Corporate entities in Bulgaria have the role to separate the trading activities of private individuals, from their personal legal status; where enables them to trade and perform business via a company, established per the provisions of the local legislation.
The area of property investment via the establishment of local corporate bodies in Bulgaria has been used to enable foreigners to own real estate or vehicles in the country since the local legislation didn’t allow all foreigners to own land as private individuals and these restrictions were valid till couple years ago in 2012. Currently, these legal restrictions apply only to non-EU residents who wish to acquire Bulgarian land. This, plus the specific of the Bulgarian property market that 99% of the Bulgarian houses for sale come together with the land and not separately (it is understandable because when the house is destroyed if you don’t own the land below it and don’t build d new house in 5 years, your right of construction is transferred automatically to the landlord) led to tens of thousands registered local companies, non-performing any business activities. They existed only because they own the purchased real estate, chosen by their shareholders.
Then in the last few years, the local banking legislation changed. So the local banks became very suspicious of allowing bank account opening (it is absolutely necessary for company registration) when there is a foreigner related to the ownership or the management of the entity. Some of the local Bulgarian banks even deny performing such a procedure at all. So recently it is not an easy job to register a company in the name of a foreign physical individual or foreign judicial entity.
As foreigners are not obliged to know Bulgarian Laws, if you own a locally registered Bulgarian company, there are several things you need to obey in order to keep the company in the proper order (i.e. with clear legal status).
1. THE COMPANY REGISTRATION: Registration of a local company is s serious job that should be done in the Companies House Register. The registered company brings with itself lots of long-term obligations and liabilities towards Authorities, for its manager and shareholder(s).
*For example, just ask yourself what you will tell the Bulgarian Taxmen later about where your company has got the cash from, for the purchased property, in order to see that registration of a company and buying properties in its name is not a simple thing.
This is why it is advisable to use the services of a local lawyer to prepare the registration documents and to register the local company on your behalf, bearing your personal requirements, related to the terms and conditions of the company, existence period, subject of trade, etc. Lawyers can also very easily perform any requested and needed changes in the circumstances of a Bulgarian company when requested at a later stage, as they are entitled a quick paid access to the Companies House register.
2. ANNUAL COMPANY ACCOUNTANCY: Local Bulgarian companies are required to submit (publish) their annual financial reports at the Companies House. The non-working companies only lodge one declaration per article 38 of the Accountancy Act (the so-called “zero tax return” or “null accountancy”). And there is fine if this is not done on time, of course. Bulgarian institutions act very smoothly when they have to charge the manager of the company with a fine and collect it from the company, especially in a case where it owns an asset –real estate. So if for some reason you have not applied with the annual zero financial declaration for lack of operation of your company so far, you better get this done asap. Local lawyers charge 150-200 Euros usually to submit the prepared and signed annual accountancy for companies. The Register is public and online, so it is easy to check in a few seconds if the annual accountancy bulk has been performed properly for your Bulgarian company, or if a so-called local accountant, proxy, or estate agent has only charged you annually for nothing.
3. DECLARING REAL ESTATES: Once a Bulgarian company acquires long-term material assets (real estate or vehicles), these should be declared to the local Tax Authorities within 2 months deadline. The reason is that an individual batch there could be opened and the company could be charged with the annual property council taxes applicable. In some cities purchased vehicles are registered automatically for example, but in others, the Taxmen will issue fines for late declared or non-declared properties on time. It is likely if you haven’t yet established the practice to pay any annual council taxes towards the local Municipality, that the property acquired by your company, hasn’t been declared once purchased (by you or by the person who signed deeds or purchase contracts on your behalf). Nowadays it is available with a single phone call to get informed about the individual batch of the company at the local Municipality, so if the above non-payment is your case, better contact a local lawyer to perform a legal investigation on your behalf.
4. CHANGE OF COMPANY DETAILS/CHANGE OF OWNERSHIP: There are many examples in the practice, where initially registered companies are left not in proper order since their registration – usually because the person who actually registered it is no longer in business. Or there could be a need to change the circumstances of the company (usually because of sold shares, deceased manager/shareholder, etc.)
The one who has to deal with this is namely the manager/owner of the company. He should know that the circumstances of the company (management address, manager, etc.) can be easily changed with a package of documentation. This is why it is advisable for the legal matters of the company to be handled by a law practitioner who has a permanent bridge of communication with their clients and will advise them accordingly in order to avoid any fines for the company (due to lack of obeying of the Local Laws).
5. ANNUAL CAPITAL GAINS: Non-working companies are not allowed to benefit from expenses made in relation to the owned assets. On the other hand, their managers are liable to the Taxmen for all the expenses made for purchasing or selling properties in the name of the company. I.e. Capital Gains apply to companies as well, so before you decide to sell a property owned by your company just because somebody has offered a good price to you, you better get advised by a local lawyer – before you sign all documents and new deeds. If your company has no legal documents to prove the origin of funds/cash for buying the property initially, later when you sell the property without obeying the accountancy matters, being the manager of the company you will bring yourself in huge trouble with the local Taxmen.
6. LIQUIDATION: Local companies are not a simple job to be registered, nor to be liquidated. The reason is that all the above legal activities involve a lot of documents and fees payable to the Authorities. There are many examples from the practice, where companies are left once emptied from their assets (i.e. the properties sold); as well many situations where for EU-citizens it is not needed to keep a local company any longer when related to regulated plots of land under the houses they have initially bought. Spending several hundred euros to get the real estate out of the company and put it in your name is better than paying numerous years for the company’s zero tax returns. In these particular cases, the sooner a company is liquidated, the better and the fewer headaches for its owners and managers.