DIRECT PURCHASE OF REAL ESTATE

This paragraph discusses the most important tax implications for the direct purchase of real estate. First of all, the impacts for resident individuals and non-resident individuals are discussed. Thereafter the impacts for resident companies and non-resident companies are discussed. 

Resident Individuals

Transfer Taxes

Individuals that acquire Bulgarian real estate are subject to transfer taxes unless otherwise agreed. 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 and the tax shall be at a rate of 0,1% - 3%. 

Value-added tax 

In most cases the transfer of real estate is exempt according to VATA – the transfer of a land and the transfer of a building that is not new or of parts of it. However, in these cases the provider may choose that the supply be taxable.

If the building is new or the provider chooses a nontaxable supply to be taxable VAT at a rate of 20% shall be charged if the provider is registered for value added tax purposes in Bulgaria.

In case with VAT charged, there would be the possibility of input VAT deduction for the purchaser if the real estate will be used for business purposes and the acquiror becomes registered for value added tax purposes in Bulgaria.

Non-resident individuals

Transfer Taxes

When the acquirer of the property is abroad the tax obliged person for the transfer taxes shall be the transferor. 

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 and the tax shall be at a rate of 0,1% - 3%. 

Value-added tax

In most cases the transfer of real estate is exempt according VATA – the transfer of a land and the transfer of a building that is not new or of parts of it. However, in these cases the provider may choose that the supply be taxable.

If the building is new or the provider chooses a nontaxable supply to be taxable VAT at a rate of 20% shall be charged if the provider is registered for value added tax purposes in Bulgaria.

In case with VAT charged, there would be the possibility of input VAT deduction for the purchaser if the real estate will be used for business purposes and the non-residential individuals become registered for value added tax purposes in Bulgaria.

Resident companies

Transfer Taxes

Companies that acquire Bulgarian real estate are subject to transfer taxes unless agreed otherwise. 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 and the tax shall be at a rate of 0,1% - 3%. The transfer tax is deductible as business costs if the real estate will be related to the business activity.

Value-added tax 

In most cases the transfer of real estate is exempt according to VATA – the transfer of a land and the transfer of a building that is not new or of parts of it. However, in these cases the provider may choose that the supply be taxable.

If the building is new or the provider chooses a non-taxable supply to be taxable VAT at a rate of 20% shall be charged if the provider is registered for value added tax purposes in Bulgaria.

In case with VAT charged, there would be the possibility of input VAT deduction for the purchaser if the real estate will be used for business purposes and if the person becomes or is registered for value added tax purposes in Bulgaria.

Deductibility of costs

The acquiror of RE can deduct following items as acceptable costs: Depreciation costs, interest costs, maintenance costs, and operating costs. They are all deductible if the real estate subsequently to the purchase is used for business purposes. The acquisition cost or building costs of real estate can be depreciated for tax purposes if they are used for business purposes with annual amortization rate which does not exceed 4%. 

Non-resident companies

Transfer Taxes

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

Value-added tax

In most cases the transfer of real estate is exempt according to VATA – the transfer of a land and the transfer of a building that is not new or of parts of it. However, in these cases the provider may choose that the supply be taxable.

If the building is new or the provider chooses a supply to be taxable VAT at a rate of 20% shall be charged if the provider is registered for value added tax purposes in Bulgaria.

In case with VAT charged, there would be the possibility of input VAT deduction for the purchaser if the real estate will be used for business purposes and if the person becomes registered for value added tax purposes in Bulgaria.

Deductibility of costs

Depreciation costs, interest costs, maintenance costs, operating cost or other costs are not deductible costs in Bulgaria.

INDIRECT PURCHASE OF REAL ESTATE 

This paragraph discusses the most important tax implications for the indirect (shares) purchase of real estate. First, the impacts for resident individuals and non-resident individuals are discussed. Thereafter the impacts for resident companies and non-resident companies are discussed. 

Resident individuals

Most common forms of indirect investments in RE are in shareholding companies with special purposes (ADSIC) that are like REIT and companies managing and operating RE.

Personal income tax

Individuals who hold shares in a Bulgarian company carrying out real estate transactions are entitled to receive dividend income from the distribution of profit. REIT (ADSIC) companies are obliged to distribute as a dividend at least 90% from the annual profit.

The shareholders could also earn profit from the increase in the share’s price when they sell them. In this case capital gains (positive difference between the sale price and the acquisition price of the shares) shall be taxed with tax at a rate of 10% on that difference.

Capital gains from sales of shares in REIT on regulated market as determined by Bulgarian law are exempt from taxation.

Dividend tax

Shareholders in a Bulgarian company managing RE are subject to a 5% dividend one off tax in case of distribution of dividend. The basis is the gross amount of the dividend 

Deductibility of costs

There is no opportunity for individual to deduct costs in this case.

Non-resident individuals

Personal income tax

Individuals who hold shares in a Bulgarian company carrying out real estate transactions are entitled to receive dividend income as a form of distribution of profit. REIT companies are obliged to distribute as a dividend at least 90% from the annual profit.

The shareholders could also earn profit from the increase in the shares’ prices when they sell them. In this case capital gains (positive difference between the sale price and the acquisition price of the shares) shall be taxed with tax at a rate of 10% on that difference.

Capital gains from sales of shares in REIT on regulated market as determined by Bulgarian law are exempt from taxation 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.

Dividend tax

Shareholders in a Bulgarian company are subject to a 5% dividend one-off tax in case of distribution of dividend.

Deductibility of costs

There is no opportunity for individual to deduct costs in this case.

Resident companies

Corporate income tax

Income, related to shares in real estate companies (like ADSIC similar to REIT), earned by resident company is involved in the determining of the company’s profit before tax, which after certain adjustments for tax purposes shall be taxed with corporate tax at a rate of 10%.  

Capital gains from sales of shares in REIT on regulated market, determined by Bulgarian Law are exempt from taxation.

Dividend tax

income realised because of distribution of dividends from local legal entities and from foreign entities that are residents for tax purposes of a member state of the European Union or of another state party to the Agreement on the European Economic Area are not taxed.

Non-resident companies

Corporate income tax

Profits related from shares in real estate companies, earned by non-resident company is charged as a tax at a source on the gross amount of the dividend in case of dividends and on the positive difference between sale prices and cost of purchases of shares in case of realized capital gains from sales of shares 

Capital gains from sales of shares in REIT on regulated market determined by Bulgarian law are exempt from taxation.

Dividend tax

Dividends paid to non-resident company are exempt from tax at the source only if they are foreign legal entities that are resident for tax purposes of a member state of the European Union or of another state party to the Agreement on the European Economic Area, except for cases of hidden profit distribution.