As Bulgarian agricultural land has been appreciating to approximate Europe-wide land values, and as Bulgaria is discovered as an investment destination more generally, and thus the demand for and implied price of land currently set aside or zoned as agricultural increase, international investors are increasingly interested in receiving advice on the restrictions that may apply to holding Bulgarian land, and specifically those applicable to non-EU investors acquiring currently agricultural land.
In this note, we begin by looking at the applicable law, before raising the issue of the practical implications of such restrictions for purchasers or those who acquire such assets as part of a transaction.
We suggest that the restrictions, properly interpreted, are in fact narrower than is commonly assumed. However, in practice (and this applies particularly to an acquirer), notaries have considerable freedom to express preference to as what they feel an acquisition structure should look like to be compliant. A risk-averse approach therefore makes it preferable to discuss with a notary in the area where land you intend to hold is situated, and we hope our note will be helpful to inform such discussions.
THE BULGARIAN OWNERSHIP AND USE OF AGRICULTURAL LAND ACT
The Bulgarian Ownership and Use of Agricultural Land Act 1992 (the Act), substantively amended most recently in 2014, restricts the acquisition and holding of property rights in ‘agricultural land’, a phrase which is defined in the Act, by certain categories of entities and persons. Specifically the Act restricts ownership of agricultural land by non-EU and non-EEA individuals and companies.
Lesser rights in real estate are not within the Act’s scope.
The Act defines agricultural land as land which is not ‘purposed’ for agricultural use (it is unclear whether certain land may be deemed agricultural based purely on its administrative status for the purposes of the Land Zoning Act, or an objective measure like whether or not the land being capable of certain use or yet further, the use to which the land's owner puts it). In addition, such land must not be (among others):
- zoned for development by way of a Detailed Zoning Plan, etc; or
Subsection 3(4) of the Act expressly permits such agricultural land to be held by foreign nationals and companies pursuant to international treaties to which Bulgaria and the relevant foreign state are parties.
Subsections (5) and (6) of s 3, which was introduced in 2007, at the time of Bulgaria's accession to the EU, contain express reservations for EEA (including herein EU, unless specified otherwise) nationals (subs 4) and companies (subs 5): these are expressly allowed to acquire property interests in agricultural land.
In 2014, section 3 was amended further, introducing a number of express restrictions on who can acquire and hold agricultural land. The following were prohibited:
- companies whose shareholders are directly or indirectly companies registered in low tax jurisdictions (a definition and list of these are given elsewhere in Bulgarian law);
- companies whose shareholders are individuals, other than those in s 3(4) or 3(5), or companies, except those in s 3(4) or (5);
- joint stock companies with bearer shares.
It follows from the wording of s 3 of the Act that where agricultural land is held by a company which is itself held by another company (whether registered in Bulgaria or another EEA member state), such land can be lawfully held by this structure as long as its shareholders are either:
- any company, as long as it is not registered in one of the proscribed low-tax jurisdictions.
While subsections 4 to 6 of s 3 appear to be a list of what is permitted, they should not be interpreted as a closed or exhaustive list: s 3 as a whole is a mixture of permissive and restrictive provisions.
A further amendment to the Act in 2014 introduced section 3C (3в in the Cyrillic alphabetical order). Subsection 1 of this sets out a further permissive provision: individuals who have resided in Bulgaria for 5 years or more are permitted to acquire agricultural land, as are legal persons established (in Bulgaria) for a period of 5 years or more.
While at first sight s 3C(1) could be taken as introducing a further filter, an additional requirement, that this is not the correct interpretation becomes clear given that the provision does not distinguish between Bulgarian nationals and foreign nationals.
If s 3C(1) were intended to be read as a restriction, it would have prohibited Bulgarian individuals who have not been resident in Bulgaria for 5 years or more from acquiring land as much as it would prohibit foreign nationals (including the EEA foreign nationals who are otherwise permitted). Such a restriction would appear to be a violation of Bulgarian nationals’ constitutional right to property by imposing an unwarranted requirement of residence as a pre-condition to holding certain types of property and a violation of Bulgaria’s EU obligations by introducing a discriminatory provision and/or a provision impeding freedom of movement of labour, capital and of establishment (which are otherwise protected) which will generally be impermissible, except on very clear grounds and with a very express intent.
On the other hand, read as a provision that enables some otherwise restricted non-nationals to acquire agricultural land after a qualifying residence period, the provision makes good sense.
Therefore, excluding any assistance that non-nationals may derive under international treaties, the following are restricted from holding Bulgarian agricultural land under OUALA 1992:
- Companies whose shareholders are directly or indirectly registered in “low tax” jurisdictions (s 3(7)(1));
- Bulgarian-registered companies whose direct shareholders are nationals of non-EEA countries, unless they meet the proviso of having resided in Bulgaria for 5 years at the material time;
- Non-EEA nationals holding or acquiring directly (unless they have resided in Bulgaria for more than 5 years);
- Companies which have issued bearer shares.