Tips for Bulgaria Buying Property by realestatetips4u

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                         Tips for Bulgaria Buying Property
Bulgaria has had its fair share of both good and bad press over the past couple of years, but it
is still an area which has proven very popular with Irish property investors.

The obvious lure here is price, but the Irish have, in recent times, been acknowledged across
Europe as property investors with an eye for an asset that will show good appreciation.

Bulgaria is a politically stable country, and the introduction of a currency board in 1997
stabilized the country's economy. However, as is the case elsewhere in Central and Eastern
Europe, legislation, including that governing real estate, is volatile and subject to frequent
change.

A foreign investor can invest in properties in Bulgaria either directly or through a local entity.
Only Bulgarian-resident individuals and entities can acquire title to land, while non-residents
may acquire only buildings and limited rights (e.g., leasehold and construction rights) to land.

In some limited cases, acquisition of immovable property by non-residents requires prior
permission of the Ministry of Finance. Foreign investors are guaranteed full repatriation of
profits resulting from an investment in Bulgaria.

The transfer abroad can be made only after the bank effecting the transfer is presented a
certificate proving payment of all Bulgarian taxes due.

As indicated above, a foreign investor can invest in properties in Bulgaria either directly or
through a local entity.

In the case of a direct investment, the tax treatment of the foreign investors depends on
whether or not their activities constitute a permanent establishment.

The definition of a permanent establishment under Bulgarian law is very broad: the mere fact
that a foreign company owns and rents out property in Bulgaria (except where such activity is
carried out through an independent agent) may create a permanent establishment under
domestic law.

The various tax treaties entered into by Bulgaria usually contain a narrower definition of
permanent establishment. If the activities of a foreign person owning real property in Bulgaria
do not constitute a permanent establishment, the person will be liable for only 15% withholding
tax on the rentals and capital gains, unless an even lower rate is applied under a double tax
treaty

The taxation of a local entity or a foreign entity which constitutes a permanent establishment is
as follows.

The basis of the taxable income of a company, investing in Bulgarian real property is the gross
income derived from the property less tax-deductible, property-related expenses and
depreciation.



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Such expenses include repairs, maintenance, renovation and similar costs and interest on
loans used for the acquisition of the property. A Municipal Tax at a rate of 10% of profits is due.
This is then deductible in calculating taxable profits which are subject to a flat corporate tax
rate of 15%.

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

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

Under currency control regulations, a registration with the Bulgarian national Bank is required
for loans granted by non-residents to Bulgarian entities.

Where the debt financing exceeds the equity financing, deductibility of interest is subject to
limitation, which is determined by a particular formula. If the interest costs exceed the
allowable limit, the excess is non-deductible.

The interest costs not deducted in a given year can be deducted in the subsequent tax period.
Interest paid to a foreign lender is subject to a withholding tax of 15%, unless a lower rate is
available under a double tax treaty.

Upon receipt of a loan denominated in a foreign currency, a local company must re-value its
foreign currency liability monthly. The positive or negative differences are accounted for as
current financial income or expenses. No additional evaluation is made at the end of the
financial year or upon repayment of the loan.




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