Apart from corporate tax (currently 15%), no other direct taxes are levied on the transfer of real property. The transfer is, however, subject to notary and municipal fees. The notary fees are paid on the higher of the market price or the book value of the property at varying rates, with the maximum being BGN3,500 (about EUR1,750). In addition, 2% of the market value of the property is paid to the municipality in which the real property is situated upon completion.

Capital Gains Tax

There is no Capital Gains Tax on the profit when a company sells the property, but the standard rate of corporate tax is applicable (currently 15%).

Local taxes and rates

The owner of a building or a plot is obliged to pay a real property tax. Where a building is built on a State or municipal plot, the value of the plot will also be included in the tax base. The tax is equal to 0.15% of the book value of the property. Arable land is exempt from local taxes. In addition to the real property tax, owners also pay waste-collection fees.

Value Added Tax

Transactions with land and lease of property for residential purposes are exempt from VAT (Value Added Tax). All other real estate transactions are subject to VAT at the uniform rate of 20%. The buyer/lessee is entitled to a VAT refund, provided that it is registered for VAT purposes.

A dedicated bank account is opened to collect all share capital. The minimum share capital required is 5,000 leva. Shareholders at time of registration must have paid at least 1/3 of their respective shares. It is required that at least 70% (3,500 leva) of the capital is raised at time of registration.

The company exists from the moment it is added to the Commercial Register of the district court of where the company will be based. The entry is made upon issue of a district court decision for the incorporation. The following documents must be available at the time of the submission of registration application to the district court.

1. Articles of incorporation;
2. Memorandum for appointment of Director/ Directors;
3. Proof that each shareholder has paid at least one third of its interest, but not less than 10 leva;
4. Proof that at least 70 per cent of the registered capital has been paid.

The Bulgarian State Gazette is the official paper of Bulgarian State. All Bulgarian legislation is published there for the law to take effect. Publication of the company entry in the Commercial Register does not complete your company formation, it announces to the general public the act of formation.

Finally, your new company will need to register immediately with the National Tax Register Authority.

The costs involved are: 3,500 leva = 70% share capital. Administrative costs payable to the state & registration court are 250 leva. This is the minimum capital that you need to raise for registration. Once the entire share capital has been paid up, these funds can be accessed and withdrawn.

The process of forming a company can take anywhere between a few days to a few weeks.

- Place a deposit to reserve your plot

- Sign a preliminary contract

- Set up a company (you don’t have to set up a company if you are buying an apartment)

- Checks are carried out on: Title Documents, Licenses and Permissions, Debts on the Title, Terms of Contract

- Sign the Notary Act

Many new developments are being offered under construction (mostly on the coast), where properties may be purchased ‘off plan’. In this case every vendor (normally a construction company) provides some extra terms of sale in addition to our terms of sale. They are normally set out in the preliminary contract.
According to the Bulgarian Constitution, foreign individuals can buy buildings but not land. Therefore, the most common method for foreigners buying property in Bulgaria is to set up a limited company which then owns the land and the buildings. The law is expected to change soon as Bulgaria is to enter the European Union in 2007. This historic restriction is one of the reasons why property in Bulgaria is so competitively priced compared to Western and Central Europe.

Market mechanisms are about to affect the real estate market, and prices will grow only where the properties have real, lasting value. Driven by
steady demand, high-end properties will appreciate at a moderate rate. However, the prices of some overestimated properties are expected to
remain stable.

Investment in the residential sector is in the spotlight as developers and investors continue perceiving then as high-yield potential.

Compound-like developments will continue to gain momentum on the high-end market. Reassured by the stable macroeconomic environment, developers will continue to enter the market, yet with more refined projects.

Demand for high-end properties will remain stable driven by the steady economic growth of the country. Popularity of apartment houses for shortterm accommodation will also rise due to increasing business visits from abroad.

Professional property management services will gain further importance on the high-end market.

• Bulgarian property prices are currently some of the cheapest in Europe
• Bulgaria is scheduled to join the European Union in 2007
• The Black Sea airports are about three hours flight from Britain
• All major British tour operators will be on the Black Sea coast next year. Some, such as Thompson, for the first time
• The Black Sea coast boasts 220km of sandy beaches and enjoys more than 1700 hours of sunshine from May to October
• Last year property prices rose by more than 30% - and that BEFORE accession to the EU starts to make the country wealthier. Remember, Spain and Ireland were backwater with supplies of bargain basement property before the EU started pouring billions into their economies
• The country’s diverse climate means it has both ski and beach resorts
• The cost of living there is one of the lowest in Europe - with a pint of lager costing about 40p and a three-course meal, with wine, priced at no more than £5 a head
• Bulgaria has recently joined NATO
• Its currency is stable and linked to the Euro

Supply in Bulgaria

Supply on the high-end market continued to increase during the first half of 2004. New space emerged both as residential apartment buildings and as compound
developments. Prestigious residential areas close to downtown Sofia traditionally display a lack of free land lots suitable for construction. Yet, supply of new residential space
continues to increase in the Lozenets and Iztok neighbourhoods in Sofia.

Compound type developments are situated in more suburban areas. These locations allow for construction of additional amenities such as community and
fitness centres, swimming pools as well as sufficient parking space. A recent trend on the market is that developers start to offer the new apartments
fully furnished with kitchen and bathroom equipment.

Demand in Bulgaria

Demand for premium residential properties continued to be high during the first half of 2004. Investment purchases of single apartments in prestigious locations remain stable among expatriates and Bulgarian’s. Newly built properties have become the preferred product compared with the usual purchase of renovated, older apartments. The first half of 2004 saw an
increase in the number of residential developments sold off-plan, but expected to be delivered on the market within six to twelve month’s time. Mortgage-financed purchases also gained momentum during the period. As a whole, the number of transactions has increased during the first six months of 2004, compared to the same period last year.

Two and three bedroom apartments still register the highest demand. Compound or “planned community” developments continue to attract strong interests as they offer a completely new concept in living environment. Residents and buyers are increasingly becoming savvier looking for benefits of extra services such as community and sports facilities within the compound as well as professional security and property management.

Occupying an area of 110,000 sq.km with a population of 8.4 million, Bulgaria’s topology is extremely varied from large plains and lowlands, low and high
mountains to valleys and lovely gorges. With so much beauty on such a tiny land, the sights and sounds are breathtaking - curious rock formations and mysterious
caves; sunny seashores with golden sands, quiet coves and romantic capes;majestic mountains with fiery peaks, mirror lakes and shady woods full of scent.

The climate is temperate continental with clearly marked four seasons. A Mediterranean influence is felt in the country’s southern regions with the average
annual temperature around 10.5°C. 0°C is the average for January, whilst the maximum you can expect in summer is around 30°C. With a time difference of
only 2 hours, Bulgaria is one country that feels close to home.

A report published recently by The Bollin Partnership shows that significant numbers of Britons are now investing in property in Bulgaria. The report links the
demand to an expansion in tourism, and says that low-cost airlines have also increased interest. British tourist numbers are predicted to have doubled in two
years to 250,000 visitors in 2004 thanks to the influx of main European tour operators now operating in Bulgaria.

It’s only in the last two years that people in Bulgaria have been able to take out a mortgage and buy a home. This has, of course, unlocked a property boom. And
with EU membership for Bulgaria less than three years away, eyes are on Bulgaria in anticipation of an economic transformation.

Highlights

• The increasing number of – and lower interest rates for – mortgage loans continues to stimulate the residential market despite the IMF’s new
requirement for banks to restrict credit growth.

• Market forces started to override the appreciation trend on the residential segment. After the hectic upward movement through 2003, sale prices
increased only at a moderate rate during first half of 2004. Rental rates are stable and are expected to grow for exclusive properties.

• Investment purchases are on the rise with yields from residential properties in Bulgaria exceeding the average returns in the EU and other
CEE countries.

• Yields remain in the range of 8% to 12% for single deals of residential properties.

• Large development projects aim to achieve over 15% return on investment.