Legal Aspects of Economic Initiatives in Bulgaria
LEGAL ASPECTS OF ECONOMIC INITIATIVES IN BULGARIA
PROCEDUDE OF COMPANY ESTABLISHMENT
Two of the most widespread forms of trade companies for developing commercial activities in Bulgaria are the Limited Liability Company (Ltd)[1] and the Joint Stock Company (Société Anonyme)[2].
-The Limited Liability Company may be established by Bulgarian and/or foreign physical and/or judicial persons[3]. The Articles of Association (By-laws) indicate the subject of activity of the company, the headquarters, terms of existence, the amount of the company capital, terms and conditions of paying it up, rights and obligations of the partners, etc. The minimum amount of the established capital is BGN 5 000 (about 2 564 euros)[4]. The managing bodies of the company are the General Meeting and one or more managers. The Manager represents the Company, organizes and manages the daily company activities according to the law, the articles of association of the company and the decisions of the General Meeting.
-The Joint-Stock Company may be established by Bulgarian and/or foreign physical and/or judicial persons. The capital of the Company is divided in shares. It’s minimal amount is BGN 50 000 (or about 24641euros). At the moment of the establishment of the Company at least 25% of the capital shall be entered effectively – BGN 12 500 (about 6 410 euros). The Articles of Association indicates inter alia the types of shares – they can be bearer` s or nominal shares, as well as privileged. The Managing bodies depend on the system of management: one-tier system – General Assembly and Board of Directors; two-tier system – General Assembly, Managing Board and Supervisory Board.
TAX LEGISLATION
- Income of physical persons: labour contracts and others
The minimum of the monthly income derived from labour contracts, which is not a subject to taxation is BGN 200 (about 102 euros) ; if the monthly remuneration is over BGN 600 (about 307 euros) the amount of the tax due is BGN 87 (about 44,6 euros) + 24% for the amount exceeding BGN 600. Along with the incomes from labour contracts, object of taxation are the following incomes of foreign physical persons derived by source in Bulgaria[5] (the list is not exhaustive):
- let passed benefits (lucrum cessens) compensations;
- scholarships for training in Bulgaria and abroad;
- rental incomes;
- interests;
- copyright and license remunerations;
- dividends and liquidation shares etc.;
The tax rate for the above mentioned types of income is 10%, except for the incomes from dividends and liquidation shares – 7%[6].
-Income of judicial persons:
- The profit of the company is subject to corporate tax at the amount of 10%[7]destinedto the State budget.
- Distribution of dividends within the European Community[8]:
-The dividends distributed by a subsidiary registered in a country – member of the EC to the parent companyregistered in Bulgaria shall not be considered for the purpose of the corporate tax;
-The dividends distributed from the Bulgarian subsidiary to the parent company registered in a country – member of the EC shall not be subject to withholding tax;
- Source taxation[9]:
Unlike the special regime applicable to the dividends distributed within the EC as per the previous point, the general regime of the source taxationfeatures a tax rate of 7% applicable to the dividends and the liquidation quotas distributed by Bulgarian judicial persons in favour of: i) foreign judicial persons except when the dividends are derived by the foreign judicial person through a permanent establishment based in Bulgaria; ii) local judicial persons which are not traders.
4. VAT[10] – the tax is 20%, subject to tax are all types of supplies of goods or services executed on the Bulgarian territory by persons[11] undertaking independent economic activity. The VAT registration is compulsory when the turnover of the physical/juridical person – merchant exceeds BGN 50 000 (appr. EUR 25 641) in the course of the last 12 months. The tax rate is zero for the exportation out of EC, the international transport, the import of products for re-elaboration and export[12].
THE LABOR FACTOR[13]
The gross monthly wage (the average between the private and the public sector) amounts to approximately BGN 400 (EUR 200). According to the law requirements the employment contract indicates the parties and defines: job title and description, date of stipulation of the contract and date of the effective beginning of employment, duration of the contract, amount of the remuneration, duration of the annual holidays, term of the notice for termination of the contract, duration of the working day/week. There are two types ofemployment contractsaccording to their duration – temporary (stipulated for a period of up to 3 years) and unlimited in time; the law gives an opportunity for concluding employment contract with testing term, which cannot exceed six months.
The minimum amount of monthly wage defined for 2007 amounts to BGN 180.00 (approximately EUR 92.30)[14].
DOUBLE TAXATION
Bulgaria has signed treaties for avoidance of the double taxation with the following countries: Austria, Albania, Algeria, Armenia, Belarus, Belgium, United Kingdom, Germany, Vietnam, Georgia, Denmark, Zimbabwe, India, Indonesia, Spain, Italy, Cyprus, China, Corea, Luxembourg, Macedonia, Malta, Norway, Poland, Portugal, Romania, Russia, Singapore, Turkey, Ukraine, Hungary, Finland, France, The Netherlands, Croatia, Czech Republic, Switzerland, Sweden, Japan.
Generallythose treatiesfollow the OECD Model Treaty - they define their scope regarding persons and types of taxes and provide forthe assignment of income elements and capital elementsto the tax jurisdiction of one of the contracting partries.
Provisions usually refer to: incomes derived fromimmovable property, business profits, income from transportation,dividends, interests, royalties, incomes derived from property transfers, income from dependent and independent personal services, directors fees, pensions, student scholarships, etc.).
Further the tax treatiessigned by Republic of Bulgaria and the above indicated countries indicate the applicable methods for relief of doubletaxation of those incomes and provide for procedures for mutual agreement.
Particular feature of the effect of the tax treaties is that they are not applied ex officio by the tax administration, but upon request of the interested person.
INVESTMENTS
The general regime of the investments in Republic of Bulgaria is provided in the Investments Encouragement Act[15] – the law expressly states that in casean international treaty ratified by Republic of Bulgariaenvisages more favorable conditions for undertaking economic activity by foreign persons, the latter shall be applied with priority[16].
The investments are divided in three classes[17]:
-1st class – above BGN 70 million (appr. EUR 35 million);
-2nd class – from BGN 40 million (appr.EUR 20 million) to BGN 70 million (including);
-3rd class – from BGN 10 million (appr. EUR 5 million) to BGN 40 million (including);
The investors with certificate for class investment are entitled to receive[18] administrative services from the state and municipal administration in terms shorter byone third than those defined in the law, as well as informational services from the Investment Agency regarding the execution of the investment plan, etc. For the investments 1st class the Council of Ministers may grant financing for construction of certain elements of the technical infrastructure which are necessary for the realization of the investment plan[19].
INDUSTRIAL PROPERTY RIGHTS
Patents and Trade marks
Patentable are considered the inventions from any area of the technique/industry, which are new, have inventive stepand are industrially applicable. The duration of the legal protection of the patented inventions is 20 years as of submission of the registration application in the Patent Office of Bulgaria.
Trade marks are considered the signs capable to distinguish goods or services of one person from those of another person and that can be graphically represented. Such signs can be words including names of people, letters, digits, drawings, figures, the shape of the good or its packing, combination of colors, sound signs or all kinds of combinations of such signs. The term of the legal protection is 10 years as of the date of registration and may be renewedunlimitedly for subsequent periods of 10 years.
CITIZENS OF THE EUROPEAN COMMUNITIES AND THE ACQUISITION OF PROPERTYOVERLAND IN BULGARIA.
The citizens of foreign countries are allowed to acquire without specific permits from competent state bodies only the right to use and other limited rights on agricultural land and plots while there are no restrictions regarding the acquisition of right of ownership on buildings.
Much more favorable regime is applicable with respect to the citizens of the EC– as provided in the Accession Treaty of Republic of Bulgaria and Romania, namely:
-Nationals of EC Member States who are legally resident[20] in Bulgaria are treated as Bulgarian citizens as of 01.01.2007 in view of acquisition of right of ownership on plots;
-Self-employed farmers who are nationals of a EC Member State and who wish to establish themselves and legally reside in Bulgaria are treated as Bulgarian citizens as of 01.01.2007 in view of acquisition of agricultural land, forests and forestry land.
[1]Art.113-119, Commercial Act (SG No 48/1991);
[2]Art.158 – 252, ibid;
[3]The law provides as well for the sole owned limited liability company;
[4]The exchange rate of the BG lev referred to the EURO is fixed as follows: EUR 1.00= BGN 1.95;
[5]Art.37, para.1, Art.38, para.1 of the taxation of the Income of the Physical Persons Act (SG No 95/24.11.2006);
[6]Art.46, para.1, ibid;
[7]Art.20, Corporate Income Taxation Act (SG No 105/ 22.12.2006);
[8]Section XVIII, ibid;
[9]Section XVIII, ibid;
[10]Value Added Tax Act (SG No 63/04.08.2006);
[11]Art.66, ibid;
[12]Art.54, ibid;
[13]The employment contractual relationship between employee and employer is regulated in details by the Labour Code (SG No 26/01.04.1986);
[14]Ordinance of the Council of Ministers No 324 (SG No 101/15.12.2006);
[15]Investments Encouragement Act (SG No 97/24.11.1997);
[16]Art.3, para.1, ibid;
[17]Art.13, Investments Encouragement Act (IEA) in relation to Art.2 of the Regulation;
[18]Art.15-16, ibid;
[19]Art.20, ibid;
[20]According to the Law on Entering, Residence and Leaving of Republic of Bulgaria of the Citizens of the European Communities and the Members of their Families (SG No 80/03.10.2006) the residence of the EC nationals in Bulgaria can be a long term one (up to five years) or permanent residence. The certificate for long term residence is issued to an employee, self employed professional and to a person enrolled into an educational institution under the condition that the respective person disposes of health insurance and sufficient means to cover the expenses for his/her stay in Bulgaria without becoming a burden of the social security system of the country. A certificate for permanent residence is issued to an EC national or to a member of his/her family – EC national, under the condition that the respective person has resided in Bulgaria for an uninterrupted period of five years and meets at least one of the additional requirements provided by the law and related to the existence of an employment record in the country.