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Tanya Dyankova

Tanya Dyankova

Attorney-at-Law

Tanya Dyankova is a attorney with English and German language in the Law Office Ruskov and Colleagues. Her main areas of practice are corporate and inheritance law and also foreclosure measures.

Email: t.dyankova@ruskov-law.eu

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Foundations in Bulgaria

By: Bozhidar Pukov

Foundations in Bulgaria - legal nature, management and termination. Registration procedure, tax treatment.

I. The foundation as a legal subject

A. Nature

Foundations are non-profit legal entities that do not have membership. The rules relating to their activities and registration are contained in the Bulgarian Non-profit Legal Entities Act (NPLEA) and the Bulgarian Civil Procedure Code (CPC).

According to NPLEA, both Bulgarian and foreign persons and legal entities can establish a foundation. The foundation is established by a unilateral act of incorporation, either during one’s lifetime or upon one’s death (by will or testament), which gratuitously provides property to achieve a non-profit goal. For the establishment of the foundation in life is necessary the act to be in written form and the signatures to be certified by a notary. In case property rights on real estate are transferred, the founding act must be entered by the judge for the entries at the district court at the location of the property.

Art. 34 NPLEA contains the definition of the act of incorporation. It must indicate the name, headquarters (management location) and address (registered office), purpose, type of activity (public or private benefit), the granted property, the foundation's bodies, branches, rules regarding the powers of its bodies and the manner of representation, the period for which the foundation is established, as well as its nature of business if the foundation will perform such.

B. Management

The foundation must have a governing body that can be both collective and sole. It is possible, however, for the act of incorporation to refer to other bodies as well. In this case, according to Art. 35, para. 2 NPLEA, the applicable rules are the ones related to the management board and general meeting, provided for the other type of non-profit legal entities in Bulgaria – the associations. According to the these rules, the general meeting’s powers include the adoption of internal regulations, appointment and dismissal of members of the Management Board, decision on opening and closing of branches, whereas the Management board acts as a representative of the foundation, executes the decisions taken by the general meeting, disposes of the assets of the foundation and others.

C. Activity

In general, the activities of the foundations are non-profit, i.e. a foundation is created to carry out charitable purposes, which may have a different character - environmental, educational, etc. This, however, does not preclude foundations to carry out economic activities. This would be possible, inasmuch as this activity only has auxiliary character and is not its main activity, i.e. it is directly related to the main activity for which it was registered, and the generated revenue is used to achieve these objectives.

D. Termination

The grounds for termination of the foundation in Bulgaria are specified in Art. 13 para. 1 NPLEA. These are the expiration of the term for which it was established (if any), a decision of its managing body (if it is sole) or its supreme authority, by decision of the district court at the foundation’s registered office when it was established illegally, when it declares bankruptcy or when its activity is contrary to law or morality. The termination of the foundation is carried out together with its liquidation, which is done by the manager, an authorised person or a person designated by the district court, if a liquidator is not appointed by the manager, or if the foundation was established illegally. It is important to note that the provisions of the the Bulgarian Commerce Act apply in case of insolvency. If any property has remained after the creditors have been satisfied, the question of its distribution shall be decided by the act of incorporation, the managing body of the foundation or by the liquidator when such a decision was not taken until the opening of the liquidation. If there is no such decision, then the assets of the foundation shall pass to the municipality at its registered office, which is obliged to use it for such purposes that are closest to the purpose of the terminated foundation.

After the division of the property, the liquidator must request the cancellation of the registration of the foundation before the district court of its registered office.

II. Registration procedure

Pursuant to Art. 34, para. 3 NPLEA, the request for registration must be made by the founder, an authorised person or body, by the executor of the will or a successor, or any of the persons who would benefit from the foundation's activities according to its act of incorporation. The registration of the foundation is made by the district court of its registered office.

However, the following actions need to be taken before making such a request:

  • Preparation of an act of incorporation, containing the above cited requisites;
  • Selection and appointment of governing bodies;
  • Booking the name of the foundation and obtaining a document certifying its uniqueness. This can be done in some of the branches of "Information Services" JSC and costs BGN 60;
  • Preparation of specimen signatures of the persons who will represent the foundation before third parties; 
  • Preparation and signature of an application for registration of the foundation in the register of the district court.

After these steps are completed, depending on the mode of incorporation, the relevant documents must be submitted in the district court where the foundation is registered.

When the foundation was established by a unilateral act of donation, the following must be presented:

  • Application for registration of the founder or other authorized persons;
  • Act of incorporation;
  • Decision by the management board of the founder (when the founder is a legal entity);
  • Unilateral act of donation which transfers the foundation’s property (usually coincides with the act of incorporation but it could also be a separate document);
  • Bank statement certifying that the transferred amount from the inheritance was made to the account of the foundation;
  • Specimen signature/s of the person/s who will represent the foundation;
  • Document certifying the uniqueness of the name;
  • Proof of payment of the state fee (BGN 50).

When the foundation is established by a will, the court must be presented with:

  • Application for registration;
  • A copy of the will, which established the foundation. The practice requires the copy of the will to be notarized;
  • Death certificate of the testator,
  • Certificate of inheritance, if the applicant for registration is the successor of the testator;
  • Proof of ownership, certifying that the transferred property of the foundation was owned by the testator;
  • Bank statement certifying that the transferred amount from the inheritance was made to the account of the foundation;
  • Specimen signature/s of the person/s who will represent the foundation;
  • Document certifying the uniqueness of the name;
  • Proof of payment of the state fee (BGN 50).

Upon entering the foundation in the court register, it becomes a new subject of the law, thereby a bearer of rights and obligations. Within seven days from the date of receipt of the judgment for registering the foundation, it must also be registered in the BULSTAT register by submitting an application to the Bulgarian Registry agency. The registration fee is BGN 40.

III. Tax treatment of charities in Bulgaria

A. Bulgarian Corporate Income Tax Act (CITA)

As already stated, charities may carry out auxiliary economic activity that can help achieve its objectives. Thus, according to Art. 2, para. 1, item 1 of the Bulgarian Corporate Income Tax Act, they would be considered taxable persons when they engage in economic activities by occupation, which is a source of regular income and makes profit or is carried out in the interest of the foundation, whereas the prices of these transactions are market-based. In this case, the tax rate levied on the realised profit is equal to 10%. However, funds received from project financing are not considered profit. Profit from donations to the foundation as well as the sale of donated goods also falls outside the scope of CITA, as they do not constitute a commercial transaction within the meaning of Art. 1, para. 2 of the Bulgarian Commerce Act. The property by which the foundation was established and any subsequent property contributions made by the founders, are the equity of the foundation and as such are also not subject to taxation.

B. Bulgarian Value Added Tax Act (VATA)

In general, any taxpayer may register for VAT purposes under the Bulgarian Value Added Tax Act. In certain cases, however, the law provides for mandatory registration and the conditions for compulsory registration of foundations do not differ from the conditions for registration applicable to other types of legal entities. The obligation to register the foundation for VAT purposes arises upon reaching a taxable turnover from business activities equal to BGN 50.000 or above for a period not longer than 12 consecutive months before the current month (Art. 96, para. 1 of the VATA). In this case the application for registration must be submitted within 14 days from the end of the tax period in which the specified turnover was reached. Foundation performing intra-Community acquisition of goods equal to BGN 20.000 or above are also subject to VAT registration, and the application for registration must be filed no later than seven days before the date of the chargeable event for the acquisition, which would exceed the BGN 20.000 threshold. An obligation for VAT registration also arises with regard to the supply of services with a place of supply another EU Member State, whereby the tax is payable by the recipient of the services, as well as with regard to receipt of services when the supplier is a non-resident taxable person and the place of supply is Bulgaria, whereby the tax is payable by the recipient.

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