resolution of CEM
(e.g., through cable and/or satellite) is carried    and the number of such programs is limited
out on grounds of registration.                      to two programs for each terrestrial digital
  Persons eligible to apply for performing           broadcasting network. In order to separate
radio and/or television activity under the RTA       the transmission from the content the law
include (i) sole traders and legal entities          provides that an undertaking that has a
registered under Bulgarian law, and (ii)             license for use of individually allocated scarce
foreign natural persons and legal entities
registered as merchants under the laws of
a EU or EEA member country. Eligible to
be radio or television broadcasters are also
the undertakings in accordance to the ECA,
except where the law provides otherwise.
  Licenses are granted by the CEM after
                                                     resource-radio frequency for carrying out of
                                                     electronic communication through terrestrial
                                                     digital broadcasting networks is not allowed to
                                                     be radio and television broadcaster.  .
holding an auction, as the overall procedure
may take five to eight months. Licenses are
issued for a term of up to 15 years with a
possibility for extension, but in total not longer
than 25 years. The CEM shall register eligible
applicants within fourteen days as of the
application, as registrations are of unlimited
term. The RTA provides for license and
registration fees, where the amounts and the
manner of imposition of such fees are further
specified in the Tariff on the Fees for Radio
and Television Activity 2006.
  The latest amendment of the RTA of
February 2009 introduces the rules for radio
and television activity creating programs
designated for broadcasting through

                                        InvestBulgaria Agency

XIV   INDUSTRIAL & INTELLECTUAL                          XIV.1.2. EU legislation
                                                          •   Council Regulation (EC) No 1383/2003 of
XIV.1. Legal Framework                                        22 July 2003 concerning customs action
                                                              against goods suspected of infringing
                                                              certain intellectual property rights and the
      XIV.1.1. Laws and Regulations                           measures to be taken against goods found
                                                              to have infringed such rights
       •   Copyright and Neighboring Rights Act,          •   Council Regulation (EC) No 40/94 of 20
           published in State Gazette No. 59 of               December 1993 on the Community trade
           June 29, 1993 as in force from August 1,           mark.
           1993, last amendments published in State       •   Council Regulation (EC) No 6/2002 of 12
           Gazette No 12 of February 13, 2009 as in           December 2001 on Community designs.
           force from May 1, 2009.                        •   Council Regulation (EEC) No 1768/92 of
       •   Patents and Registration of Utility Models         18 June 1992 concerning the creation of
           Act, published in State Gazette No. 27 of          a supplementary protection certificate for
           April 02, 1993 as in force from July 01,           medicinal products
           1993, last amendments published in State
           Gazette No 36 of April 4, 2008 as in force      In 2005 and 2006 legislative improvements
           from April 8, 2009.                           were introduced in Bulgarian legislation for the
       •   Marks and Geographical Indications            implementation of Directive 2001/84/EC on
           Act, published in State Gazette No. 81        the resale right for the benefit of the author of
           of September 14, 1999 as in force from        an original work of art and Directive 2004/48/
           December 15, 1999, last amendments            EC on the enforcement of intellectual property
           published in State Gazette No 12 of           rights.
           February 13, 2009 as in force from May 1,
       •   Industrial Design Act, published in State     XIV.1.3. International Treaties
           Gazette No. 81 of September 14, 1999          (bilateral and multilateral)
           as in force from December 15, 1999, last
           amendments published in State Gazette          a) General
           No 12 of February 13, 2009 as in force         • Paris Convention for the Protection of
           from May 1, 2009.                                 Industrial Property of March 20, 1883 as in
       •   Topography of Integrated Circuits Act,            force from September 27, 1965
           published in State Gazette No. 81 of           • Agreement on Trade-Related Aspects
           September 14, 1999 as in force from               of Intellectual Property Rights (TRIP’s
           December 15, 1999, last amendments                Agreement) of April 15, 1994
           published in State Gazette No 30 of April
           11, 2006 as in force from March 1, 2007        b) Specific International Agreements
       •   Protection of New Plant Varieties and          (i) Copyright and Neighboring Rights
           Animal Breeds Act, published in State          • Berne Convention for the Protection of
           Gazette No. 84 of October 10, 1996                 Literary and Artistic Works of 1886
           as in force from January 04, 1997, last        • International Convention for the Protection
           amendments published in State Gazette              of Performers, Producers of Phonograms
           No 36 of April 4, 2008 as in force from            and Broadcasting Organizations
           April 8, 2009                                  • Convention for the Protection of the
       •   Different Regulations on drafting up, filing        Producers of Phonograms against
           and examination of corresponding objects           Unauthorized Reproduction of their
           of Industrial Property.                            Phonograms.

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 (ii) Patents                                        industrially applicable.
 • Patent Cooperation Treaty of June 19,
      1970 as in force from May 21, 1984                Utility models are granted legal protection
 • European Patent Convention of October             by their registration with the Patent Office.
      05, 1973 as in force from July 01, 2002        Utility models are registered if they are new,
 (iii) Trademarks                                    industrially applicable and have inventive step.
 • Madrid Agreement Concerning the                      The discoveries, scientific theories and
      International Registration of Marks of April   mathematical methods, results from artistic
      14, 1891 in force as of August 01, 1985        work, schemes, rules and methods of
 • Protocol Related to the Madrid Agreement          intellectual activity, for playing games or doing
      Concerning the International Registration      business, computer programs as such, or
      of Marks of June 27, 1989 in force as of       presentation of information are not regarded as
      October 02, 2001                               inventions.
 (iv) Industrial Design                                 The following objects are not patentable:
 • Hague Agreement Concerning the                    (i) invention the exploitation of which would
      International Deposit of Industrial            be contrary to the public order or morality;
      Designs of June 02, 1934 as in force from      (ii) methods for treatment of human or
      December 11, 1996                              animal body by therapy or surgery, as well
 (v) Others                                          as diagnostic methods practiced on the
 • Madrid Agreement for the Repression of            human or animal body. This provision is not
      False or Deceptive Indications of Source       related to products, in particular substances
      оf Goods of April 14, 1891 as in force from    or compositions used in these methods; (iii)
      August 1, 1975                                 plant varieties or animal breeds or essentially
 • Lisbon Agreement for the Protection               biological processes for obtaining them. This
      of Appellations of Origin and their            provision does not apply to microbiological
      International Registration of October 31,      methods and the products thereof.
      1958 as in force from August 12, 1975
 • Budapest Treaty on the International                Mark - a sign which is capable of
      Recognition of the Deposit of                  distinguishing the goods or services of one
      Microorganisms for the Purposes of             person from those of other persons, and which
      Patent Procedures of April 28, 1977 as in      can be presented graphically. Such signs can
      force from August 19, 1980                     be words, including names of persons, letters,
 • International Convention for the Protection       numerals, drawings, figures, the shape of the
      of New Plant Varieties (UPOV) of               products or the packing thereof, combination
      December 02, 1961 as in force from April       of colors, sound signs or any combinations of
      24, 1998                                       such signs.

                                                      Geographical indications means
XIV.2. Legal Definitions                              appellations of origin and indications of source.

  The copyright over literary, artistic and            Industrial Design is the appearance of the
scientific works arise for the author with the        whole or a part of a product resulting from the
creation of the literary, artistic and scientific     specific features of the shape, lines, contours,
work.                                                ornamentation, colours or combination thereof.
                                                     Product means any industrial or handicraft
  According to the Patents and Registration          item, including parts intended to be assembled
of Utility Models Act patents are granted            into a complex item, sets or composition
for inventions from all area of the technics         of items, packaging, graphic symbols and
which are new, have inventive step and are           typographic typefaces.

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XIV.3. General Review                               belongs to the person, whose work has
                                                    resulted in the creation of computer program.
XIV.3.1. Copyright and Neighbouring                 In case the computer program was created
Rights                                              under an employment contract and unless
                                                    otherwise agreed, the copyright over it shall
 The law provides for protection of copyright       belong to the employer.
during the whole life of the author and for 70
years after his death, irrespective of the date
when the work is lawfully made available to the     XIV.3.2. Patents
                                                      The exclusive right on invention is obtained
  The author is entitled to the exclusive right     by issuance of a patent by the Bulgarian Patent
to use the work created by him and to permit        Office. The procedure includes (i) a formal
its use by other persons. The reproduction of       examination and (ii) an examination whether
the work, regardless whether it is related to       the criteria for patentability are fulfilled.
the distribution, presentation, broadcasting,
transmission or public exhibition and if it is        Any patent application may enjoy a priority
addressed to unlimited number of people or to       from earlier application filed in a Member-State
a limited number of people (in certain cases), is   of the Paris Convention within 12-months.
considered as a use of this work.
                                                      The scope of protection is determined by
 The copyrights of performers, producers of         the patent claims. The exclusive right on an
phonograms and broadcasting organizations           invention includes the right of usage of the
are protected for a period of 50 years as from      invention, the right to prevent third parties from
January 1 of the year following the year in         usage and the right to dispose of the patent.
which the author work is made public.               Where the subject matter of the patent is a
                                                    method, the patent owner shall have the right
  The performer has the exclusive right             to prohibit others from performing the following
to permit against compensation: (a) the             acts: (i) application of the method; (ii) offering
broadcasting of his/her performance by              or putting on the market, using or importing, or
wireless means, its transmission and                stocking for offering or putting on the market
retransmission by cable, as well as a sound         or use of a product obtained directly by the
and video recording of the performance, the         patented method.
reproduction of the recording on video or video
carriers and their distribution; (b) the public       The term of validity of a patent for invention
performance, broadcasting by wireless means,        is 20 years from the date of filing of the
transmission and retransmission by cable of         application. In order to maintain the validity of a
such recordings; (c) offering by wireless means     patent annuity fees are due.
or cable of access to the recording of unlimited
number of people and (d) import and export            The exclusive right on utility model is
of the recording in commercial quantities. The      obtained by its registration with the Patent
broadcasting organizations, as far as their         Office. The procedure includes (i) a formal
programs are concerned, have the right to           examination and (ii) an examination whether
permit their re-broadcasting, re-transmission,      the criteria for registration are fulfilled. The
recording, reproduction and distribution.           term of validity of utility model registration
                                                    is 4 years from the date of the filing of the
 The computer programs are copyright objects        application. That term may be extended for
and the law provides for their protection for       two consecutive periods of three years each.
70 years. The copyright over such a program         The total term of protection may not exceed

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10 years from the date of the filing of the            ten years from the date of filing the application.
application.                                          The registration may be renewed for an
                                                      unlimited number of ten-year periods.
                                                        The registration of a trademark may be
XIV.3.3. Marks                                        revoked if within a period of five years following
                                                      the date of registration the owner has not put
  The exclusive right on a mark is obtained by        the mark to genuine use on the territory of
its registration in the Bulgarian Patent Office.       Bulgaria or if such use has been suspended
The law provides protection for trademarks,           during an uninterrupted period of five years.
service marks, certificate marks and collective
marks. The procedure of registration consists            The registration of a mark may be cancelled
of two stages: (i) formal examination, and            when (i) it has been registered in breach of
  (ii) examination about the existence of the         the absolute or relative grounds for refusal;
absolute and relative grounds for refusal.            (ii) it is registered in the name of an agent
  Any trademark application may enjoy a               or a representative of the owner without its
priority from an identical application filed in        consent; (iii) the applicant has acted in bad
member-state of the Paris Convention within a         faith when filing the application which has
6-month period.                                       been established with a court decision; (iv) the
  Each application, which satisfies the                usage of the trademark could be prohibited
requirements as to proper form, shall be              on the grounds of earlier right such as a
published in the Official Bulletin of the Patent       right on a name, and a portrait, copyright,
Office. Within two months after the date of            a right on a name of new plant variety or
publication of the application, any person may        animal breed, industrial property right.(v) the
give notice of opposition to the registration         trademark consists of or contains the trading
of the mark in pursuance of the absolute and          name of another party whereof the trading
relative grounds for refusal of registration.         name has been registered and used in the
                                                      Republic of Bulgaria prior to the date of filing
  The exclusive right on a mark includes the          of the application for registration in relation to
right of the owner to use it, to dispose of it and    identical or similar goods and services.
to prevent other parties from unauthorized use
in the course of business activity of any sign         With the latest amendments to the Marks and
which: (i) is identical with the mark in relation     Geographical Indications Act detailed criteria
to goods or services which are identical with         have been introduced for the recognition of a
those for which the mark is registered; (ii) due      mark as well – known or as a mark of renown
to the identity or similarity to the mark, and the    and the establishment of a Register of such
identity and similarity of the goods or services,     marks with the Bulgarian Patent Office is
there is a likelihood of confusion among the          provided.
consumers and a possibility of association with
the mark; (iii) is identical or similar to the mark     A Community trade mark registered in the
in relation to goods or services which are not        Office for Harmonization in the Internal Market
identical or similar to those for which the mark      (trade marks and designs) under Council
is registered, where the mark is known on the         Regulation (EC) No. 40/94 on the Community
territory of the Republic of Bulgaria, and where      trade mark which is in force in the Republic
the use of the sign takes without due cause           of Bulgaria as of 1 January 2007. The use
unfair advantages of the distinctive character        of a Community trade mark on the territory of
or renown of the mark or is detrimental to            Republic of Bulgaria may be prohibited if an
them.                                                 earlier trade mark or other earlier right was
                                                      registered, applied for or acquired in good faith
 The term of protection of a registered mark is       in Bulgaria prior to 1 January 2007.

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XIV.3.4. Geographical Indications                    XIV.3.6. Licenses

  The protection of a geographical indication          The owner of a patent, registered mark or
is obtained by its registration. Entitled to apply   industrial design could assign the right of
for registration is any person who carries out       usage through a license agreement which
his production activity in the corresponding         should be recorded with the Patent Office.
geographical region and the goods which he           The License Agreement or at least an extract
produces conform to the established properties       thereof has to be submitted to the Patent
and features.                                        Office, containing the identification data of
  The geographical indication can be used by         the licensor and the licensee, bibliographic
any recorded user.                                   data about the patent, trademark or industrial
                                                     design, the kind of the license (exclusive or
                                                     non-exclusive), the term of the agreement. The
XIV.3.5. Industrial Designs                          license agreement is in effect with regard to
                                                     third parties as of the date of its recordal in the
  The exclusive right on industrial design is        State Register.
obtained by its registration at the Patent Office.
  The criteria for registration of industrial
designs are world novelty and originality.           XIV.4. Protection Against Infringement
  The procedure of registration consists of          of IP Rights
two stages: (i) formal examination, and (ii)
examination about the presence of the criteria       XIV.4.1. Civil Protection
for registration.
  The scope of protection of registered                In any case of unlawful use of a patent,
industrial design is determined by its               trademark, industrial design or geographical
representation(s) and includes every identical       indication the rightful owners are entitled to
design whose characteristic features differ only     lodge a claim with the competent first-instance
in unsubstantial details. The exclusive right        court – the Sofia City Court - against the
on registered industrial design includes the         infringer in order to:
right of its owner to use it, to dispose of it and     (i) establish the infringement;
to prevent third parties from copying or using         (ii) claim compensation for the damages
in the course of business activity a design          suffered because of the infringement,
included in the scope of protection.                   (iii) require the termination of the infringing
  The term of protection of registered industrial    actions.
design is 10 years from the date of filing the          (iv) require the seizure and destruction of the
application. It could be extended three times        products- subject of the infringement
for further periods of 5 years, i.e. the maximum
term of protection is 25 years.                        The Marks and Geographical Indications Act
  Under Council Regulation (EC) No 6/2002            provides explicitly the terms and conditions for
a Community design application filed with             determination of the amount of compensation
the Office for Harmonisation in the Internal          for damages occurred as a result of the
Market with an established date of filing or          infringements.
priority date shall be deemed an application
filed regularly on the territory of the Republic        In case the court rules in favor of the
of Bulgaria. Civil legal protection in case of       claimant the latter may require the decision
infringement of the rights over a Community          to be published in two dailies, as well as
design shall be carried out in accordance with       the infringing objects to be destroyed or
the procedure set forth in Council Regulation        reprocessed.
(EC) No 6/2002.                                        Sofia City Court is the competent first-

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instance court to rule on disputes on the            o sum amounting between BGN 500 and
authorship of inventions, utility models and            BGN 100 ,000 determined by the court
disputes related to marks and industrial                upon its discretion;
designs                                              In determining the amount of the sum to
                                                    be paid the court shall take into account the
  Upon infringement of a right to a mark or         proceeds obtained as a result of the violation.
infringement of a registered geographical            • require the seizure and destruction of
indication or industrial design, or where               the infringing copies and the equipment
there is good reason to believe that any                exclusively used for their production.
such infringement will be committed or some          • require the court decision to be published
evidence will be lost, destroyed or concealed,          in two dailies, as well as to be announced
the court, acting at the request of the rightful        on the Bulgarian National TV in the time
owner or of the exclusive licensee, may                 zone between 7 p.m. and 9p.m.
furthermore admit some of the following
provisional measures without notifying the
respondent of this:                                 XIV.4.2. Criminal Protection
  • prohibition of performance of any
      acts which allegedly constitute or will        According to the Criminal Code:
      constitute unauthorized use of a mark,         • Any person who records, reproduces,
      geographical indication or industrial            distributes, broadcasts or transmits, or
      design                                           makes any other use the object of a
  • seizure of the goods which allegedly               copyright or neighbouring right without
      wrongfully bear a registered mark or             the consent of the owner of holder of
      geographical indication or have allegedly        such right as required by law, shall be
      been manufactured by means of copying            punished by imprisonment for up to five
      or using any design within the scope of          years and a fine of up to BGN 5,000.
      protection;                                    • Anyone who, without consent of the
  • sealing of the premise in respect of which         person required by law, detains material
      an infringement is allegedly committed or        carriers containing the object of copyright
      will be committed.                               or a neighbouring right, amounting to a
                                                       large-scale value, or who detains a matrix
  In any case of infringement of a copyright           for the reproduction of such carriers, shall
or a neighboring right the rightful owners or,         be punished by imprisonment from two
as the case may be, the persons entitled to            to five years and a fine of BGN 2,000 to
exclusive rights of use are entitled to lodge a        BGN 5,000.
claim with the competent district court against      • If the acts described above have been
the infringer in order to:                             repeated or considerable damaging
  • establish the infringement                         consequences have occurred, the
  • require the termination of the infringing          punishment shall be imprisonment from
     actions;                                          one to six years and a fine of BGN 3,000
  • receive a compensation for the damages             to BGN 10,000.
     suffered because of the infringement. In        • Anyone who, without the consent of
     case the claim’s ground is established            the owner of the exclusive right uses
     but the amount of the damages may not             in commercial activity a trademark,
     be estimated the above persons may,               industrial design, a plant variety or
     instead of compensation, receive:                 animal breed, object of said exclusive
  o the value of the subject of infringement           right, or makes use of a geographical
     calculated on the basis of the retail prices      indication or imitation thereof without a
     of lawfully reproduced copies; or                 legal justification, shall be punished by

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     imprisonment of up to five years and a          at the written request of the holder or, as the
     fine of up to BGN 5,000. Where the act          case may be, at the request of the owner of
     is repeated or significant damages have         the copyright or persons entitled to exclusive
     been caused, the punishment shall be           rights of use.
     imprisonment from five to eight years and
     a fine from BGN 5,000 to BGN 8,000. The
     object of the crime shall be taken to the      XIV.5. Foreign Investors Related
     benefit of the state, irrespective of the       Measures
     fact whose property it is, and it shall then
     be destroyed.                                    Foreign authors will enjoy the same rights as
 •   Anybody who issues or uses under his           Bulgarian authors unless otherwise provided
     name or under a pseudonym another’s            by international treaties and agreements. In
     work of science, literature or art or a        case Bulgarian law is applicable to foreign
     substantial part of such a work shall be       authors or the object of copyright was first
     punished by imprisonment of up to two          created or published in a foreign country,
     years or by a fine of BGN 100 to BGN            the holder of the right will be determined by
     300, as well as by public reprobation.         the respective foreign law and the term of
     The same punishment is provided for any        protection will be the one provided by the
     person who, without having participated        foreign law if Bulgarian law provides for a
     in the creative work, by abusing his           longer period.
     authority joins as a co-author of a work of
     science, literature or art.                      Foreign physical and juridical persons and
                                                    all persons with a domicile or seat outside
                                                    Bulgaria may apply for the registration of a
XIV.4.3. Administrative Protective                  patent, trademark, geographical indication,
Measures                                            industrial design only through their local
                                                    industrial property representatives listed with
  The President of the Patent Office is              the Patent Office.
empowered to impose administrative penalties
- fines or monetary sanctions between BGN              The provisions of Bulgarian law will apply to
500 and 5 000 - on infringers of rights of          foreign physical and juridical persons whose
the owners of trademarks or geographical            respective country of origin is a member to
indications.                                        international agreements, to which Bulgaria
  The administrative penalties on infringers        is a party. To other foreigners Bulgarian laws
of rights of the owners of copyrights or            will apply only in case of reciprocity, which will
neighboring rights are imposed by the Minister      be established by the Patent Office in case-
of Culture or a person authorized by him.           by-case basis. Where bilateral international
  In addition in all cases mentioned above the      agreements exist their provisions will apply.
infringing goods shall be seized, regardless of
the ownership thereof, and shall be destroyed.        The international registrations of patents
  Border control measures are also                  under the Patent Cooperation Treaty; of
established for goods carried through the           trademarks in conformity with the Madrid
borders of the state bearing a registered mark      Agreement; of geographical indications under
or geographical indication without the consent      the Lisbon Agreement; and of industrial
of the holder or an imitation thereof or such       designs under the Hague Convention, have
goods for which there are grounds to consider
that they infringe a right protected by the
Copyright and Neighboring Rights Act. The
customs authorities will detain such goods
                                                    the same effect as if the applications were
                                                    directly lodged and the registrations were
                                                    made in Bulgaria according to the relevant
                                                    Bulgarian law. .
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                                   CHAPTER FIFTEEN: PUBLIC PROCUREMENT

XV   PUBLIC PROCUREMENT                                    candidates, participants and contractors.
                                                             The assignors are enumerated in the law
                                                           and classified in several categories. These are
                                                           the state bodies, the diplomatic and consular
       The specific character of the budgetary and          representations of the Republic of Bulgaria
     public funds requires a special procedure for their   abroad, organizations of the public law, the
     spending. Therefore, the Public Procurement Act       medical establishments, public companies and
     sets forth the state policy on the award of public    commercial companies when they perform some
     procurement contracts.                                of the activities specified in the law, etc.
       The Bulgarian legislator has provided for special     One of the new terms adopted by the Act is
     procedures for spending of the funds provided for     “organization of the public law”. As defined in
     or accumulated by public services. Thus it aims at    §1 of the additional provisions of the Public
     increasing the effectiveness of the use of budget     Procurement Act, the “organization of the public
     and public resources and at the protection of the     law” is a legal entity created for the satisfaction of
     consumers of public services.                         a given public interest, having no commercial or
       The Public Procurement Act codifies the public       industrial character, and satisfying the conditions
     procurement legal framework. This Act was             set in the law.
     adopted in May 2006 and became effective from           The assignors benefit from a special legal
     the 1st July 2006.                                    protection, as the law provides that several
       One of the principal goals of this Act is to        imperative clauses in their favour should be
     harmonize the Bulgarian legislation concerning        implemented in any public procurement contract.
     public procurement with the four major public         An example for such a clause is the assignors’
     procurement directives of the European                right to unilaterally terminate the awarded
     Union. The Bulgarian legislation acknowledges         contract under some special conditions, explicitly
     the importance of the public interest related         set in the law.
     to the award of public procurement contracts            The candidates for the award of a public
     and provides the rules for the protection and         procurement contract can be any natural person
     control over public and budgetary spending. The       or legal entity that has applied for participation in
     provisions are imperative and regulate all material   the procedure for public procurement assignment.
     aspects of public procurement.                          The participant is any natural person or legal
       A number of amendments to the Public                entity or their alliance that has presented an offer
     Procurement Act were approved in 2008 and were        or a project.
     enacted as of January 1, 2009. The amendments           The candidates and participants for the award of
     were necessitated by the changes in the EU            a public procurement contract can be any natural
     regulatory framework in the sphere of public          person or legal entity, as well as alliances thereof.
     procurement, as well as by t6he necessity to          This definition makes it obvious that unlike the old
     introduce new preventive control mechanisms in        Public Procurement Act (1999), the effective Law
     relation with the utilization of the funds from EU    does not require the candidates to be registered
     structural funds and other sources.                   as free lancers, sole entrepreneurs or companies.
       The Public Procurement Act regulates the            Hence, for the award of public procurement
     terms and procedures for the award of public          contract can apply: first, all kinds of merchants,
     procurement contracts, the objects and subjects       regardless of their organizational form. Foreign
     of the public procurement procedures, the             persons and entities can also apply in the public
     bodies implementing the state policy in this area,    procurement procedures regardless whether they
     the procedures on awarding contracts and the          are registered as merchants under Bulgarian or
     procedure on appeal against public procurement        their respective local legislation.
     related decisions.                                      The Act provides the assignors with the right
       The Public Procurement Acts defines the parties      to require that the candidate shall create a legal
     in the contract award procedures – assignors,         entity when the chosen candidate is an alliance

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                              CHAPTER FIFTEEN: PUBLIC PROCUREMENT

of natural persons or legal entities. In such               when abroad – BGN 250,000.00;
cases the newly incorporated company shall be          -    Services for more than BGN 110,000.00 and
bound by the offer. The assignor cannot set the             when abroad – BGN 250,000.00;
incorporation of a new company as a condition           - Design contest - for more than BGN
for participation in the procedure for assigning a          110,000.00.
public procurement.                                     The Act regulates the types of procedures for the
  For a limited number of business activities         award of the public procurement contracts. These
the special legislation can impose specific            types include the open procedures, the restricted
requirements on the candidates. In this case the      procedures, competitive dialogue, negotiated
possible scope of the candidates shall be limited.    procedures and the design contest. The Act
For example, public procurement contracts for         however provides for two kinds of negotiated
the supply of insurances can only be awarded to       procedures – with or without announcement, and
insurers.                                             also introduces a new type of procedure – the
  The Contractor is a candidate who took part in      design contest procedures. The executors can
the public procurement procedure and who has          be chosen in an open procedure, a restricted
concluded a public procurement contract.              procedure and the negotiated procedure with an
  Objects of public procurement can be various        announcement through the use of an electronic
types of activities that can be assigned to           competition when the technical specifications of
contractors under the procedures for the award        the procurement can be strictly defined.
of public procurement contracts under the               The main criterion for distinction between the
rules of the Public Procurement Act. Instead of       various types of procedures is the scope of
enumerating all the objects of public procurement     the possible participants in each procedure. In
procedures, the Law marks most of them, but           general, the announcements for the start of a
expressly indicates all the exceptions of this        procedure are published in the State Gazette. In
scope. Those exceptions refer to the character        an open procedure all interested persons and
of the activity or the value of the contract. In      entities can obtain the documentation, present
general, the effective Law benchmarks higher          their offers and participate in the procedure as
contract values above which a public procurement      candidates. In a restricted procedure, the
procedure must take place. The amendments             assignor conducts a preliminary selection among
to the Public Procurement Act introduced a            an unlimited number of candidates and invites
requirement, stipulating that public procurement      the approved candidates to present their offers.
contract for services may be assigned for a period    Similarly, in the negotiated procedure contracting
of up to 4 years. As an exception, the term may       with an announcement, the procedure is open
be set a 5 years, and the assignor has to state the   to all interested candidates, but the assignor
motives for such an extension in the decision to      conducts a preliminary selection and invites in the
launch a procedure or in the notification about a      negotiations only the approved candidates. In the
public procurement proposal.                          negotiated procedure without an announcement,
  The latest amendment to the Public                  the assignor invites for negotiations a limited
Procurement Act (in effect as of January 1,           number of candidates, and an announcement
2009) raised the value thresholds of all public       for the start of a procedure is not published at
procurement contracts in order to reach the           all. Public procurement contracts are assigned
levels specified in EU Directives. The terms and       by means of a competitive tender in case of an
conditions for assigning a public procurement         exceptionally complex order, which is impossible
contract are compulsory for the following             to assign by using an open or limited procedure.
procurements (without VAT accrued):                   The design contest is a procedure for acquiring
  - Construction for more than BGN                    by the assignor a plan or a project prepared by
      2,150,000.00 and when abroad – BGN              an independent jury based on a contest with or
      6,000,000.00;                                   without awards. The design contest procedure
  - Delivery for more than BGN 180,000.00 and         can be conducted either as an open procedure or

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                             CHAPTER FIFTEEN: PUBLIC PROCUREMENT

as a restricted procedure.                           that the assignor plans to open during the same
  The assignors are free to choose the type          year.
of procedure that they can conduct. However,           The Public Procurement Act contains a new
the negotiated procedures with and without           institute – the frame agreement. It is concluded
announcement can only be applied in a limited        by and between one ore more assignors and
number of cases explicitly set forth in the law.     one or more potential executors. Its aim is to
  The European legislation alike, the new            define in advance the terms and conditions of the
Bulgarian public procurement legislation             contracts which the parties intend to conclude for
introduces special rules for the award of            a period no longer than four years regarding the
public procurement contracts by entities             prices and if possible the expected quantities. As
operating in the water, energy, transport            an exception the term of the frame agreement
and telecommunications sectors. The main             may be longer than four years. The assignors are
difference from the general rules is the right for   entitled to sign frame agreements for every public
the assignors in this group to choose and apply      procurement procedure except for the negotiated
any procedure, the only restriction being that the   procedure without an announcement.
assignor can conduct a negotiated procedure            The assignor appoints a special commission
without an announcement only in a small              for the purpose of conducting the procedure.
number of cases, expressly limited by Law.           The commission’s task is to review, evaluate and
  The procedure for awarding public procurement      rate the candidates’ offers according to the terms
contracts is opened by decision of the assignor.     set by the assignor. The commission’s final act is
With this decision the assignor approves the         the protocol for the candidates’ classification.
public announcement and the documentation for          Based on that protocol, the assignor has
the candidates’ participation in the procedure.      to adopt a decision that announces the
The Decision and the announcement are sent           classification of all candidates and the candidate
simultaneously to State Gazette and to the Agency    that has been chosen for a contractor. Then the
for the Public Procurement for registration in the   assignor signs a public procurement contract with
Register of Public Procurement. In the cases         the candidate who won the first place according
where the value of public procurement contracts      to the commission’s protocol and therefore
equals or is higher than the limits specified         obtains the award the contract.
by a European Commission Regulation, the               The public procurement contract includes
Assignors are obliged to submit the information      all the participant’s proposals of the offer, which
for the respective public procurement contract for   helped him to be chosen as an executor. A contract
publication in the Official Journal of the European   cannot be concluded if its term is not defined.
Union. The announcement should meet the                The assignor shall inform the Agency about
requirements of the Law concerning its form and      every contract or frame agreement signed, in
minimum content. Further, the announcement for       order to be registered in the Public Procurement
the opening of a public procurement procedure        Register. Besides, the Assignor will have to submit
must be sent in electronic form.                     to the Register also information regarding already
  The Act provides that a “preliminary               completed public procurement contracts.
announcement” for an opening of a public               After the amendments in the Public Procurement
procurement procedure should be made                 Act, the acts of the assignors are considered to be
whenever the value of the contract exceeds           individual administrative acts. The identification the
certain levels. The preliminary announcement is      acts of the assignors as individual administrative
also sent to the State Gazette and the Register      acts has an effect on the way and on the
of Public Procurement. This obligation affects       procedures for their appeal.
a scope of assignors defined in the Act. The            The decisions, actions or omissions of the
announcement should be sent before the 1             assignors until the signing of the contracts or
March of each year and should contain all public     the frame agreements are under the control and
procurement procedures and frame agreements          can be appealed before the Commission for

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Protection of Competition by any of the candidates      Procurement is to exercise preliminary control
or participants or by anyone whose interests            on public procurement procedures for amounts
have been injured. The complaint should be              exceeding the levels specified in the European
filed within ten days as of the notification about a      Commission Regulation, in case financing is
certain decision or an action but no later than the     fully or partially provided from European
signing of a contract or a frame agreement. The         funds. These procedures will be controlled by
complaint does not stop the procedure unless            the Agency jointly with the respective managing
the Commission decides so. In order to stop             authority of the operative program. The
the procedure the complainant should submit             preliminary control shall cover draft decisions
a motivated request and pay in a deposit to the         on launching public procurement procedures,
amount of 1 % of the procurement amount but             and the notifications or invitation for participating
no more than BGN 500,000.00. The Commission             procedure documentation for the assignment of
decides on the complaint within two months.             public procurement contracts, the activities of
  The resolutions of the Commission can be              the commission in charge of the procedure, and
attacked before the Supreme administrative court.       the draft of the decision to select a contractor,
The court’s decision is final and is not subject to      which are all subject to approval pursuant to the
control.                                                provisions of the draft decisions as mentioned
  Any disputes between the Assignor and the             above. The Agency on Public Procurement
Contractor (Assignee), arising out of an effective      exercises preliminary control by drafting a
public procurement contract, may be subject to          preliminary report regarding the compliance of
deliberation by a court of arbitration. The judicial    the procedure documents with the requirements
power of the Arbitration court is subject to the        as set out in the Public Procurement Act, by the
existence of an arbitration agreement. Every            participation of observers in the proceedings of
assignor can offer such an agreement and the            the commission and by drafting a report on the
candidate has to sign it before filing an offer. Any     compliance of its procedures with the relevant
candidate for the award of a public procurement         legislation.
contract can also offer the adoption of an                Another new function, assigned to the
arbitration clause. The arbitration clause should       executive director by force of the amendments
refer to the arbitration court chosen by the parties.   to the act is the exercise of preliminary control
Whenever an arbitration clause is adopted, the          on the decisions to open negotiations
Arbitration Court shall solve the dispute with the      procedures without notification in cases,
subsidiary application of the Bulgarian act on the      which are explicitly specified as hypotheses in
international commercial arbitration.                   the Act and in case these decisions are taken
  According to the provisions of the Public             by explicitly specified Assignors. Besides, the
Procurement Act, the State policy in the area           executive director of the Agency on Public
of the public procurement shall be carried              Procurement has been empowered to maintain
out by the Minister of Economy and Power                a list of the persons, which are subject to an
Engineering. A new state body – the Agency on           effective court verdict as result of a default on
Public Procurement, shall assist the minister.          a public procurement contract. For this purpose,
The Agency shall create and manage a Register           the assignors are obliged to submit to the Agency
of the Public Procurement, where the Agency             on Public Procurement the court verdicts within
shall register decisions and announcements on           14 days after the enactments of the said verdicts.
the opening of public procurement procedures,           With the latest amendments to the Act, the
information on the awarded public procurement           executive director of the agency was assigned
contracts and other data, as provided by the law.       the prerogative to maintain a list of the persons,
The Agency is managed and represented by
an Executive Director, who performs functions,
which are explicitly specified in the Act. One
of the new functions of the Agency on Public
                                                        which are subject to definitive findings by the State
                                                        Financial Audit Agency related to violations in
                                                        spending funds received within the framework of
                                                        European Union programs.    .
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XVI SECURITIES AND BANKS                                  Act. The Act governs almost all material aspects
                                                          related to the trade in securities. The Act is
XVI.1. Securities                                         aimed at the investor’s protection; the creation
                                                          of a fair, transparent and efficient securities
                                                          market and the establishment of a strong public
     XVI.1.1. Overview                                    confidence in the securities market overall.
                                                            The regulations of the Public Offering of
     OVERVIEW                                             Securities Act sustained considerable changes
                                                          during the last couple of years. Its entire
        After discontinuing the public trade of           subject and many key positions in it have been
     securities after World War II, the First Bulgarian   amended. These changes were necessary in
     Stock Exchange started functioning in 1991.          order to balance the Bulgarian legal framework
     The Bulgarian Parliament adopted the first            with the requirements of EU Directive 2004/39/
     act regulating the trade in securities – the         EC (MIFID).
     Securities and Stock Exchanges Act from                In November 2007 a new act was adopted
     1995. This Act provided for the creation of the      - the Markets in Financial Instruments Act,
     State Securities Commission (SSC) – the state        which governs the issues, regarding the
     regulator of the stock market. At the same time      activities of regulated markets and investment
     most stock exchanges merged to the Bulgarian         intermediaries. This Act extended the range of
     Stock Exchange. In 1997 the SSC officially            financial instruments, subject to supervision.
     licensed the Bulgarian Stock Exchange to             Subject of the Act are securities, money market
     organize a regulated market and in 2001 – to         instruments, units in undertakings for collective
     organize an unofficial market. In the end of          investment, options, futures, swaps, forward
     1999 the Bulgarian Parliament adopted the Act        rate agreements and other derivative contracts
     on the Public Offering of Securities, which is       on securities, currencies, interest rates, yields,
     currently in force. This act set the grounds for     other derivative instruments, indexes or financial
     the development of a market working under            indicators, which may be settled physically or in
     criteria and conditions similar to those in the      cash, derivative financial instruments for credit
     European Union. Further positive development         risk transfer, contracts for differences, etc.
     was seen in 2000 with the launch of a modern           The new act introduced new requirements for
     trading system and of an official index – SOFIX.      the investment intermediaries, which differ from
     The latest trends in the securities market           the ones in the Public Offering of Securities
     development were marked by the replacement           Act, as well as additional regulations for the
     of the SSC with a new state regulator – the          consolidated supervision, executed by the
     Financial Supervision Commission. An                 Financial Supervision Commission. An entirely
     additional step for bringing Bulgarian securities    new generation of organized market systems
     market closer to local and international investors   was created which is to operate parallel to the
     is the launch of the Client Order-Book Online        regulated markets.
     System, a.k.a. COBOS. COBOS allows clients             The other important acts in that area are the
     or stock exchange members to place real-time         Commercial Code, the Act on the Privatization
     orders over the Internet. Now orders can be          Funds, the Act for the Encouragement of
     placed not just from all over the country, but       the Investments, the Act on the Privatization
     they can also be placed from all over the world.     and Post-Privatization Control and the
                                                          Financial Supervision Commission Act, the
     THE LEGAL FRAMEWORK                                  Supplementary Supervision of Financial
                                                          Conglomerates Act, Measures against Market
      The most important legal rules related to           Abuse with Financial Instruments Act, the
     securities and their trade in Bulgaria are           Mortgage Bonds Act, etc.
     contained in the Public Offering of Securities         The Financial Supervision Commission

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has the power to adopt ordinances related            relation to financial instruments. A regulated
to the public trade of securities, such as the       market also is any multilateral system which is
ordinance on the licenses for the performance        authorized and operates in consistence with the
of activities of a stock exchange, unofficial         requirements of Title Three of Directive 2004/39/
market, investment intermediary, investment          EC of the European Parliament and of the
company, management company; the ordinance           Council.
on the requirements for the activities of the           The organization and management of the
investment intermediaries; the ordinance on the      regulated market are performed on the basis
requirements to the activity of the investment       of Rules for operation of the regulated market,
companies and the contract funds; the                which are adopted by its Board of directors
ordinance on the capital adequacy and liquidity      or by the Management board of the market
of the investment intermediaries; the ordinance      operator. The Rules lay down the terms and
on the requirements for the natural persons          conditions for transactions concluded on the
who directly perform the trade in securities or      regulated market, the conditions which must
investment consultations and the procedure to        be met by the members or participants on the
obtain the right to perform such activity, etc.      regulated market and the rules and procedures
   The Bulgarian Stock Exchange adopted              for clearing, settlement and securing the
its rules and regulations, which provide the         transactions.
principles governing the overall operations             The Financial Supervision Commission is
on the Bulgarian Stock Exchange - Sofia.              responsible for the issue of regulated markets’
It determines the listing requirements, the          licenses. The applicants for such licenses
trading components and all related and               should present together with their application
pursuant proceedings, membership provisions,         the Articles of association of the market
disclosure, surveillance as well as procedures       operator, rules on operation of the organized
pertaining to disputes and discipline subjects.      regulated market, particulars about capital,
   The Bulgarian National Bank (BNB) is vested       members of management and controlling
with the powers to adopt regulations, some           bodies, premises and the technical equipment,
of which affect the trade in securities as well.     programme of operations, etc. The Commission
Such regulations of the Central Bank govern          then determines whether the requirements for
the Control over Transactions in Book-entry          issuing the requested license have been met on
Government Securities, the Central Depository        the basis of the submitted documents. It decides
of Securities and the Government Securities          on the request within three months from its
Settlement.                                          receiving.
   In 2007 three new ordinances were adopted            All licensed registered markets should be
by the BNB in collaboration with the Minister of     registered at the commercial register of the
finance which introduced a completely new legal       Bulgarian Registry Agency.
framework, regarding the execution and control          The Commission maintains on its web site an
over transactions with Government Securities.        up-dated list of the regulated markets for which
                                                     the Republic of Bulgaria is a home Member
XVI.1.1.1. THE MARKET PLAYERS                        State.

  REGULATED MARKET is a multilateral                   MARKET OPERATORS organize the business
system operated and/or managed by a market           and operations of the regulated markets and are
operator, which brings together or assists for the   responsible for compliance with the provisions
bringing together of multiple third party buying     of the law by the regulated markets. The market
and selling interests in financial instruments        operator is a public company with minimum
through the system and in accordance with its        capital of BGN 5 000 000. Not less than 25
non-discretional rules in a manner, the result       per cent of that capital must be paid in at the
of which is the conclusion of a contract in          time of filing the application for the issue of a

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license. The regulated market must at any time        cash or securities and provides one or more
have financial resources, required for its due         of the investment services must have an initial
functioning, as well as an internal organization      capital not less than BGN 250 000. Investment
and structure, ensuring that its business             intermediaries who do not hold client cash
activities shall cover all legal requirements. The    and financial instruments must have an initial
persons who are members of the operator’s             capital not less than BGN 100 000. Investment
management body or manage its activity,               intermediaries shall issue only dematerialized
must have a good reputation and professional          shares with one voting right. If the investment
experience, which are to ensure the stable and        intermediary is a limited liability company, any
reasonable management and operation of the            partner shall have a number of votes in the
regulated market.                                     general meeting proportionate to his share in
                                                      the capital.
  INVESTMENT INTERMEDIARIES are                         For reception and delivery of orders for
legal entities whose regular occupation or            financial instruments and providing of
business is the provision of one or more              investment consultations intermediaries also
investment services or investment activities,         need to have a professional liability insurance
such as reception, delivery and execution             with minimum insured sum of 1 000 000 Euro,
of orders regarding financial instruments,             valid for the whole territory of the European
including intermediation for entering into            Union and the European Economic Area, for the
transactions, dealing on their own account            damages which may occur as a result of their.
in financial instruments, management of                The investment intermediary must at any time
portfolios, providing of investment consultations,    maintain own funds exceeding or equal to the
offering for initial sale of financial instruments,    amount of the capital requirements for the risks
organization of multilateral trading facilities,      associated with its activities.
safekeeping and administration of client’s              The investment intermediary should maintain
financial instruments, etc.                            internal organization, including qualified
  The provision of investment services may be         personnel, equipment and software, which
carried out only by licensed public companies         is to make adequate arrangements for the
or limited liability companies with a registered      performance of the investment services and
office on the territory of the Republic of Bulgaria.   activities, for avoidance of conflicts of interest,
The licenses are issued by the Financial              for observance of the existing rules for personal
Supervision Commission. Investment services           transactions, for safekeeping of information, for
may also be provided by a bank, which has             prompt and accurate execution of client orders,
obtained authorization by the Bulgarian National      for risk assessment and management, etc.
Bank. All investment intermediaries, except for
banks, may not carry out by way of occupation           PUBLIC COMPANIES are the companies
some other commercial transactions.                   traded on the regulated markets. The
  For obtaining licenses from the Commission          companies need to have registration at the
applicants should submit their Articles or the        Commercial register as well as at the register
Memorandum of Association, particulars for            of the Financial Securities Commission. Many
their capital and the management, a programme         companies listed are former state companies.
of the company’s operations, the general              They were listed before or during their
conditions applicable to contracts with clients,      privatization. Therefore, many companies went
etc. The Commission decides on the application        private after being privatized.
within three months of its receipt, and where           To go public, a Bulgarian company should
additional information and documents have             generally publish a prospectus and make
been requested – within one month of their            an IPO. The Public Offering of Securities
receipt.                                              Act contains special requirements towards
  An investment intermediary, who holds client        the content of a prospectus and the other

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requirements to be met in order the company to        end investment company must be managed
go public.                                            by a managing company in accordance with a
  The Bulgarian legislation provides for a series     contract made while a closed-end investment
of special rules, which grant the shareholders’       company can be managed either by a
rights and provides them with equal access            management company or by the management
to information. For example, unlike general           body of the investment company itself. In any
legislation, whenever a public company wants          case though the investment company may not
to increase their capital, it has to grant the        exercise control over the management company
right of the minority shareholders to participate     and vice versa.
proportionately in the capital increase, thus           An investment company may not transform
effectively protecting the minority shareholders      itself into another type of commercial company,
against dilution of their participation. The          as well as to change its scope of business.
legislation also provides some rules to secure        Transformation of a closed-end investment
the principle of equal access to information,         company into an open-end one may be
such as the rules on information disclosure           carried out only with an authorization from the
or the insider information. On the other hand,        Commission.
a public company is obliged to disclose all             All dematerialized financial instruments held
changes in the rights attaching to the separate       by the investment company are entered in the
classes of shares which entitle to acquisition        register of the depository institution in the sub
of shares of the company. The company has             account of the depository bank and its other
to inform the Commission about any decision           assets are kept at a depository bank.
for the issuing of new shares, including also           Bulgarian legislation requires a license for
about decisions for distribution, subscription,       carrying out investment company’s activities.
cancellation or conversion of bonds into              This license is granted by the FSC within 3
shares. The Commission then makes public              months of application. The application form is
the received information in the register of           filed together with the Articles of Association,
public companies and other securities issuers         particulars about the capital subscribed and
published by it.                                      paid-in, information about the members of
                                                      the management and supervisory bodies or
  INVESTMENT COMPANIES are public                     about the individuals representing legal entities
companies whose business is investing cash            authorized to manage and represent the
raised through public offering of shares, in          investment company, as well as information
securities and other liquid financial assets and       about their professional qualification and
which acts on the principle of risk diversification.   experience, the contract with the management
An investment company is also any public              company and the contract for depository
company that raises funds through public              services, particulars about the persons who
offering of shares and whose investments in           hold, directly or through related parties, more
securities exceed 50 per cent of its balance          than 10 percent of the voting shares of the
sheet assets in the course of 6 months.               applicant or may control it otherwise, etc.
  Investment companies can either be open-
end or closed-end. The capital of an open-              MANAGEMENT COMPANIES manage
end investment company is always equal to             investment companies and contractual funds
the net value of its assets. It may not be less       and provide investments management,
than BGN 500 000. A closed-end investment             administration of the shares, legal services
company must also have a capital of at least          and accounting services, assets valuation
BGN 500 000, but its structure and ratio with         and calculation of the shares price, control
the balance sheet assets and liabilities of the       for compliance with the legal requirements,
company are determined by the requirements of         maintenance of the book of the shareholders,
a special ordinance. The business of an open-         distribution of dividends and other payments,

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issue sale and redemption of shares, execution       pension and social insurance funds, etc.
of contracts, keeping records, marketing                The fundraising sources of the fund are
services, etc.                                       the initial instalments by the investment
  Each management company should have                intermediary, annual instalments, income from
no less than BGN 250,000 registered capital          investing the moneys raised by the fund, other
and should also be licensed by the FSC. The          sources such as loans, grants, international
Commission will issue the license within 3           assistance, etc.
months of submission of the application form,
together with the documents required by law.         XVI.1.1.2. CONCLUSION

  CONTRACTUAL FUND is a separate property              Bulgaria keeps on attracting ever growing
with the purpose of collective investment in         interest with its investment opportunities.
securities and other liquid financial assets, of      Foreign investors are interested to invest in
cash rose through public offering of units, which    Bulgarian securities market in many forms. They
is carried out by a management company on the        can just invest in listed securities or create an
principle of risk diversification.                    investment company or investment intermediary.
  The mutual fund may only be open-type. The         Foreign investors should always keep in mind
net value of the mutual fund capital may not         that they are treated equally with local investors,
be less than BGN 500 000. The mutual fund is         thus enjoying the special investors’ protection
organized and managed by the management              provided by the local legislation.
company. In managing the mutual fund, the
management company acts on its behalf and at
the account of the mutual fund.                      XVI.2. The Banks

  FUND FOR COMPENSATION OF SECURITY                    The banking sector is crucial for the proper
INVESTORS is a legal entity organized to             functioning of country’s economy. For many
guarantee the payment of compensation to the         years now Bulgaria has been publishing
clients of an investment intermediary and to its     data on its macro-economic stability. These
subsidiaries in the host member states by the        data, in combination with the fiscal discipline
raised in the fund money in he cases where the       of Bulgarian governments enhance the
investment intermediary is not able to pay its       confidence to Bulgarian economy and
liabilities to the clients due to reasons directly   contribute to the high rate of economic
linked to its financial situation. Any investment     growth over the recent years. All this was
intermediary, which holds, administers               only possible after a series of measures that
or manages clients’ moneys or financial               Bulgaria had to undertake following a wave of
instruments and for which liabilities to clients     banks bankruptcies a little than a decade ago.
may arise, is obligated to contribute pecuniary      These measures cover both the introduction
premiums in the fund.                                of currency board arrangements and pegging
  This fund pays compensation to each client         of the BGN exchange rate to EUR, and the
of the investment intermediaries amounting           robust regulatory framework of the banking
to 90 % of its receivables, but in no case           sector.
more than BGN 40 000. The Act includes                 The major pillars of this framework are the
a list of the persons who are not entitled           Bulgarian National Bank Act and the Credit
to compensation, such as members of the              Institutions Act adopted in the beginning of
management and supervisory body of the               2007. It also includes the Registered Pledges
investment intermediary, persons who own             Act (1996), the Act on Information regarding
directly or indirectly 5 or over 5 per cent of the   Non-performing Loans (1997), the Bank
votes in the general meeting of the investment       Deposits Guaranty Act (1998), the Measures
intermediary, credit institutions, insurers,         against Money Laundering Act (1998), the

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Foreign Exchange Act (1999), the Mortgage           XVI.2.1. Banks and their Scope of
Bonds Act (2000), The Government Debt Act           Business
(2002), the Bank Bankruptcy Act (2002) and
the Consumer Credit Act (2006). Rules related         According to the Credit Institutions Act there
to banking are also adopted by the Council of       are two kinds of credit institutions in Bulgaria –
Ministers and the Central bank.                     banks and electronic money companies.
                                                      The Act defines the bank as a legal entity that
THE CENTRAL BANK                                    attracts deposits and grants credits and other
                                                    funding on its own risk. Each bank is entitled
  The Bulgarian National Bank (BNB) is the          to conduct only the business transactions
central bank of the Republic of Bulgaria. Its       expressly allowed by law and included in the
major tasks are – through the mechanisms of         bank license. In addition to the transactions
monetary – to maintain the national currency        in the definition above, banks can accept
stability, to secure the functioning of effective   valuables at a safe deposit; issue electronic
payment mechanisms, and to regulate and             payment instruments; perform transactions of
supervise the activity of banks in the country.     non-cash payments; issue and management of
The bank is responsible for the stability of the    bank cards; provide bank safe deposit boxes;
banking system and the protection of depositors’    financial leasing and bank guarantees, etc.
interests.                                          Banks are not entitled to perform any other
  The central bank is the only institution in       business transactions besides the ones listed in
the country authorized to issue banknotes           the Act, except when it is required in relation to
and coins. It is also obliged upon request to       the performance of banking operations.
exchange without limitation Euro for Bulgarian        Besides the banks, electronic money may
levs at a fixed rate. Thus the Bulgarian Lev is      be issued by the electronic money companies,
“pegged” to the Euro.                               which have received a license for performing
  The bank has the power to adopt regulations       such activities by the BNB or by the competent
on conducting banking business in the country       authority of a member-state. The electronic
to the extent provided by the law.                  money companies are also entitled to provide
  The bank is managed by a Board, a Governor        other services related to electronic money
and three Deputy governors. The Board of            issue such as electronic money management
the Bank consists of seven members - the            and information storage on electronic devices.
Governor, the Deputy governors and three            These companies cannot perform any other
members. The Governor and the Deputy                activities besides the ones stated above.
governors are appointed by the Parliament.
  BNB’s activities are organized in three
departments – the Issue Department, the             XVI.2.2. Establishment and Management
Banking Department and the Banking
Supervision Department, each reporting to one         The Credit Institutions Act includes a list of
of the three Deputy governors of the central        obligatory requirements with regard to the legal
bank. The Issue Department maintains full           form of the banks and the electronic money
coverage of the gross amount of monetary            companies. It also provides some special
reserves of BNB and manages the international       requirements to their managing bodies.
currency assets of the bank. In case of               Banks can only be incorporated as public
occurrence of a system risk for the banking         companies. At the time of their incorporation,
system stability, the Banking Department            the paid-in capital should be equal to or
performs the function of a creditor of last         exceed BGN 10 000 000,00. Contributions
resort. Supervision over the banking system is      can only be made in cash. The bank issues
exercised by the Deputy Governor in charge of       only dematerialized shares, which entitle their
Banking Supervision Department.                     holders to one vote.

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  Electronic money companies can also be             operations in Bulgaria through a branch should
incorporated only as public companies. Their         be submitted together with documents proving
paid-in capital should be equal to or exceed         the registration of the Bank in its homeland, its
BGN 2 000 000,00.                                    Articles of incorporation, the banking license
  Banks should be managed and represented            issued by the competent local authority to the
by at least two individuals jointly. At least one    applicant bank, a business plan, annual financial
of the managers should speak Bulgarian.              statements for the last three years, a written
The members of the Managing Board or of              consent of the banking supervision authority for
the Board of Directors can be only individuals       opening a branch, details about the persons,
having acquired university education with at         conducting the branch management, etc. The
least a master’s degree and considerable             branch can be license to perform only activities
professional experience, in addition to many         included in the bank license.
other requirements they have to meet.                  BNB performs a research on the validity of
                                                     the presented documentation and reliability
                                                     and the financial state of the applicant. Within
XVI.2.3. Licensing Procedures                        three months as of the receiving all required
                                                     documents BNB makes a resolution about the
   The Bulgarian National Bank issues the            issue of the license. The license is issued if
banking permits (licenses) to the banks.             within three months as of the above term the
Conducting banking operations without such a         applicant provides evidence that the minimum
license is illegal.                                  capital had been paid in, all managers had
   The procedures for issue and revocation of        acquired the necessary professional licenses
banking licenses are defined in chapter III of the    and qualifications, an inside management and
Credit Institutions Act and Ordinance No. 2 from     control system had been provided, etc.
22.12.2006 on licenses and permits issued by           The procedure for obtaining a license by the
BNB.                                                 electronic money companies is the same in
   A license for banking operations in the country   principle.
can be issued by BNB to a public company
based in Bulgaria or a local branch of a foreign     BANKING SECTOR STABILITY
bank. A bank licensed in a member-state may
operate in Bulgaria after BNB had been notified         The legal framework of the banking sector is
about that by the respective authority, which        meant to provide a high level of stability. This is
had issued the license. Any foreign bank,            an important prerequisite for the development
licensed in a member-state, which is operating       of the economy overall. Therefore, the
via a branch, needs to open only one branch,         Credit Institutions Act, together with the BNB
regardless of the number of places of activity.      regulations forms a modern framework providing
   The application of a local company for a          for the necessary strict requirements for banking
bank license should be accompanied by the            in Bulgaria.
founding documents, records of the shares              Banks have to maintain liquidity, i. e. always
issued and the instalments made, a business          to be prepared to perform without any delay
plan, description of the management and control      their daily obligations both in a normal banking
systems of the bank, personal details about          environment and in a crisis situation. Banks also
the individuals participating in the managing        have to maintain obligatory minimum reserves
and control bodies and the persons who have          in their current accounts in local and foreign
acquired more than 3 % of the shares, as well        currency with BNB against their borrowed funds
as other documents, required by Ordinance
No. 2 and necessary to decide if all legal
requirements are met.
   The application for a license for banking         and structure of banks’ equity..
                                                     in BGN and foreign currency, respectively.
                                                     Capital adequacy of banks is guaranteed
                                                     through requirements to the minimum amount

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XVII INVESTMENT DISPUTES AND                              separate mechanisms applicable depending on
     DISPUTES RESOLUTION IN BULGARIA                      the type and level of the dispute: i) a dispute
                                                          between a signatory state and an investor from
XVII.1. Legal Framework                                   the other state; and ii) dispute between the
                                                          signatory states themselves.
     XVII.1.1. Laws and Regulations
                                                            According to most of the Treaties the disputes
       Civil Procedure Code (promulgated in               between the signatory states would be referred
     State Gazette, issue 59 of 2007, in force as of      to an ad-hoc arbitration in case the parties fail to
     01.03.2008, as amended);                             reach settlement through friendly negotiations.
       Private International Law Code (promulgated        Each Treaty provides for the specifics of the
     in State Gazette, issue 42 of 17th May 2005, as      arbitration in each separate case. However, this
     amended)                                             particular mechanism concerns only disputes
       International Commercial Arbitration Act           between the states and it could be initiated
     (promulgated in State Gazette, issue 60 of           only by a contracting state in the event of
     1988, as amended);                                   breach by the other, i.e. at a governmental level.
                                                          Nevertheless, it may still be used as a (last)
     XVII.1.2. International Treaties                     indirect possibility for protection of the interest
     (Bilateral and Multilateral)                         of a particular investor but only if undertaken by
                                                          its own state.
       1958 New York Convention for recognition
     and Enforcement of the International Arbitral           The direct means of action available to an
     Awards (ratified by Bulgaria in 1961);                investor in case of a dispute with the host-state
       1961 European Convention on the                    (i.e. Bulgaria) will be reviewed separately below.
     International Commercial Arbitration (ratified
     by Bulgaria in 1964);
       1959 European Convention on Mutual                 XVII.2.2. Average Dispute Resolution
     Assistance in Criminal Matters (ratified by           Mechanism
     Bulgaria in 1994);
       1965 Washington Convention for                       Most of the Treaties provide for three potential
     Settlement of Investment Disputes Between            institutions a dispute between a foreign investor
     States and Other States’ Citizens (ratified by        and the host-state (Bulgaria) could be referred to:
     Bulgaria in 2000);                                     • ad-hoc arbitration;
       Number of bilateral treaties on protection of        • International Centre for Settlement of
     investments (over 50) and in the field of legal             Investment Disputes (ICSID);
     assistance (over 25) entered into by Bulgaria.         • the competent national (Bulgarian) courts/
                                                            The different Treaties provide for a number of
     XVII.2. Investments Disputes.                        potential combinations of these institutions. Few
     General Review                                       of the Treaties admit only the jurisdiction of the
                                                          national courts or refer all disputes directly to
     XVII.2.1. Investments Protection                     arbitration ad-hoc. Some of the Treaties grant
     Treaties                                             to the investor the possibility to choose upon
                                                          its own discretion the institution to which to
       Bulgaria is a party to more than 50 bilateral      refer the dispute. The majority of the Treaties,
     Investments Protection Treaties (“Treaties”), and    however, provide for a differentiation of the
     all of them explicitly provide for certain dispute   procedure and institution disputes should be
     resolution mechanism. The overwhelming               referred to depending on the nature of the
     majority of the Treaties stipulate for two           dispute itself.

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                                     InvestBulgaria Agency

  The most frequently stipulated mechanism           host nations. ICSID is a de-localized system
involves:                                            operating independently and exclusively of
  • Ad-hoc or ICSID arbitration for disputes         domestic legal systems. The role of domestic
     concerning nationalization or expropriation     courts is limited to judicial assistance in
     of investments / property and especially        recognition of ICSID awards.
     due compensations as well as concerning           Further information on ICSID is available at:
     repatriation (transfer) of investments .
     income, profit and other related funds;
  • Jurisdiction of national (Bulgarian) courts in
     all remaining cases.                            XVII.3. National (Bulgarian)
  However, any investor considering the
possibilities to protect its interests in an         XVII.3.1. Court Dispute Resolution
investment dispute should in any case
thoroughly examine the provisions of the               The Bulgarian Judicial System and the
particular Treaty between its country and            hierarchy of Bulgarian courts include four types
Bulgaria.                                            of judicial bodies: district courts, regional courts,
                                                     courts of appeal, and topping the hierarchy are
                                                     the two highest courts – the Supreme Court of
XVII.2.3. Arbitration Ad-hoc                         Cassation and the Supreme Administrative Court.
                                                       The resolution of disputes by the courts is
  As a principle, ad-hoc arbitration stipulated in   generally regulated by the Civil Procedure Code
the Treaties would be held by three arbitrators.     (“CPC”). According to the CPC Bulgarian courts
Each party would appoint one arbitrator              are exclusively competent to consider all civil
whereas the third to be appointed by the other       cases including investment disputes.
two should in most cases be national of a third        Bulgarian courts are competent to administer
country which keeps diplomatic relations with        justice against all persons (individuals and
both contracting states. Some of the Treaties        legal entities) in Bulgaria except in cases of
stipulate the third arbitrator to be appointed by    extraterritoriality1.
a respected international institution. Many of the     Since 1st January 2007 when Bulgaria
Treaties explicitly refer to UNCITRAL arbitration    became a Member to the European Union the
rules (        relevant EU laws will be applicable in Bulgaria
arbitration/arb-rules.htm).                          including Council Regulation (EC) No.44/
                                                     2001 on Jurisdiction and the Recognition
                                                     and Enforcement of Judgments in Civil and
XVII.2.4. International Center for                   Commercial Matters. In case Bulgarian courts
Settlement of Investment Disputes                    will be competent to resolve an investment
(ICSID)                                              dispute under the rules of the Regulation, the
                                                     provisions of CPC will be applied for the court
  ICSID is an autonomous institution closely         proceedings.
linked to the World Bank. ICSID was established        The CPC introduces special claim proceeding
by the 1965 Washington Convention on the             applicable for resolving of commercial disputes.
Settlement of Investment Disputes between            The legal definition of “commercial dispute”
States and Nationals of Other States. The            in the CPC is very broad and it includes in its
purpose of the Convention is to stimulate larger     content as follows:
flow of private international investment between        1. a commercial transaction disputes, as
participating countries. ICSID procedures                  well as for filling gaps in a commercial
are specifically designed for the settlement                transaction or adjustment of any such
of disputes between foreign investors and                  transaction to intervening circumstances;

110                                    BORISLAV BOYANOV & CO
                                    InvestBulgaria Agency

 2. a privatization contract, a public               resolution procedure depend on the scenario
    procurement contract, or a concession            of the particular case. Generally, they may be
    contract;                                        summarized as follows:
 3. participation in a commercial company, as          • Court fee for the first instance court – 4
    well as for establishment of admissibility             % of the claim’s value but not less than
    or nullity of a recording and for non-                 BGN 15.
    existence of a circumstance recorded in            • Court fee for the second (and third, when
    the commercial register;                               applicable) instance court – 2 % of the
 4. replenishment of the bankruptcy estate,                amount of the appealed part of the ruling.
    including the actions of creditors for a           In addition parties may have to pay court
    declaratory judgment;                            expenses for the appointment of court experts,
 5. cartel agreements, decisions and                 summons of witnesses, etc.
    concerted practices, concentration of              The Bulgarian Private International Law Code
    economic activities, unfair competition,         (“PILC”) provides for specific rules applicable
    and abuse of a monopoly position or of a         to the recognition and enforcement of foreign
    dominant position.                               judgments, but in case the foreign judgment
                                                     is issued by a court of a EU Member State the
  Court proceedings in front of Bulgarian courts     provisions of Council Regulation (EC) No.44/
may develop in three instance – first instance        2001 on Jurisdiction and the Recognition
court, court of appeal (which may be the District    and Enforcement of Judgments in Civil and
Court or the Court of Appeal) and court of           Commercial Matters will be applicable. Both
cassation (the Supreme Court of Cassation).          legal instruments have similar provisions.
The resolution of the second instance may be            According to the PILC the judgments
reviewed by the Supreme Court of Cassation           of foreign courts shall be recognized by
in case the appealable interest exceeds BGN          the authority whereto the said judgment is
1000 (circa. EUR 520) and provided that the          presented. Should the conditions of recognition
second instance court has pronounced on a            of the foreign judgment be raised as the issue
material issue of substantive law or procedural      in a dispute, an action for ascertainment may be
law:                                                 brought before the Sofia City Court. This court
  1. which is addressed in conflict with the case     is competent to hear cases for enforcement of
     law of the Supreme Court of Cassation;          foreign judgments as well.
  2. On which there exist an inconsistent court        In proceedings for recognition and for
     practice;                                       enforcement of foreign judgments the court
  3. is relevant to the correct application of the   shall not examine the merits of the dispute
     law, as well as to the progress of the law      decided by the foreign court. It will only verify
     and jurisprudence.                              the conditions covered as defined by the
                                                     PILC, namely: 1/ that the foreign court had
  Prior to the lodging of the claim or after         jurisdiction according to the provisions of
the claim has been lodged the claimant may           Bulgarian law, but not if the nationality of the
request the court to impose against the assets       plaintiff or the registration thereof in the State
of the (future) defendant specific injunction         of the court seized was the only ground for the
measures for a total amount of up to the size        foreign jurisdiction over disputes in rem; 2/ that
of the claim. Such injunction may be enforced        defendant was served a copy of the statement
by placing interdict on a real estate; distraint     of action, the parties were duly summoned, and
on movables and receivables of the debtor and        fundamental principles of Bulgarian law, related
by other appropriate measures, determined            to the defense of the said parties, have not
by the court, including by stopping of the           been prejudiced (however the defendant in the
implementation of some actions of the debtor.        proceedings for recognition and enforcement
  The court fees involved in a dispute               of the foreign judgments may not invoke such

                                      BORISLAV BOYANOV & CO                                        111
                                   InvestBulgaria Agency

violations in case the said defendant could have    up to BGN 25,000 and for obligations for
raised them before the foreign court); 3/ that      delivery/return of movables with value not
no effective judgment has already been given        exceeding BGN 25,000.
by a Bulgarian court based on the same facts,         In addition the CPC allows order for
involving the same cause of action and between      performance to be issued on the grounds of
the same parties; 4/ that no proceedings based      certain documents exclusively enumerated as
on the same facts, involving the same cause         follows:
of action and between the same parties, are           1. an administrative act, whereunder the
brought before a Bulgarian court earlier than             admission to enforcement is vested in the
the case instituted before the foreign court in           civil courts;
the matter of which the judgment whereof the          2. a document or an excerpt of the books
recognition is sought and the enforcement is              of account, whereby receivables of
applied for has been rendered; and 5/ that the            governmental institutions, municipalities
recognition or enforcement is not contrary to             and banks are established;
Bulgarian public policy.                              3. a Notary Deed, a settlement or another
  The above said shall furthermore apply to               kind of contract with notarized signatures in
court settlements, if they enjoy equal status as          respect of receivables and/or of obligations
judgments of court in the State in which they are         contained therein for delivery of fungible or
reached.                                                  particular things;
  The state fee for filing an application for          4. an excerpt of the Central Register of
recognition and enforcement of a foreign                  Special Pledges on a registered security
judgment depends on the value of the claim and            interest and on commencement of
is 4 % on the respective amount.                          foreclosure: in respect of the delivery of
                                                          pledged things;
  In addition, the CPC implements in its Part VII     5. an excerpt of the Central Register of
the provisions of Council Regulation (EC) No              Special Pledges on a registration of a
1348/2000 of 29 May 2000 on the service in                contract for sale with retention of title
the Member States of judicial and extrajudicial           until payment of the purchase price or a
documents in civil or commercial matters,                 lease contract: in respect of the return of
Council Regulation (EC) No 1206/2001 of 28                corporeal things sold or leased;
May 2001 on cooperation between the courts of         6. a contract of pledge or a mortgage deed
the Member States in the taking of evidence in            provided that the special requirements
civil or commercial matters, Regulation (EC) No           under the Obligations and Contracts Act
805/2004 of the European Parliament and of the            are met;
Council of 21 April 2004 creating a European          7. an effective administrative act establishing
Enforcement Order for uncontested claims and              a state or municipal receivable, where
Regulation (EC) No 1896/2006 of the European              the enforcement of this administrative act
Parliament and of the Council of 12 December              is effected according to the procedure
2006 creating a European order for payment                established by the CPC;
procedure.                                            8. a deficit deed;
                                                      9. a promissory note, a bill of exchange or
                                                          another negotiable security payable to
XVII.3.2. Order for Performance                           order which is equivalent thereto, as well
Procedure                                                 as a bond or coupons attached thereto.
                                                      Once the order for performance is granted the
  The newly adopted CPC introduces new              debtor has two weeks term for submission of
procedure before the Regional Courts for issue      a formal written objection against the order for
of order for performance. In principle, that        performance (and no evidence or substantive
procedure may be applied only for receivables       arguments have to be presented). In order to

112                                  BORISLAV BOYANOV & CO
                                     InvestBulgaria Agency

suspend the preliminary execution conducted            institutions in Bulgaria at the moment such as
on the grounds of any document under p. 1              the Marine Court of Arbitration at the Bulgarian
– 8 above the debtor has to provide sufficient          Marine Chamber, Sofia Court of Arbitration at
guarantee to the creditor (pledge over bank            the Association for Internal and International
account or mortgage).                                  Arbitration, Court for Small Civil Disputes at the
  In case any objections of the debtor the             Bulgarian Association for Civil Society and Legal
applicant has one month term for lodging a             Initiatives, etc. The most famous and reputable
claim. Failure to lodge the claim will lead to         among them are the Court of Arbitration at the
cancellation of the order for performance. In          Bulgarian Chamber of Commerce and Industry
case the debtor does not submit any objections         ( and
the order for performance will enter into force        the Arbitration Court at the Bulgarian Industrial
and a writ of execution can be issued.                 Association (
  As an exception, the writ of execution may by          The fees attributable to the arbitration
granted before the entry into force of the order       institutions in Bulgaria differ from one another
for performance provided that the latter is issued     and are specified in their respective Tariffs and
on the grounds of any of the documents listed          Rules on Arbitration. In principle the fees are
above in p. 1 – 8.                                     formed on the basis of the value of the claim as
                                                       they increase in proportion to it.
                                                         The state fee for the enforcement of an
XVII.3.3. Alternative Dispute Resolutions              arbitration award issued by an arbitration court
                                                       in Bulgaria is 0.2% on the interest for which the
   Being faster and less expensive compared            enforcement is requested.
to the court proceedings, arbitration is the             With regard to the recognition and
most popular alternative dispute resolution in         enforcement of foreign arbitration awards the
Bulgaria. Arbitration proceedings in Bulgaria          ICCA refers to the international agreements to
are governed by the International Commercial           which Bulgaria is a party. In view of the above
Arbitration Act (“ICAA”), the relevant                 mentioned such awards shall be recognized and
international treaties to which Bulgaria is a party    enforced in compliance with the provisions of
and rules of the respective arbitration institution,   the New York Convention for Recognition and
if relevant.                                           Enforcement of Foreign Arbitration Awards (the
   ICCA applies to international arbitration based     “Convention”) to the extent it is not conflicting to
on an arbitration agreement, when the place of         the bilateral agreements concluded by Bulgaria
arbitration is within the territory of the Republic    which provide for specific rules for recognition
of Bulgaria and one of the parties under the           and enforcement of foreign arbitration awards.
dispute has its habitual residence, registered         Unless otherwise provided in an international
office according to its Deed of Incorporation           convention to which Bulgaria is a party the
or place of the actual management outside              competent court is the Sofia City Court.
Republic of Bulgaria. ICCA also applies to               Sofia City Court may in some specific cases
domestic arbitration when neither party to the         refuse the recognition and enforcement of
proceedings is a foreign person/entity. The            the award, f. ex. where there was no valid
arbitration is competent to settle civil and/or        arbitration agreement or in case of breach of
commercial disputes, as well as disputes related       the procedural rules or the provisions of the
to the filling gaps in contracts or their adaptation    arbitration agreement as well as when the
to newly arisen circumstances. The CPC                 recognition or enforcement of the award would
explicitly excludes from the competence of the         be contrary to the public order in Bulgaria.
arbitration the disputes having as their subject
matter any real rights or possession over a real
estate, alimony or a right under a labor relation.
   There are more than a dozen arbitration
                                                         The fee collected by the Sofia City Court for
                                                       the recognition and enforcement of foreign
                                                       arbitration awards is fixed to BGN 50 (appr.
                                                       EUR 25). .
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                                  CHAPTER EIGHTEEN: TELECOMMUNICATION

XVIII TELECOMMUNICATION                                  The order to be followed in identifying
                                                         the markets, in carrying out analyses and
XVIII.1. Legislation                                     assessment of the relevant markets, and
                                                         the criteria to be applied to designate
        The new Electronic Communications Act            undertakings as having significant market
      (ECA) was adopted in the middle of year            power is laid down in a special Methodology.
      2007. The new Act introduces the 2002 EU             On designating operators as having
      Regulatory Framework which provides the            SMP on the relevant market of access and
      Sector Regulator (Communications Regulation        interconnection, CRC can impose one or
      Commission – CRC) with broader powers and          more of the following specific obligations:
      mechanisms for influencing the activities of        (a) transparency, (b) non-discrimination, (c)
      the players in the communications markets.         accounting separation, (d) price restrictions
      The CRC being the sector specific regulator in      and cost orientation and implementation of
      Bulgaria is generally supposed to act under its    a cost accounting system and (e) access to
      powers outlined by the ECA in its full strength    and use of necessary network facilities and
      of 5 members taking its decisions by majority      equipment.
      of the votes.
        The new ECA introduces significant                  3. The new ECA introduces significant
      changes into the legislation in the field of        changes to the regulations in the field of
      telecommunications in Bulgaria. There are          telecommunications and the relationship
      many crucial issues in the ECA but the most        between the two regulatory bodies – the
      significant ones could be summarized in few         General Regulator – Competition Protection
      large groups.                                      Commission (CPC) and the CRC.
                                                           The one of the significant articles of the
        1. The Interconnection market is fully           ECA present the CPC with the opportunity
      liberalized:                                       to consult the CRC, share information and
        All undertakings carrying out electronic         opinions and form joint work groups on
      communications have the rights to                  specific issues/cases.
      negotiate and conclude written contracts for         The CRC shall analyse the effectiveness of
      interconnecting each other.                        competition on a relevant market according to
        The interconnection is meant to cover all        the methods and principles of the competition
      types of services and networks.                    law. This is the main interaction point between
        The content of the reference offer is            the CRC and CPC in the process of defining
      stipulated by the ECA.                             the markets. The CPC analyses the market
        The full set of specific obligation is            only after it receives written application
      envisaged to be imposed on the significant          concerning a specific case and it creates
      market power undertakings.                         another significant difference between the
        The CRC has very comprehensive powers            CPC and CRC as the latter analyses the
      with regard to intervention in the interoperator   markets ex ante.
      relations, imposition and amendment of
      specific obligations.
        2. The ECA provides that operators shall be      XVIII.2. Fixed Lines Market
      designated as having significant market power
      (SMP), solely or jointly with others, after         •   Nowadays Bulgaria has an open
      identification, analysis and assessment of the           legislation for telecom investments
      relevant markets as not effectively competitive         (Electronic Communications Act, 2007).
      according to the principles of competition              Fixed telephony could be said as one
      law and after public consultations and in               liberalized service. From a legal point of
      consultation with the European Commission.              view there are no essential barriers of

      114                                 GEORGIEV, TODOROV & CO
                                  InvestBulgaria Agency

     entrance. The market is facing serious        Call origination and termination services must
     competition and develops shortly. The         be provided at non-discriminatory conditions,
     new market players (so-called alternative     irrespective of the traffic origin, except for
     operators) make good progress and             termination of international calls and calls to
     increased the market share.                   VAS numbers. It is expected that the CRC will
 •   Based on the Law and license for BTC          adopt final decision also on the retail fixed
     only as SMP operator both on fixed             voice markets where BTC will be nominated
     telephony and leased lines market there       as SMP. The resulting new main obligations
     are several ongoing obligations to provide    will be for publishing WLR offer and for cost
     wholesale services under Reference            oriented prices of the retail services, including
     Offers as follows: for interconnection,       all types of calls (national on-net and off-net,
     including carrier selection and carrier       international, F2M and to non-geographic
     pre-selection, leased lines, collocation,     numbers).
     bitstream access and local loop
     unbundling access. BTC only on the             •   For the time being BTC is the only
     telecommunications market is obliged               Bulgarian fixed operator that is
     also to apply cost oriented pricing for all        investing significantly in infrastructure –
     wholesale services above.                          Digitalization of the network is in process,
 •   In spite of the regulatory framework in            as well as installation of new lines in
     force which seems to be aimed to foster            remote areas.
     so called “facility – based” competition
     the regulator tries to promote the
     “service-led” completion on the market.       XVIII.3. Mobile Market
     The competition in a network industry is
     not symmetric, because the alternative         • At present there are three mobile operators
     providers don’t invest in network                 that are active on the Bulgarian market
     infrastructure significantly. One of the           - three of them operating under the
     very important new facts is the Bitstream         GSM/UMTS standard. The NMT/CDMA
     offer of BTC – as of November 15th,               network operated by BTC under 450 MHz
     2007, CRC has determined the price list           has ceased providing retail services in H2
     for Bitstream access. The imposed prices          of 2008.
     (as values and structure) are result of the    • The GSM operators were licensed in
     carried out negotiations with the CRC and         1994 (Mobiltel), 2000 (Globul) and
     the operators. This is very positive step         2004 (Vivatel) holding market shares
     toward to increasing the competition in           respectively about 50%, 28% and 12%
     the market. First bitstream contract was          by consumers. These operators are
     signed in the December 2007 between               competing strongly against each other
     BTC and Vivatel. 2009 BTC also offered            and as a result the prices of mobile
     NAKED bitstream – unbundled from the              services have dropped considerable
     fixed voice subscription.                          especially after the launch of the
                                                       third GSM operator (Vivatel) which
  CRC finalized the analysis of the wholesale           commenced commercial operation in
fixed voice markets (origination and                    2005.
termination markets) and imposed on BTC             • The GSM operators were awarded UMTS
the full set of respective obligation for access       licences in April 2005 after conducting an
and interconnection mentioned above. The               open tender. Presently all GSM operators
main restrictions are connected with reduction         provides UMTS services.
of the termination prices to the average EU
levels by glide-path till the middle of 2010.       CRC has just finalized its market analysis

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                             CHAPTER EIGHTEEN: TELECOMMUNICATION

on the mobile termination market nominating          XVIII.5. Broadband market
all mobile operators as SMP. Based on this
nomination CRC has introduced the full set            Characterized by growing but still low
of specific obligations regarding the first two        penetration – under 10% by population
mobile operators, including cost orientation –       mainly because of the low PC penetration.
initially under the form of symmetric glide-path     The dominating technology is LAN (over 50%
reduction of the MTRs to about 0.06 Euro             of the market) followed by CATV and DSL
per minute in the middle of 2010. In parallel        holding the rest of the market by almost equal
all three operators shall work out and apply         shares. The wireless and mobile internet
Cost Allocation Systems (LRIC) and ultimately        access penetration is still negligible. Services
form cost-oriented MTRs based on it. The             are offered predominantly in the big cities
discrimination of traffic based on origin is
forbidden except for incoming international

  All three mobile operators apply strictly the
prices restrictions (maximum price levels)
imposed by the EC on the wholesale and
                                                     and towns. However the growth potential is
                                                     good because of the rapidly falling prices
                                                     and increasing access speeds, and more
                                                     affordable PC offers..
retail roaming prices through the Roaming

  As of year 2008 Mobiltel and Globul started
offering converged fixed/mobile services and
launched virtual operators (MVNO) on their

  The fourth and fifth GSM authorization
in 1800 MHz range initiated by CRC failed
twice in 2008. Obviously the high market
penetration (about 140% by population for
2008), the lack of adequate national roaming
obligation and the economic crisis have
created barrier for the potential investors.

  The Mobile Number Portability was launched
in April 2008, but for the time being the up-
take (about 25 thousand consumers ported)
is poor, probably because of the resource
consuming two-stop-shop process.

XVIII.4. Alternative Service Providers

  The CRC has issued about 30 permissions
for provision fixed voice services, including CS
and CPS. The market growth of the alternative
operators was significant in 2008, but their
market share is still not very high (the incumbent
still holds over 90% of the fixed voice market).

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XIX PERSONAL DATA PROTECTION –                               up-dated if necessary;
     NEW DEVELOPMENTS                                    •   The data should be extinguished or
                                                             corrected when they were found incorrect
XIX.1. International Aspect                                  or disproportionate to the purposes of
                                                             their processing;
       The Convention for the Protection of              •   The data should be kept in such a
     Individuals with Regard to Automatic                    manner that allows identification of the
     Processing of Personal Data of The Council              respective individual for a period not
     of Europe1 (Convention 108), adopted on                 longer than the one necessary for the
     January 28th, 1981 was ratified by Bulgaria              purposes of the data processing.
     in May 2002. The Convention is in force in
     Bulgaria since January 2003 and its text was         The version of PDPA adopted in the year
     promulgated in the State Gazette in March          2002 contained texts that generated a lot of
     2003.                                              practical problems. The latter were related
       The purpose of the Convention is to secure       mainly to the application field of the law and
     respect for rights and fundamental freedoms        the registration of data controllers’ regime.
     of individuals, and in particular their right to
     privacy, with regard to automatic processing         End of the year 2005 the general regulation
     of personal data related to them.                  of personal data protection laid down in PDPA
                                                        was substantially changed especially with
                                                        respect to the personal data definition, the
     XIX.2. Applicable Bulgarian                        administrators of personal data registration
     Legislation                                        regime, etc.

       The Bulgarian legislation provides a general
     data protection regime, contained in the           XIX.3. Definition Changes
     Personal Data Protection Act (PDPA), in force
     from January 1st, 2002. The Act was adopted          One of the significant changes in PDPA
     in the end of 2001 and promulgated in State        was the new personal data definition in
     Gazette issue #4, 2002. In general the Act         Article 2, para.1 „Personal data shall be any
     follows the main standards set in Convention       information referring to an individual that is
     108.                                               or could be identified directly or indirectly
       The PDPA text guarantees free collection         with an identification number or by one or
     and processing of personal data whenever           more specific indicators related to his/her
     that is necessary, provided expressly stated       physical, physiological, genetic, psychic,
     principles were followed:                          psychological, economic, cultural or social
       • The data should be processed lawfully          identity. From the definition dropped out data
          and in good will;                             related to the participation of physical persons
       • Collected for concrete, precisely defined       in civic associations and/or the management,
          and lawful purposes;                          control and supervision of bodies corporate,
       • The data should be proportional with the       as well as in governmental bodies. That
          purposes for which they are processed;        amendment guaranteed to the citizens a wider
       • The data should be precise and are to be       access to information especially regarding

        Convention № 108 of the Council of Europe from Jan. 28, 1981 for the Protection of Individuals
     with Regard to Automatic Processing of Personal Data – ratified by the 39th Parliament of Bulgaria
     on May 29, 2002. – State Gazette issue 56 June 7, 2002; published by the Ministry of Interior
     promulgated in SG issue 26 of 21.03.2003., in force as of 1.01.2003.

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information about public persons in line          and to the Commission itself. The amended
with the Constitutional Court’s perception in     text of the law provides for obligatory
the interpretation of Articles 39 to 41 of the    registration only for administrators who:
Bulgarian Constitution.
                                                   •   Process the so called sensitive personal
  The second significant amendment to the               data (disclosing racial or ethnical origin,
definition, already mentioned above, was the            political, religious or philosophical beliefs,
express listing in paragraph 1 of Article 2 of         etc.);
the principles to be followed regarding the        •   Process personal data performing
collected data.                                        obligations under law;
                                                   •   Support registry with data for more than
                                                       100 individuals;
XIX.4. Application Scope Changes                   •   Were expressly obliged by the
  With the new amendment PDPA is to be
applied only with respect to the processing         The Bulgarian Personal Data Protection
of personal data comprising of or designated      Act provides for the establishment of an
to be part of a public registry. The processing   independent body - the Personal Data
is to be performed by a personal data             Protection Commission, which overlooks the
administrator. Article 4, paragraph 2 expressly   implementation of the Act. The Commission
allows free collection and processing of          was elected by the Bulgarian Parliament on
personal data in cases when it serves             May 23, 2003. Subject to Article 10 of the
journalism, literature or art expression.         PDPA the Commission was granted a number
                                                  of rights, so that it may effectively ensure
                                                  the data protection of individuals in cases of
XIX.5. Administrators of Personal                 violation of their rights. The Commission is
Data Registration Regime Changes                  entitled to review appeals against personal
(article 17, paragraph 2)                         data controllers, perform inspections,
                                                  issue binding decisions, order temporary
  Subject to Article 3, para 1 of the PDPA        suspension of personal data processing and
administrator of personal data is any physical    impose sanctions on persons, who process
or body corporate, as well as governmental        personal data against the provisions of
body, which according to the activity             domestic law. The Commission creates and
performed defines the type and volume              keeps a register of data controllers. Under
of data processed, their aim, means for           the PDPA the Commission is to adopt internal
processing and protection.                        rules, regulating its activities, describing the
  The position of data administrator originates   structure of its administration, the procedures
from the type of activities performed by the      for keeping the data controllers register and
respective person. Pursuant to the text of the    the procedures for considering appeals,
PDPA prior to the amendment each person           issuing orders and imposing sanctions.
processing personal data was subject to           The initially adopted Rules for the work and
registration at the Personal Data Protection      organization of the Commission provided for
Commission (the Commission). That general         an administration of 76 officials, including
obligation resulted to be unnecessary and         its members. Until now most of the positions
created practical problems to the business        have not been filled in2.

   In comparison to the Bulgarian Commission, the Personal Data Commissioner of Ireland has an
administration of 16 officials, while 40 people work for the Commissioner of Sweden.

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                                   CHAPTER TWENTY: AUDIO-VISUAL SECTOR

XX   AUDIO-VISUAL SECTOR                                    Prohibited are also commercials using
                                                          means of subconscious suggestions as well as
XX.1. Legal Framework                                     concealed commercials.
                                                            The owner of the commercials is obliged not to
       The audio-visual sector is governed by thе         interfere with the contents of the programmes.
     Radio and Television Act. Some relevant                The commercials cannot use the state coat-
     provisions can be also found in the Act for          of-arms, the anthem of the Republic of Bulgaria,
     the copyright and related rights. Almost the         persons occupying elective positions in the state
     whole legal framework is in accordance with          government, as well as the voices and the images
     the European standards and the legal rules           of journalists working for the operators - regarding
     contained in the international instruments related   news, political and economic broadcasts.
     to the subject matter of this sector.                  The commercials for commodities and services
                                                          for whose production and trade special permit is
     XX.2. Commercials, Radio and Television              required can be included in the programmes of
     Market and Sponsorship                               the radio and television operators only after the
                                                          commercial owner presents the necessary permit.
     XX.2.1 Commercials                                     Prohibited are any commercials for cigarettes
                                                          and for the smoking.
       The commercials must be in accordance with           The commercials for all kinds of alcoholic
     the requirements for loyal competition under         drinks must meet special requirements.
     the legislation in force. The commercials cannot       The commercials for medical supplies and
     encourage behaviour harmful to the health or         medical treatment can be included in the
     the personal security of the citizens, as well       programme only if they are in accordance with
     as behaviour damaging the environment. It is         the legal requirements. Commercials for medical
     prohibited to broadcast commercials containing       supplies and medical treatment permitted for
     pornography or inciting violence and humiliation     use only by a doctor’s prescription is prohibited.
     of the human dignity as well as behaviour that       Prohibited is also the radio and TV market of
     violates the public peace and good manners.          medicines and medical treatment.
     Forbidden are commercials with erotic contents         The commercials must be clearly distinctive
     with participation of underage and minors or         as such and to be separated from the other
     designated for them. It is also forbidden to         parts of the programme by visual or sound
     broadcast commercials based on national,             means. The commercials are included in the
     political, ethnic, religious, racial, sexual and     programmes in the form of commercial blocks.
     other discrimination.                                As an exception, the programmes can include
       The commercials directed to underage               individual commercials. In broadcasts consisting
     persons must meet the following conditions:          of individual parts the commercials can be
       • not to appeal to the underage to purchase        included between these parts.
           commodities or use services taking
           advantage of their inexperience or
           trustfulness;                                  XX.2.2 Sponsorship
       • not to use the special trust the underage
           have in their parents, teachers and other        The individual broadcasts of the operators can
           persons;                                       be sponsored entirely or partially.
       • not to show underage in dangerous                  Sponsors of broadcasts cannot be political
           situations.                                    parties and organizations, religious organisations
       • not to encourage directly the minors and         or persons whose main activity is the production
           the underage to convince their parents or      of commodities and services prohibited for
           other persons to buy the commodities or        commercials. Political and economic broadcasts
           the services which are advertized.             cannot be sponsored if they contain analyses and

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commentaries or whose subject is similar to the        •   legal persons, natural persons-sole
subject of activity of the sponsor. News cannot            entrepreneurs who cannot prove the
be sponsored, with the exception of the sport              ownership of the property of the capital
news, if they are separated from the other parts           according to the Law for the measures
of the programme by visual or sound effects or an          against money laundry;
individual broadcasting.                               •   legal persons in which the persons under
  The sponsor doesn’t have the right to                    item 3 possess shares;
influence the contents and the presentation             •   natural persons-sole entrepreneurs and
of the sponsored broadcast. The sponsored                  legal persons who, during the last five
broadcasts cannot appeal for sales, purchase or            years preceding the application for licence
using commodities and services of the sponsor              have been declared insolvent or are under
or of third person, particularly by showing these          proceedings for insolvency or liquidation;
commodities and services in the broadcasts. The        •   legal persons in which the shareholders are
name of the sponsor and/or his trade mark can              persons included in the list under Article 3
be mentioned, presented or indicated in another            of the Act for the information on the unpaid
way, only at the beginning and/or at the end of the        credits;
broadcasting.                                          •   legal persons in which there are partners
                                                           or shareholders who are partners or
                                                           shareholders also in legal               persons
XX.3. Licensing And Registration of                        having in their registered scope of activity
Radio and Television Operators                             „advertising activity“ or carry out advertising
                                                           activity as well as natural persons-sole
XX.3.1. General information                                traders having in their scope of activity
                                                           „advertising      activity“ or carrying out
  Radio- and television activity for creation of           advertising activity;
programmes designated for broadcasting by              •   natural persons-sole entrepreneurs and legal
means of electronic communication networks (in             persons who, during the last year, preceding
cases related to using individually defined limited         the application for license, have received a
resource – radiofrequency spectrum), is carried            refusal for the same kind of licensed activity
out on the basis of individual licenses issued             or the licence issued under RTA has been
by the Council for electronic media. Applicants            withdrawn.
for license can only be natural persons-sole
entrepreneurs and legal persons registered under        The candidates for licence have to present to
the Bulgarian legislation.They may also be legal      the Council for electronic media the following
persons, registered under the legislation of a        documents:
Member State of the EU.                                 • certificate for good standing or respective
  The Bulgarian National Radio and the Bulgarian           document (regarding the foreign persons)
National Television carry out radio and television         having been issued not more than one month
activity as national public operators on the basis         before the date of filing the application;
of licenses issued without a tender/competition or      • documents proving the origin of the capital
on the basis of registrations.                             for the last three years, including endorsed
                                                           accountancy report, considered from the date
 Applicants for issuance of license cannot be:             of filing the documents;
 • legal persons to whom it has been refused            • a list of the media enterprises where they are
   or withdrawn the license for insurance                  stock holders or partners.
 • legal persons in which the legal persons            The license is personal. The transfer of a license
   under item 1 or the partners or the                may be permitted by the Council for electronic
   shareholders in them possess shares;               media in accordance with the requirements for

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                                CHAPTER TWENTY: AUDIO-VISUAL SECTOR

the persons for initial licensing. Upon transfer of     XX.3.2. The procedure for licensing
a license for radio- and television activity issued
under articles 116, 116а, 116б, 116в и 116г of the        The applicants for license for radio and television
RTA, the Council for electronic media in 14-day         activity must file written application to the Council
term has to notify the Commission for regulation        for electronic media accompanied by:
of communications. In 10-day term after the               • articles of incorporation;
notification under the previous sentence the               • certificate for commercial registration or
Commission for regulation of communications                   documents certifying the formation of the
transfers the permit for using individually defined            legal person;
limited resource – radiofrequency spectrum, for           • a certificate under the Tax-insurance
carrying out electronic communications by means               Procedure Code for presence or absence of
of available and/or new electronic communication              public obligations;
networks for land analogue radiobroadcasting              • proposal for method of broadcasting of the
by the person to whom the respective license for              programmes;
radio- and television activity has been transferred,      • declarations under RTA;
in conformity with the relevant provisions of the         • proof of availability of enough financial
Electronic Communications Act.                                resources for performance of the activity;
                                                          • programme project, programme concept,
   At the time of presentation of the documents               programme profile, programme scheme, list
for receiving licenses the applicants have to                 of the additional radio and television services;
declare that they do not possess shares, stock or         • preliminary contracts for ceded copyright for
other rights of participation in radio and television         protected work in the programmes and for
operators above the admissible percentage                     ceded related rights for ceded broadcasting
according to the Competition Act.                             of foreign programmes.
   The licenses are issued for a period of up to
15 years. The term can be prolonged by the                The Council for electronic media has to inspect
Council for electronic media upon request of the        the regularity of the filed documents. When
licensed person, as the total duration cannot           omissions and shortcomings are found in the
be longer than 25 years. The term of the permit         documents the applicant has 7 days for their
for using individually defined limited resource          removal. If the omissions and shortcomings are
– radiofrequency spectrum, for carrying out             not removed within that period the documents of
electronic communications by means of available         cannot be considered.
and/or new electonic communication networks for           The procedure of holding of competition can be
land analogue radiobroadcasting must correspond         opened upon request of an interested person or
to the term of the license under the RTA.               by initiative of the Council for electronic media.
   The license for radio and television activity must   The Council for electronic media in 14-day term
contain:                                                from the submission of the request must require
   • the name (the firm) and the headquarters of         in writing from the Commission for regulation
       the radio operator or television operator;       of communications information regarding the
   • the kind (public or commercial);                   technical parameters which are necessary for
   • the date of issuing of the licence;                land analogue radiobroadcasting of radio- and
   • the initial date of broadcasting of the            television programmes for a certain town/village,
       programme;                                       region or for the whole territory of the Republic
   • the range of broadcasting;                         of Bulgaria including free radiofrequencies,
   • the duration of the license;                       admissible capacities of broadcasting, possible
   • the technical and other requirements to            points of broadcasting, as well as other necessary
       the programmes including requirements to         technical information. The Commission for
       delivery of the programmes for spreading in      regulation of communications submits to
       uncoded form.                                    the Council for electronic media its decision

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                              CHAPTER TWENTY: AUDIO-VISUAL SECTOR

related to the inquiry in term of three months (in    electronic media has to inform the Commission for
case when it is necessary that there must be          regulation of the communications. Within period
international coordination of the radiofrequencies    of ten days the Council for electronic media has to
and radiofrequency lines, as well as technical        issue license for radio and/or television activity and
characteristics of the radioutilities which shall     the Commission for regulation of communications
be used – in term of 8 months) taking into            issues a permit for using individually defined
consideration the requirements for efficient using     limited resource – radiofrequency spectrum, for
of the radiofrequency spectrum. Upon availability     carrying out electronic communications by means
of free radiofrequency spectrum, in conforminty       of available and/or new electronic communication
with the inquiry, the Commission for regulation       netweorks for land analogue radiobroadcasting.
of communications attaches to the decision
draftpermit for using individually defined limited     XX.3.3. Radio- and television activity for
resource – radiofrequency spectrum.                   creation of programmes designated for
  Within 14 days from receiving the reply the         broadcasting by means of electronic
Council for electronic media must take a decision     communication networks for land digital
for opening competition or competitions in            radiobroadcasting.
accordance with the available free radio frequency
spectrum. The decision has to be promulgated            Radio- and television activity for creation of
in the State Gazette and has to contain the date,     programmes, designated for broadcasting by
the place and the hour of holding the competition,    means of electronic communication network
the term and the place of filing applications for      for land digital radiobroadcasting, is carried out
participation, the place, the term and the order of   on the basis of a license issued by the Council
purchasing the competition papers.                    for electronic media. This license allows the
  The competition papers contain:                     programmes to be broadcast by an enterprise
  • draftpermit for using individually defined         that has obtained permit (issued by the
      limited resource – radiofrequency spectrum;     Commission for regulation of communications)
  • requirements regarding the rate of                for using individually defined limited resource
      development and/or servicing;                   – radiofrequency spectrum, for carrying out
  • requirements for environmental protection;        electronic communications by means of networks
  • requirements for quality;                         for land digital radiobroadcasting on the territorial
  • requirements with regard to the creative,         range poited in the permit. Such an enterprise
      financial and technical capacities and           has the right to broadcast licensed television
      experience;                                     programmes whose type and profile are
  • criteria for assessment and their relative        determined by the Council for electronic media.
      importance in determining the complex             The procedure for issuing a license for radio-
      assessment, by following the requirement for    and television activity for national/regional
      priority of the assessment of the programme     programmes which may be broadcast by
      project.                                        means of electonic communication network
                                                      for land digital radiobroadcasting is opened at
  The Council for electronic media must appoint a     the request of the interested person or by the
chairman and members of an expert commission          initiative of the Council for electronic media or at
for conducting the competition who obligatorily       the initiative of the Commission for regulation of
include members of the Council for electronic         communications. The Council for electronic media
media and of the Commission for regulation of         adopts a decision that declares the procedure
the communications. Participants in the expert        for issuing such a license on its internet site and
commission can also be experts from other             in the „State Gazette“. This decision points the
interested administrative agencies and structures.    term and place for submission of an application.
  Within a period of three days from the enactment    The candidates have to attach to the application
of the decision for issuing license the Council for   proofs for the capacities for creation of their

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                               CHAPTER TWENTY: AUDIO-VISUAL SECTOR

own quality production as well as a business           XX.3.4. Supervision and termination of
plan project for carrying out the activity. In 7-day   the license
term the Chairman of the Council for electronic
media appoints an expert commission in which             The supervision for the observance of the law
mandatorily there are three members of the             and the requirements under the license must be
Council for electronic media and two members of        carried out by the respective officials from the
the Commission for regulation of communications.       Council for electronic media.
The expert commission makes a suggestion to              For established offences the Council for
the Council for electronic media to issue or refuse    electronic media is obliged within one month to
issuing of a license. The number of licenses is not    consider and discuss the presented documents
limited.                                               and take decision for imposing proprietary
  The Council for electronic media determines          sanctions and/or revoking of the license.
the type and profile of the licensed Bulgarian            The license must be revoked in cases of:
television programmes or radioprogrammes that            • gross violation of the principles of the radio
obligatorily have to be broadcast by means of the            and television activity;
networks for land digital radiobroadcasting. The         • systematic offences of the provisions of RTA
number of programmes may not be more than two            In case of revoking a license for radio and
programmes for each electronic communication           television activity the Council for electronic media
network for land digital radiobroadcasting.            informs the Commission for regulation of the
  In one month term after the issuing of a permit      communications which, within 10 days, has to
under the Electronic Communications Act the            revoke the individual license for telecommunication
enterprise that has obtained permit (issued by the     network for using available and/or construction,
Commission for regulation of communications)           maintaining and using new telecommunication
for using individually defined limited resource         networks for ground radio broadcasting.
– radiofrequency spectrum, for carrying out              Not later than 6 months before the expiration of
electronic communications by means of networks         the term of the license the licensee must declare
for land digital radiobroadcasting makes a             intention for extending the term of the licence. The
suggestion to the Council for electronic media         Council for electronic media has to consider the
regarding the type and profile of the licensed          request for extension of the term of the license.
television programmes that shall be broadcast by
means of the electronic communication network          XX.4. Public registers
for land digital radiobroadcasting. In one month
term after the submission of the suggestion              The Coucil for electronic media maintains a
the Council for electronic media conducts              Public Regiter. In that Regiter there are three
consultations with the enterprise. In 7-day term       separate chapters:
after the expiration of the abovementioned               1. First chapter including Bulgarian radio- and
term the Council for electronic media agrees on        television programmes that may be broadcast on
the type and profile of the licensed television         the territory of the republic of Bulgaria by means of
programmes that shall be broadcast by means of         cable and satellite;
the networks for land digital radiobroadcasting.         2. Second chapter including foreign programmes
  The enterprise that has obtained a permit (by        that may be broadcast on the territory of the Re-
the Commission for regulation of communications)       public of Bulgaria by means of cable and satellite:
for using individually defined limited resource           3. Third chapter including licensed radio- and
– radiofrequency spectrum, for carrying out            television programmes broadcast by means of:
electronic communications by means of networks           а) available and/or new electronic

for land digital radiobroadcasting may not be          communication networks for land analogue
radio- and television operator. This restriction is    radiobroadcasting;
applied also regarding related persons within the        b) electronic communication networks for land
legal scope of the Commerctal Act.                     digital radiobroadcasting.

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                                  CHAPTER TWENTY-ONE: ENERGY SECTOR

XXI ENERGY SECTOR                                        •   distribution of electric power or natural
XXI.1. Introduction. Basic Legal Definitions              •   storing of natural gas;
                                                         •   trade with electric power;
       The Energy sector is governed by the              •   organizing of market of electric power;
     Energy Sector Act (hereinafter referred to as       •   public supply of electric power or natural
     ESA). This Act settles the public relations with        gas;
     regard to the implementation of the activities      •   transit transfer of natural gas;
     of production, import and export, transfer,         •   supply of electric power or of natural gas
     transit transfer, distribution of electric and          by end suppliers;
     heat energy and natural gas, transfer of oil        •   management of the electric power
     and oil products through pipelines, trade with          system;
     electric and heat energy and natural gas, as        •   distribution of electric power to
     well as the legal powers of the state structures        distribution networks of the railway
     in determining the state policy, regulation and         transport.
                                                         The license allows the implementation of
                                                        some of the above mentioned activities under
     XXI. 2. Regulation of the Activities in            conditions pointed by it and it is an integral
     the Energy Sector                                  part of the decision for its issuing.
                                                         If a license is issued before the construction
     XXI.2.1. State Commission for Energy               of the energy site for performing the relevant
     and Water Regulation                               activity, the license has to include the
                                                        conditions for the construction of this site and
       The regulation of the activities in the energy   a term of starting the licensed activity.
     sector and in the water supply and sewerage is      Issuing of license is not necessary for:
     carried out by the State Commission for Energy      • production of electric power by a person-
     and Water Regulation (hereinafter referred to           owner of electric power station with
     as the Commission). The Commission is an                overall installed capacity up to 5 MW;
     independent, specialized state structure – a        • production of heat power by a person-
     corporate legal person with headquarters                owner of a heat power station with overall
     in Sofia. It is a collective body consisting of          installed capacity up to 5 MW;
     13 members, including a chairman and two            • transfer of heat power by a person-owner
     deputy chairmen. The chairmen, the deputy               of heat transfer network, to which are
     chairmen and the members of the Commission              connected power stations with a overall
     are elected on the basis of a decision of the           installed capacity up to 5 MW;
     Council of Ministers and are appointed by the       • production of heat power for own
     Prime Minister.                                         consumption only.

                                                          License is issued to a corporate legal person
     XXI. 3. Licenses                                   registered under the Commercial Act which:
                                                          • has the necessary technical, financial,
     XXI.3.1. Issuing of Licenses.                           material and human resources and an
                                                             organizational structure for meeting the
      The activities subject to licensing under ESA          legal requirements for performing the
     are:                                                    licensed activity;
      • production of electric and/or heat power;         • has real rights on the energy sites by
      • transfer of electric power, heat power or            means of which it will carry out the
          natural gas;                                       activity, if they are built;

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                             CHAPTER TWENTY-ONE: ENERGY SECTOR

 •   gives proof that the energy sites by             One outlined territory of distribution of
     means of which the licensed activity           electric power has to comprise no less than
     will be performed correspond to                150 thousand consumers connected to
     legal requirements for safety and for          the distribution network This territory must
     environmental protection.                      include at least one region according to the
                                                    administrative and territorial structure of the
   License must not be issued if there is a         state.
danger of harming the life and the health of          For an outlined territory only one license for
the citizens, the property of third persons and     supply of electric power by end suppliers is
the interests of the consumers, lack of the         issued.
reliable supply of electric or heat power or          One outlined territory of distribution of
natural gas.                                        natural gas has to include no less than 50
   In case where the same person performs more      thousand consumers who might be connected
than one of the licensed activities, individual     to the distribution network.
licenses must be issued for every activity.           For an outlined territory only one license
   The license may also be given to a legal         for supply of natural gas by end suppliers is
person incorporated and existing under the          issued.
law of a Member State of the European Union           The holder of the license for management
or of another country – party to the European       of electric power system, may not be granted
Economic Area Agreement in accordance with          another license for other licensed activity
the above mentioned conditions.                     under ESA except for a license for organizing
   The license is issued for a period of up to 35   a market of electric power.
years in correspondence with the legal rules          The licensee for transfer of natural gas may
of the respective ordinance. The term of the        not be granted a license for another licensed
license may be prolonged for a period not           activity under ESA, except for a license for
longer than the above mentioned period if the       storing natural gas and a license for transit
holder of the license meets the relevant legal      transfer of natural gas. The holder of a license
requirements and performs all obligations and       for transfer of natural gas may not trade with
requirements of the license, and it has filed a      natural gas.
request in written form for extension at least        Persons to whom license has been issued
one year before the expiry of the term of the       for distribution of electric power may not be
initial license.                                    granted licenses for other licensed activities
                                                    under ESA.
  Only one license may be issued on the               Persons to whom license has been issued
territory of the country for:                       for distribution of natural gas, may not be
  • transfer of electric power or natural gas;      granted licenses for other activities subject
  • organizing market of the electric power;        to licensing under ESA, except for a license
  • public supply of electric power or natural      for public supply of natural gas or for supply
      gas;                                          of natural gas by an end supplier, if the
  • management of the electric power                consumers, connected to the gas transfer
      system.                                       network on this territory are less than
                                                      100 000.
 Only one license may be issued for one               The license has to define:
outlined territory for:                               • the title of the license;
 • distribution of electric power or natural          • the licensed activity;
     gas;                                             • the sites through which the licensed
 • supply of electric power or natural gas by             activity is carried out;
     end suppliers;                                   • the territorial range of the license;
 • transfer of heat power.                            • the period of the license.

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                              CHAPTER TWENTY-ONE: ENERGY SECTOR

XXI.3.2. Competition                                  •   of allowing transformation of a licensee or
                                                          an administering transaction if this is not
  Only if there is a necessity of a new capacity          related to termination of the license.
for production of electric power, established
and announced in a public way, the holder              The Commission has to inform the holder of
of the license including an obligation for           the license for the start of the proceedings for
its construction has to be determined by a           amendment and/or supplement of the license.
competition.                                           The Commission permits reorganization
  The holders of licenses for distribution of        of a licensee through merger, consolidation,
natural gas for the outlined territories have to     division, separation if the person that will
be determined by competitions.                       perform the licensed activity after the
  If the competition is won by a foreign person      reorganization meets the requirements for
that is not registered in a Member State of the      issuing of license for the specific activity.
European Union or in another country – party           Transactions for transferring sites under
to the European Economic Area Agreement              construction or property by means of which
then the license has to be issued to a               the licensed activity is performed, may be
company registered under the Commercial              concluded only in their entirety, upon a permit
Act, in which the foreign person possesses at        of the Commission.
least 67 percent of the capital.                       The Commission also issues a permit in the
  The public supplier has to conclude a              cases of pledge or mortgage of a property by
contract for purchasing electric power with the      means of which the licensed activity is carried out.
person that has won the competition.                   Permit is not necessary in cases of
                                                     replacement or modernization.
                                                       The transactions that violate the preceding
XXI.3.3. Amendments, Supplements,                    rules may be declared void by the court at a
Termination and Withdrawal of                        request of the Commission or every interested
Licenses                                             person.
                                                       On privatization of a separate part of
  The license may be amended and/or                  an energy enterprise a permit may not be
supplemented by the Commission at a                  required. The Commission issues a license to
request of the licensee or at an initiative of the   the new owner if he has requested the issuing
Commission.                                          of a license and meets the requirements for
  The Commission has the right to an initiative      its issuing.
for amendment and/or supplement of an                  The license is terminated by the
issued license in the following cases:               Commission:
  • of guaranteeing the reliability or the             • at a request of the holder of the license,
     uninterrupted and quality supply of the               including for a example a transfer of the
     consumers with electric and heat power                property by means of which the licensed
     and natural gas;                                      activity is carried out;
  • of changes in the legislation;                     • on a loss of the energy site by means of
  • of guranteeing the national security and               which the licensee carries out its activity;
     the social order in cooperation with the          • on reorganization of the holder of the
     respective competent state authorities;               license if the reorganization leads to
  • of danger of harming the life and the                  termination of the corporate legal person
     health of the citizens, of harming the                – holder of the license;
     environment or the property of third              • on entering into force of a court decision
     persons if it does not require withdrawal             for declaring the licensee bankrupt or of a
     of the license and/or at the proposal of              decision for termination of the activity due
     specialized state structures;                         to liquidation of the licensee.

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  The Commission may also terminate the             electric power lines and electric facilities of
license if the licensee does not perform the        high, medium and low voltage serving for
licensed activity for a period of more than one     distribution of electric power.
  The licensee is obliged, at least one year
before the expiry of the term of the license to     XXI.4.2. Production of Electric Power
submit an application for prolongation of the
term, or to inform the Commission that the            Production of electric power may be
licensee will not carry out the licensed activity   performed by energy enterprises having
upon expiry of the term.                            received license for production under ESA.
   The Commission, upon a notification within        The producers of electric power are obliged to
a set period, shall withdraw the license if the     maintain reserves of fuel, including local solid
licensee does not perform its obligations or        fuel in quantities guaranteeing a continuous
violates instructions of the control structures     and reliable production.
of the Commission.
  The Commission may withdraw a license for
distribution of natural gas, issued after a held    XXI.4.3. Transfer of Electric Power and
competition, if the licensee does not construct,    Management of the Electric Power
within the period pointed in the license, the       System
respective gas distribution network shown in
its offer for participation in the competition.       The transfer of electric power is performed
                                                    by a transfer enterprise – owner of the
                                                    transfer network, having received license
XXI.4. Electric Power Sector                        for transfer of electric power. The holder
                                                    of the license may assign by means of a
XXI.4.1. General Review. Electric                   contract the expoitation and the maintenance
Power System.                                       of the transfer network only to the electric
                                                    power system operator, who has received a
  All electric power sites on the territory of      license for management of the electric power
the country are connected and functioning           system. The transfer and the transformation
in a unified and integrated electric power           of electric power is a universally offered
system with a joint operational regime and          service. The transfer enterprise has to
an uninterrupted process of production,             provide the expansion, reconstruction and
transformation, transfer, distribution and          the modernization of the transfer network in
consumption of electric power. The electric         accordance with the long-term prognoses and
power system includes the electric power            plans for development of the electric power
stations, the transfer network, the distribution    sector.
networks and the electric utilities of the            The electric power system operator
consumers.                                          provides:
  “Electric transfer network” is a unity of           • the united management of the electric
electric power lines and electric equipment               energy system and the reliable
serving for transfer, transformation of the               functioning of the transfer network;
electric power of high voltage to medium              • the transit of electric power through the
voltage, redistribution of electric flows or               transfer network;
transit of electric power to a third party.           • the maintenance of the sites and
  “Electric power lines” are installations for            equipment of the transfer network
connection of electric facilities for transfer,           in accordance with the technical
transport or distribution of electric power.              requirements and with the requirements
  “Electric distribution network” is a unity of           for safety;

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  In order to draft the energy balance of the         •   the consumers, including the privileged
country, the electric power system operator               consumers;
has to:                                               •   the transfer enterprise;
 • prepare prognoses for change of the                •   the distribution enterprises;
     consumption of electric power in the             •   the dealers of electric power;
     country;                                         •   the electric power system operator;
 • organize research of the possibilities             •   the end supplier.
     of expansion and modernization of the
     transfer network, introduction of new           XXI.4.6. Connection of Producers and
     technologies.                                   Consumers to The Relevant Networks.
                                                     Access to the Networks
XXI.4.4. Distribution of the Electric
Power                                                  The transfer enterprise, respectively the
                                                     distribution enterprise, is obliged to connect
  The distribution of electric power and the         every producer of electric power located on
functioning of the distribution networks is          the respective territory that:
performed by distribution enterprises – owners         • has concluded a written contract with
of the distribution networks on a separate                 the transfer or distribution enterprise
territory, licensed to perform the distribution of         at a price for connection determined
electric power to the respective territory of the          in accordance with the applicable
country. The distribution of electric power is             ordinance;
the universally offered service.                       • has met the requirements for connection
  The distribution enterprise has to provide               to the transfer or distribution network, and
and guarantee:                                         • has constructed electric equipment within
  • distribution of the electric power received            its own property or on the property on
      in the distribution network;                         where it has a right of construction.
  • continuity of the electric power supply
      and quality of the supplied electric power;      The transfer or the respective distribution
  • management of the electric distribution          enterprise are obliged to expand and
      network;                                       reconstruct the transfer or distribution
  • maintenance of the distribution network,         networks related to the connection of electric
      sites and equipment in accordance with         power stations to the place of connection.
      the technical requirements;
  • expansion, reconstruction and                      The owners of electric equipment are
      modernization of the distribution network      obliged to provide access of the transfer
      and accessory networks.                        enterprise, respectively the distribution
                                                     enterprise, to their own installations for the
                                                     purposes of transformation and transfer of
XXI.4.5. Trade Relations. Parties to the             electric power to other consumers.
Transactions with Electric Power

 Transactions with electric power may                XXI.5. Heat Supply
be concluded at prices regulated by the
Commission, at freely negotiated prices              XXI. 5.1. General Review
between parties and on the organized market
of electric power. Parties to the transactions         The heat supply is a process of production,
with electric power are the following persons:       transfer, supply, distribution and consumption
 • the public supplier of electric power;            of heat power by means of a heat carrier of
 • the producers;                                    water steam and hot water for household

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and economic purposes. The heat supply is          •   a heat transfer enterprise and consumers
carried out through sites and installations for        of heating power for economic purposes;
production, transfer, supply and distribution      • a heat transfer enterprise and
connected to a heat supply system.                     associations of the consumers of heating
                                                       power in a condominium;
                                                   • a heat transfer enterprise and a provider
XXI.5.2. Production of Heating Power                   of heat power;
                                                   • a provider of heat power and the
  The production of heating power is carried           consumers in a building – condominium.
out by an energy enterprise having received a      The consumers of heating power in a
license for production.                           building – condominium, may buy heating
                                                  power from a provider, selected by the general
 The production of heating power is carried       assembly of the condominium.
out in:
 • power stations for combined production
     of heating and electric power;               XXI.6. Gas Supply
 • heating power stations;
 • installations for utilization of waste         XXI.6.1. General Review
     heating power and of restorable energy
     sources.                                       The gas supply is a unity of the activities of
                                                  transfer, transit transfer, storing, distribution
                                                  and supply of natural gas for meeting the
XXI.5.3. Connection to the Heat                   needs of the consumers. The sites and the
Transfer Network                                  installations for carrying out the activities of
                                                  transfer, storing and distribution of natural
  The heat transfer enterprise is obliged         gas on the territory of the country, connected
to connect to the heat transfer network           among each other, work in an integrated
producers and consumers located on the            gas transport system of general regime of
respective territory defined by the license for    operation.
transfer of heating power. The connection of
the consumers in a building -condominium            “Gas transfer network” is a system of gas
by means of a junction or its individual          pipelines of high pressure and the equipment
branches has to be carried out on the basis       to them, with a unified technological regime
of a decision of the general meeting of the       of functioning, for transfer of natural gas to
condominium with the majority of two thirds of    the outlet of the gas measuring station or
all owners and holders of real right of use of    gas regulation station, having connected
building – condominium.                           consumers and/or distribution enterprises.
                                                    “Gas distribution network” is a local or
                                                  regional system of gas pipelines of high,
XXI. 5.4. Trade Relations                         medium or low pressure and the installations
                                                  to them for distribution of natural gas to
  The sale of heating power is carried out on     the respective consumers on a territory
the basis of written contracts under general      determined by a license.
conditions, concluded between:                      “Gas transport system” is a system of
  • a producer and the heat transfer              connected networks for transfer, transit
     enterprise;                                  transfer, distribution of natural gas, as well
  • a producer and directly connected             as installations to and from gas storages and
     consumers of heating power for economic      production enterprises on the territory of the
     purposes;                                    country.

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XXI.6.2. Transactions with Natural Gas              •   in case according to the legislation of
                                                        the other country the right of free trade
  The transactions with natural gas are carried         of natural gas is acknowledged to the
out on the grounds of written contracts by              producing enterprises, the dealers of
observing the provisions of the law and of the          natural gas the public supplier of natural
rules for trade of natural gas adopted by the           gas, the public providers of natural
Commission.                                             gas, the end suppliers, the privileged
  The transaction with natural gas are supply,          consumers, and
transfer along a transfer and distribution           • under the conditions of reciprocity, in
networks and storing of natural gas.                    case the legislation of the other country
                                                        provides a possibility of free trade of
 Parties to the transactions with natural gas           natural gas for its privileged consumers.
are:                                                 The public supplier of natural gas is a legal
 • a public supplier of natural gas;               person registered under the Commercial Act
 • producing enterprises;                          or under the legislation of a Member State
 • operators of gas storages;                      of the European Union or of another country
 • a transfer enterprise;                          – party to the European Economic Area
 • combined operator;                              Agreement, who may conclude transactions
 • a distribution enterprise;                      for supply of natural gas with producing
 • dealers of natural gas;                         enterprises, with dealers of natural gas, with
 • privileged consumers;                           public providers of natural gas, with privileged
 • consumers who are not privileged.               consumers and with consumers directly
 • end supplier of natural gas;                    connected to the transfer network. The
 • consumers – clients of the end supplier.        public supplier of natural gas may conclude
                                                   transactions for transfer of natural gas with
  The producing enterprises may conclude           the transfer and distribution enterprises. The
transactions for supply of natural gas with        public supplier of natural gas may conclude
the public supplier of natural gas, with the       transactions for storing natural gas with the
public provider of natural gas, with operators     operators of gas storages.
of gas storages, with dealers of natural gas         The public providers of natural gas are legal
and with privileged consumers. The producing       persons registered under the Commercial
enterprises may also conclude transactions         Act or under the legislation of a Member
for transfer of natural gas with the transfer      State of the European Union or of another
and distribution enterprise. They may also         country – party to the European Economic
conclude transactions for storing natural gas      Area Agreement, that conclude transactions
with the operators of gas storages.                for supply of natural gas with end consumers
                                                   connected to the gas distribution network, on
  The producing enterprises, the public            the territory for which they are licensed.
supplier of natural gas, the public providers of     The end supplier is a person licensed for
natural gas, the end suppliers, the operators      its activity, that provides the supply of natural
of the gas storages, the dealers of natural        gas to household consumers and enterprises,
gas and the privileged consumers may               which have less than 50 employees with
conclude transactions for supply of natural        annual turnover amounting up to 19, 5 million
gas with local persons in a Member State           BGN.
of the European Union, or registered in a            Dealer of natural gas may be any Bulgarian
country, with which the Republic of Bulgaria       and foreign corporate legal person registered
has reached an agreement by virtue of              as an entrepreneur under the Commercial Act
international instrument for mutual application    or under its national legislation.
of the respective law of the European Union:         The dealers of natural gas may conclude

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transactions with producing enterprises inside      •   the terms of termination or interruption of
or outside of the country, with privileged              the supply;
consumers, with other dealers of natural gas,       •   the responsibility of the energy enterprise
with the public supplier of natural gas and with        in case of non-regulated interruption and
operators of gas storages.                              low-quality supply.
  The privileged consumers are consumers
of natural gas meeting definite requirements          The published general conditions shall enter
set by the law, having the right to choose the     into force for the consumers, who buy natural
persons from which they will buy natural gas       gas from an end supplier without explicit
in and/or outside the country. The privileged      written consent.
consumers are obliged to inform in advance
the transfer enterprise and/or the distribution
enterprise about the contracts concluded by        XXI.6.3. Connection to the Gas
them for natural gas.                              Pipeline Network

  The contracts for natural gas are concluded:       The connection to the transfer and
  1. at prices regulated by the Commission         distribution networks is carried out under
for universally offered services related to the    conditions and by an order defined by a
transfer, distribution and supply of natural gas   special ordinance for connection to be issued
or at freely negotiated prices between the         by the Minister of Economy and Energy.
parties on an organized market, administered       The connection to the gas transfer and/or to
and managed by the operator of the transfer        the gas distribution networks of producing
system.                                            enterprises, enterprises storing natural gas,
  The producing enterprises, the dealers of        distribution enterprises and end consumers
natural gas and the privileged consumers           has to be carried out at prices determined by
conclude transactions for natural gas among        the respective ordinance and on the grounds
themselves at freely negotiated prices.            of a written contract concluded between
  The end supplier of natural gas sells natural    the transfer, respectively the distribution
gas under publicly announced general               enterprises and the connected persons.
conditions. The general conditions must              The transfer enterprise is obliged to
include:                                           connect to its network, at a point set by it,
  • the terms of quality of the supply;            the distribution enterprises, the producing
  • information provided by the supplier;          enterprises and the enterprises storing natural
  • term of the contract;                          gas. Connected to the transfer network may
  • the responsibility of the energy enterprise    also be privileged consumers of natural gas
     for non-performance of the general            via direct connecting gas pipelines.
                                                    The transfer enterprise may refuse the
  The published general conditions enter into      connection to the transfer network where:
force for the consumers, who buy natural gas        • a capacity of the network is lacking, or
from an end supplier without explicit written       • there is no connection to the network,
consent.                                               and
  The consumers of the end supplier conclude        • improvement of the network is not
a contract with the distribution enterprise for        economically feasible.
the transfer to distribution networks of the
natural gas, consumed by them under publicly        The owner of the connecting gas pipeline is
announced general conditions. The general          obliged to provide its servicing, maintenance
conditions must include:                           and repair. The transfer enterprise may, at
  • the terms of quality of the supply;            a request of the owner, against payment,

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service, maintain and repair the connecting      consumption of biofuels and other renewable
gas pipelines.                                   fuels in the transport sector;
  Directly connected to the gas transfer           3. deversification of energy supply;
network consumers are obliged to provide           4. increasing the capacity of small and
access to the respective gas distribution        medium enterprises, producers of RES
enterprise, having obtained license, through     power and power from alternative energy
their own installations for the needs of the     sources and producers of biofuels and other
transfer of natural gas to other consumers on    renewable fuels;
the territory determined by the license.           5. environmental protection;
  The distribution enterprises are obliged to      6. creation of conditions for achieving
construct for their account their distribution   sustainable development on local and regional
network to the point of connection determined    level.
by the transfer enterprise. The distribution
enterprises are obliged to connect and             The national legal framework is in
provide the consumers with natural gas on        accordance with the provisions of Directive
the basis of the conditions of equality and      2001/77/EC regarding the encouragement of
by observing the technical requirements for      the production and consumption of electric
reliability and safety.                          power from renewable energy sources
  The branches and the installations for         and Directive 2003/30/EC regarding the
connection of the consumers to the respective    encouragement of the usage of biofuels and
distribution network have to be constructed by   other renewable fuels in the transport sector.
the distribution enterprise.

                                                 XXI.7.2. Production of RES power
XXI.7. Legal framework of renewable
and alternative energy sources and               XXI.7.2.1. General rules
                                                   The construction of energy sites for
XXI.7.1. General information                     production of RES power can be performed
                                                 after the completion of investment research
  The Renewable and Alternative Energy           in accordance with a special ordinance
Sources and Biofuels Act (RAESBA)                under the Energy Sector Act (ESA). An
regulates the public relations in the field       inseparable part of this research is the
of encouragement of the production and           evaluation and assessment of the available
consumption of electric power, heat power        and prognosticated potential of the respective
and/or cooling power from renewable energy       resource.
sources (RES) or from alternative energy           The production of RES power is encouraged
sources, the production and consumption          under the following circumstances:
of biofuels and other renewable fuels in the       1. taking into consideration the
transport sector. The legal mechanisms are       characteristics of different RES and
designed to achieve the following objectives:    technologies for production of electric power
                                                 from them;
  1. encouragement of the development and          2. taking into considetaion the principles of
usage of technologies for production and         the energy market;
consumption of power which is produced             3. obligatory accession and connection of
from RES (RES power) or alternative energy       RES power producers and biofuels producers
sources;                                         to the electric power networks;
  2. encouragement of the development and          5. preferential price for buying all the RES
usage of technologies for production and         power;

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  6. preferential administrative regulation in the    connection and it must not be longer than the
field of production of RES power, as well as           declared by the producer term for entering the
in the sphere of construction of the necessary        energy site into operation. The obligation for
facilities and utilities.                             connection of RES electric power producer
  The provisions of the Investment                    belongs to the transfer or the respective
Encouragement Act are applied to all investment       distribution enterprise which is located closest to
projects related to construction, enlargement         the energy site.
and modernization of capacities for production          The connection expenses covering the
of RES power. The same applies to the related         distance to the outlines of the ownership
infrastructure that is public state or municipal      of the electric utilities are for the account
property.                                             of the producer. The connection expenses
    The obligatory buying of electric power has       covering the distance from the outlines of the
to be carried out under purchase contracts. The       ownership of the electric utilities to the place of
term of the contracts is 25 years – regarding         connection are for the account of the transfer
electric power, produced from geothermal              or the respective distribution enterprise and
and solar energy, and respectively 15 years           the producer has only to pay the price for
– regarding electric power, produced from             connection including only the direct expenses
hydropower stations having installed capacity up      made by the transfer or the distribution
to 10 MW, as well as regarding electric power,        enterprise in relation to that connection.
produced from other types of RES.                     The expenses related to the enlargement
                                                      and reconstruction of the transfer and/or
XXI.7.2.2. Rights and obligations of the              distribution network, related to the connection
participants in the RES power market                  of the producer’s energy site, are for the
                                                      account of the transfer, respectively distribution
  The transfer enterprise and the distribution        enterprise and they are not included in the
enterprises are obliged to include in their annual    price for connection of the RES electric power
investment and repair programmes financial             producers.
resources for the development of networks               The public provider, respectively the end
related to the encouragement of the production        suppliers, are obliged to buy all the quantities
of RES electric power.                                of RES electric power for which there has
  The transfer enterprise and/or the distribution     been issued a special certificate for origin. The
enterprises are obliged to connect preferentially     exceptions could be for example the quantities
any producer of RES electric power if that            with which the producer participates on the
producer meets all legal requirements.                balancing market, as well as the quantities
  The producer of RES electric power has              produced for the producer’s own needs. The
to file a written request to the transfer or           public provider, respectively the end suppliers,
distribution enterprise about research regarding      are obliged to buy all the quantities of RES
the conditions and method of connection of            electric power at preferential price, defined by
the respective energy site to the network. The        the order of the respective ordinance under the
transfer, respectively the distribution enterprise,   Energy Sector Act. The exceptions to this rule
are obliged to complete the research in 90            are hydropower stations having capacity more
days period from the moment of filing the              than 10 MW.
abovementioned request and to notify in writing         The public provider, respectively the end
the producer about the conditions and method          suppliers, are obliged to buy all the quantities
of connection of the respective energy site           of RES electric power produced by means of
to the network and to conclude a preliminary          combined method at preferential prices defined
contract for connection. The term for connection      by the order of a special ordinance under the
of the energy site to the transfer or distribution    Energy Sector Act. The exceptions could be for
network is determined in the contract for             example the quantities with which the producer

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participates on the balancing market, as well as    of liquid fuels of oil origin designated for
the quantities produced for the producer’s own      internal combustion engines. The national
needs.                                              indicative objectives for biofuels consumption
  In the event of combined combustion of RES        are defined by the Council of Ministers at
and non-renewable energy sources the public         the proposal of the Minister of Economy and
provider, respectively the end suppliers, are       Energy and the Minister of Transport.
obliged to buy such quantity of the produced
electric energy which corresponds to the share      XXI.7.3.2. Legal requirements regarding
of the involved RES at preferential prices          the quality and control on biofules and
defined by the order of the above mentioned          their blendings. Release of biofuels and
special ordinance.                                  their blendings on the market.
  The State Commission for Energy and Water
regulation issues certificates for origin of power     The producers and importers of liquid fuels
which has been produced from RES. On the            for the needs of the transport sector are
grounds of these certificates the Commission         obliged to supply on the market fuels of oil
issues „green certificates“ to the producers of      origin blended with biofuels in a percentage
RES power.                                          ratio defined by a special ordinance under the
                                                    Atmospheric Air Purity Act.
XXI.7.2.3. Prices of RES electric power               Blending of biofuels with liquid fuels of oil
                                                    origin and their supply on the market must be
  Annually till the end of March the State          performed only in tax warehouses which are
Commission for Energy and Water Regulation          licensed in accordance with the procedure of
is obliged to define preferential prices for sale    the Excise and Tax Warehouses Act.
of RES electric power. The exceptions are             There is a special ordinance governing the
hydropower stations having capacity more than       technical and quality requirements for biofuels
10 MW.                                              and their blendings as well as the conditions,
  The preferential price of RES electric power      procedure and methods of their control.
must be defined at the rate of 80 % of the
average sale price of the public and end
suppliers for the previous calendar year plus
addition, defined by the Commission on the
basis of criteria depending on the type of the
initial energy source in accordance with the
respective ordinance under the Energy Sector
                                                        The Chairman of the State Agency for
                                                    Metrological and Technical Control has
                                                    the powers to exercise quality control over
                                                    biofuels and their blendings.

Act. The addition for the following calendar year
must not be less than 95 % of the value of the
addition for the previous calendar year.

XXI.7.3. Encouragement of the
consumption of biofuels and other
renewable fuels in the transport

XXI.7.3.1. General information

  In the transport sector biofuels and their
derivatives are used in pure form or in the
form of blendings (mixtures) as components

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                                   CHAPTER TWENTY-TWO: CONSUMER LAW

XXII CONSUMER LAW                                       the chain producer - consumer (importers,
                                                        distributors, traders) are obliged immediately
XXII.1. Legal Framework                                 to stop the offering of goods, for which they
                                                        are aware or have a suspicion that it contains
       The Bulgarian legislation, regulating            a risk for the life or health of the Consumers
     the requirements to the non-food goods             or for the environment.
     is extremely rich1. In most of its parts it          All goods, for which there are specified legal
     implements the requirements of directives          requirements for safety could be launched of
     of the EU, but it contains also a number of        the market only after they pass the obligatorily
     national specifics with which the traders in the    procedures for evaluation of their conformity
     separate sectors shall confirm their activity.      with these requirements. The main groups
       The main laws are the Law for the Protection     of products, for which there exist detailed
     of the Consumers and the Law for the               requirements in respect of the safety and
     Technical Requirements to the Products, to         the evaluation of the confirmity are these,
     which there is a number of sub-legislative         regulated by the European directives of the so
     legal acts. Besides, there are important sector    called „New approach”, which in Bulgaria fall
     laws, such as the Laws for the Medicines and       under the scope of the Law for the Technical
     the Chemist’s and for the Medical Products in      Requirements to the products. The most
     the Human Medicine, the Law for tobacco and        significant of them are:
     tobacco products, the Law for the Medicine           • electrical devices
     Products and a number of sub-legislative legal       • children toys
     acts.                                                • scales;
                                                          • means for measurement;
                                                          • gas installations;
     XXII.2. Purpose of the legal regulation              • cauldron for hot water;
                                                          • personal protection means;
       Establishing the requirements to the               • machines;
     commercial activity with non-food goods, the         • recreation vessels;
     Bulgarian law-maker achieves some very               • radio installations and telecommunication
     important aims:                                          installations;
       • non-acceptance of the offering of                • measurement devices;
          dangerous goods on the market;                  • under pressure container;
       • ensuring to the consumers of objective           • construction products
          information for the origin, quality and the     • lifts;
          price of the products;                          • explosive substances for civil purposes.
       • improvement of the competitive
          environment.                                     These products could be offered to the
                                                        market after having preliminarily passed
                                                        procedures on the evaluation of the
     XXII.3. Safety of the products                     conformity and they shall be accompanied by
                                                        documents obligatorily by law (technical file,
       The law for Protection of the Consumers          EU declaration for conformity, instructions
     contains a general clause, getting obliged         for exploitation, etc.). the conformity of the
     the producers to offer to the market only          product with the safety requirements is
     safe products. All persons, participating in       certified by the putting it by the producer and
     the process of realization of the goods at         if the producer is located outside the EU, by

        Due to the limited volume, there have been reviewed herein below the most essential legal
     provisions only .

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its authorized representative of the conformity     mark and the registered address of the
marking СЕ.                                         manufacturers or importers;
                                                      - the essential features, the knowledge and
                                  The sign          compliance with which shall ensure the safety
                                „СЕ” has a          of use of the electrical equipment. Whenever
                                compulsorily        the announcement of the requirements
                                graphic             upon the device proves to be impossible,
                                design and          this information shall be presented in an
                                proportions. It     accompanying instruction paper.
                                could not be          - mark for compliance „СЕ”
                                less than 5 mm.       - Price
                                                      - certain types of electrical devices shall
  The conformity marking is put on the product            be provided with an obligatory label and
or its packing in such a way so that it shall be          information leaflet stating the energy
visible, readable and easily accessible for the           consumption
controlling bodies and for the Consumers. The         - announcement of the noise emission
marking shall not be put in a way not allowing        - instruction for use in Bulgarian language
its removal without obvious traces.                   - EU declaration for compliance, issued by
                                                          the manufacturer or his duly authorized
  On the product there could not be put other             representative
markings, which could lead to misleading
regarding the conformity marking or that              The manufacturer and in cases he may be
breach its visibility and readability.              located outside the territory of the EU, his
                                                    authorized representative, shall be under
  The producers do not have a right to put the      the obligation to prepare and maintain a
conformity marking on the products, for which       technical dossier of the product, which shall
this is not explicitly provided under the Law for   be presented to the controlling bodies when
the Technical Requirements to the products.         need may be.

   The specific requirements to the offering         B) Machinery
of the separate types of products we would
illustrate in short through two examples –            All machinery and their components of
electrical devices and machines.                    protection shall be released on the market
                                                    and/or activated, only when they do not
А) Electrical devices                               endanger the health and safety of humans,
                                                    the safety of domestic animals, the protection
  Electrical equipment can be released              of environment and possessions, and if they
to the market only if it was designed and           are properly fitted, maintained and used in
manufactured in accordance with the set             accordance with their purpose, and when they
safety practices and if it doesn’t endanger         meet the essential legal requirements.
the safety of humans, domestic stock or
possessions. Every electrical equipment              Machines must have marking for compliance
before its release on the market shall be           attached and be accompanied by an EU
subject to a procedure for assessment of its        declaration for compliance. Every machine
compliance – Internal manufacturing control.        shall have appropriate signalling system for
  All electrical devices shall be offered at the    danger situations.
market with the following information and
marking provided:                                     Machines shall be accompanied by
  - the name (company name) or the trade            information about their control and safe use,

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as well as data about:                              knowledge, goods, containing dangerous
 - name and address /seat of the                    substances, or goods whose use suggests
    manufacturer;                                   availability of special skills or requires
 - marking for compliance;                          compliance with special requirements
 - designation of the series or the type;           for safety, shall have to be accompanied
 - serial number, if any;                           by directions for use, prepared by the
 - year of production.                              manufacturer. All directions for use of the
                                                    goods shall contain such information as
                                                    needed by the customers for the proper and
XXII.4. Customer information                        safe usage and installation, connection,
                                                    maintenance or storage of the goods. All
  All customer goods, offered at the Bulgarian      directions for use shall contain a list of
market shall have to be provided with               their constituent parts and elements of the
labels in Bulgarian language or in Bulgarian        commodity, if this will allow the users to
language, as well. Whenever the information         better orient themselves about the essence
can be presented by the use of widely               of the commodity and avoid any risks while
known symbols, like pictograms and other            assembling and using the commodity. All
signs, which are easy to understand for the         directions for use shall be mandatory in
customers, or through names for origin of the       Bulgarian language.
goods, which are well-known to the public, it
can be presented in such a way.                       Separate from the mentioned general
                                                    requirements, there are special laws
   The label shall mandatory contain                governing the provision of additional
information about the manufacturer and the          information for particular types of products,
importer, if the goods are imported; about the      such as textile, shoes, crystal glass,
type of the goods, its essential features, its      medicines, tobacco products etc.
fitness period and the storage conditions and,
if necessary, directions for use.
                                                    XXII.5. Prices
   The information, contained on the label must
be well understandable, available, clear, and         Prices of user commodities in Bulgaria
easy to distinguish and not to mislead. When        are free of any state control and are freely
the information contains measurement units it       determined. Exceptions exist in very few
must be expressed in the units and quantities       sectors, where there is still a state control on
of the International system of units SI (meter,     the prices or on the price-formation methods
litre, gram and their derivatives).                 (power engineering, medicines).
                                                      There are no rules regarding the ways of
  No sales person shall have the right to           announcement of prices in the business
remove or change the label, marking or any          relations.
information, provided by the manufacturer
or importer, if this action of his will result in     The law introduces special requirements
misleading the customers.                           regarding the announcement of prices for
                                                    goods and services, offered to the end
  All goods, packed or pre-packed, shall            users. These prices must be obligatorily pre-
contain information about their quantity, which     announced in the local currency – Bulgarian
must be provided on the packing, and where          levs. The price shall be announced per the
such packing is missing – upon the goods,           appropriate measurement unit (meter, litre,
themselves.                                         and gram) as well as per packaging, when
  Goods, whose use requires technical               the latter is different from the first, or per

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piece. The price per measurement unit shall        Bulgaria. Any trade practice that contradicts
not be mentioned, if it is identical with the      to the principles of good faith and that effect
sale price. The announced sale price and           on the economical behavior of the consumers
the price per measurement unit shall include       is considered as unfair. Misleading and
the value added tax and all other additional       aggressive practices are the typical example
taxes and charges, as well as the price of all     and the Consumers Protection Law contains
commodities and services, which ought to be        a detailed list of examples for these practices.
paid additionally by the customer, in cases        It is important to accentuate that this detailed
when these shall be obligatorily provided by       list is an example. It indicates only few
the sales person.                                  examples, not all of them.

  Announcement of different prices of one and        In case of detection of unfair trade practice,
the same type of commodity in the commercial       the state authorities are empowered to
site is prohibited, apart from the cases when      prohibit it and to impose fines of the traders
discounts are announced.                           that could amount on 15 000 BGN.

XXII.6. Promotion                                  XXII.8. State control

 All offered at the market non-food                  The control for compliance with the legal
commodities can be freely promoted.                requirements when offering at the market
                                                   of non-food commodities is implemented by
 The law provides for the promotional              specialized state bodies, with administrative
announcements to contain elements of               structures on the territory of the entire country
delusion or to mislead or confuse the              at their disposal. The main administrations are
addressee to whom it reaches. The liability        the Commission of Consumers’ protection and
about misleading advertisements shall be           the State Agency for Metrology and Technical
borne by the advertiser and the advertisement      Surveillance/Supervision. The controlling
agency that prepared the advertisement.            bodies have at their disposal a wide scope of
Тhe advertiser is obliged to prove that the        possibilities for influencing upon the market.
advertisement is not from the category             They may impose property sanctions, in
of the forbidden, i.e. it do not represents        amounts depending upon the type and gravity
a misleading or unallowed comparative              of the violation. In the course of procedure
advertisment.                                      for imposing the sanctions the administrative
                                                   body shall obligatory provide opportunity for
  Sanctions for dissemination of misleading        the affected person to present his arguments
advertisements are putted by Commission            and evidences.
of Consumers’ protection and could reach till
10% from the general turnover of the company         The inspectors shall have the right of free
for the preceding financial year. Separate from     access to all kinds of manufacturing and
this, Commission of Consumers’ protection          commercial sites and storage premises and to
may order stopping of the advertisement as         the products situated inside, with the right at
well as broadcasting of correction statement.      their discretion to collect samples for testing.

                                                     When ascertaining dangerous goods
ХХIІ. 7. Unloyal trade practices                   offered at the market, the controlling bodies
                                                   may order their cessation of being offered
  In accordance with European legislation, any     for sale and their withdrawal from the
forms of unfair trade practice are prohibited in   market or provide compulsory instructions

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for their bringing into compliance with
the legal requirements, such as placing
warnings regarding the risks, related to the
use of the product, placing warning texts
related to the risks related to the use of the
commodity, subjecting the product to tests
by an independent and competent body,
ordering the commodity to be used for other
purposes, to be returned to the country it
has been supplied from or to be destroyed,
in cases its bringing into compliance with the
safety requirements proves to be impossible,
recalling goods from customers; to issue
directions for increasing the self-control in
the enterprise, personnel training, keeping
the necessary hygienic requirements,
performance of additional construction and
building works, necessary for provision of
guarantees for the products’ safety and
others of the kind. In cases of serious risks
for the health and safety of the customers,
the administrative body can issue an
order for closing down of the commercial
or manufacture site or part of it, or for
temporary suspension of the activities of the
manufacturer or salesman.

  The administration is obliged to present to
all affected parties copies of all administrative
acts and penalties of violation issued against

them. Normally, these can be appealed in
front of the courts, with the terms for such
appeals starting to run from the date of their

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                                          InvestBulgaria Agency

A PPENDIX: SECTION XII.3.                                        • Production of spirits and distillates;
                                                                 • Production and preparation of seeds from agri-
 List of the Industry Areas that                              cultural plants, testing different sorts of agricultural
 May be Subject to a Licensing Regime1                        plans designated for production of seeds, distribution
                                                              and trade in seeds which deviate from the minimum
   • Banking activities, activity as an electronic monies     quality requirements;
 company, activity related to performance of cash                • Carrying out activity as a public warehouse for
 money transfers, as well as activity as a system             grain and a grain-store;
 operator of payment systems;                                    • Extraction, processing and storage of sperm and
   • Insurance activity and activity as an insurance          ova, transplantation of embryos in institutions for
 broker;                                                      artificial insemination and carrying out an activity as
   • Activity as an organised securities market, an           a breeding association for selection of production
 investment intermediary, an investment company or            within the system of veterinary medicine;
 a managing company, as well as a special purpose                • Manufacturing and usage of veterinary medi-
 company limited by shares;                                   cine products and active ingredients for the latter,
   • Carrying out of additional voluntary and manda-          wholesale and retail trade in veterinary products, and
 tory pension insurance and carrying out of activity as       transportation of animals;
 an actuary to pension insurance companies;                      • Industrial fishing;
   • Carrying out of activities related to voluntary             • Trading in scrap from ferrous and non-ferrous
 unemployment and/or professional qualification social         metals;
 security;                                                       • Activities in the field of energy;
   • Carrying out of activities related to health security;      • Carrying out of activities related to use of nuclear
   • Carrying out of activity as a stock exchange;            facilities and nuclear material and other sources of
   • Carrying out of activity as a customs agent;             ionizing radiation;
   • Carrying out of duty-free trade;                            • Exercising construction supervision in construc-
   • Carrying out of gambling activity;                       tion activities;
   • Manufacturing, transportation, trade and export of          • Carrying out railway transportation of passengers
 weapons, explosives and ammunition, as well as of            and/or cargo and checking the technical condition of
 certain goods and technologies of possible dual use;         the vehicles and the professional qualification of the
   • Carrying out of private security services;               respective personnel;
   • Design, production, import, trade, repair,                  • Carrying out public transportation, including
 installation and maintenance of anti-fire equipment,          international transportation, of passengers and cargo
 performing fire precautions activities, performing fire-       by cars;
 hazardous and explosion-hazardous work;                         • Carrying out checks of the technical condition
   • Production of compact disks (optical disks) and/         of vehicles, repair and technical service of such
 or matrix for the latter;                                    vehicles;
   • Carrying out of activity as a health institution for        • Carrying out universal post service or part of it on
 hospital care or a social care institution;                  the territory of Bulgaria;
   • Conducting clinical tests, manufacturing, trade or          • Carrying out of an activity as an airport enterprise,
 import of medicines and medical products;                    terrestrial service operator or aircraft carrier;
   • Manufacturing, processing, transportation, trade,           • Technical service and repair of aircraft equipment;
 import, export and storage of drugs for medicinal and           • Manufacturing, import and/ or distribution of radio
 veterinary purposes;                                         transmission devices for civil needs;
   • Industrial processing of tobacco and manufactu-             • Radio and television broadcasting activity;
 ring of tobacco products;                                       • Transportation of cargos along inland water
   • Carrying out of technical supervision over risky         roads; and
 facilities and checks over measurement devices;                 • Delivery of social services for children.

    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).


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