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Tax considerations

Wednesday, Oct 08, 2008

If you are considering an investment in Bulgaria or just a permanent move here, you need to understand what taxes you have to pay. Jonathan White author of “Buying a Property in Bulgaria” takes us through the steps needed to understand the Bulgarian taxation system.
If you are going to buy a property in Bulgaria then it is well worth spending some time understanding the basics of the tax system. You will need to consider various taxes depending on whether you are buying, selling or renting your property out. This chapter presents the basic facts about tax, so that you can at least establish what they are – and when you meet with a Bulgarian accountant (which I strongly recommend) you have at least a basis from which to start your discussions.
So, read on and prepare to be enlightened!

Property Purchase Tax

Property purchase taxes include those taxes payable on the purchase of your property:
1. the municipal tax (equivalent to the stamp duty) at 2 per cent of the
purchase price and
2. the local court tax of 0.1 per cent of the purchase price.
These taxes are paid after you have signed the notary deed and are usually paid in Leva.

Annual Tax

There is also an annual tax to pay on your property, with an additional ‘garbage’ tax for the collection of rubbish from your home. The annual property tax for individuals is 0.15% of the tax evaluation price for a property (or regulated land). There is no property tax to pay for unregulated land. If the property / land is owned by a Bulgarian company, then the 0.15% tax is payable on the price declared for the asset in the company’s balance sheet. Garbage tax varies according to the local municipality in which the property is situated. Typically, allow between 0.15% - 0.7% for this tax.

Tax to Pay on Rental Properties

If you are renting out your property to tenants then you must also take into account the tax payable on the profit that you make from this rental. As a resident of Bulgaria, you will be taxed according to the income tax table. If you are a non-resident, then you will be taxed at a flat rate of 15 per cent on the taxable profit (i.e. a withholding tax).You must also consider any additional tax payable in your country of residence based on your worldwide income.

Personal Tax

The tax that you pay will depend on your residency status. As a resident, income tax is now based on a flat tax rate of 10% from January 2008. Prior to this, income tax was based on a progressive scale of tax rates from 0 to 24%. In recent years, the Bulgarian government has consistently made changes to income tax rates annually. Therefore, you must always check the current tax legislation or contact a Bulgarian accountant to get the latest information. If you are a non-resident then you are liable to pay a 10 per cent withholding tax on any rental income you receive on your Bulgarian property. If you are a resident of the United Kingdom, for example, you must also consider the fact that there may be additional tax to pay to the UK government. After paying any income tax on the rental income to the Bulgarian government you may have to consider paying any remaining income tax to the UK government, depending on which tax bracket you fall into. This is because, as a UK-resident, you are liable to pay tax on your worldwide income. My advice would be to get a good accountant! A double taxation agreement exists between the UK and Bulgaria – hence the split of taxes described above. If you are not from the UK, you will need to check whether there is a double taxation agreement between your country and Bulgaria. At the time of writing, double taxation agreements have been established for the following countries: Albania, Armenia, Austria, Belarus, Belgium, China, Croatia, Cyprus,Czech Republic, Denmark, Finland, France, Georgia, Germany, Greece, Hungary, India, Indonesia, Republic of Ireland, Israel, Italy, Japan, Kazakhstan, Lebanon, Luxembourg, Macedonia, Malta, Morocco, Moldova, the Netherlands, Norway, North Korea, Poland, Portugal, Romania, Russian Federation, Spain, Singapore, Slovak Republic, South Korea, Sweden, Switzerland, Syria, Thailand, Turkey, Ukraine, United Kingdom, Vietnam, Yugoslavia, Zimbabwe.
In order to reduce your tax payments you should of course seek independent tax advice from a qualified accountant, preferably with some international experience.

If you are buying as a couple, putting the property in both your names can help by splitting the tax liability. Since you would benefit from the fact that each of you has a personal tax allowance – and it may be that one of you is also a lower rate tax payer. With the property in both your names, the income you receive can be divided equally between you, and then you are each taxed separately on your equal share of the income.

I should point out here, of course, that these personal tax liabilities may not be relevant if you have bought a property under a company. This is because the purchase of the property was under a corporate structure and not an individual one. Hence you would need to consider the corporate tax liability instead.

Extract from Jonathan White’s “Buying a Property in Bulgaria” published by How To Books Ltd. Jonathan White. Jonathan first travelled to Bulgaria in 2003 – one of many subsequent trips.
It was not long before he fell in love with the country and acquired a real estate portfolio and a passion to share his experiences with others.

Source: Quest Bulgaria Property Magazine