Foreign investment regime
There are no general restrictions upon foreign investors wishing to invest in Bulgaria either by acquiring an existing business or establishing a new business. No prior government approval of the foreign investment is needed. The few exceptions to this rule are addressed below.i Restrictions on investments by offshore companies and entities under their control
The Law on the Economic and Financial Relations with Companies Registered in Jurisdictions with Preferential Tax Regime, Entities Controlled by Them and Their Beneficial Owners (referred to as the Offshore Companies Act) was enacted in 2014 and amended several times since. It prohibits companies registered in jurisdictions with preferential tax regimes (also called tax heavens) and the entities under their control from directly or indirectly engaging in 27 different types of economic activities in Bulgaria.Countries considered to be offshore jurisdictions
The scope of the restrictions imposed by the Offshore Companies Act is determined by the legal definition of the term 'jurisdictions with preferential tax regimes' (i.e., offshore jurisdictions). The Corporate Income Tax Act lays down the offshore criteria and entrusts the Minister of Finance with the task of adopting a list of the offshore jurisdictions. The current list approved by the Minister of Finance indicates 26 countries or territories: Antigua and Barbuda; Brunei Darussalam; Virgin Islands (USA); Grenada; Guam Island (USA); Dominican Republic; Guyana; Labuan; Macao; New Caledonia; UAE; Bahamas; Oman; Christmas Island; Cook Islands (New Zealand); Pitcairn; Vanuatu; Liberia; Maldives; Marshall Islands; Palau; Panama; Fiji; Sark; Saint Lucia; Hong Kong (China). Companies and other forms of business, corporate or unincorporated, registered there (referred to as offshore companies) and the entities under their control are subject to the prohibitions against carrying on business in Bulgaria introduced by the Offshore Companies Act. The definition of 'control' includes, in general, holding of more than 50 per cent of the voting rights in the general shareholders' meeting or in the management bodies of the other entity, as well as the right to exercise decisive influence on another legal entity (e.g., on the basis of a contract).Prohibited activities
The offshore companies and the entities under their control are prohibited from directly or indirectly:
- obtaining a licence for a credit institution or possessing a qualifying holding in it;
- obtaining a licence for an insurance or reinsurance undertaking or possessing a qualifying holding in it;
- obtaining a licence for a supplementary social security company or holding 10 per cent or more in it;
- obtaining a licence to carry out a service or activity under the Law on the Markets in Financial Instruments or possessing a qualifying holding in a licensed company;
- obtaining a licence, permit or registration under the Law on the Activities of Collective Investment Schemes and Other Collective Investment Undertakings or possessing a qualifying holding in such an undertaking;
- obtaining a licence for a payment institution or possessing a qualifying holding in a licenced payment institution;
- participating in a procedure for selection of concessionaire or award of concession for extraction of underground natural resources or for granting an authorisation for prospection and exploration or only for exploration of underground natural resources;
- participating in a public procurement procedure irrespective of the nature or the value of the public procurement;
- participating in privatisation transactions;
- acquiring state or municipal property through sale or exchange;
- obtaining a licence under the Excise Duties and Tax Warehouses Act;
- incorporating or acquiring shareholdings in licenced professional sports clubs where such participation is providing entitlement to 10 per cent or more of the voting rights in the general shareholders' meeting of the club;
- applying for certificates for Class A, B or C investment or priority investment projects under the Investments Promotion Act;
- obtaining a licence under the Energy Act;
- obtaining a licence under the Gambling Act;
- obtaining a licence for trade in dual-use goods;
- obtaining a licence for a provider of public electronic communications networks or services or acquisition of 10 per cent or more of the voting rights in it;
- obtaining contracts awarded for the supply of water or removal of waste water;
- obtaining contracts awarded for waste collection and disposal, waste treatment in waste disposal plants or other facilities, or for cleaning of public spaces;
- incorporating or acquiring 10 per cent or more of the voting rights in the general shareholders' meeting of entities that are applying for or have obtained a licence for a radio and television operator or in companies measuring radio and television ratings;
- incorporating or acquiring 10 per cent or more of the voting rights in the general shareholders' meeting of entities publishing periodicals;
- incorporating or acquiring 10 per cent or more of the voting rights in the general shareholders' meeting of social research agencies or entities conducting general public opinion surveys;
- incorporating or participating in entities engaged in activities under the Independent Financial Audit Act;
- incorporating or participating in entities engaged in activities under the Independent Evaluators Act;
- incorporating or participating in entities engaged in activities under the Energy from Renewable Sources Act;
- participating in commercial companies with state or municipal ownership provided that the state or municipal shareholding in the company is at least 33 per cent; and
- acquiring ownership of land and forests from the state forests fund.
The Offshore Companies Act provides several exceptions to these prohibitions, which, together with the procedure for their application, are addressed in Section IV.i. From another perspective, the above list provides a brief overview of some of the most heavily regulated sectors of the Bulgarian economy. Investors in these sectors, irrespective of whether they are foreign or domestic, may face specific licencing, registration and permission requirements.ii Restrictions on foreign investments in the gambling industry
The 2012 Gambling Act stipulates that gambling operations may be performed in Bulgaria only after the issuance of a game-specific licence. In the general case, companies registered under the laws of Bulgaria, another EEA Member State or Switzerland are deemed eligible to apply for such licences.
Pursuant to the Gambling Act, foreign persons (i.e., persons other than companies or individuals registered in or citizens of an EEA Member State or Switzerland) may not have any interest in a locally licensed company unless they have invested at least €10 million in other activities in Bulgaria and have created more than 500 jobs or unless they own a hotel of four stars or more and operate a casino in it. This provision is controversial as worded to the extent that it may prohibit large European operators with international shareholding bases (particularly listed companies) to apply directly for a local licence because any non-EEA (or Swiss) shareholding in a licensed company is prohibited.iii Restrictions on foreign investments in farmland
Bulgarian law and in particular the Agricultural Land Ownership and Use Act, enacted in 1991 and substantially amended in 2014, provides for restrictions on foreign ownership of agricultural land. Foreign (non-EEA) nationals and legal entities as well as commercial companies held by them are generally prohibited from acquiring farmland in the country, unless expressly permitted by an international treaty to which Bulgaria is a party. Companies that are directly or indirectly held by offshore companies, joint-stock companies that have issued bearer shares, political organisations and foreign states are also prohibited from acquiring agricultural land in Bulgaria.
Pursuant to the terms of accession of Bulgaria to the EU, from 2014 onward the EU or EEA citizens must enjoy national treatment in respect of the acquisition of agricultural land in Bulgaria. In the face of this commitment (and despite of it), in 2014 Bulgaria modified its national regime by introducing long-term residence requirements for Bulgarian nationals and legal entities wishing to acquire farmland, thus creating acquisition barriers also for the EEA companies and citizens. In particular, the Agricultural Land Ownership and Use Act stipulates that ownership rights over agricultural land may be acquired by individuals or legal entities that have been residing or established in Bulgaria for more than five years. The legal entities that have been registered under the laws of Bulgaria for less than five years are allowed to acquire farmland provided that their shareholders are natural persons who have resided in Bulgaria for more than five years. As a reaction to these restrictions, in 2015 the European Commission opened infringement procedure against Bulgaria. In December 2018, the Bulgarian government opened public consultations on a draft law on the agricultural lands which, among other things, should abolish the restrictions for EEA citizens and companies. As of June 2019, however, this draft law has not yet been submitted to the Parliament.iv Certification of foreign investments under the Investments Promotion Act
The legal framework for promotion and certification of foreign investments is provided for mainly in the Investments Promotion Act (IPA) enacted in 1997 and the Regulation for the Implementation of the IPA adopted in 2007 (IPA Regulation). The Minister of Economy, with the support of the Invest Bulgaria Agency, is directly responsible for implementing the government policy towards foreign investments. IPA supports the foreign investments by introducing a system of incentives for certified investments in tangible and intangible assets and the creation of new jobs related thereto in accordance with the General Block Exemption Regulation (EU) No. 651/2014 declaring certain categories of aid compatible with the internal market.
Bulgarian law implements an investment certification approach. Depending on the size of the investment, the economic sector and the region of the country in which the investment is made, the investor may obtain a certificate for class of investment (Class A or Class B) or for priority investment projects. Based on this, the investor may benefit from a wide range of government incentives such as:
- purchase of, or acquisition against consideration of, limited rights in rem in immovable private state or municipal property located near the investment site without participating in a public tender procedure;
- state financing for the construction of elements of the technical infrastructure such as roads, drainage networks and facilities;
- state financing for the professional training of employees hired in relation to the investment;
- state financing in the form of partial reimbursement of the statutory social security contributions and health insurance contributions paid by the investor for newly hired employees;
- reimbursement of up to 100 per cent of the paid corporate income tax on taxable profits from manufacturing activities in municipalities with an unemployment rate higher than Bulgaria's average (60 per cent of the municipalities qualify for 2018);
- VAT advantages for large investment projects (simplified reverse-charge mechanism and monthly instead of quarterly VAT refunds); and
- provision of fast-track and individual administrative services.
The certification of the investments under the IPA depends on the fulfilment of a number of requirements discussed in more detail in Section IV.ii.