DOING BUSINESS IN BULGARIA
Since 2003, Healy Consultants Group PLC has assisted our Clients with starting business in Bulgaria. Our services include i) Bulgaria company formation services ii) government license registration iii) corporate bank account opening services in Bulgaria and abroad iv) employee recruitment; v) employee visa strategies and vi) office rental solutions in Bulgaria.
- Most of our Clients see Bulgaria as a relatively inexpensive option for entering the massive EU market and the Russian market;
- The popular business entities for foreigners include LLC (to offer services) and free zone company (to operate an export oriented manufacturing business);
- Bulgaria is a low tax jurisdiction – the corporate income tax is only 10%, while the withholding tax on dividends to foreign shareholders is 5%;
- Bulgarian government offers several tax related incentives for foreign companies, which will invest in relatively poor municipalities;
- Despite the advantages above, Bulgaria is still relatively small economy with one of the highest corruption rates in the EU.
|Summary||LLC||JSC||Limited partnership||Free zone company||Sole proprietorship||Branch office||Representative office|
|Best use of company?||SMEs||Stock market listing||Professional services||Export-oriented business||Small low risk business||Bank branches||Marketing and research|
|Legally tax exempt if properly structured?||No||No||Yes||No||Yes||No||Yes|
|Corporate tax rate on net profits?||10%||10%||0%||10%||0%||10%||0%|
|Corporate bank account location||UniCredit Bulbank||DSK bank||Fibank||Reiffeisen Bank||BNP Paribas||Societe Generale||Dbank|
|Client must travel to Bulgaria?||No||No||No||No||No||No||No|
|Can secure trade finance?||Yes||Yes||Yes||Yes||Yes||Yes||No|
|Limited liability entity?||Yes||Yes||No||Yes||No||No||No|
|VAT payable on sales to local customers?||20%||20%||20%||20%||20%||20%||0%|
|Withholding tax on dividends to shareholders?||5%||5%||5%||5%||0%||0%||0%|
|Average engagement costs?||€8,360||€9,160||€8,680||€13,400||€7,980||€8,160||€8,260|
|Average engagement period?||11 weeks||13 weeks||12 weeks||13 weeks||11 weeks||12 weeks||11 weeks|
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Advantages and disadvantages
Advantages of Bulgaria company registration
- A Bulgaria limited liability company can be incorporated within two weeks, with a minimum of one shareholder and one director, who may be foreigners residing outside the country. Conveniently, the minimum paid up share capital is only €1 and our Client will not be required to travel to the country;
- Bulgaria is a prime setup location for our Clients willing to run a manufacturing business in Europe and the Middle East, because:
- Because of its EU membership and free trade agreements, Bulgaria enables manufacturing businesses to reach to i) 500 million duty-free EU market; ii) 80 million duty free Turkey market and iii) booming Middle Eastern markets;
- Bulgarian labor costs are the lowest in Europe with average hourly costs recorded at €4.1, against €28 for the EU average. Furthermore, skilled workers are also available, with good qualifications in engineering, sciences and languages. According to the National Statistical Institute of Bulgaria, 20% of the total population have college degrees;
- Tax holidays of up to 5 years are available to qualifying manufacturing projects under the Corporate Income Tax Act;
- Electricity costs in Bulgaria are estimated to be 30% lower than the standard EU rates. Standard KwH for corporates is just €0,165 per hour;
- Plovdiv (Bulgaria’s second largest city) is a great place to relocate a manufacturing business, with the city boasting one of the largest manufacturing clusters in Eastern Europe. Furthermore, Bulgaria is a great place for companies selling products and services to the automobile industry. Large EU companies like i) Witte ii) Montupet and iii) others car parts suppliers have relocated their factories to Bulgaria. The only Chinese car manufacturer in the EU – Great Wall Motors – chose Bulgaria to setup their factory;
- For these reasons and more listed below, Bulgaria is positively ranked 38th in the Doing business 2016 ranking of the World Bank.
- Registering a business in Bulgaria enables our Clients to legally minimize tax because:
- Bulgaria’s corporate tax rate is a flat 10% on global profits, the second lowest in the EU. See our global corporate tax page for more details on corporate tax rates in Europe;
- Full corporate tax exemption is available to businesses setups in high unemployment regions, seen in this Eurostat detailed map;
- Our Clients will not pay withholding tax on dividends remitted to corporate and individual shareholders residing i) within the European Economic Area and ii) 68 other countries including India, Singapore, UK, USA, Luxembourg, Netherlands and Ireland, which have signed DTA treaties with Bulgaria;
- Withholding tax on interest payments is low at i) 5% within the European Economic Area and ii) 10% to all other countries unless reduced by a double-tax treaty;
- VAT registration is not mandatory under €25,000 annual turnover of taxable goods. Bulgaria also boasts VAT refund agreements with 10 countries outside of EU;
- Consequently, total tax paid by Bulgaria companies only represent 27% of their earnings, to be compared with 41% in OECD countries.
- Bulgaria is the preferred investment location within the EU for Russian entrepreneurs because:
- Due to the historical, cultural and linguistic relationships between the two countries, Russian citizens feel secure in Bulgaria. Up to 35% of Bulgarians also speak Russian fluently, making business relations easier;
- Bulgaria opposed harsh economic sanctions against Russia, while most European States were voting pro-sanctions. This does not come as a surprise as i) imports to Bulgaria are dominated by Russia, with 15% of the total imports for 2014 and ii) Russia aimed to invest €3 billion in Bulgaria’s infrastructure to improve logistics of Russian imports;
- As a result of all the above, Russian direct investments in Bulgaria reached US$10 billion in the past decade and Russian investors were responsible for 45% of the foreign property acquisitions in 2014 (latest data available).
- Additional government incentives for investment projects in Bulgaria include:
- R&D-oriented companies registered in Bulgarian industrial zones benefit from a 2-year tax holiday;
- Foreign investments in Bulgaria have preferential access to EU structural funds, available only in Bulgaria and Romania;
- Foreign entrepreneurs who create 50 jobs are automatically exempted from VAT for up to 2 years VAT under the new VAT Law;
- Under the Renewable and Alternative Energy Sources Act, foreign investments in renewable energy are connected with priority to the electricity grid, otherwise a time-consuming process;
- Foreigners investing more than €10 million in Bulgaria will qualify to become Class A investors and consequently obtain full 100% reimbursements of labor costs.
Disadvantages of Bulgaria company registration
- Our Clients will make few domestic sales in Bulgaria because:
- The Bulgarian domestic market is relatively small, with a declining population of 7.3 million people. Purchasing power in Bulgaria also continues to be the lowest in the European Union since the country became a member in 2007;
- While Bulgarian summer resorts are preferred tourism location by Russians, the political tensions with this country resulted in a drop of Russian tourists to Bulgaria from 700,000 in 2014 to 160,000 in 2015, according to the Bulgaria National Statistics Institute;
- The country suffers from high unemployment levels, recorded at an average 10% in 2015.
- Our Clients will face red tape and unpredictable bureaucratic practices in Bulgaria because:
- Bulgaria is ranked as the second most corrupt country in European Union by Transparency International’s Corruption perception index. Furthermore, the country is criticized by the EU for corruption and a lack of judicial reforms;
- Governments have changed 2 times in the past 2 years, thus resulting into unpredictable changes to the law and political instability;
- Obtaining construction permits is difficult as the country is ranked 51st among 189 by the World Bank’s 2016 Doing Business report;
- Getting electricity for your business is a bureaucratic nightmare that can delay business operations, as the process can take up to 130 days to complete;
- A mafia-related murder spree of entrepreneurs in 2015 further lowers the confidence in the court system and the country’s safety as an investment destination. As a result, Bulgaria is ranked 105th out of 144 countries in the World Economic Forum’s Global competitiveness rankings for 2015-2016;
- The government’s efficiency in settling business disputes is ranked amongst the 20 worst countries by the World Economic Forum’s 2015/16 Global Competitiveness Rankings.
- Bulgaria’s infrastructure and energy sector are not up to par with EU standards because:
- Roads in Bulgaria are generally in moderate to poor condition, causing additional operational costs for logistics companies;
- Railway infrastructure quality in Bulgaria is lower than other European States, according to the World Economic Forum;
- Power outages, while quickly fixed, are not uncommon in suburban areas. According to the World Bank, it takes an average of 130 days for a new manufacturing business to get connected to the electricity network, the 5th longest period within the European Union;
- Ukraine’s crisis is increasing the risks of a second gas crisis in Bulgaria. The 930km gas pipeline infrastructure project “South Stream” was suspended indefinitely by the Bulgarian Government in 2014;
- The period 2013-2015 was marked by deadly floods, due to inadequate maintenance of water reservoirs.
Best uses for a Bulgarian company
- Bulgaria is a great place for the formation of a manufacturing company, thanks to availability of low cost workers and limited operational costs;
- Bulgaria is also a good place to trade with Russia. While the country’s membership to the European Union enables foreign investors to protect their assets and make sure they can repatriate their earnings, the geographical proximity to Russia will also allow them to target such market.
- Time to incorporate: Two weeks
- Cost to set up: €8,360
- Minimum capital: €1
- Physical office required: No
- Shareholders: 1
- Directors: 1
- Company secretary: No
- Resident director: No
- Corporate tax rate: 10%
- Corporate tax base: Worldwide
- Shelf companies: Available
- Main company type: OOD LLC
Useful links for Bulgaria
Government and public authority websites:
- Bulgaria Tax Authority
- Ministry of Foreign Affairs
- Central Bank of Bulgaria
- Bulgaria Stock Exchange
- Chamber of Commerce
- Bulgaria airport
- Visiting Bulgaria
- World Bank – Economy Profile Bulgaria 2015
- Investment in Bulgaria Edition 2015
- Doing business in Bulgaria 2014
- EY transparency report 2013 Bulgaria
- Invest in Bulgaria – Government of Bulgaria
- Investment in Bulgaria – KPMG
- Law for the Foreigners in The Republic of Bulgaria
- Commercial Laws of Bulgaria – EBRD
- The Banking Sector in Central Europe – Deloitte
- Commerce Act Bulgaria