Here is a guideline summary of what to expect when buying in Bulgaria

• Total purchase costs should not exceed 8% (this includes agents and lawyers fees) however this could end up being more (in percentage terms) for an older and cheaper property in Bulgaria.

• Unlike the UK, estate agent fees are paid by the buyer and seller. You should expect to be charged no more than 3% of the purchase price (negotiable for multiple unit purchases) when buying a property and this must be paid at the time of signing the private purchase contract.

• Under Bulgarian law a foreigner cannot own land. If you wish to buy land or a house with a plot then you can set up a Bulgarian company. The land (and house) can be owned by this company and a foreigner can have outright ownership of the company. The cost for setting up a company is relatively low (under 1000 Euros) and we can help you set it up. With new, off-plan developments it is not necessary to own part of the land or set up a company as buildings can be owned by foreigners.

• We can source your lawyer and mortgage brokers if required, to help make your purchase as smooth and risk free as possible.

• We advise to always use a lawyer when purchasing a re-sale property.

The purchase process is as follows:

1) A reservation deposit is paid to hold the property. (Usually 500 – 1000 Euros)

2) If the property is a re-sale or land then a Bulgarian company must be formed to own the land.

3) An initial private purchase contract is then signed (checked first by your lawyer) and an initial payment is due (usually 10% - 30%, depending upon whether a re-sale or off plan).

4) The Notary Act is then signed in front of a Bulgarian Notary, either in Bulgaria or in the Bulgarian Embassy. In the case of an off-plan development the Notary Act is signed once the building is complete.

The time each stage takes place depends upon the type of sale. In the case of an off plan development, private contract is usually signed within weeks of reservation.

General Information about Taxes in Bulgaria

Bulgaria is a politically stable country, and the introduction of a currency board in 1997 stabilised the country's economy. However, as is the case elsewhere in Central and Eastern Europe, legislation, including that governing real estate, is volatile and subject to frequent change. A foreign investor can invest in properties in Bulgaria either directly or through a local entity.

Only Bulgarian-resident individuals and entities can acquire title to land, while non-residents may acquire only buildings and limited rights (e.g., leasehold and construction rights) to land. In some limited cases, acquisition of immovable property by non-residents requires prior permission of the Ministry of Finance. Foreign investors are guaranteed full repatriation of profits resulting from an investment in Bulgaria .

The transfer abroad can be made only after the bank effecting the transfer is presented a certificate proving payment of all Bulgarian taxes due.

Investing through a local entity versus direct investment

As indicated above, a foreign investor can invest in properties in Bulgaria either directly or through a local entity. In the case of a direct investment, the tax treatment of the foreign investors depends on whether or not their activities constitute a permanent establishment. The definition of a permanent establishment under Bulgarian law is very broad: the mere fact that a foreign company owns and rents out property in Bulgaria (except where such activity is carried out through an independent agent) may create a permanent establishment under domestic law.

The various tax treaties entered into by Bulgaria usually contain a narrower definition of permanent establishment. If the activities of a foreign person owning real property in Bulgaria do not constitute a permanent establishment, the person will be liable for only 15% withholding tax on the rentals and capital gains, unless an even lower rate is applied under a double tax treaty.

Basis of taxation

The taxation of a local entity or a foreign entity which constitutes a permanent establishment is as follows.

Rental income

The basis of the taxable income of a company, investing in Bulgarian real property is the gross income derived from the property less tax-deductible, property-related expenses and depreciation. Such expenses include repairs, maintenance, renovation and similar costs and interest on loans used for the acquisition of the property.

A Municipal Tax at a rate of 10% of profits is due. This is then deductible in calculating taxable profits which are subject to a corporate tax rate of 19.5% (15% in 2005).

Depreciation

Land itself is not depreciable, although any immovable property affixed thereto is, provided that it is used for the business activities of the company and is booked as a fixed asset. Depreciation for tax purposes is at a rate of 4% per annum, and is usually calculated using the straight-line method.

Real estate acquired for purpose of re-selling it is considered as "investment property". As such, it is non-depreciable and is subject to annual revaluation to the market value. In practice, it is often unclear in which situations a property should be treated as an "investment property" rather than as a fixed asset.

Loss carry-forward

Tax losses can be carried forward for a five-year period. Losses cannot be offset against profits from previous years.

Capital gains

Capital gains are treated as ordinary income subject to corporate income tax.

Transfer taxes

Apart from corporate tax, 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 BGN 3, 500. In addition, 2% of the market value of the property is paid to the municipality in which the real property is situated.

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

Value Added Tax (VAT).

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.

Financing the property

Debt

Under currency control regulations, a registration with the Bulgarian national Bank is required for loans granted by non-residents to Bulgarian entities. Where the debt financing exceeds the equity financing, deductibility of interest is subject to limitation, which is determined by a particular formula. If the interest costs exceed the allowable limit, the excess is non-deductible. The interest costs not deducted in a given year can be deducted in the subsequent tax period. Interest paid to a foreign lender is subject to a withholding tax of 15%, unless a lower rate is available under a double tax treaty.

Upon receipt of a loan denominated in a foreign currency, a local company must re-value its foreign currency liability monthly. The positive or negative differences are accounted for as current financial income or expenses. No additional evaluation is made at the end of the financial year or upon repayment of the loan.

An equity contribution can be either in cash or in kind. Real property, limited property rights, etc. can be subject to in kind contributions after a special evaluation is performed.

A MORE DETAILED BUYERS GUIDE IS AVAILABLE IN THE 'DOWNLOADS' SECTION OF EACH DEVELOPMENT IN BULGARIA