Quick overview of Bulgarian real estate

QUICK OVERVIEW OF BULGARIAN REAL ESTATE

Real estate taxation for individuals:

Real estate taxation for companies:

Rental income and capital gains of Bulgarian real estate

Rental income

Individuals 

Introduction

Real estate rental income for residential individuals is taxed as a part of a taxpayer’s annual income according to the Personnel Income Tax Act. 

Rental income for non-residential individuals is based on the gross rental income and is taxed with one off tax.

Liability to tax 

The tax liability becomes due when the income is earned for residential individual and for non-residential individual. 

The income becomes earned when it is received, which is on the date of payment – when paying in cash or on the date of verification of the recipient's account - in case of non-cash payment.

The liability for residential individuals is paid in advance by the end of the month following the quarter in which the income is acquired either by the individual that receives the income or by the party that pays the rent.

The liability for non-residential individual shall be paid by the end of the month following the quarter in which the income is acquired either by the non-residential individual or by the party that pays the rental.

Basis to tax

The taxable income from rent or from other remunerative provision for the use of movable or immovable property by resident individuals is determined as the acquired income is reduced by 10 percent as tax allowable costs. 

The annual income tax base of resident individuals from rent or other remunerative provision for the use of rights and property acquired during the tax year, is determined as the taxable income as determined above, is reduced by the contributions that the person is obliged to make for the tax year at his own expense in accordance the Health Insurance Act (if certain criteria are met). That tax base shall be taxed with personnel income tax at a rate of 1.

Rental income received by non-resident individuals is subject to one-off tax. The OECD model tax convention provides explicit section for the real estates in article 6. According to this article the right to tax income from real estate is given to the state of source, that is, the state in which the property producing such income is situated.

Rental income earned by non-resident individuals shall be taxed with one off tax at a rate of 1 on the gross amount of the income.

Companies

Introduction

Real estate rental income is part of the company’s revenues and profit before tax. Tax due is determined by Corporate income Tax Аct.

Liability to tax

Rental income earned by resident companies is subject to corporate tax over a tax basis that is formed from the profit before tax for accounting purposes that is adjusted for tax purposes Rental income is earned when accrued. 

Rental income earned by non-resident companies is subject to tax at the source which is also provided in the Corporate Income tax act. The OECD model tax convention provides an explicit section for real estate in article 6. According to this article the right to tax income from real estate is given to the state of source, that is, the state in which the property producing such income is situated.

Basis to tax

Rental income earned by residential company is part of the profit before tax of the company.  Profit before tax shall be taxed with corporate tax at a rate of 1 after having been adjusted for tax purposes. 

Rental income earned by non-resident company shall be taxed with tax at the source at a rate of 1 on the gross amount of the income.

Capital gains

Individuals

Introduction

Real estate capital gains are the positive difference in the value of real estate. The tax liability is on the realised capital gains. Unrealised profits are not taxed. 

Liability to tax 

The taxable income from the sale or exchange of immovable property, including limited real estate rights on such property for resident individuals, is taxed as part of the annual tax base of these individuals. The taxable income is determined by the positive difference between the sale price and the acquisition price of the property reduced by 10 percent of tax allowable expenses.

The taxable income arising from capital gains realised by resident individuals is subject to tax on the total annual basis of taxation. However, there are two exemptions from taxation. These are the capital gains derived from an immovable residential property, if more than three years have passed between the date of acquisition and the date of sale or exchange and capital gains of up to two immovable properties, as well up to two immovable properties including agricultural and forest properties, regardless of their number, if more than 5 years have passed between the date of acquisition and the date of sale or exchange.

The quoted exemptions from taxation valid for resident individuals are applicable also for non-resident individuals that are established for tax purposes in a Member State of the European Union, or a Member State of the European Economic Area. The circumstances shall be evidenced to the payer of the income by way of a document issued by the tax administration of the State in which the person is settled for tax purposes and a declaration of the recipient of the income stating the presence of the circumstances for the exemption. 

Capital gains realised by non-resident individuals are subject to one off tax. The OECD model tax convention provides explicit section for the real estates in article 6. According to this article the right to tax income from real estate is given to the state of source, that is, the state in which the property producing such income is situated. 

Basis to tax

The annual basis for taxation for resident individuals shall be determined by subtracting from taxable income as determined above the required, if any instalments for Health care insurance. Thus, this basis is included in the tax declaration and is charged at 1.

Capital gains (positive difference between the sale price and the acquisition price of the property) earned by non-resident individualsshall be taxed with one off tax at a rate of 1 on that difference reduced by 10 percent tax allowable costs.

Companies

Introduction

Real estate capital gains are part of company’s revenues and profit before tax and obligations are determined under the corporate income tax act. Capital gains are taxed when realised. Unrealised capital gains are not taxed. The taxation is deferred till realised i.e., sold.

Liability to tax

Capital gains are subject to taxation depending on the whether the income is realised or not. Should income be realized capital gains are taxed as part of the profit before tax, which is then adjusted for tax purposes and then a tax is charged. If not realized, the income tax is not due until gain is realized.  

Capital gains earned by non-resident companies are subject to a tax at the source which is stipulated in the corporate income tax act. The OECD model tax convention provides explicit section for the real estates in article 6. According to this article the right to tax income from real estate is given to the state of source, that is, the state in which the property producing such income is situated.

Basis to tax

Resident company’s profit which shall be taxed with corporate tax is determined as a difference between the total amount of the revenues and the total amount of the costs. Capital gains (the positive difference between the sale incomes and the purchase costs) earned by resident company becomes part of profit before tax and is taxed with corporate tax at a rate of 1. The profit before tax is adjusted for tax purposes and the basis for taxation is thus formed. 

Capital gains (positive difference between the sale price and the acquisition price of the property) earned by non-resident company shall be taxed with tax at the source at a rate of 1 on that difference.

Bulgarian VAT tax on RE

Rental income

Individuals

Introduction

Value-added tax (VAT) has specific rules depending on the real estate type. 

Liability to tax

• Тhe rental of a land is exempt from taxation under VAT. However, in this case the provider may choose that the supply be taxable.
• Rental of a building or part of it for housing/dwelling to natural person, different from rental to a trader, is exempt from taxation under VAT. However, in this case the provider may choose that the supply be taxable.
• Therefore, а type of rental of real estate which shall be always taxable is the rental of a building or part of it to trader – natural person or entity.  

Basis of tax

Tax base shall be the price stipulated in the rental contract for the period of rent which is commonly determined per month.

VAT is due only if a supplier is tax liable person and registered per the law. This is valid either for resident or not resident individuals

It is important to mention that any non-resident tax liable person that rents real estate as a taxable supply is obliged within 7 days before the date on which the tax becomes chargeable, to submit an application for registration under the VATA.

Companies

Introduction

Value-added tax (VAT) is due by tax liable persons under the law for taxable deals with RE. 

Liability to tax

• Тhe rental of a land is exempt from taxation under VAT. However, in this case the provider may choose that the supply be taxable.
• Rental of a building or part of it for housing/dwelling persons to natural person, different from rental to a trader. However, in this case the provider may choose that the supply be taxable.
• Therefore, the type of rental of real estate which shall be always taxable is the rental of a building or part of it to trader – natural person or entity.  

Basis of tax

Tax base shall be the price stipulated in the rental contract for certain period which is commonly a month.

VAT is due only if a supplier is tax liable person that is registered per the law. This is valid either for resident or not resident companies.

Regardless of the taxable turnover any non-resident tax liable person that rents real estate as a taxable supply is obliged within 7 days before the date on which the tax becomes chargeable, to submit an application for registration under the VATA.

Transfer of Real Estate  

Individuals

Introduction

Value-added tax (VAT) is charged over taxable deals. Under VAT rules some transfers / sales are exempt from VAT tax. 

Exempt deals under VAT are:

• Exempted delivery for VAT purpose is the delivery of buildings or parts of them that are not newly built, the delivery of the land adjacent to them, as well as the establishment and transfer of other real rights over them.
• An exempt supply is the transfer of the right of ownership over land, the establishment or transfer of limited real rights over land, as well as the letting and leasing.

Taxable deals under VAT are: 

1. the transfer of title to regulated land with the exception of the land adjacent to buildings that are not newly built; 
2. the transfer of ownership rights or other real rights, as well as the leasing of equipment, machines, facilities and buildings fixed to the ground or built below the surface; 
3. the transfer of title or other real rights, as well as the leasing of campsites, caravan parks, holiday camps, parking areas and the like;
4. the transfer of ownership of land adjacent to new buildings, as well as the establishment and transfer of other real rights on these lands;
5. transfer of new buildings.

Liability to tax

Tax liabilities arises when taxable transfers are either performed or when payments of due prices are made.

Any non-resident tax liable person that sells real estate as a taxable supply is obliged within 7 days before the date on which the tax becomes chargeable, to submit an application for registration under the VATA.

Basis of tax

Tax base shall be the price stipulated in the sale contract. 

Whether VAT at a rate of 2 shall be charged or not depends on whether the individual will be deemed as tax liable person that is registered under VATA and if the sale itself is taxable. 2 VAT will be charged for taxable deals which are provided above.

Interaction with transfer tax

The tax base shall increase with all other due taxes and fees for the supply when they are paid on behalf of and at the expense of the supplier and they are requested by the supplier.

Companies

Introduction

Value-added tax (VAT) is charged for taxable deals only.  Taxable deals under VAT are : 

1. the transfer of title to regulated land with the exception of the land adjacent to buildings that are not newly built; 
2. the transfer of ownership rights or other real rights, as well as the leasing of equipment, machines, facilities and buildings fixed to the ground or built below the surface; 
3. the transfer of title or other real rights, as well as the leasing of campsites, caravan parks, holiday camps, parking areas and the like;
4. the transfer of ownership of land adjacent to new buildings, as well as the establishment and transfer of other real rights on these lands;
5. transfer of new buildings.

Liability to tax

Tax liabilities arise when taxable transfers are either performed or when payments of due prices are made. 

It is important to mention that any non-resident tax liable person that sales real estate as a taxable supply is obliged within 7 days before the date on which the tax becomes chargeable, to submit an application for registration under the VATA.

Basis of tax

Tax base shall be the price stipulated in the sale contract. 

Interaction with transfer tax

The tax base shall increase with all other due taxes and fees for the supply when they are paid on behalf of and at the expense of the supplier and they are requested by the supplier.

Transfer Taxes of RE – Local taxes aspect

Individuals

Introduction

The transfer of real estate is subject to levying of the Local taxes and fees act.

Liability to tax

More specifically the acquisition of real estate itself is subject of the quoted act and a tax at acquisition of property shall be payableand respectively it shall be paid by the acquirer of the property unless otherwise agreed.

When the acquirer of the property is abroad the tax obliged shall be the transferor.

Basis of tax

The basis of tax shall be the valuation of the property (the agreed price or a price determined by a state or a municipal body) in BGN by the moment of transfer.

The tax shall be at a rate of 0,1% - 3% when the transfer is made for payment (sale). 

The tax shall be at a rate of 0.4 – 0.8 percent – for grant between brothers and sisters and their children.

The tax shall be at a rate of 3.3 – 6.6 percent – for grant between persons different than mentioned above.

Exemptions

Exempt from tax shall be the properties acquired by the state and the municipalities and on the whole organizations related to them.

Exempt from tax shall also be the properties, acquired as grant between relatives of direct line and between spouses.

Companies

Introduction

The transfer of real estates is subject to levying of the Local taxes and fees act.

Liability to tax

More specifically the acquisition of real estate itself is subject of the quoted act and a tax at acquisition of property shall be payableand respectively it shall be paid by the acquirer of the property unless otherwise agreed.

When the acquirer of the property is abroad the tax obliged shall be the transferor.

Basis of tax

The basis of tax shall be the valuation of the property (the agreed price or a price determined by a state or a municipal body) in BGN by the moment of transfer.

The tax shall be at a rate of 0,1% - 3% when the transfer is made for payment (sale). 

The tax shall be at a rate of 3.3 – 6.6 percent – for grant. 

Exemptions

Exempt from tax shall be the properties acquired by the state and the municipalities and on the whole organizations related to them.

Bulgarian Local taxes on Real Estate

Introduction

Real estate tax is levied on buildings and land located on the territory of the country. 

Liability to tax

Tax obliged persons are the owners of the real estate.

No tax shall be levied on real estate with tax assessment amounting up to BGN 1680 inclusive and on real estate owned by the state and the municipalities by public ownership and on the whole organizations related to them.

Basis of tax

The basis of tax shall be the tax valuation of the property prepared by January 1 of the year for which it is due, and the tax shall be at a rate within the range of 0,1‰ – 4,5‰. The tax valuation depends on the kind of the property, the location, the area and the construction. For a property which is a basic home, the tax due decreases with 5.

Bulgarian Net Wealth/worth taxes 

There is no net wealth/worth tax for individuals or companies in Bulgaria.

Vehicles for Bulgarian real estate

Commonly used vehicles for Bulgarian real estate

Here are listed main vehicles for RE: 

• Companies that construct and sell or rent RE;
• Companies that are created to invest in RE (ADSIC) similar as REIT;
• Institutional investors that hold interests in RE;
• Direct investments in RE of different types 
• Private or public companies that operate RE like hotels, leisure camps, touristic villas etc.