A newly introduced amendment to the Bulgarian Offshore Companies Act (the “Act”) will bring significant changes to investment opportunities for offshore companies. If the Bulgarian Parliament adopts the amendment within the next month, the amended Act is expected to enter into force in the beginning of 2016.
The proposed amendments can be separated into the following four categories:
Offshore companies in general
The current legislation restricts a wide range of business opportunities (related mainly to the utilization of public funds) for companies: (i) that are registered in jurisdictions with preferential tax treatment, (ii) that are related to such companies and (iii) that are the beneficial owners of such companies. The proposed changes intend to narrow the scope of affected persons by replacing the term “related companies” with “controlled companies”. Furthermore, the absolute restriction for participation of such companies in certain activities will be abandoned. Acquisition of less than 10% capital participation or a participation which does not represent a qualified majority or qualified participation will be permitted. The reasoning behind the amendment is to exclude insignificant participation – when the offshore company cannot control any Bulgarian entity or any restricted activity in Bulgaria. In case of participation of two or more offshore companies, the threshold will be considered to apply for all of them jointly.
Exceptions from the general restriction regarding investment opportunities for offshore companies
The new Act exempts entities, which are considered “local” for taxation purposes in a country with which the EU or Bulgaria have entered into double taxation treaties, agreements regarding access to public procurement, international trade or economic agreements, etc from the offshore company restriction . The beneficial owner of companies that wish to benefit from these exceptions must register with the Bulgarian Commercial Register.
Registration regime and sanctions
The new Act introduces a much more detailed set of requirements for registration of offshore companies and their beneficial owners. Failure to register may result in a new sanction amounting from EUR 5,000 to EUR 25,000.
The current definition of “a territory with preferential taxation” (offshore zone) excludes Gibraltar and the countries, which are parties to the Agreement for the European Economic Area.
The proposed amendments seek to improve the function of the Act and to bring it into conformity with EU legislation. An additional advantage of the newly amended Act will be to ease the practical application of its provisions. Last but not least, the changes will make the legislation more proportionate with respect to the goals set by the legislator.