The aim of this article is to clarify the specific aspects of the purchase of real estate in Bulgaria by foreigners, as well as those to be applied for the purchase of real estate and the subsequent obligations of legal entities regarding taxation.

According to Bulgarian law, foreign citizens and foreign legal entities could obtain the following rights in а real estate:

1. to acquire the right of ownership in buildings and limited real rights over immovable property in the country, unless otherwise provided by law (see Art. 29, para. 4 of the Ownership Act);
2. to acquire limited real rights over agricultural land by terms and procedures as provided by law (for more details see Art. 3, para. 7 of the Law on the Ownership and Use of Agricultural Land);
3. to acquire ownership of land in the following cases (Art. 22 of the Constitution of the Republic of Bulgaria):

• under the conditions arising from the accession of Bulgaria to the European Union;
• on the basis of a treaty ratified, promulgated and entered into force for the Republic of Bulgaria;
• through inheritance ex lege;

It is important to be noted, that EU citizens and legal entities, established in a member state of the EU or in a state party to the Agreement on the European Economic Area (EEA) may acquire ownership of land under the following conditions:

1. as of 01.01.2012, if the property is one that serves for a second home (different from a permanent place of residence);
2. as of 01.01.2014, ownership of agricultural land, forests and forestry land can only be acquired under special conditions. However, the corresponding restrictions are to enter into force in 2018 or 2019;
3. presently, EU citizens, who are self-employed farmers and have been established or have been registered in Bulgaria may acquire ownership of agricultural and forestry land. However, there is a condition that these persons need to be registered as such under the Law on the BULSTAT register.

What type of immovable property could be acquired by a foreign citizen or entity?

Bulgarian law distinguishes three general types real rights, depending on the objects and the volume of the exercised rights:

1. Ownership of land, which may be regulated (urbanized land) and unregulated territory (agricultural land);
2. Ownership of buildings: including residential buildings (houses, village buildings and apartments), commercial buildings (offices, shops) or business buildings;
3. Limitedproperty rights, such as the construction right, the right of use or easements etc.

We highly recommend the buyer to visit and inspect the actual condition of the real estate prior to the purchase, as well as to obtain personally the possession of the real estate after finalizing the deal. The careful property inspection can save lots of difficulties which may appear when in case the purchaser decides to buy solely the real estate just on the basis of an online advertisement, photos and/or email correspondence with the real estate agency.

Documents required for the transfer of the ownership:

1. An ownership certificate (the written form is mandatory): notary deed, contract for the voluntary dividing of the estate or written contract, in case the municipality or the state is the transferor;
2. A sketch, cadastral scheme or a certificate for the location of the real estate;
3. A valid tax assessment of the real estate;
4. An exploitation permission (Act 16);
5. A certificate for encumbrances, issued by the Property Register;
6. In case one of the parties is a legal entity – certificate for good standing from the Commercial Register, as well as a decision of the managing body of the company for the property purchase;
7. A full package of all the declarations required. The parties are obliged to present before the public notary a declaration for citizenship and marital status, which is a template, approved by the Minister of Justice. In the case of monetary transactions, where real property rights are substantiated, transferred, changed or terminated, the parties declare before the public notary, that the agreed amount stated is the actually agreed price of the transaction. Furthermore, the transferor of the property is obliged to submit a written declaration that he/she has no enforceable obligations for taxes, duties and social security contributions. Whether there are due tax obligations for the property or not, is being certified within the tax assessment. In the event that the transferor declares the existence of the above-mentioned state and municipal obligations, the transfer of the real estate may take place only after their payment or after the debtor has given his written consent his/her obligations to be offset from the purchase price and the purchaser transfers the relevant amount directly to the budget;
8. Power of attorney in the absence of any of the contracting parties - in this case the content and the signatures of the parties shall be simultaneously notary verified;
9. Current receipts for the payment of taxes, electricity, water and heating bills;
10. Further documents, depending on every individual case;

Which are the most important steps when buying a property?

After having chosen the property and having agreed the purchase price, the main purchase process and the formalization of the deal begins. This main process consists of several important steps, which are presented as follows:

I. Executing of legal examinations - prior to the signing of preliminary contract or final contract, it is highly recommended to consult with competent lawyer, because Bulgarian law has many peculiarities that make the legal examination mandatory. In detail, the following points should be clarified:

• Examination of the property for the past 10 years;
• Status of the property and its function regarding the compatibility with the intentions of the purchaser;
• Examination of all the aforementioned documents, which are necessary for the transfer of the ownership;
• The existence of encumbrances;
• Review of the transferor - if a natural person, the marital status should be checked at the time of transfer; if a legal persons, the company status has to be reviewed within the Commercial Register with regard to possible bankruptcy procedures;
• Depending on the case, further reviews may be required.

II. Signing of a preliminary contract - after the successful completion of the legal examination, the signing of a preliminary contract will take place in writing. This contract represents a promise for the signing of the final contract. The preliminary contract contains provisions on the essential terms of the final contract and concretizes the property or provides a deadline for the signing of the final contract. During the signing of the preliminary contract, the purchaser usually, but not always pays to the transferor the seller a down payment in the amount of 10% of the agreed price for the property. However, it could also be agreed a different down payment or no down payment. The preliminary contract provides sanctions in case of default. Especially noteworthy is the possibility in accordance with Bulgarian law the non-defaulting party to claim the preliminary contract to be declared a final by the court according to Art. 19, para. 3 of the Law on the Obligations and Contracts.

III. Final contract (a notary deed) - according to Art. 18 of the Law on Obligations and Contracts, a notarial deed is required for the transfer of ownership of the real estates. The notary procedures, provided by the Civil Procedural Code, shall be observed. Pursuant to Art. 570 § 1 of the Code of Civil Procedure "The notary acts for transfer of ownership or for the establishment of real rights over real estates and certification of ownership over such estates shall be executed by the notary public in whose region the estate is located". The procedure, in this case, begins upon written request before the relevant public notary. If one of the participants in the procedure does not speak and understand Bulgarian language, a translator is being appointed. The persons must prove their identity before the notary with their personal documents. When issuing the notarial deed, the public notary checks whether the transferor is the real owner of the property and whether the special requirements for carrying out the transaction has been met. As of the finalizing of the deal the parties present all the above described documents, together with an actual certificate for encumbrances. The notary deed is subject to entering within the Property Register, which turns it into opposed to any third parties.

IV. Payment of the purchase price - if the purchase price exceeds BGN 10, 000,- all the payments related with the purchase contract shall be transferred by bank transfer. Payments exceeding BGN 10,000 are made on a special bank account of the notary or on a bank account in a bank selected by the parties.

V. Transfer of the possession - the possession is usually transferred at the day of the concluding of the notarial deed. However, the parties may agree different conditions. It is important to be noted that the property is being transferred to the new owner with the signing of the notary, regardless of the fact whether the buyer is still in possession of the object. From a legal perspective, it is possible for the seller to retain the actual possession over the object for a longer period, in case the parties have agreed this condition before. It is recommended the handover to be executed through a handover protocol, where the current condition of the property and the defects are being described, as well as the transfer of the keys. The missing handover protocol assumes that the ownership is transferred in good condition and without instruction.

What are the costs for the ownership transfer?

During the ownership transfer usually arise the following costs, as follows:

• ownership transfer tax, which is approx. in the amount of 3.5% of the purchase price and is determined by each municipality for every property;
• a registration fee for the Property Register in the amount of 0.1% of the purchase price;
• notary fees, depending proportionally on the purchase price;
• if applicable, bank transfer fee;
• if necessary, translation costs;
• if necessary, brokerage commission for the Real Estate agency, which appears to be intermediary ;

 Main responsibilities of the new owner?

• to declare the purchase of the real estate before the local tax authorities within 2 months since the acquisition;
• to register himself as an owner of a real estate in Bulgaria in the so-called BULSTAT within a 7-day period after the purchase; Any foreign individual, ex lege, who doesn’t possess a personal identification number or a personal identification number of a foreigner shall apply for registration within the Bulgarian register BULSTAT insofar he/she owns a real estate in Bulgaria. Registration is required since these individuals obtain a BULSTAT identification number which will later be used to identify and pay their the property taxes;
• new registration with the waterworks and the electricity suppliers;
• payment of the annual property tax and the municipal charges (e.g. for waste disposal);

 Additional measures:

• depending on the type of property, additional administration fees for the keeping of the real estate may arise;
• building insurance;
• eventual preparing of will that specifically covers the property;

 Taxation of the real estate purchase

Pursuant to Art. 10 of the Law on Municipal Taxes and Service Charges (LMTSC) "Tax on immovable properties shall be levied on the buildings and landed properties in the construction boundaries of the settlements and the settlement formations as well as the landed properties out of them, located on the territory of the country, which according to a detailed development plan are with the designation of art. 8, item 1 of the Spatial Development Act, provided that the land use designation is changed, where required pursuant to a special law".

The following properties are exempt from taxes:

1. Тhe landed properties, taken by streets, roads of the republican and the municipal road networks and the railway network, to the limiting construction lines;
2. The landed properties, taken by water sites, state and municipal property;
3. Farm land and forests, with exception of the built-up lands - for the actually built-up area and the adherent terrain;
4. Real estates with tax assessment amounting up to BGN 1680 inclusive.

The taxable persons according to the law are the property owners. They or their legal representatives are required to submit template tax declarations, which can also be submitted electronically. The tax shall be paid regardless of the fact whether the property is used or not.

Within a period of two months after the acquisition of the real estate, the real estate owner shall submit a tax declaration for the annual property taxation in the municipality where the real estate is located. In case of an ownership transfer, the transferee owes a tax as of the beginning of the month, following the transfer of the ownership or the possession, unless the tax has been already paid by the transferor. The municipality official inspects the submitted declarations. He may request additional information about the taxable property, to compare whether the data from the declaration applies with the information from the accounting books, plans, sketches and documents, based on which the property is owned or will be used and, if necessary, also by inspecting the property from the relevant technical authorities. The taxpayer shall provide a copy of the notarial deed, along with a sketch or scheme, depending on whether it is a piece of land, a building or a separate object within the building. The tax estimation gets determined based on the type, the location, the structure, the total area, the construction and the wear and this information is being served to the taxpayer.

The tax rate is being determined through an ordinance, issued by the municipality council and varies between 0.1 and 4.5 per thousand. For a property, where the person resides, a tax benefit of 50% is granted. Accoridng§1, it. 2 of the Additional provisions of the LLTF (Law on Local Taxes and Fees), “a basic home” is the property which serves to satisfy the home needs of the citizen and the members of his family during the predominant part of the year. For a property which is the basic home of a person with from 50% to 100% reduced working capacity, a tax benefit of 75% is provided.

The tax is payable in two equal instalments - until 30th June and until 30th October of the year for which it is due. Persons, who has prepaid the whole annual tax until 30th April, are granted a 5% tax reducing. In case of a transfer of ownership or real estate rights, the tax due, including for the month of sale, shall be paid by the transferor prior to the transfer. For real estates acquired within the current year, the tax shall be paid until the end of the year. In the case the real estate acquisition has taken place after these periods, the tax shall be paid within two months since the acquisition of real estate. The property tax is transferred to the municipality budget, where the real estate is located.

The tax is paid by the real estate buyer. In the event that it is agreed that the tax is payable by both parties, they are jointly and severally responsible. If the parties have agreed that the tax is owed by the transferor, the other party is the guarantor. If the real estate buyer is located abroad, then the sale is obliged with taxes.

The tax is determined on the basis of the property valuation in BGN at the time of transfer. Real estate is being assessed according to the agreed price or is being determined by a state or local authority, and if lower than the tax estimate, after the last one. On the other hand, the tax assessment is determined on the basis of the information and the characteristics, specified within the declaration. In the case of a monetary real estate acquisition, the tax is being determined by the municipal council and varies between 0.1 to 3% of the value of the transferred property. The tax is payable in the municipality, where the property is located.