Buying property in Bulgaria by foreigners is easy according our current legislation. Any foreign natural or legal entity can buy a property, but without owns the land, or eventually if they want to own the land, first should become owners of a Bulgarian company (simplified procedure, no physical presence required), through which the property can be acquired.
It’s really very easy, but don’t we miss something, something overlooked or saved to the owner about the company and the subsequent service of the company, a necessity if the owner doesn’t want to suffer penalties and fines? Under current tax legislation the first thing a company owner should do after the acquisition of a property is to register it within two months at the local tax division. If he misses to do that – the minimum fine for the company is 500 BGN.
It’s true that if the company has no activity the foreign owners shouldn’t pay any personal taxes and insurances, but on the other hand they have the obligation to prepare and submit annual tax declarations and balance sheets for publishing in the Registry Agency. If this is not done, the fines are:
For not submitting in time the annual tax declaration – minimum fine of 500 BGN for the company and additional 200 BGN for the manager of the company.
For not submitting in time the annual balance sheets – minimum fine of 2000 BGN for the company. Shouldn’t underestimate the fact that, the most registered companies are established with minimum capital (by old laws – 5000 BGN, by new Commercial Law – 2 BGN), while in the meantime they buy properties with much greater value and perform subsequent repairs and improvements.
The question arises, where these funds came from, because they are included in the annual tax declarations, but obviously are not from the capital of the company, which is minimal and the company has no activity, so no profit. What happens in reality?
The amounts used for buying the property are described in the annual tax declaration of the company as obligations and most often are due payments to the owners of the company, but you must know that this obligations may be rescheduled in time only for 5 years. After the expiry of the prescription these obligations to the owners are transformed into company’s income, on which due tax is 10%.
EXAMPLE: The companies who have bought property in 2005 and don’t have any activity, don’t have the right to reschedule the obligations for a longer period, so in 2012 they will have to pay 10% income tax on the transformed income under condition that they haven’t done the necessary legal actions in their company documentation.
A company, which haven’t met the requirements of the law and is registered with capital of 5000 BGN, and has a property bought in 2005 for 100 000 BGN owes 10% corporate income tax on the amount – 95 000 BGN, which is exactly 9500 BGN.
There are legal options to avoid such problem, but you will need the assistance of qualified person, who can clarify you what actions to take, what procedures should be carried out and how to avoid such kind of a situation, when only because of lack of information as owner of a company you would pay high taxes and fines.
Lawyer`s Office Tomovski