Banking systems and international institutions
Bulgaria is a member of the International Monetary Fund. The national currency of the Republic of Bulgaria is the Bulgarian lev (BGL). After the introduction of a Currency Board Arrangement on July 1, 1997, the exchange rate is fixed by law at 1.95583 Levs per Euro.
The Currency Act regulates transactions and payments between local and foreign persons, cross border transfers and payments, foreign exchange transactions in the course of business, transactions with precious metals and precious stones as well as their import, export and processing, import and export of leva and foreign exchange cash, the collection, maintenance and reporting of statistical information on Bulgaria’s balance of payment and exercising of foreign exchange control.
The Currency Act does not impose any restrictions as to the buying and selling of foreign currency and these activities may freely be done between licenced commercial banksand other persons, between commercial banks themselves and between the BNB and the commercial banks. There are no restrictions as to the amount of money which may be paid in cash neither are there restrictions as to the type of currency used for payment. Legal and natural, local and foreign persons are also entitled to have their own accounts opened with local banks in various currencies.
For opening a bank account by an entity, banks in Bulgaria require a court of law resolution for registering the company, tax and statistical number of the company and iand in the case of a person opening it - an identity card/passport of the natural person. A signature of the person authorized to operate the bank account is to be provided to the bank. A notarized power of attorney will also be required in case a proxy of the person willing to open the bank account is going to open it. Foreign persons are entitled to transfer amounts abroad: income earned from investments, liquidation quota received upon termination of the investment; revenues from sale of the object of the investment, etc. Normally, upon the moment of remittance of the amount, the banks requite a document proving that the respective taxes, if any, have been paid in Bulgaria.
Currency transfers and payment transfers abroad may be made through banks only after informing the bank of the purpose of the transfer. If a person wishes to transfer currency abroad exceeding BGL 25,000, that person, apart from declaring the reason for the transfer, should provide BNB with additional data and documents, which are determined by a regulation issued by BNB. Local and foreign persons may export currency in cash (in leva or foreign exchange currency) under the following conditions:
- amounts up to BGL 8,000 or their equivalent in other currency may be exported freely, no written declaration before the customs authorities is required;
- amounts between BGL 8,000 and BGL 25,000 or their equivalent in other currency, must be declared at the customs;
- amounts over BGL 25,000 or their equivalent in other currency, may be exported only after they have been declared through customs authorities whereby the declaring persons should point out the origin of the money exported.
The Banks
The banking sector is crucial for the proper functioning of the country’s economy. For many years now Bulgaria has been publishing data on its macroeconomic stability. This data, in combination with the fiscal discipline of Bulgarian governments, enhance the confidence of the Bulgarian economy and has contributed to the high rate of economic growth over recent years.
The Central Bank
The Bulgarian National Bank (BNB) is the Central Bank of the Republic of Bulgaria.
Banking Sector Stability
The legal framework of the banking sector is meant to provide a high level of stability. This is an important prerequisite for the development of the economy overall. Therefore, the Banks Act, together with the BNB regulations and the Bank Deposits Guaranty Act form a modern framework providing for the necessary strict requirements for banking in Bulgaria.
Conclusion
A significant number of foreign banks are already present on the Bulgarian market. Most of these entered the Bulgarian market through the privatization process rather than through a licensing of a branch or subsidiary in Bulgaria. It is worth noting that the banking sector was one of the first sectors of the Bulgarian economy where privatization was completed successfully. The banking system in Bulgaria makes stable progress. The trends currently observed are credit expansion, widespread banking cards, Internet banking development, etc. The robust legal framework and the development of the Bulgarian economy provide good business opportunities in the banking sector with equal conditions for both local and foreign investors. The Bulgarian banking market still provides business opportunities for both future and existing banks.
Taxation in Bulgaria
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.
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.
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 municipalities.
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. Owners also pay waste-collection fees.
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.
Bulgarian Mortgages
The Bulgarian mortgage market has been one of the fastest developing financial markets in Bulgaria in recent years. If one is considering purchasing a property in the country, Bulgarian mortgages are available for UK and Irish nationals /and non-UK nationals on a case basis/ for either home purchase or re-finance for home improvements. Mortgages for other purposes may be also considered.
Because of the strong demand, some of the larger international mortgage lenders enter the country and develop the market. Most banks have recently eased the requirements for mortgage loans and have launched a series of promotions in order to attract customers and increase their market share. When Bulgaria accepts the Euro, interest rates are expected to decline in line with the rest of the EU.
Bulgarian mortgages do not follow the same pattern as the UK. Usually standard repayment mortgages, where you repay both the capital and the interest, are normal practice. Two options are available for getting mortgages in Bulgaria:
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