Notary Act in Bulgaria
The Bulgarian property system uses Notaries and a Notary Act in order to transfer the ownership of buildings and/or land.
Prior to signing the Notary Act, the local municipal council conducts a tax evaluation of each property "tax estimation price", and this valuation represents the minimum value that must be reflected on the Notary Act. The "tax estimation price" is for the purposes of real estate taxation and is much lower than the actual selling (purchase) price and in general the tax evaluation rate ranges from 25-50% of the full market value.
Most of the Bulgarian property owners (vendors) wish that the "tax estimation price" is written in the title deed, and not the selling (asking) price which the buyers are paying, so due to this practice there might be discrepancies between the price you are paying and the price written in the title deed.
When an individual comes to sell a property in Bulgaria, the same system works with a tax evaluation prior to the Notary Act.
In general, if a purchaser wishes to reflect a value higher than the tax evaluation on the Notary Act, extra costs incurred as a result of this action are paid by the purchaser. With particular reference to "off plan purchases", extra costs will be include extra notary fees, municipality taxes and VAT and can increase the purchase price by up to 14%.
Rental Income
A company investing in Bulgarian property is taxed on its gross income derived from the property, minus tax-deductible, property-related expenses and depreciation. Tax-deductible expenses include repairs, maintenance, renovation and similar costs, as well as interest on loans used for acquiring 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 flat corporate tax rate of 15%.
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 recorded 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 the purpose of re-sale 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" or 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 estate. However the transfer is subject to notary and municipal fees. 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 property is located.
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.
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 it is registered for VAT purposes.
* It is important to note that the tax evaluation is set by the local municipality and Bulgaria Offplan Property Ltd accepts no liability for the content of the tax evaluation.
