Bulgarian Law

Is there a need to re-register your Bulgarian company?

noreply@blogger.com (Kamen Shoylev) — Sun, 04 May 2008 21:52:00 +0000

While you won't have to re-register your company periodically, there is, since January 1, 2008,
a requirement to re-register it once. This is a result of the
entry into force of the Bulgarian Commercial Registry Act on January
1, 2008, imposing a requirement for registration on previously
registered legal persons with the new, computerised and more internet-accessible register. The deadline for re-
registration is at the end of 2010, so for most company owners who registered with the express purpose to acquire a property in Bulgaria still have time.

However, an obligation to re-register before the deadline is triggered by a number of events including any change in the
company's particulars - in its ownership, registered address, directorship etc.

Re-registration itself is free in terms of state fees but is, because of staffing difficulties in the Registry Agency (www.brra.bg) and unexpectedly high early demand somewhat time-consuming.

Whether a company is re-registered yet or not is liable to
file accounts annually with the National Revenue Agency (www.nap.bg),
even if it is not trading. These accounts need to be accompanied by
full financial statements.

Basic accounts of an otherwise dormant entity can be prepared by a Bulgarian accountancy for a fee in the region of €150-€200.

A Land Tax in Bulgaria from 2007?

noreply@blogger.com (Kamen Shoylev) — Thu, 01 Nov 2007 20:51:00 +0000

Capital Land Tax in Bulgaria after 2007? reported recently on the introduction of a ownership-based tax on Bulgarian properties.

Currently, property ownership where the property is agricultural land does not imply the payment of a tax during the course of ownership (but does imply payment on acquisition which may or may not be split with the former owner and potentially on disposal a contribution to which may be extracted by the future buyer). The position is of course different in relation to 'land' (in the sense of buildings) which are subject to local taxation, usually of a minimum nature.

Proposals of this type have been mooted by several previous governments, mainly with view to increasing the marketability of land but these have appeared politically too unappetising to gain sufficient buy-in from government. The current spur of interest seems connected to the likely difficulty of absorbing some of the € 2.8 billion which Bulgaria has been promised in EU agricultural funds over the next five years - and which require co-funding by the government. This has emboldened the cabinet in feeling that landowners will accept the small inconvenience of a tax against the mouth-watering goodness of the expected windfall.

The suggested justification for the tax however, is any dynamising effect on the domestic market in agricultural land it may bring. It appears that possibly as little as 15% of the country's 57,000 square kilometres of arable land (1.4 million acres) are currently under any form of cultivation. Agri-land is cheap compared to equally productive intra-EU land (several-fold cheaper), but it appears that most land-owners find the current costs of doing anything with their land higher than the opportunity cost of doing nothing. Imposing on them a minimal tax (with an accompanying cost of administration not just for the government but also for each passive landowner) is hoped to energise them sufficiently into action - renting or selling their otherwise idle farms, ideally. Rental or sale in turn is expected to move the land from the hands of non-users into those of potential users who value it highly. In a sense, the annoyance value which the Agriculture and Forestry Ministry (whose plan this currently is) is hoping to create to make wanton owners move may be offset by the annoyance and cost in administering the system added to the tax authorities (not to mention any dampening effect on the economy by virtue of the sapping of capital itself).

The impact of the tax on the purse of the individual owner is likely to be insignificant (mooted rates are € 0.05 - €0.25 per hectare (€0.13 - €0.65 per acre). It may mean the difference between hiring an accountant or not however for prospective small inward-investing landowners in Bulgaria who would not have otherwise had to consider such a cost.

Its constitutionality may however be subject to a challenge. Given that urban or industrial is not taxed in this way, questions of fairness (and, possibly conversely, questions of proportionality in comparison to other effective rates of taxation on properties in Bulgaria) may be brought up to challenge a law on this point. European acquis places no demand on Bulgaria to act in this way. In fact there is sufficient diversity in the choices of the current member states of the Union, and globally.

The end of promotion games in Bulgaria?

noreply@blogger.com (Kamen Shoylev) — Thu, 09 Mar 2006 06:45:00 +0000

In its decision 25/2006, The Bulgarian Commission for the Protection of Competition (CPC) announced imposing a fine of 50,000 Leva on "Kendi" OOD for a breach of s. 34(6) in connection with s.30 of the Competition Act (CA) and has issued an order to the investigated company to cease and desist from further breaches. Process on the case was initiated on the request of Eurostok EOOD, a producer of soluble drinks, effervescent tablets and vitamins.

Kendi OOD, the producer of the Bulgarian market-leading drink powder "Step", ran a promotion game from 1st July 2005 to 1st September 2005 which involved collecting 5 packs of Step, sending them to an address and the chance of collecting one of several prizes - 3 scooters, a sea holiday, bikes, portable fans and footballs.

s 34(6) of the Bulgarian CA bans offering 'non-market stimuli directed towards buyers as a method of raising sales' (in the reading given to it by the Commission). The ban was held by the commission to be intended to prevent such types of sales in which consumers prefer a good or service because of the offered (in the event of a sale) inducements, instead of because of its quality and price.

The Commission proceeded to point out that in the instance before it, the reviewed promotional game involved the purchase of a product. The value of two of the offered prizes - a holiday and a scooter - considerably surpassed the price (if not the value) of the offered product. The possibility for consumers to receive the prize goods not for their market value but against paying for the promotional product, with a far lower price impacted the market behaviour of the consumers, 'forcing them psychologically' to re-orient towards a good accompanied by the offer of a prize. This skews (held the Commission) ordinary competition between producers of substitutable goods, which then turns from a contest of combinations of goods and additional prizes. This eliminates the fair competition (loyal competition) which relies on the product qualities, their gustatory properties (!) and other factors which would otherwise naturally determine the market behaviour of its participants.

VAT tax implications of Act 15 and Act 16 (in respect of the price of buildings)

noreply@blogger.com (Kamen Shoylev) — Wed, 26 Oct 2005 14:03:00 +0000

LEGAL FRAME:
- VAT Act,
- Spatial Development Act

ANALYSIS:
1. General Bulgarian VAT Regime with respect to immovable property

- Good: Immovable property is a “good” in the meaning of VAT Act (Art.7)
- Supply: Transfer of ownership of goods or other rights in rem over the goods is a “supply” in the meaning of VAT Act (Art.6)
- Exempted supplies: Transactions of land ownership is an exempted supply (Art.33 in connection with Art.34 )
- Specific Case of Determining VAT Rate: Where the title to a building or part thereof (actual or common) is transferred, the tax base shall be the one agreed by the parties as increased with the taxes and fees due for the transfer or the tax base determined in pursuance of Art. 46 of the Local Taxes and Fees Act, (the assessed value of the property for tax purposes ) whichever is the higher.
- Tax Credit: the amount of the tax charged under the VAT Act on goods obtained by a registered person (registered under VAT Act) under taxable supplies during the tax period, which the person has the right to deduct.

2. Implications of Act 15 and Act 16 on the obligation of the Purchaser to pay VAT

2.1. Overview of administrative acts issued upon completion of construction (Act 15 and Act 16 in comparison):
a) Purposes:
Act 15 – to ascertain that a construction or building is fit for acceptance (it meets the construction technical requirements)
Act 16 – to permit the use (putting into operation) of the building (it meets the specific use requirements, including utilities etc)
b) Interrelation: Act 15 is a prerequisite for Act 16
c) Difference in their legal effect with respect to the ownership of the Building – none;
As soon as there is an object, firmly fixed to the land and capable of general individualization (borders, area), real property could be transferred. In the real property transfer practice, first notary acts for purchases could be executed as soon as the construction is in the phase of “rough construction” .
d) Liability for usage of flat without Act 16 (Usage Permission)
q Fine between BGN 100 and BGN 500 (general Administrative liability under the Spatial Development Act for any violations of the Act, Art.233).
Practically, the authorities do not impose such sanctions on the users of flats in buildings that do not have Act 16.

2.2. Difference in the assessed value of the property for tax purposes – such value is lower upon Act 15.

Actually the tax base for VAT may be different between Act 15 and Act 16, provided that the parties in the transfer insert in the notary act for purchase of real estate not the purchase price but the lower value assessment for tax purposes.

Conclusion: VAT will not be excluded if the real property is purchased after Act 15 and before Act 16. The only tax implications refer to the tax base, which might be lower in the case of Act 15. Construction companies need to impose VAT on their projects whenever they sell the real estate, unless a scheme that avoids VAT is elaborated. For such scheme the following option could be considered:
ß Purchasers to be persons registered under VAT Act and thus entitled to obtain tax credit
ß Investment construction project that avoids classic purchase: For example, 10 persons decide to finance the construction of a building, in which each of them will get an apartment. The Investor creates a company (LLC or JSC) that will buy the land on which the construction works will be carried out. As soon as the rough construction of the building is ready the 10 persons purchase shares in the company in proportion with the area of their apartments. As soon as the Usage Permit (Act 16) is issued, the shareholder in the company that owns the building take a decision for company winding-up and distribution of the assets of the company in the form of obtaining the respective apartments. Of course such scheme will be workable only upon execution of preliminary contracts that will ensure the real property transfers.

(Article by Deyana Marcheva)

Bulstat - another enemy of the free market in Bulgarian property?

noreply@blogger.com (Kamen Shoylev) — Fri, 26 Aug 2005 07:22:00 +0000

Dnevnik and the Sofia Echo in English, recently publicised a change of the law which will require foreign buyers of land/property in Bulgaria to undergo another registration - this time post-purchase - with the unified national businesses register, Bulstat, since not so long ago a part of the Registrations Executive Agency of the government (www.registry.bg). The Dnevnik article surmised that this is part of a drive for simplification of the process of financial identification for businesses.

On the surface - it all makes sense. The only reason why foreign property buyers are affected is that they are treated presumptively as doing this for investment purposes, if non-resident in Bulgaria (and the presumption is sustained by their non-possession of a Foreigner's Identification Number that comes with residence rights). Freelancers, and self-employed individuals (eg, lawyers in private practice), they need to obtain Bulstat registration. This is right in its impulse of seeing as blurry the lines between different forms of organising business activity and recognising that many property purchases are motivated by business intentions. But it falls on two grounds, one of which is connected with that impulse.

Conceptually, it mistakenly assumes that residence should be the test of motivation. Human agents' actions are more complex than this and they often combine the intention to profit from a property purchase and the intention to derive pleasure from it for instance or to raise one's children on it or to retire to it, albeit for parts of the year. Obtaining Bulgarian residence is a costly in time, effort and money and may not be available to all foreigners who've acquired property (it certainly appears not to be intended to be available in this way, if the Aliens Act is read on its face)). As Bulgarians receive their IDs without fail, but also sometimes buy properties for pure gain, the provision is discriminatory and unfair.

Practically, it is defeated by the way that the reform is implemented - through the imposition of another inconvenience. Regulation is never uncostly, but one which needs to be performed at the regional office in person is too costly to leave any gain. The regulators in this case should have foreseen.

As it is meant as a procedure that is part of the drive for simplifying dealings with government and is it part of a new generation of government services, one would expect registration to be possible either by post or electronically or at least to be doable at any Bulstat office.

The only ray of hope is the bit in the Sofia Echo that from September, the registration will be available through the Registration Agency. If this implies the availability of the customer-friendly remote/universal methods of registration, it may make the new layer of red tape just about worthwhile.

A guide to minority shareholder rights in Bulgaria

noreply@blogger.com (Vesselin Nenkov) — Thu, 19 May 2005 17:52:00 +0000

A guide to minority shareholder rights in Bulgaria

Increasingly, international companies establishing a presence in Bulgaria will do so through a subsidiary. Often such companies are not wholly-owned, for example because:
· the subsidiary company was incorporated for the purpose of a joint venture with a Bulgarian partner;
· the subsidiary company was acquired by way of takeover while certain shareholders retained an interest;
· shares have been retained or allotted to management and/or directors;
· tax, regulatory or other legal requirements require a second or additional shareholders;
· the company is listed and has a number of its shares held by the public.

This article summarises the protections given to minority shareholders in both private and public companies by the Bulgarian law. We shall assume that the public company is listed on the Bulgarian Stock Exchange.

Specifically, this article deals with (A) when a minority can be forced to sell its shares to a majority, conversely (B) when a minority can force the majority to buy its shares, and (C) when a controlling shareholder must make an offer for all the other shares in the company. Lastly, there is (D) a summary of what percentage holding a minority shareholder (or shareholders acting together) needs to prevent any of a roster of actions by the company.

Future development

Upon joining the EU in 2007 or 2008, Bulgaria will be governed by, and will need to adopt law in compliance with, the EU legal framework for takeovers, which deals with minority shareholders rights. The Council and European Parliament Takeover Directive adopted in December 2003 came into effect in May 2004. Current member states must implement this into national law by May 2006. The Takeover Directive applies to companies listed on a recognised EU exchange.

Private Companies

Although the general Bulgarian law does protect minority shareholders in certain aspects, the greatest protection that can be afforded a minority shareholder is usually contained in a shareholders agreement. Shareholders in a company are, subject to limited restrictions, free to agree amongst themselves that certain of them will have rights to buy shares from, or sell their shares to, the other shareholders (drag- or tag-along rights).

However, shareholders agreements are not commonplace in Bulgaria, and a non-Bulgarian joint venture party will need to understand the other party’s reluctance to conclude such an agreement. The main reason is that a shareholders agreement does not over-ride the provisions of Bulgarian corporate law and, as such, a breach of the shareholders agreement can only be remedied through a long court process.

When a minority shareholder in a private company wishes to sell its shares, and in the absence of applicable provisions of a shareholders agreement, the minority shareholder may sell to any third party. However, sometimes the articles requires the shares to be offered first to the majority shareholder. There are no compulsory provisions in Bulgarian law that can force the majority shareholder of a private limited company to purchase the shares of a majority.

In fact, that the Commercial Act of 1991 permits an increase of the capital of the company sub conditio, which means that the majority shareholder may resolve that only he be eligible to obtain the new shares!

As a consequence, unless the parties can negotiate a shareholders agreement that they are confident they can enforce in court, it is not advisable to enter into joint ownership of private Bulgarian companies, in which one of the shareholders owns more than 50% of the shares. In any event, the parties should ensure that the articles of association prevent the majority shareholder from unilaterally managing and disposing of the company, the business or its assets.

Public (listed) Companies

The Bulgarian law that governs listed companies assumes that, as the shares in that company are listed, any minority shareholders who are unhappy with the company can sell their shares on the market. However, sometimes the market can be illiquid, such as when the share price has dropped very low. Therefore, in addition, the law and regulations governing listed companies tries to ensure that all shareholders are treated equally. The rules on disclosure to the market of certain information is designed, inter alia, to ensure that minority shareholders have equal access to information.

When a person acquires more than 50% of the shares in a public company (or two thirds of the shares together with a related party) it shall in fourteen days, following the date of acquisition, offer to the minority shareholders to purchase their shares, at a price which is subject to preliminary approval by the Financial Supervisory Committee.

When a person acquires more than 90% of the shares in a public company (alone or together with a related party) it shall inform the minority shareholders of its plans for management of the company, and shall inform the minority shareholders of its intention to make an offer for the entire share capital at least three months prior to the making of such offer. The minority cannot be forced to sell its shares.

The management of public companies is subject to special regulation aiming to disclose as much information for the shareholders/investors, as they need to be fully informed as to how the company is being run. The management must submit to the Financial Supervisory Committee quarterly reports and an annual report.

A single or a group of shareholders representing 5% of the issued share capital are entitled to call a general meeting of the company. Any shareholder having 5% is entitled to bring an action on behalf of the company against a third party in the event of inaction of the management.

The increase of the capital sub conditio is forbidden. Each of the shareholders is entitled to obtain a percentage of any new shares that is equal to his percentage prior to the increase. If one does not obtain the new shares they shall be compulsory sold through the stock exchange.

The management of the company cannot dispose of the company’s assets, which are at the value over 2 per cent of the last audited balance unless three quarters of the shareholders have authorized it in advance.

Any shareholder is entitled to bring an action against the management of the company. However, there is limited number of such claims in practice, as the court process is expensive and time-consuming, with a very high burden of proof on the claimant to prove mis-management and loss.

Registration of a branch of a non-Bulgarian incorporated company in Bulgaria

noreply@blogger.com (Vesselin Nenkov) — Thu, 19 May 2005 17:50:00 +0000

Registration of a branch of a non-Bulgarian incorporated company in Bulgaria

a) Summary
b) Documents required
c) Costs
d) Timeframe
e) Legal issues

a) Summary

New Balkans Law Office (“NBLO”) will be able to assist with the following primary and ancillary aspects of the registration of a branch office of a non-Bulgarian person:

· Advice on the relative advantages of establishing a Bulgarian private limited liability company, a branch of a foreign company, and a commercial representation office of a foreign company;
· Advice on the documentation required for the registration of a branch;
· Drafting and preparation of documents for the registration of a branch including documents to be executed/provided by the parent company;
· Effectuation of a registration with, inter alia, the National Statistics Institute, National Social Security Institute and the Local Tax Authority;
· Registration under the VAT Act of 1999 of the new branch;
· Preparation of branch/company books as required by law.

In addition, NBLO can assist with:

· the setting up of a bank account for the new branch;
· the negotiation of a lease of office space;
· the conclusion of employment contracts with new staff.

b) Documents required

The following documents will need to be prepared and filed with the relevant Bulgarian authorities to effect the branch registration (and if they are not signed in front of notary in Bulgaria then they will need to be witnessed by a suitable official and apostiled in the country of signature):

· Power of Attorney of the person who will be in charge of initiating and completing the procedure for registration of the branch;
· Minutes of a meeting of the directors of the parent company explicitly showing the decision: i) to establish a branch of the parent in Bulgaria, ii) to approve the registered address and business address, iii) to define its scope of activity, iv) to appoint its manager and lawful representative, and v) the limitations of his powers, if any;
· Declaration under Article 141, sub-Article 3, of the Commercial Act of 1991 and a specimen signature of the manager and lawful representative;
· A certificate for current standing of the parent issued by the Registrar of the companies or the respective body as per national company’s registration legislation;
· Certificate for reservation of the branch’s commercial designation issued by the Bulgarian National Reservation System DELFY;
· Receipts for payment of the registration fees.

c) Costs

Generally, the process will cost in the region of EUR 750 (approximately 15 billable hours) and plus registration costs and other disbursements, which are typically as follows:

Typical Disbursements
Value (in BGN)
Value (in Euro)
Translations
30
15
Validation/Notarisation
20
10
Reservation of the name of the branch
100
50
State Gazette Publication
30
15
Sofia City Court Company’s Registrar Fee
60
30
Official copy of the decree for registration
1.50
0.75
Registration with the Statistics Institute
100
50
Official stamp of the branch
33
16.50
Opening of a current bank account
25
12.50

Total
399.50
199.75

d) Timeframe

The registration can be completed by NBLO in approximately 7-10 working days.

e) Legal Issues

Clients should consider carefully whether registering a branch office is the most appropriate form of presence for the business they wish to conduct in Bulgaria.

Branch offices require a manager, who can be a foreign person. There are certain limits on the capacity of the branch office, acting by its manager. As a branch is not a separate legal entity, distinct from its parent, it is normal for the other party to a transaction to require an explicit confirmation by the parent company that the branch is able to conclude the relevant contracts in Bulgaria. As such, a great deal of attention will be paid to the capacity of the branch manager. This may result in delays to the business activity of the branch. Consequently, NBLO recommends that a client register a branch only if it plans to develop a short-term or small to middle-size business activity within Bulgaria.

For alternative methods of starting your business in Bulgaria, please contact NBLO consultants.

Running a bank account in Bulgaria by non-nationals

noreply@blogger.com (Vesselin Nenkov) — Wed, 18 May 2005 12:05:00 +0000

Opening a bank account in Bulgaria by non-Bulgarian persons

a) Natural persons and legal persons (including branches of foreign legal persons)
b) Money laundering issues
c) Transfer restrictions

a) At heart, the Bulgarian regime is quite liberal. Bulgarian banks open accounts to all natural persons (over 18) and all legal persons irrespective of their place of establishment and place of business.

The prospective account-holder fills in an application form, present his ID card or passport or documents proving establishment (applicable to a legal person), nominates those who have a mandate to transact on the account and provides specimen signatures of those mandated.

With legal persons, banks will generally require a certified copy of a statement of the company’s registration status (such as a certificate of incorporation) and proof of registered address. A proof of address in the country of residence may be required from natural persons. The passport/ID card, if they include this will be an obvious source of proof.

A proxy (a person formally appointed as attorney or proxy) can also act on behalf of a natural or legal person to open an account, upon submission to the bank of an explicit power-of-attorney (suitably witnessed, apostilled and translated if and as required).

b) Money laundering and other checks

The Money Laundering Act of 1999 provides for a number of measures to prevent money laundering. Banks are under a duty to inform the national Financial Intelligence Service of any transaction (including a payment-in on opening of a bank account) with a value in excess of 30,000 BGN (or 10,000 BGN if a cash transaction). This obligation also concerns public notaries, petrol traders, wholesalers, insurance and leasing companies, tax consultants, auditors, and others. The Financial Intelligence Service is entitled to intercept a transaction pending investigation upon a suspicion that it is a money laundering.

The Financing of Terrorism Act of 2003 provides for the freezing of accounts and other assets of persons who are under suspicion of participation in terrorism operations or are on the list of the United Nations of persons and organisations engaged with terror.

c) Restrictions on the use or transfer of money

Bank transfers

Money can be withdrawn/transferred (including expatriated) once the account holder has completed a declaration under the Foreign Currency Act of 1999.

In addition, the account holder must show that he or in case of a legal person, the legal person, has paid all taxes due to the tax administration (usually this is a certificate from the respective regional tax office).

If a foreign person with a Bulgarian bank account wishes to make a transfer abroad then, along with complying with the above rules, he must specify a reason for the transfer and present supporting documentation. If the amount to be transferred abroad does not exceed the amount previously received from abroad into that account there is no need to prove anything and the holder is free to order the transfer.

Taking cash out of Bulgaria

The Foreign Currency Act of 1999 also established rules for the export and import of money in cash. The foreign person is free to import/export cash currency amounting of up to BGN 5 000 (approx. EUR 2 500). If those cases no declaration is required on crossing the border.

If the person wishes to import in cash currency exceeding 5 000 BGN he needs to submit a declaration in two originals to the customs authorities stating the exact amount and type of the currency. The second original must be kept safe after stamping by the customs officer. Upon exit of the country with an amount in cash exceeding 5 000 BGN he shall present the original of the declaration for previously imported currency.

Upon exporting cash currency exceeding 25 000 BGN (12 500 EUR) he shall submit to the tax authorities a declaration of the origin of the money along with the above mentioned certificate issued by the respective regional tax office. Again, if the exported amount does not exceed the value of previously imported in cash and declared, the person is free to export the amount only by presenting the original import declaration for the identical type of currency. If the exported amount does exceed the imported value, the foreign person shall submit to the customs authorities valid proof that he has paid all the taxes regarding the surplus of the value and a certificate that he does not have any obligations to the fiscal service.

Credit or debit cards

The use of credit and debit cards in Bulgaria has increased immensely during the last five years. A foreigner is not under any duty to declare at customs the bank cards he carries on his person. In addition to major bank cards, cheques and travellers cheques are also known and welcomed as means of payment and are equally not subject to declaratory obligations.

If a person holds a Bulgarian bank account and has a credit or debit card associated with that account then there is no Bulgarian-originating restriction on his withdrawing money from that account while abroad.

An alternative method for gearing a property purchase of Bulgarian real estate

noreply@blogger.com (Kamen Shoylev) — Sat, 19 Feb 2005 19:46:00 +0000

The Bulgarian mortgage market has been expanding steadily over the last 2-3 years and local lenders have been increasingly hungry for fresh clientele. This has made such lenders market mortgage products more forcefully to domestic buyers than ever before. Against a background of intensifying competition, the tables are beginning to turn, and yet this is not quite a borrower's market.

Retail mortgage interest rate and the accompanying charges are high compared to developed mortgage markets in Europe. Typical rates canvass the 8-12 per cent. ground. Charges, administration fees, early redemption charges and other costs add to an APR in the early to mid teens.

Such high cost of capital is offset though by the expectation of continued capital gains in real estate and the comparatively high cost of alternative residential, holiday and commercial space. Looking for a wider market, local lenders have realised the potential need of foreign-based borrowers (Piraeus Bank, London; Credo Consult, Sofia .)

To gear themselves, small and medium sized foreign property investors are prepared to pay the costs involved, and have used mortgage products available both locally and in their home markets. An alternative which is increasingly offered by lenders entering the fray is the "property leasing contract", effectively a hire-purchase deal involving real estate.

Leasing companies are typically offshoots of financial institutions which specialise in consumer and industrial credit. They have grown their markets in car and equipment loans, but growth rates and competition in these are beginning to slow and this makes it sensible for them to compete in the property sector. But does it make sense for the borrower and what are the peculiarities to watch for?

One possible drawback of the higher purchase agreement stems from the absence of an in rem interest in the lease item in the borrower. Throughout the duration of the arrangement, it is held in the name of the lender, and may in fact be mortgaged on to a further lender which finances the cashflow of what now becomes the sublender. In the case of a default or bankruptcy for the lender, the borrower is in a less advantageous position in theory than would be a borrower from a classical mortgage lender, such as a bank. The creditors of a bankrupt bank will not have a claim and control over the mortgaged property other than what the bank had already had. They would not, barring default by the borrower, be able to call in the mortgage just because of events affecting the lender. Not so with the leasing company lender, which can face claims by creditors which they will feel obliged to satisfy out of all proprietary interests they can get their hands on. Will the affected and innocent borrower be able to defend itself by means of an application to court demanding judicial intervention? Hardly likely.

Of course, bank lenders are also potentially bailed out in ways in which smaller and less formal lenders such as leasing companies and consumer credit unions are not. Government guarantees to depositors will not apply to the creditors of a leasing company.

But where the law does not offer an immediately obvious solace, a combination of the market and law does. Leasing company lenders can purchase in favour of their client and transfer enforceability rights to an insurance policy warranting against their own risk of illiquidity or bankruptcy. Such a contract is only negotiated/resold by the lender and therefore no issues of privity can arise.

Possibility and method for converting the status of "unregulated land" into "regulated land" under Bulgarian law

noreply@blogger.com (Kamen Shoylev) — Sat, 13 Nov 2004 16:38:00 +0000

Planning Law --> Change of zoning status: Unregulated into Regulated

A plan must be prepared by a Bulgarian-registered architect for each structure or track which will be constructed over the former agricultural land.

This is submitted for approval to the appropriate authority. Which authority is appropriate depends on the type of land whose zoning needs to be altered (agricultural, urban, forest etc) The legislation and the general law specify a hierarchy of decision-making bodies. There are requirements on provision of reasons to the applicant, on the provision of the text of the decision in writing and on the term for decision-making.

Depending on the size of the plot the decision may need to be taken by the Council of Ministers but is more usually adopted by a local body.

The buildings or, more generally, the new use, need to be different from the original use. The change in use must be positively shown to not have a deleterious effect on the environment and to comply with the requirements of public hygiene, construction standards and fire safety requirements. A variety of regulatory organisations are considered sufficient arbiters and their opinions are positive proof.

The product of the application is known as a Decision/Determination and comes into effect on the payment of the fee for its issue by the applicant and not on the date of the decision.

Taxing the Business Activities of Not-For-Profits

noreply@blogger.com (Kamen Shoylev) — Sat, 28 Aug 2004 23:45:00 +0000

The basis for the regulation concerning not-for-profit organisations (hereafter, referred to as not-for-profits) under Bulgarian law is contained in art. 3 of the Not-for-Profit Legal Persons Act (NFPLPA). According to art. 3(3) of NFPLPA, not-for-profits can go into business only if the business activity in question is connected with their registered objects, and if they would use the profit to attain goals written into their Constitutions or Memoranda of Association.

Accordingly, there is no ground of principle to stop a not-for-profit from engaging in business, so long as such a business matches the above two conditions. It would not therefore be generally permissible for a legal person that doubles as a not-for-profit to run a chain of petrol stations, for example, unless it could show a very clear and inescapable nexus between the type of trading it engages in and its objects. [So would that be satisfied by a charity interested in clean fuels?].

There is also a clear requirement that the profit of any business activity undertaken should be applied for the objects of the not-for-profit, and should not be distributed between the employees or volunteers in the organisation or to buy assets from the not-for-profit. This follows from art. 3, para. 6 of NFPLPA which stipulates that not-for-profits should not "distribute profits" and that both the business activity and the not-for-profit object should be part of the organisation's Articles.

Any unpaid provision of goods or services, from which no revenue has been received, incurs no tax. In determining the size of the profit or loss from business activities, the direct expenditure related to the activity and its share of the total of expenditure of the not-for-profit are calculated. In contradistinction to what is the case in relation to for-profit entitities, not-for-profits need not register new, separate bank accounts relating to the business activity, in the area of the Tax Authority in charge of their seat. According to Bulgarian National General Accounting Standards (which from January 1, 2005 will be replaced by international GAAP , not-for-profits must, in the course of business activities undertaken, compile a separate (supplementary) income and outgoings account, which integrates with their overall accounts under the item of 'profit/loss from business activities'. Not-for-profits, entered in a central register maintained by the Ministry of Justice, are subject to independent audits on the terms envisaged by the Accounting Act, if their overreach a minimum of one of the below conditions:

(A) previous year's balance – 500,000 Lv.
(B) The sum of the revenue from the business activity and the net value of sales revenue, added to the income from the previous year – 1,000,000 Lv.

Taxation of Not-for-Profits

According to art. 4, para. 1 of the Corporate and Income Tax Act (download in Word here), those legal persons not qualifying as 'merchants' under that statute, are taxed for their incomes including incomes from lease contracts, according to art. 1 of the Commerce Act.

Those not-for-profits registered under the NFPLPA are always liable for income tax under the Corporate and Income Tax Act, when trading. Local legal persons even when not qualifying as 'merchants' are therefore obligated as tax-liable persons under art. 6, para 1(2).

Incomes from donations and members contributions are not however treated as trading income and are not therefore liable for taxation.

Art. 51(1) of the Corporate and Income Tax Act stipulates the method and order in which taxation for corporate taxes is payable and the form of the tax return that is submitted. Tax returns are due by 31 March for the preceding 12 months, and the annual report needs to be submitted accompanied by any addenda (art. 51(2)).

It follows that not-for-profits are obliged to submit a tax return only in years in which they have been engaged in business trading.

But those not-for-profits that have been entered on the Central Register of charities kept by the Ministry of Justice are liable for tax registration as well, regardless of whether they undertake a business activity, and they need to register for tax within 14 days of being entered on the Register (of charities).

It follows that there is no reason why not-for-profits should not engage in business in their own right (provided they comply with the requirements on registration for tax, payment for tax, that they keep accounts and that the business activity is not contrary to their objects. Regardless of this, many not-for-profits register distinct private limited companies or wholly-owned public limited companies, aiming to wholly separate legally and factually the business activity from that which is core to them – the non-business activity.

Foreign nationals’ entitlement to healthcare and health insurance status

noreply@blogger.com (Kamen Shoylev) — Wed, 25 Aug 2004 07:50:00 +0000

A duo of Bulgarian statutes govern the healthcare entitlement of foreign natonals - the Health Insurance Act and Public Health Act. These acts provide that foreign citizens, who have obtained the right to permanently reside in Bulgaria are entitled to the same scope of healthcare services as Bulgarians and to all services that are normally covered by the Bulgarian National Health Insurance Fund. On the other hand, possession of permanent residence obligates foreign nationals to make health insurance contributions in essentially the same way as Bulgarian citizens would.

Foreign nationals with the right to long-term residence, as well as stateless persons, refugees, persons to whom a humanitarian status has been conceded, and persons with the right of asylum in Bulgaria, are also entitled to medical services, paid for by the Bulgarian National Health Insurance Fund (NHIF). Persons in the process of applying for refugee or asylum-seeker status are, statutorily, to be health-insured by provision in the national budget.

Foreign nationals employed in Bulgaria are insured in the same manner as Bulgarians since by being employed in Bulgaria, foreign citizens obtain a work permit and residence permit. Having the entitlements goes hand in hand with the respective obligations to insure.

On the other hand, foreign citizens with only the right to short-term residence (90 days in a 6-months period), as well as persons with dual Bulgarian and foreign citizenship, and for whom there is no special provisions in an international agreement, are expected to pay the cost of the medical services provided.

The payment for medical services provided to foreign citizens who are only short-term residents is governed by the Regulations for Applying the Public Health Act, and, by the 2001 Regulation for the Medical Treatment of Foreigners on the Bulgarian Territory. As per these, foreigners entitled to short-term residence, as well as persons with dual Bulgarian and foreign citizenship, who are not paying health insurance contributions to the NHIF, shall pay for the cost of medical services they have been provided with, unless otherwise provided in an international agreement to which Bulgaria is a signatory.

The 2001 Regulation provides that medical costs for services rendered by the Centres for Blood Transfusion or by the Centres for In-patient Psychiatric Care are fixed (arranged in a schedule to the same regulation). The respective costs of all other types of medical service are not fixed and are determined by each medical institution by reference to the market. As per the 2001 Regulation, medical institutions can independently determine the means and time-limits for payment for the medical services they provide, and are obliged to exhibit in the reception area of their facility the following information:

- the prices of all medical services offered;
- the instances in which patients are required to pay for the treatment;
- the time-limits and method of payment for the services provided.

In addition, a physician who admits a foreign national to a hospital, has a duty to inform the foreign national of the above, as well as about the type of treatment to be applied, and the duration of the treatment. At the inception of treatment in the hospital, an estimate account of the cost of medical treatment has to be provided to the foreign national. Such an estimate of account becomes final at the end of the treatment after including any additional services. An invoice for the cost of the services is produced in three separate copies – one for the patient and two for the hospital.

The cost of out-patient medical services is payable in advance since the cost of these services can be determined preliminarily. Again, an invoice for the services has to be produced and presented to the patient.

But how far can foreign citizens rely on guaranteed admission, even where they are happy to pay? As per art. 92, para. 5 of the Law on Medical Institutions, state and municipal hospitals can accept for treatment paying patients but such patients cannot exceed 10% of their bed capacity. In cases when the provision of medical services are governed by a contract between the hospital and the NHIF, the hospital can determine freely the price of its services. Any income a hospital receives this way becomes part of its general profit.

Short-term residence foreign citizens and stateless persons who enter or transit Bulgaria must have purchased medical insurance. In case emergency medical treatment has been rendered, the manager of the medical institution informs the foreigner’s insurance company or the intermediary insurance company about the identity of the foreign patient, the diagnosis, the intensity of the treatment and the cost of the treatment.

Foreign states’ embassies in Bulgaria are obliged by Bulgarian law to provide for the medical treatment of foreign citizens, who do not possess medical insurance and do not have the means to pay for the cost of the treatment.

Finally, the Health Insurance Act provides that private Bulgarian health insurance companies can enter into agreements with foreign-based national health and insurance companies to assure the medical treatment of foreign citizens during their stay on the territory of Bulgaria. Thus, the foreign nationals would not pay directly for the cost of treatment, which is reimbursed by their home country’s national insurance scheme. The function of the Bulgarian health insurance company is as an intermediary between the foreign citizens’ health insurance funds and the Bulgarian medical institutions.

Bulgarian Permanent Residence - Typical grounds

noreply@blogger.com (Kamen Shoylev) — Thu, 19 Feb 2004 11:00:00 +0000

Under the Bulgarian Foreign Nationals Act (PDF, English version), foreign nationals are eligible for two types of residence permits - for short-term and for long-term residence. The maximum duration of the short-term residence is 90 days in any 6 month period. This type of residence is either obtained on the basis of tourist visas, issued by a Bulgarian Consular representation, or in the case of nationals of countries which enjoy visa-free entry in Bulgaria, on the basis of visa concessions. UK, US, EU and certain other nationals fall in this category (an up-to-date list can be viewed here).

Continuing residence occurs on the basis of the issuance of a permit.

Long-term residence can be (i) continuing or (ii) permanent. One cannot directly apply for permanent residence, without having first received a permit for continuing residence.

To continue making use of a permit for continuing residence, one must stay in Bulgaria for 6 months and a day in a calendar
year. Otherwise, the permit for residence is invalidated.

The 3 grounds for the issuance of a permit for continuing residence which are typically applicable are as follows:

- the foreign national wishes to work under an employment contract with the prior permit of the Bulgarian Ministry of Labour and Social Policy
- the foreign national undertakes business in Bulgaria, e.g. has become the owner or a shareholder in a Bulgarian company;
- the foreign national has made an investment in Bulgaria, which as per the Bulgarian Foreign Investments Act [Note: Currently, this legislation is under review. The prior Act has been repealed, but a new one is yet to be adopted, which leaves this ground in abeyance for the moment] may constitute a purchase of company shares, of immoveable property (real estate), of shares in a privatisated former state or municipal companies, the acquisition of rights under concession agreements, the acquisition of intellectual property rights, the acquisition of government-issued bonds and securities with a term of payment no shorter than 6 months, loans, including lease agreements, with a term of payment no shorter than one year.

In summary, one would need to (a) be present in Bulgaria for more than half of every year (b) have some form of "connection" to Bulgaria, such as owning a house or a Bulgarian company to achieve permanent residence status in the country.