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 If
you are investing in Bulgaria, as a non-resident property owner,
you could be liable for the following taxes:
COSTS AND FEES
- Attorney Fees: Most lawyers charge a set fee of 1-2% of
the purchase price for a full service from preliminary contract
to title transfer, including right of attorney, setting up bank
accounts etc.
- Notary Fees: 1%
- Deed of Sale: 2%
- Notary Act: 0.1%.
- VAT (Value Added Tax): 20% (there is no VAT on land purchases).*Please
see note below.
TAXES
- Land Tax: 0.15% of the purchase price yearly.
- Annual Community and Waste Collection Taxes: 0.5% of the
purchase price yearly.
- Property Tax: 0.25% of the purchase price. If this tax
is paid by the 31st of January, the property owner or co. receives
a 5% discount. Otherwise, this tax is paid on a quarterly basis.
- Tax On Rental Income: This is subject to a 10% tax after
deducting allowable expenses such as mortgage interest etc.
- Wealth Tax: No Wealth tax in Bulgaria.
- Inheritance Tax (IHT): This was levied at up to 10% up
to 2004, but has been abolished altogether in 2005.
- Capital Gains Tax: The new Personal Income Taxes Act has
been promulgated and entered into force as of 1st January 2007,
so the situation with the capital gains tax is clearer now. In principle
for foreign persons (who do not reside in BG more than 183 days
within one year) it is 10 % of the profit (the balance between the
declared purchase price and the declared sale price minus 10 % recognized
by the law as expenses that reduce the taxable profit) but there
will be no capital gains tax, if the following conditions are met:
* During the calendar year the person has sold only one real estate
in BG (i.e. for more than one property there will be capital gains
tax);
* During the calendar year the person has sold up to 2 real estates
but more than 5 years have passed since the person has acquired
the estates in question;
* For tax purpose the person is considered resident of a member
state of EU or another state from the European Economic Area, i.e.
the tax relief is only for European citizens.
* The net result of these clauses is that investors will most likely
be exempt of capital gains tax.
- VAT (*): If a property is purchased via a Bulgarian registered
company which has been VAT registered, then the VAT (20%) can be
reclaimed from the government at the end of the tax year within
which the transaction took place. When the property is resold, this
VAT refund must be repaid to the government. However, taking amortisization
into account, within approx. 5 years the buyer should be exempt
from this and not be liable to repay any part of the sum.
Comments:
Some property interests in Bulgaria cannot be held directly by Foreigners
and so buying through a local Bulgarian Company is recommended.
Corporation tax is now 10% and so it makes little difference for
income tax on rental income. However, it does impact on the capital
gains, as there would be a liability at Corporate level that would
not get a credit against the UK liability. There may also be deferral
possibilities on income using a local Company with careful planning.
The tax rate for dividend income and income from sale of shares
is 5% for individuals.
The cost to create a company in Bulgaria can be up to 2600 euros
(capital included), but this price is without the services of a
lawyer. If you do this with a lawyer it may cost you minimum 3000
euros. For most investors the running costs of a company may not
be worthwhile.
PLEASE NOTE: The above information represents only a simplistic
overview of the tax implications involved in acquiring Bulgarian
real estate. We suggest that you seek professional advice through
the Notary or independent adviser.
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