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Bulgaria: The Buying Process

Overview

The purchase procedure for buying a home in Bulgaria is slightly different from that in most Western countries. Although relatively straightforward, the procedure isn’t without potential problems and it’s therefore highly advisable to engage a lawyer who’s familiar with it before paying any money or signing a contract.

Once you’ve found a home you plan to buy and agreed the selling price, you will need to take the following steps:

1. If the property has land (i.e. is anything other than an apartment), form a limited company.

2. Sign a preliminary contract and pay a deposit.

3. Sign the notary act and make the final payment.

The buying process is generally straightforward and is often completed within a month.

Forming a Company

If you’re purchasing a property that has no land attached (i.e. an apartment or flat) you don’t have to form a limited company; otherwise, you must do so. Bulgarian law currently forbids foreigners from owning land in Bulgaria and the only way around this is to form a company, registered in Bulgaria. This is not illegal or a ‘tax dodge’ but an accepted and recognised practice. The requirement will change once Bulgaria joins the EU, which is scheduled for 2007. According to the latest government information, citizens of EU countries and citizens of non-EU countries that have reciprocal agreements with Bulgaria on land ownership will be allowed to buy land without restriction. Other foreigners will have to wait at least another five years (i.e. until at least 2012) before the requirement to form a company will be lifted.

Normally, you must go to a notary public’s office to sign the requisite documents, but most estate agents can organise company registration for you or you can use the services of a local lawyer, although this requires you to set up a power of attorney.

The process of registering a limited company can take a single day or several weeks but normally takes between three and four weeks, so you should allow at least this amount of time between signing the preliminary contract and completion. Note, however, that a streamlined registration procedure is due to be introduced in October 2006, when a new Registry Agency will be formed; this may also reduce and standardise the cost of registration. Existing companies will have to re-register with the new agency.

The cost of registration currently varies between regions, ranging from around €500 to around €750. (Some agents offer an accelerated registration service, but this can double the price!) Although it may cost a little extra, using a lawyer who speaks your language will make the process much simpler.

The minimum amount of capital required to set up a company is 5,000 lev (€2,500), although you usually need to deposit only 70 per cent of this amount, i.e. 3,500 lev (€1,750). This isn’t the cost of setting up a company but the amount that must be deposited into a bank account in order to set up a company. Once the company has been formed, you can access the money.

You must give your company a name (which will have the suffix ‘OOD’, equivalent to Ltd in the UK or Inc. in the US), determine a registered office address and appoint directors/shareholders. These are normally the buyers themselves, e.g. a husband and wife, although you should check the tax, inheritance and other implications of your choice of shareholders. If you’re a non-EU citizen, your company must employ at least ten Bulgarians, although this can be on a part-time or occasional basis. Following protests by the EU, this requirement was dropped for EU citizens.

Your company must be registered with the National Insurance Institute (NOI) within seven days of its formation and with the local tax authority within 14 days. You will receive confirmation of the company’s registration, a tax registration card (with the company’s tax numbers on it) and a stamp to be used on all official documents.

At the end of the financial year (March) you will need to file an annual tax return for your company. In almost every case your account will be ‘zero’ (i.e. no trading for the entire year). Nevertheless, unless you can read and write in Bulgarian and are familiar with the Bulgarian tax system, you will need a lawyer to ensure that your tax return is filled out correctly; he shouldn’t charge more than 100 lev (€50).

Power of Attorney

Many people are unable to be in Bulgaria for the whole of the purchase process, particularly those buying a holiday home or investment property. If this is your case, you can give power of attorney to your lawyer or estate agent to handle the formation of a limited company and/or the purchase of a property. If you need to provide power of attorney to anyone, it’s essential that you know exactly what it authorises.

Power of attorney can allow unscrupulous people to withdraw money from your bank account without your permission, buy and sell property without your knowledge and commit you to unfavourable contracts.

You can prevent such eventualities by stating exactly what your power of attorney permits and forbids and by setting a time limit for its applicability.

Usually power of attorney allows your lawyer to establish a limited company for you and deposit the initial capital in the account, then pay any fees and withdraw money for the final payment. You can also provide power of attorney to your estate agent to withdraw money from your account to pay a deposit on the property.

You may be sent documents for the provision of power of attorney by your lawyer or an estate agent in your home country. For these to be binding legal documents, you must normally sign them in front of a witness (usually a notary public or lawyer) and pay a fee.

Conveyancing

Conveyancing (the legal term is conveyance, but conveyancing is more commonly used) is the processing of paperwork involved in buying and selling property and transferring the deeds of ownership. In Bulgaria, all legal procedures must be completed before a notary public.

Don’t expect the notary to speak any language other than Bulgarian or to explain the intricacies of Bulgarian property law, for which you will need to engage a lawyer.

Conveyancing includes the following:

 checking the title deed and ensuring the land is correctly registered at the land registry;

 verifying the identity of the vendor(s) and buyer(s);

 checking that there aren’t any restrictions on the transfer of ownership,
e.g. any outstanding debts or a mortgage greater than the selling price;

 establishing the terms of the contract.

A notary checks only planned developments directly affecting a property, such as a road running through the garden, and not those that may affect its value, such as the building of a power plant or waste handling facility nearby.

A notary public won’t necessarily protect or act in your interests, and you should engage a lawyer to ensure that everything is carried out to your satisfaction.

Obviously a new motorway that disturbs the peace of your home would be something of a disaster; on the other hand, upgraded roads or a motorway junction within a few kilometres may improve the value of your home. It’s therefore essential to check local development plans.

Unfortunately, there’s no single office or government department that provides this information, although you (or your lawyer) may be able to contact the relevant public works department and check building projects planned for the area. You could also ask local residents if they know of anything planned that may adversely affect a property.

The main problem is usually unsympathetic or poorly planned development in resort areas along the coast, where your sea view may suddenly become a view of an apartment block. If you do buy an apartment with a ‘sea view’, make sure it’s zoned as a ‘front line’ property (usually along the beach or cliff front). Front line property cannot be built in front of.

Even if you make all necessary checks, zoning regulations may change or the municipal council may decide to build a new road or waste processing facility that will be ‘of benefit’ to the community!

More pages

Page 1: Overview
Page 2: Preliminary Contract
Page 3: Conditional Clauses

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