Registration of JSC according to the Bulgarian legislation

I. Basic legal sources
Commercial Act (CA)
Law on Commercial Registry (ZTR)
Ordinance № 1 on February 14, 2007 for the keeping, storage and access to the commercial register.
Fare state taxes collected by the Registry Agency (tariff)

II. General
Legal definition of a joint stock company (JSC) is contained in Art. 158, para. 1 CA - stock is a company whose capital is divided into shares. The company is responsible to its creditors with its property. Shareholders are responsible for the obligations assumed by the JSC to the amount of contributions made without meeting with his personal property. The sum of the shares in its capital form AD. In the company of a joint stock company shall include the words "limited company" or the abbreviation "AD". JSC may be formed by one or more natural or legal persons. The minimum capital value of AD is BGN 50 000. The minimum amount of capital required for banking or insurance activities or voluntary health insurance or other special activity is determined by a separate law. Statute of AD must include details in accordance with Art. 165 CA.

III. Competent authority for registration of AD in the commercial register
Commercial Register kept by the Registry Agency under the Minister of Justice. Application for registration of AD may be filed in each of the territorial units of the Registry Agency (Agency), located on the premises of district courts. ZTR no requirement under the registration of AD is in the relevant territorial unit of the agency within the county court where the seat and the dealer.

IV. Proceedings recording of AD in the commercial register
1. Applicant
Entry of JSC is said by members of the Board of Directors (in one-tier management system JSC) or board (in two-tier management system JSC) or authorized by statute or appointed member of the management of AD and the lawyer with explicit written authorization.
2. Application. Form of application
Application for registration of AD is a model that can be submitted both on paper and in electronic form, subject to the terms and conditions under the Law on Electronic Document and Electronic Signature. The application and attachments must be submitted in Bulgarian. Documents may be submitted in any official language of the European Union, presented together with a certified translation in Bulgarian.
3. Order and time limit for ruling on the application. Appeals
Applications for registration of the circumstances in the commercial register (including registration of AD) are considered by official registration to the Agency in accordance with their submission. Registration Officer shall rule on the application for registration of AD at the latest by the end of the first working day following its adoption (in 3-year period of pre-registration deadline for delivery is 14 days). The refusal to register AD to appeal to the appropriate district court by domicile of the seller within 7 days of its notification.
4. Circumstances subject to registration
Circumstances subject to entry on AD is stated in the application form in the fields together in groups as follows:
A. Group Key circumstances "with the following fields:
- № 2 field "Company", stating the name under which the company performs trading activities;
- Field № 4 "Romanization," indicating the manner in which the company (including legal form of the name) is written in a Latin transliteration;
- Field № 5 "Seat and registered office, stating the country / city, postal code districts, municipalities, the region, residential complexes, street, building number, the number of inputs, number of storeys and number of apartments or office, which houses the management of the activities of limited company, if so desired may be given telephone, fax, email and website;
- Field № 6 "main activity", stating the objects of the joint stock company;
- № 6 a box 'Main activity, which sets out the main business of the dealer, classified in the National Classification of economic activities, determined in accordance with § 1, item 3 of the register BULSTAT; filling of this field is not necessarily ;
- Field № 10 "representative", stating the name or the name and PIN / PNF / UIC / code VAT number of the persons representing the company and where it is represented by a legal person - name and PIN / PNF persons representing the legal person - a representative;
- Field № 11 "Method of representation, noting the manner of representation (" Together "," separate "or" otherwise ", in this case indicates in what otherwise is implemented);
- Field № 12 "Board of Directors, which sets out its mandate, and the name and PIN / PNF, respectively, the company / name and identification number / code BULSTAT, members of the Board of Directors;
- Field № 13 "Board, which sets out its mandate, and the name and PIN / PNF, respectively, the company / name and identification number / code BULSTAT, members of the Governing Board;
- Field № 14 "The Supervisory Board, which sets out its mandate, and the name and PIN / PNF, respectively, the company / name and identification number / code BULSTAT, members of the supervisory board;
- Field № 16 Duration of the company, stating the date of expiry, which is incorporated company;
- Field № 17 "Special Conditions" stating the conditions on the formation, existence and termination of the company (eg a holding company, publicly traded company, purpose);
- Field № 23 "The sole owner of capital, which in single-stock company with the name and PIN / PNF, respectively, the company / name and identification number / code BULSTAT the sole owner of capital (in establishment of single-stock company);
- № 24 a box "Hidden contribution in kind, noting the fact that a decision of the general meeting of shareholders of art. 73b of the Commercial Law;
Group B. "Capital" with the following fields:
- Field № 31 "Size", stating the amount of capital;
- № Field 31a "Shares", stating the type, number and nominal amount of shares, the rights of the individual classes of shares and special conditions for their transfer;
- Field № 32 "Paid in capital, stating the amount of paid-up capital;
- № 33 field "contribution in kind, stating the nature and value of such contributions, if any.
5. Necessary application documents for registration of AD
The application shall be:
A. In Group Key circumstances:
- Statute, the instrument of incorporation, respectively (in the formation of a single AD);
- Minutes of the Constituent Assembly pursuant to Art. 163, para. 4 of the Commercial Law;
- A document setting out the establishment of a legal entity - a shareholder, and the competence of the authority of that person to decide to participate in the formation of a joint stock company (for legal entity - founder, which is not constituted under Bulgarian law, or legal entity - founder which is not entered in the commercial register);
- The decision by the authority of the entity - a shareholder to participate in joint-stock company;
- Minutes of meeting of the supervisory board for the selection of members of the board (in two-tier system of governance);
- If the statutes allow a member of the board may be a legal person - the decision of the competent authority of the entity to determine the representative member for the performance of his duties in the council and the documents establishing the formation of the entity and the jurisdiction of the Authority that person to take the decision if the person is not constituted under Bulgarian law, or is not entered in the commercial register;
- Minutes of the Board of Directors, ACCORDINGLY Governing Council for the selection of persons to represent the company;
- The founders - legal entities - the decision of a competent authority to be involved in the formation of a joint stock company;
- The list of persons enrolled shares upon incorporation, certified by the Board or the Board of Directors;
- Declaration of art. 160, para. 2 of the Commercial Law of the founders;
- Notarized consent and declaration under Art. 234, para. 3 of the Commercial Code of the members of the management of the company;
- Notarized consent and a specimen of signature of the person authorized to represent the company and declarations of compliance with the requirements of Art. 22 of the procedures for exercising the rights of the state in companies with state capital participation of individuals in cases of single-stock company with state participation in capital;
- The license or permit for banking, insurance, activities of a regulated market in financial instruments, investment firm, investment company, management company and other activities for which a separate law provides;
- Document (diploma, certificate of Bank etc..) Qualifications or qualifications for a member of the governing body as required by law;
- Other documents required by law;
B. Group Capital:
- In cash - a document submitted to the bank capital;
- In non-cash contribution - the conclusion of experts in art. 72, para. 2 Commerce Act unless otherwise provided by law; declaration under Art. 264 of the Tax Procedure Code (in contribution of the real right over immovable property or motor vehicle); evidence that he has notified the debtor of the assignment, except when the claim is against the company itself (with contribution of the mode) evidence that the importer is the holder of rights - the subject of supply, and written consent of the importer with the description of the contribution and notarization of signature.

V. Fees
In connection with the registration procedure of SA is a charge for entry into the commercial register of joint stock company. For registration of a single company a fee of 460 leva for registration of joint stock company for banking and insurance - 1700 levs, and at the request of the company to keep collecting fee of 50 leva

VI. Samples
Application for registration of joint stock company on the circumstances (A5)
Statutes of limited liability company
Minutes of the constituent meeting of a joint stock company
Minutes of the meeting of the Board of Directors / Supervisory Board of the joint stock company
Statement under Art. 160, para. 2 Commerce Act
Statement under Art. 234, para. 3 of the Commercial Law
Specimen signature of a member of the Board of Directors / Board of joint stock company.

* Have in mind that the documents preparation and the procedure should be performed by a lawyer.

Registration of a Limited liability company acording to the Bulgarian legislation

I. Legal sources
Commercial Act (CA)
Law on Commercial Registry (ZTR)
Ordinance № 1 on February 14, 2007 for the keeping, storage and access to the commercial register.
Fare state taxes collected by the Registry Agency (tariff)

II. General
Limited liability company (Ltd.) is a company formed by two or more persons responsible for the debts of the company shares with its contribution to the capital. The capital of the Ltd. shall consist of contributions of members. Limited liability company is established on the basis of the association, which is concluded in writing. Name of the company must contain the words "Limited Liability Company" or abbreviated as "Ltd." and should be a national exclusivity. The capital of a limited liability company may not be less than BGN 2.

III. Competent authority for entering into the commercial register Ltd.
Commercial Register kept by the Registry Agency under the Minister of Justice. Application for registration of LTD may be filed in each of the territorial units of the Registry Agency (Agency), located on the premises of district courts. According to the Law on the Commercial Register (ZTR) no requirement of registration Ltd. is in the relevant territorial unit of the Agency to the relevant district court, where the seat and the dealer. Practical application that allows for recording Ltd. with its registered head office in Varna will be made in a territorial unit of the Agency to the District Court - Plovdiv or Sofia, etc.

IV. Listing the company in front of the commercial register
1. Applicant
Ltd. of entry based on the claim form. Ltd. entry of states by the Governor / managers of the company and a lawyer with the express written authorization.
2. Application. Form of application
The application for registration Ltd. is a model and can be lodged either on paper or in electronic form, subject to the terms and conditions under the Law on Electronic Document and Electronic Signature. The application and attachments must be submitted in Bulgarian. Documents may be submitted in any official language of the European Union, presented together with a certified translation in Bulgarian.
3. Order and time limit for ruling on the application. Appeals
Applications for registration of the Ltd.'s are considered by official registration to the Agency in order of their receipt. Registration Officer shall rule on the application no later than the end of the first working day following its adoption (in 3-year period of pre-registration deadline for delivery is 14 days). The refusal to register Ltd. appealed to the appropriate district court of a company within 7 days of its notification.
4. Circumstances subject to registration
Circumstances subject to registration in the commercial register Ltd. are listed on the application in the appropriate fields, united in groups, which are as follows:
A. Group Key circumstances "with the following fields:
- № 2 field "Company", stating the name under which the company performs trading activities;
- Field № 4 "Romanization," indicating the manner in which the company (including legal form of the name) is written in a Latin transliteration;
- Field № 5 "Seat and registered office, stating the country / city, postal code districts, municipalities, the region, residential complexes, street, building number, the number of inputs, number of storeys and number of apartments or office, which houses the management of the company with limited liability, but may wish to specify the phone, fax, email and website;
- Field № 6 "main activity", which indicates that the objects of a limited liability company;
- № 6 a box 'Main activity, which sets out the main business of the dealer, classified in the National Classification of economic activities, determined in accordance with § 1, item 3 of the register BULSTAT; filling of this field is not necessarily ;
- Field № 7 "Management", stating the name and PIN / PNF manager / managers;
- Field № 11 "Method of representation, noting the manner of representation (" Together "," separate "or" otherwise ", in this case indicates in what otherwise is implemented);
- Field № 16 Duration of the company, stating the date of expiry, which is incorporated company;
- Field № 17 "Special Conditions" stating the conditions on the formation, existence and termination of the company (eg a holding company, purpose);
- Field № 19 "partners", giving the name and PIN / PNF, respectively, the company / name and identification number / code BULSTAT of members and the amount of equity participation (this internal field is not mandatory);
Group B. "Capital" with the following fields:
- Field № 31 "Size", stating the amount of capital;
- Field № 32 "Paid in capital, stating the amount of paid-up capital;
- № 33 field "contribution in kind, stating the nature and value of such contributions, if any.
5. Necessary application documents for recording Ltd.
The application shall be:
A. In Group Key circumstances:
- Association;
- A document setting out the establishment of a legal person - member, and the competence of the authority of that person to decide to participate in a limited liability company (for legal entity - member, which is not constituted under Bulgarian law or a legal person - member which is not entered in the commercial register);
- The decision of the authority of a legal person - member to participate in a limited liability company;
- The decision of the General Assembly, respectively the sole owner of the appointment of a manager or managers;
- A notarized consent from the specimen signature of the manager / managers;
- The license or permit when carrying out certain activities legal act provides authorization requirement of public authority;
- Other documents required by law;
B. Group Capital:
- In cash - a document submitted to the bank capital;
- In non-cash contribution - the conclusion of experts in art. 72, para. 2 of the Commercial Code, unless otherwise provided by law; declaration under Art. 264 of the Tax Procedure Code (in contribution of the real right over immovable property or motor vehicle); evidence that he has notified the debtor of the assignment, except where the claim is against the company itself (with contribution of the mode), evidence that the importer is the holder of rights - the subject of Apportionment;
- Other documents required by law.

V. Fees
In connection with the registration procedure of the LTD pay the state fee for registration in the Commercial Register in the amount of BGN 160, but the application for retention of the firm collected a fee of 50 leva.

VI. Samples
Application for registration of circumstances concerning a limited liability company (A4)
Founding protocol limited liability company
Statement under Art. 142 of the Commercial Code of manager Ltd.
Specimen signature of the manager of a limited liability company
Contract for the formation of a limited liability company
Application for retention of the company (E1)

* Have in mind that the documents preparation and the procedure should be performed by a lawyer.

Main things you should know about Real Estate due diligence

A thorough due diligence report removes uncertainty from key decisions that must be made when analyzing the cost/benefit of any real estate transaction. A comprehensive inquiry should be designed to provide a buyer with clear pictures of where their strategies and decisions are taking them, or to put it simply – what it is they are buying.

There are a multitude of details which must be considered when dealing with purchasing a parcel of real estate. Many of these details are easily overlooked i.e. property and ownership documents. The function of due diligence is to independently verify all representations made by a prospective seller as well as to uncover pertinent facts which have not been disclosed but which are important to the buyer.

A multi-tenant property, either residential, office/retail or mixed use is the most complex for evaluation purposes.

After identifying a target property, due diligence starts during the contract negotiation stage. Unless the seller understands at the beginning of the process what document production and other information, will be required before the deal is closed, there is going to be automatic trouble in getting to the closing table. When a seller is presented with a thorough list of required due diligence items by a prospective purchaser, the seller can be overwhelmed.

A list of required due diligence items is essential in the purchase agreement and it is expected that there will be some negotiation as to what will and will not make it to the final contract.

At least 30 days after the delivery of all documents should be provided to complete due diligence.

Contracts should state that the purchaser must give written notice that all due diligence is complete and satisfactory, or that there would be no further obligation to proceed with the transaction. Generally, due diligence should not be undertaken until after the contract is executed by all parties. Any time triggers should be tied to the delivery date of the last document supplied by the seller, with provisions for the extension of time based on the appearance of any non-disclosed material documentation. By requiring written acceptance of the due diligence items, control of the deal can be maintained.

Beyond the physical condition of the property, there are a multitude of tangibles and intangibles that have to be taken into account when evaluating a site for acquisition.

There are many types of companies, jointly or separately, that provides due diligence services. Several provide their clients with a detailed market analysis of income, operating expenses, vacancy rates, rental competition, sold comparable, on-market competition, and available sources of financing. They will also gain knowledge of the property and all internal and external factors likely to affect its economic health, now and in the future. The benefit of having an independent evaluation ensures that an enlightened and clear assessment of a project’s potential and pitfalls will be exposed.

An evaluation of factors which an astute purchaser must consider are different and dependable upon the company that perform the due diligence process.

When considering the external physical conditions of a target property, an informed purchaser is well advised to secure the services of a licensed inspection service.

One result of a thorough due diligence process is that when the time comes to present a deal to either partners, investors, lenders or another buyer, one will have the level of information and knowledge surrounding the property that gives a clear picture of a property’s financial, legal and physical condition.

This information enables others to make lending and investing decisions relative to the property in an informed manner. In addition, proper due diligence also reflects favorably upon a purchaser in the eyes of lenders and cuts down on time bringing the transaction to loan closing.

The most important result, however, is that the buyer will receive the benefit of the bargain made and paid for, without receiving very unpleasant and possibly fatal news after the closing. Once the purchase price is paid, absent certain limited circumstances, the property with all of its faults belongs to the buyer, and if it isn’t worth what was paid, the buyer will have to live with the consequences.

What is legal due diligence

Have you ever think about company acquisitions, and the phrase "legal due diligence" came up?
Do you wonder what "legal due diligence" means?

Most definitions of the legal due diligence say something like "due diligence is a measure of prudence, activity, or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent person under the particular circumstances; not measured by any absolute standard but depends on the relative facts of the special case." In other words, to a potential acquirer, legal due diligence means "making sure you get what you think you are paying for."

Practically speaking, for any company acquisition, legal due diligence would include fully understanding all of the obligations of the company: debts, pending and potential lawsuits, leases, warranties, long-term customer agreements, employment contracts, distribution agreements, compensation arrangements, and so forth. Furthermore, for your company investments and acquisitions, legal due diligence also includes

• Understanding any ownership issues relative to the business of the company that is going to be acquired or invest in. For example, did the company really develop properly in its business.

• Will there be any special issues in maintaining the business.

"Legal Due Diligence" typically takes the form of the acquirer's list of several hundred questions and/or requests for copies of documents that you, as the potential seller, must answer for the seller on or before some date.

For the owner of the company, legal due diligence can be a very difficult and painful experience. It's difficult because you are essentially trying to prove a negative, the absence of any problems. The potential acquirer may keep coming back to you with more and move invasive requests, until you are about ready to scream "do you think I'm a crook? I told you we didn't have anything to hide!" Put yourself in the position of someone who is spending millions of dollars for something they can't see and can't touch, and perhaps you will understand a little better. It's painful because it's hard not to be insulted by questions like "Have any of the principals of the company ever been convicted of securities fraud? List all criminal convictions of the principals of the company."

If you are the owner of the company, the time to start thinking about legal due diligence is now. Every decision that you make, test it against the question "how will this look when someone comes along asking hard questions?" Every company is going to have to go through legal due diligence someday — when you are acquired, seek outside investment, or go public — unless you intend to remain small and family-owner forever.

As a seller, seeking outside investment or just decide to go public, you will also want to do your own legal due diligence on the acquirer. Do they actually have the funds to complete the transaction? If they are paying you with stock, what is the record of the stock? Is it likely to still be worth anything when your lockup period expires? How are they going to treat your employees? Are your corporate cultures compatible? If there is a large "earn out" component to the deal they are proposing, do they have a track record of successfully marketing products like yours? What is their incentive to do so? Are you sure? What happens if they do not? Will the acquisition stretch them — in terms of capital, management or otherwise — to the point that it will reduce their chances of success? Do they have a reputation for living up to the letter and the spirit of their commitments? How will they treat your customers? Will you be proud to be associated with this company?

CIELA - software for legal information systems

During 1999-2004 the range of the software products expanded considerably and CIELA became the leading developer of reference and legal information systems. New products were created in the field of accountancy, taxes, insurance, construction, customs and currency regulations, energy sector, education, translations of the legislative framework in English and Russian language, administrative procedures, etc.

In 1999 the product Ciela Net was given a start – an internet version of the law information system, providing free access to the data base for a period of 2 years because at that time the access of the global web in Bulgaria was quite limited. Nowadays all software products have their own internet versions.

In 2003 an unique reference system was created – Ciela Info for individuals and legal entities, seeking information from the Commercial register, statistics, social insurance data, financial and other company records, thus turning it into the most reliable source of commercial and marketing information. The immediate access to accurate information proved to be crucially important for a lot of companies so the product is very successful.

For many years CIELA provides with its products CIELA LAW and Ciela RU the official and as it turns most popular translations into English and Russian of Bulgarian legislation act. The integration processes in EU and the great deal of foreign investors who need law information, introduced in comprehensible language, have turned the product into a real success story. It should be pointed out that a client of the product is the European Commission and all Bulgarian governmental and municipal institutions.

After Bulgaria joined the European Union CIELA created and introduced on the market its new information product – Ciela Euro – the European legislation in Bulgarian and English.

Since 2005, by winning several public procurement procedures, CIELA has been the national leader in legal and reference information, providing for all the State Administrative bodies.
There are already 16 information systems with the trademark CIELA and more than 70 000 clients use them on a subscription basis.

The product that marked the beginning of this new activity is NOTA Register, used for keeping registers and creating information system, combining the data of the official archive of the private notaries in the Republic of Bulgaria. This is the most popular product among the notaries in the Republic of Bulgaria.

In March 2005 carrying out a project of Mobile Tel LTD (the biggest provider of mobile services in Bulgaria) CIELA delivered reference system for inspecting the data for the clients via internet, thus securing the work process in all trade offices.

*Source www.ciela.net

The Customs regulations of Bulgaria

A. Changes in the customs legislation

Bulgaria, along with Romania, joined the European Union on 1 January 2007. As from the date of the accession of Bulgaria to the EU, the customs authorities apply directly the Community legislation, which lays down common procedures, tariff and non-tariff measures upon export and import of goods to and from third countries in respect of the EU as well as identical customs control instruments.

The essential customs acquis includes Council Regulation (EEC) No 2913/92 of 12 October 1992 establishing the Community Customs Code (OJ L 302, 19.10.1992) and Commission Regulation (EEC) No 2454/93 of 2 July 1993 laying down provisions for the implementation of Council Regulation (EEC) No 2913/92 establishing the Community Customs Code (OJ L 253, 11.10.1993) as amended. A consolidated Bulgarian and English language version of these acts is available on the Website of the National Customs Agency, at www.customs.bg, "Documents".

The national customs legislation of the Republic of Bulgaria will apply only in respect of the matters on which there is no Community regulation or in cases where the Community law standards allow further specification at national level by the bodies competent to apply the provisions and verify compliance with them.

The activity of customs authorities in Bulgaria is in conformity with the conditions laid down according to the definition and essence of the concept of "Customs Union." According to Article 3 of the Community Customs Code, the customs territory of the EU comprises the customs territories of the Member States. Within this territory, goods move freely without payment of customs duties and charges having an effect equivalent to customs duties, without being subject to quantitative restrictions upon this movement, and with application of the same tariff and non-tariff measures only in respect of import from and export to third countries.

Transitional measures

Annex V, Chapter 4 "Customs Union" of the Act concerning the conditions of accession of Bulgaria and Romania and the adjustments to the treaties on which the European Union is founded, which is part of the Treaty concerning the Accession of Bulgaria to the EU (published in the Official Journal of the European Union, 21.06.2005) provides for certain transitional measures for the purpose of facilitating trade between old and new Member States, as well as between new Member States and third countries, during the transitional period. For example, authorisations which have been granted before the date of accession for inward processing, processing under customs control and outward processing, are valid until the end of their validity or one year after the date of accession, whichever is the earlier.

The non-tariff measures applicable in the EU can be grouped as follows:

• veterinary and phytosanitary control;
• medicinal products control;
• narcotics and precursors control;
• radioactive material and waste control;
• steel and iron products: licensing requirements;
• textile products;
• export control of potential dual-use goods;
• transport of hazardous waste;
• export of cultural goods;
• weapons and explosives;
• other.

B. Changes in the nomenclature of goods and customs duties

As from the date of accession to the European Union, Bulgaria adopted in full the EU Common Commercial Policy in respect of imports from third countries, including the Common Customs Tariff and the EU preferential trade agreements, as well as the anti-dumping procedures and safeguard measures applied.

Bulgaria started to apply the EU Combined Nomenclature, which is a tariff and a statistical nomenclature of the Customs Union.

The tariff measures applied by the EU for goods imported into and exported from the Community can be searched online in the Integrated Tariff of the European Community at http://ec.europa.eu/taxation_customs/dds/en/tarhome.htm. The on-line TARIC database is updated daily by the European Commission.

The legal basis of TARIC is contained in the Commission Regulation (EEC) No 2658/87 of 23 July 1987 on the tariff and statistical nomenclature and on the Common Customs Tariff (Official Journal of the EU L 256/1987, as amended).

A Consultation Module with Bulgaria's TARIC national application is being developed. In addition to the EU measures included in TARIC, this module will cover the measures applied at national level. The Consultation Module will be accessible by economic operators online.

TARIC contains the following key categories of measures:

• Tariff measures:

- Rates of customs duty for imports from third countries, as laid down in the Combine Nomenclature;

- Tariff suspensions;

- Tariff quotas;

- Tariff preferences;

• Agricultural measures:

- Agricultural components;

- Additional duties on certain forms of sugar and on flour;

- Countervailing charges;

- Export refunds for agricultural ingredients.

• Trade measures:

- Anti-dumping measures;

- Countervailing duties;

• Measures related to restriction of movement:

- Import and export prohibitions;

- Import and export restrictions;

- Quantitative restrictions;

• Statistics collection measures:

- Import surveillance;

- Export surveillance.

Changes in rates of import duties

A comparative analysis regarding the rates of import duties on goods under Chapter 1 to Chapter 97, originating from countries eligible for a "most favoured nation" tariff treatment, shows that, applicable for 2006, the average rate was 11.55% for Bulgaria and 6.5% for the EU.

C. New framework for preferential trade

Trade with current preferential partners:

• The EU Member States;
• The EFTA countries: Switzerland, Norway, Iceland and Liechtenstein;
• Turkey;
• Israel;
• Romania, Croatia, Macedonia, Albania, Bosnia and Herzegovina, Serbia, Montenegro;
• Moldova.

New preferential partners under free trade agreements:

• Mediterranean countries: Algeria, Egypt, Jordan, Lebanon, Morocco, Syria, Tunisia;
• Republic of South Africa;
• Chile;
• Mexico.

* Source: National Customs Agency www.customs.bg

Taxation regime in Bulgaria

Taxation regime in Bulgaria falls into two principal categories:

Direct taxes:

• Corporation tax;
• Personal income tax;
• Withholding taxes.

Indirect taxes:

• Value added tax (VAT);
• Excise duties.

Corporation tax

According to the Corporate Income Tax Act (CITA), all legal entities and unincorporated associations, which carry out economic activity in Bulgaria, are subject to the levy of corporation tax at the rate of 10%. For the purposes of this Act, the unincorporated associations are treated as equivalent to legal entities.

Resident legal entities are liable to tax in respect of the profits and income accruing to them from all sources both inside and outside Bulgaria.

Non-resident legal entities are subject to corporation tax only in respect of their economic activity in Bulgaria.

Within the meaning given by CITA, "resident legal entities" are the legal entities incorporated under the Bulgarian law, the companies incorporated under Council Regulation (EC) No 2157/2001 and the co-operative societies incorporated under Council Regulation (EC) No 1435/2001, where their registered office is situated in the country and they are entered in a Bulgarian register. Legal entities which are not registered/incorporated in Bulgaria but carry out economic activity by opening a branch, an office, an agency or another form of representation within the territory of the country ("permanent establishment" within the meaning given by the CITA) are liable to corporation tax on the profits and income accruing from their permanent establishment inside Bulgaria.

The annual taxable profit must be declared in a tax return on or before 31 March of the following calendar year. The taxable profit is a positive quantity, computed on the basis of the financial result (accounting profit/loss), arrived at as the difference between income and expenditure before assessment of taxes on profit and adjusted according to the procedures established by Chapter Six of CITA. Depreciation expenses are determined to arrive at the taxable profit for tax purposes. The amount of depreciation varies by category of asset and is arrived at by systematic application of the straight-line depreciation method. The rates of depreciation are determined on a single occasion for the calendar year and may not exceed the following values:

Asset category	Asset description	Annual rate of depreciation (%)
I	Solid buildings, incl. investment properties, plant, transmission facilities, electric power carriers, communication lines;	4
II	Machinery, process equipment, apparatus;	30 (50*)
III	Means of transport excluding automobiles; surfacing of roads and of runways;	10
IV	Computers, computer peripheral equipment, software, and right to use software;	50
V	Automobiles;	25
VI	Tax tangible and intangible fixed assets whereof the period of use is restricted according to contractual relationships or a legal obligation;	100/years of legal restriction. The annual rate may not exceed 33 1/3
	All other depreciable assets.	15

In respect of Category II assets, the annual rate of depreciation may not exceed 50%, where the following conditions exist simultaneously:

1. the assets are part of an initial investment;

2. the assets are new as produced and have not been exploited prior to their acquisition.

Retention of corporation tax by manufacturing enterprises

Taxable persons are allowed to retain 100% of the corporation tax due from them in respect of the taxable profit derived by them from manufacturing activities they carry out, including the processing of materials supplied by customers, where the following conditions exist simultaneously:

1. the taxable person carries out manufacturing activities solely in municipalities where the rate of unemployment for the year preceding the current year was 35% or more above the national average for the same period;

2. the conditions under Article 189 and Article 190 of CITA are fulfilled, that is to say:

• The taxable persons must fulfil the requirements for receiving a regional aid grant according to the State Aids Act and the Regulations for Application of the State Aids Act.
• Where the regional aids from all sources related to the initial investment exceed BGN 75 million, the retention of tax is permissible where the taxable person has been granted permission by the European Commission under the terms and according to the procedure established by the State Aids Act.

The municipalities where the rate of unemployment is 35% or more above the national average are designated annually by an order of the Minister of Finance following a motion by the Minister of Labour and Social Policy. The order is promulgated in the State Gazette.

The corporation tax retained must be invested in acquisition of assets that form part of the initial investment made within four years after the beginning of the year for which the retention is enjoyed. The value of the intangible assets forming part of the initial investment must represent not more than 25% of the value of the tangible fixed assets forming part of the initial investment. At least 25% of the value of the assets forming part of the initial investment must be self-financed or debt-financed, and the corporation tax retained as well as other resources containing any State aid element are not treated as self-financing or debt-financing.

The ownership of these assets may not be transferred within five years after the date of their acquisition.

When a municipality drops out of the list of municipalities with high unemployment as a result of an increase in employment, corporation tax retention may be enjoyed during the following five consecutive years, reckoned from the year during which the municipality was dropped from the list.

Reduction of corporation tax with respect to investments in municipalities with high unemployment

In respect of investments in municipalities where the rate of unemployment is 50% or more above the national average, the corporation tax due may be reduced by 10% of the value of the assets acquired where the conditions under Articles 189 and 190 of CITA (see above) are met. This right accrues subject to the condition that the initial investment is implemented entirely in municipalities where the rate of unemployment was 50% or more above the national average for the same period. The taxable person exercises this right for the year of acquisition of the assets. Where the amount of the reduction exceeds the corporation tax due for the relevant year, the succeeding corporation tax prepayments and annual payments are debited with the difference.

The municipalities where the rate of unemployment is 50% or more above the national average are designated annually by an order of the Minister of Finance following a motion by the Minister of Labour and Social Policy. The order is promulgated in the State Gazette.

Personal income tax

Personal Income Tax Act (PITA) applies only to income accruing to resident and non-resident natural persons. The Act regulates the taxation of income accruing to natural persons, including income from activities in a sole-trader capacity. Resident natural persons are all persons, regardless of their nationality, who have a permanent address in Bulgaria or who are present within the territory of Bulgaria for a period exceeding 183 days in any twelve-month period. Resident natural persons are liable to tax in respect of any income acquired from sources inside and outside Bulgaria. Non-resident natural persons are liable to tax only in respect of any income acquired from sources inside Bulgaria.

Income from dividends and liquidation shares, accruing to resident and non-resident natural persons, is also taxed according to the procedure established by this Act.

As of 01.01.2008 the personal income tax is flat - 10%

Withholding taxes

According to the procedure established by CITA, the tax withheld at source is withheld and remitted only where the recipient of the respective income is a resident or non-resident legal entity. The income received by a natural person is taxed according to the procedure established by ITNPA.

A tax withheld at source is levied on any dividends and liquidation shares, as distributed (apportioned) by resident legal entities in favour of:

1. any non-resident legal entities, with the exception of instances where the dividends accrue to a non-resident legal entity through a permanent establishment in the country;

2. any resident legal entities which are not merchants, including any municipalities.

This tax is final and is withheld by the resident legal entities which distribute dividends or shares in a liquidation surplus. The rate of tax is 5%.

A tax withheld at source is also levied on the following income having its source in Bulgaria, which accrue to non-resident legal entities, which are not realised through a permanent establishment in the country:

• any income from financial assets and transactions in financial assets issued by resident legal entities, the State and the municipalities;
• any interest payments, including interest within payments under a financial lease contract;
• any income from rent or other provision for use of movable property;
• any copyright and licence royalties;
• any technical assistance fees;
• any payments received under franchising agreements and factoring contracts;
• any compensations for management or control of a Bulgarian legal entity;
• any income from real estates or from transactions in real estates, including an undivided interest or a limited real right to any real estate situated in the country.

They are subject to levy of a tax withheld at source, which is final. The rate of tax is 10%.

Any income from disposition of shares in public companies, negotiable rights attaching to shares in public companies, and shares in and units of collective investment schemes do not attract a tax withheld at source where this disposition is effected on a regulated Bulgarian securities market.

Value Added Tax

The new Value Added Tax Act (VATA) came into force on 1 January 2007, the date of accession of Bulgaria to the European Union. The rate of tax is 20%, except for supplies expressly specified in the Act as subject to the zero rate; the rate of tax applicable to hotel accommodation as part of a package tour is 7%.

The following supplies are exempt:

• the supply of buildings or of parts of buildings, which are not new, including the adjacent plots of land, as well as the creation and transfer of other real rights to such buildings, parts or land (unless the supplier exercises a right of option for taxation);
• the supply of agricultural land and forestry land (provided its intended use has not been altered to "land for construction work");
• the supplies of a non-profit-making nature etc.

It should be borne in mind that the transfer of a right of ownership or other real rights, as well as the renting out of plant, machinery, equipment and structures immovably fixed to or built under the ground, is not an exempt supply.

Registration for VAT

Registration under VATA is compulsory or optional.

Compulsory registration:

Any taxable person having a taxable turnover of BGN 50,000 or more for a period not exceeding 12 consecutive months preceding the current month is obligated to submit an application for registration to the competent territorial division of the National Revenue Agency (NRA) within 14 days after the end of the tax period during which such turnover has accrued to the person. Notwithstanding the taxable turnover, the registration requirement furthermore applies to any person who is established in another EU Member State, who is not established within the territory of the country and who effects taxable supplies of goods which are assembled within the territory of Bulgaria by or to the account of this person and their recipient is not registered under VATA.

The registration requirement also applies to each non-taxable legal entity and taxable person which/who is not registered on other grounds but effects intra-Community acquisition of goods to a total value exceeding BGN 20,000. Within the meaning given by VATA, "intra-Community acquisition" is any supply of goods, dispatched or transported to Bulgaria from the territory of another EU Member State, where the recipient is a taxable person registered for VAT purposes in another EU Member State or, in other words, the import of goods to the territory of Bulgaria from the territory of another EU Member State.

A person, who is obligated to register but has not registered his/her obligation in due time, is registered ex officio by the NRA authorities upon ascertainment of the omission.

Chapter Fifteen of VATA provides for certain specific cases of compulsory registration: as a result of transformation of commercial companies, in connection with the activity of non-resident persons who are not established in the country.

Registration of the following persons is effected through the agency of an accredited representative:

• A non-resident person, who has a fixed establishment within the territory of the country from which the person carries out economic activity and who satisfies the conditions for compulsory registration or for optional registration;
• A non-resident person, who is not established within the territory of the country but effects taxable supplies made within the territory of the country and who satisfies the conditions of VATA for registration.

Registration is made at the NRA territorial directorate exercising competence over the place of registration of the accredited representative. This requirement does not apply to branches of non-residents, to which the standard procedure applies.

Compulsory registration does not apply to any persons for whom the following conditions exist simultaneously:

• They supply services electronically to recipients who are non-taxable persons, who are established or have a permanent address or usually reside within the territory of the country;
• They are not established within the territory of the Community;
• They are registered for VAT purposes for their activity referred to in Item 1 in another Member State.

Optional registration:

Any taxable person, regardless of the amount of his taxable turnover, may register under VATA at his own option.

Right to deduct credit for input tax. VAT refund

The right to deduct credit for input tax exists where the goods and services received are used for taxable supplies. The credit for input tax becomes deductible where the tax subject to deduction becomes chargeable by the payer, i.e. in the standard case for the tax period in which the supplier owes the tax to the Exchequer, the recipient will have the right to deduct this tax as credit for input tax. According to one substantial change in the Act, the credit for input tax becomes deductible even in cases where the supplier has not charged VAT. The credit for input tax furthermore becomes deductible for supplies whose place of transaction is outside the territory of the country but which would have been taxable if effected within the territory of Bulgaria.

The tax period is fixed as one month in respect of all registered persons and is concurrent with the calendar month. Upon the lapse of the tax period, a registered person must submit a VAT return showing the net tax for the tax period (i.e. the difference between the total amount of the tax chargeable from the person and the total amount of the credit for input tax in respect of which the right to deduction has been exercised during the same tax period). Where the credit for input tax exceeds the tax charged, the difference constitutes input tax claimable.

The input tax claimable is set off against other chargeable and unpaid tax liabilities and liabilities for social-insurance contributions collected by the NRA, and where there are no such liabilities or their amount is less than the amount of the input tax claimable, the registered person deducts the input tax claimable during the next three months.

The following groups of persons have the right to refund the tax paid:

• Any taxable persons who are not established within the territory of the country but who are established and registered for VAT purposes within another Member State: in respect of any goods purchased and services received by them within the territory of the country;
• Any persons who are not established within the territory of the Community but who are registered for VAT purposes in another State: on a basis of reciprocity;
• Any non-taxable natural persons, who are not established within the territory of the Community, who have effected purchases of goods for private use inclusive of tax charged: after leaving the territory of the country, subject to the condition that these goods are exported in an unaltered state.

Preferential arrangement for charging VAT on the import of goods for implementation of an investment project

VAT on imports may be charged by the person registered under VATA instead of by the customs authorities if the importer is granted authorization by the Minister of Finance [1] and imports goods for the needs of an investment project (with the exception of excisable goods) approved by the Minister of Finance.

The importer exercises this right by:

• declaring in the customs declaration as submitted that he will use this arrangement;
• declaring that at the time of effecting the import, the importer is a person registered under VATA and does not owe liquid and chargeable tax liabilities and liabilities for compulsory social and health insurance.

Where the importer has exercised this right, the customs authorities admit to release the goods without the tax being effectively remitted or secured.

The investment project is approved by the Minister of Finance where the following circumstances exist simultaneously:

• Time limit for implementation of the investment project: not exceeding two years;
• Amount of investments: exceeding BGN 10 million for a period not longer than two years;
• Creation of more than 50 new jobs;
• Capacity of the person to finance the project, as well as to construct and maintain facilities ensuring the implementation of the project.

Permission is issued for a period of up to two years on the basis of a request in writing to which the documents specified in VATA must be attached.

The conditions for granting regional aid according to the State Aids Act and the Regulations for Application of the State Aids Act should also be met.

Excise duty

Excise duty is an indirect tax which is charged on the following goods:

• alcoholic beverages, including wine and beer;
• tobacco products;
• energy products and electricity;
• automobiles;
• coffee and coffee extracts.

These goods are subject to excise duty unless placed under an excise duty suspension arrangement:

1. upon their production within the territory of the country;

2. upon their introduction into the territory of the country from the territory of another Member State;

3. upon their import into the territory of the country.

The import of excisable goods means the introduction of non-Community excisable goods into the territory of the country, as well as the introduction of Community excisable goods from third countries, which are part of the customs territory of the EU. Where, upon introduction into the territory of the country, the goods are placed under a customs procedure, their import is considered complete when they are released for free circulation.

The obligation to pay excise duty arises as from the date of release of the excisable goods for consumption.

General overview of the procedure for transformation of the legal status of the land from agricultural to industrial (if the land is agricultural)

∗ Authority

Commissions to the regional directorates “Agriculture and Forests” - when the requested area is up to 5 ha and the land is located in the land areas of the settlements on the territory of the respective region. In the remaining cases - Commission for the Farm Lands.

∗ Required documents and procedure

During the procedures for change of the designation of the agricultural lands they shall be categorized in 10 categories according to the productive capacities of the soil and climatic conditions, the relief and technological qualities of the land, its fitness for production of different kinds of vegetal production, and the imposed restrictions of land usage, under conditions and by an order, determined by an ordinance, issued by the Council of Ministers.

∗ Preliminary steps and documents:

1. Act for categorization of the agricultural lands at the change of their designation, issued in compliance with the Ordinance for Categorization of Agricultural Lands;
2. Determined necessary platform or track with a project for detailed development plan and a positive decision for environmental impact assessment, issued by the order of the Protection of Environment Act;
3. Approved detailed development plan according to article 129 from the Spatial Planning Law.

4. Ownership title on the land.

In the presence of an approved detailed development plan the owner of the land or the investor of the site shall propose a change of the designation of the necessary agricultural land. The commissions shall take decision for change of the designation of the agricultural land within 14 days from filing the proposal. Along with the proposal the applicant must file 2 copies of the approved detailed development plan. Copy of the decision for change of the designation of farm lands for purposes other than agricultural shall be sent within 7 days from its enactment by the respective commission to the cadastre office at the location of the real estate for entry into the cadastre.

∗ Fees

State fees are determined by a tariff of the Council of Ministers. The fee is paid by the owner of the agricultural land who has required the change of its purpose or by the investor.