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How To Buy in Bulgaria
Purchase Details: • Total purchase costs should not exceed 5% (lawyers fees) however this could end up being more (in percentage terms) for an older and cheaper property. • Under Bulgarian law a foreigner cannot own land. If you wish to buy land or a house with a plot then you can circumvent this law by opening 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. The purchase process is as follows: 1) A reservation deposit is paid to hold the property. (Usually 1000 Euros plus bank transfer costs, total 1060 Euros) 4) Off – plan purchases then have a variety of payment structures; the most common is 30% on preliminary contract, 20% on finishing of the roof and the balance due on completion. The time each stage takes place depends upon the type of sale. In the case of an off plan development, preliminary contract is usually signed within weeks of reservation. It is also very important to note that it is very usual in Bulgaria for the different stage payments to be paid to different bank accounts, both in and out of Bulgaria. This is explained in the next section. When new property is complete in Bulgaria the tax authorities in Bulgaria do a valuation of the property for the purposes of taxation, called the “tax valuation”.
When assigning the property to the new buyer the developer/owner and the buyer then can either decide to either declare the full purchase price on the notary deed or the legal “tax valuation”, which will of course affect the taxes that are due on the property.
The following taxes are affected by the amount that is declared on the notary act:-
1) Transfer tax:- 2% 2) Value added tax:- 20% 3) Notary fees (variable)
Therefore the vendor decides to put the lower “tax valuation” on the title deed, meaning lower taxes for both the buyer and seller.
The buyer benefits from:
a) A lower purchase price (due to the lower VAT amount being paid by the vendor) b) A lower transfer tax (to be paid directly by the buyer) c) Lower notary fees (to be paid by the buyer)
When selling the property in the future they can then also declare on the new notary act the new “tax valuation”, thus not having to pay higher capital gains tax than they would have if they had declared the full sales price.
To facilitate this, the new buyer must pay a certain amount of money to the vendor/developer by direct bank transfer via the new buyer or through their lawyers client account, which amounts to an amount no less than the amount that will be declared on the notary deed. The developer then requires the balance of the money to be paid by either by the following methods:-
1) Direct cash payment (the developer gives a receipt for this against due payments).This can be organised by giving your lawyer a power of attorney to open a bank account in your name. You then transfer the money to this account and then your lawyer withdraws this money for payment to the developer against a receipt.
2) Transfer direct to a bank account out of Bulgaria (against a request for the money from the developer, stating that this money is being requested as payment against money due. Also a receipt will be given for this payment)
Although this is not a normal practice in the UK it is very common in a lot of overseas countries such as Bulgaria and Spain.
The alternative to this is for the developer to fully declare the purchase price on the notary act, however the new buyer will be expected to pay the difference between the VAT of the declared price and the tax valuation (can be as much as 14% extra), as well as having to pay higher transfer taxes and notary taxes.
The other issue regarding the declaring the full purchase price on notary deed is the need for the buyer to charge a higher price (or taking a lower profit) when selling the property on to a third party, to cover the extra buying cost and to still remain competitive.
In most instances there will be two prices quoted on the pricelist, one being for the under declared amount and the other for the fully declared amount and the purchaser can choose which option to take (but this MUST be decided at the time of purchase).
Please contact info@move-in-out.com with any enquiries. Legal Information Download (Pdf) - bulgaria legal info doc.pdf This information is intended as illustrative only and all information should be checked with a Bulgarian lawyer as they are subject to change. To view this file you will need the free Adobe Acrobat viewer which you can download from the Adobe website.  web partners
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