DIRECT SALE OF REAL ESTATE 

Resident individual

Capital gains

Capital gains from RE realised by resident individuals are subject to tax on the total annual basis of taxation which is provided in the Income taxes on natural persons act.

If housing is sold and more than three years have passed between the date of its acquisition and the date of the sale the gain shall be non-taxable, as well up to two immovable properties as 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 is also non taxable

The annual basis of taxation for resident individuals shall be determined by way of decreasing the capital gains which are in fact the positive difference between the sale price and the acquisition price of the property by the allowed assumed expenses amounting to 10 percent and obligatory instalments for Health insurance. It shall be taxed with tax at a rate of 10%.

VAT / transfer tax

Sale of real estate is subject to the Bulgarian Value-added tax act if the transferred object is located in Bulgaria. Nevertheless, in most cases the transfer of real estates is exempt according to VATA – the transfer of a land and the transfer of a building or of parts of it, which is not new. However, in these cases the provider may choose that the supply be taxable. Therefore, one of the main types of transfer of real estate which shall be always taxable is the transfer of a new building or of parts of it.  Tax base shall be the price stipulated in the sale contract. 

Whether VAT at a rate of 20% shall be charged or not depends on the type of supplies and the provider’s choice as it is mentioned above and of course on whether the provider is registered for value added tax purposes in Bulgaria.

It is important to mention that any non-resident tax liable person that sеlls 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.

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.

А local tax at acquisition of property at a rate of 0,1% - 3% shall be payable and respectively it shall be paid by the acquirer of the property unless otherwise agreed.

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

Losses

Not applicable.

Non-resident individual

Capital gains

Capital gains from RE 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. Capital gains (positive difference between the sale price and the acquisition price of the property) earned by non-resident individuals shall be taxed at a rate of 10% on that difference reduced by 10 percent costs.

The quoted exemptions from taxation of certain sale transactions 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. 

VAT / transfer tax

Transfer (sale) of real estate is subject to the Bulgarian Value-added tax act since the transferred object is in Bulgaria. Nevertheless, in most cases the transfer of real estates is exempt transaction according to VATA – the transfer of a land and the transfer of a building or of parts of it, which is not new. However, in these cases the provider may choose that the supply be taxable. Therefore, one of the main types of transfer of real estate which shall be always taxable is the transfer of a new building or of parts of it.  

Tax base shall be the price stipulated in the sale contract.  Whether VAT at a rate of 20% shall be charged or not depends on the type of supplies and the provider’s choice as it is mentioned above and of course on whether the provider is registered for value added tax purposes in Bulgaria.

It is important to mention that 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.

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.

А local tax at acquisition of property at a rate of 0,1% - 3% shall be payable and 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.

Losses

Not applicable.

Resident company

Capital gains

Capital gains from RE earned by residential companies are subject to corporate tax. Company’s profit which shall be taxed with corporate tax is determined as a difference between the total amount of the revenues / incomes and the total amount of the costs. Capital gains (the positive difference between the sale incomes and the purchase costs) earned by resident company are involved in determining of profit before tax which shall be taxed with corporate tax at a rate of 10%, after having been adjusted for tax purposes. 

VAT/transfer taxes

In most cases the transfer of real estates is exempt according to VATA – the transfer of a land and the transfer of a building or of parts of it, which is not new. However, in these cases the provider may choose that the supply be taxable. Therefore, one of the main types of transfer of real estate which shall be always taxable is the transfer of a new building or of parts of it. Tax base shall be the price stipulated in the sale contract. Whether VAT at a rate of 20% shall be charged or not depends on the type of supplies and the provider’s choice as it is mentioned above and of course on whether the provider is registered for value added tax purposes in Bulgaria.

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.

А tax at acquisition of property at a rate of 0,1% - 3% shall be payable and 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.

Losses

The unused losses can be carried forward for an offset against future taxable profits in the next five years.

Non-resident company

Capital gains

Capital gains from RE earned by non-resident companies are subject to tax at the source. 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. Capital gains (positive difference between the sale price and the acquisition price of the property) earned by non-resident company shall be taxed at a rate of 10% on that difference.

VAT/transfer taxes

Transfer (sale) of real estate is subject to the Bulgarian Value-added tax act since the transferred object is located in Bulgaria. Nevertheless, in most cases the transfer of real estates is exempt transactions according to VATA – the transfer of a land and the transfer of a building or of parts of it, which is not new. However, in these cases the provider may choose that the supply be taxable. Therefore, the one of the main types of transfer of real estate which shall be always taxable deal is the transfer of a newbuilding or of parts of it.   Tax base shall be the price stipulated in the sale contract. 

Whether VAT at a rate of 20% shall be charged or not depends on the type of supplies and the provider’s choice as it is mentioned above and of course on whether the provider is registered for value added tax purposes in Bulgaria.

It is important to mention that 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.

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.

А tax at acquisition of property at a rate of 0,1% - 3% shall be payable and 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.

Losses

Losses from sale cannot be offset against other income in Bulgaria.

INDIRECT SALE 

Indirect sales are through ownership and transfers of shares in companies that possess and manage RE. The indirect effect will be on the prices of shares owned and transferred. 

This creates capital gains from shares for resident persons that are taxed with tax at a rate of 10% only when the investment is realized: transferred/sold. Capital gains from sales of shares in REIT on regulated market are exempt from taxation.

Capital gains from shares earned by non-residential persons are subject to one off tax or tax at the source at a rate of 10%. Capital gains from sales of shares in REIT on regulated market are exempt from taxation if they are received by non-resident companies and individuals established for tax purposes in a Member State of the European Union, or a Member State of the European Economic Area.

TRANSFER BULGARIAN REAL ESTATE TO AN EU-COMPANY

If the transferor’s home jurisdiction is in the European Union, the liability to tax on the capital gains may be avoidable if the merger and acquisition provisions applies. Several detailed conditions apply which can be found in the Council Directive of 19 October 2009.