Bulgaria Company Formation

Introduction

Bulgaria, officially the Republic of Bulgaria is a country in southeastern Europe. It is bordered by Romania to the north, Serbia and Macedonia to the west, Greece and Turkey to the south, and the Black Sea to the east. With a territory of 110,994 square kilometers. Bulgaria is Europe’s 16th-largest country. Bulgaria’s population of 7.4 million people is predominantly urbanized and mainly concentrated in the administrative centers of its 28 provinces.

Language

The official and spoken dialect of Bulgaria is Bulgarian.

Economy

Situated in the center of Balkan Peninsula, on the road between Europe and Asia, Bulgaria has a lot of advantages to offer to the foreign and local investors. The main developed sector is the service sector represented by the tourism, Bulgaria being an attractive holiday destination due to its advantageous prices and beautiful landscape.  Other developed sector is the agriculture.

The population is highly educated, English speaker, this leading a reputable workforce. The major advantages granted by the Bulgarian government are the taxation system, one of the lowest from EU, with a profit tax of only 10% and the small withholding taxes on dividends paid to non–residents of 5% and withholding taxes on interests paid to non-residents up to 10%. All the above can be minimized or even exempt by the vast network of double taxation treaties signed by Bulgaria so far.

Business Entities and Formation of Company in Bulgaria

The types of business organizations, most often used in Bulgaria are Limited Liability Company (LTD/LLC), Joint Stock Company (JSC), branch and trade representation.

Limited Liability Company

It is the business type most popular among investors and entrepreneurs because of the minimum capital requirements, simplified structure and management. LLC can be established by one or more persons – individuals and/or legal entities. Shareholders in LLC may be Bulgarian and/or foreign individuals and/or legal entities.

The minimum share capital of Bulgarian LTD is 2 BGN (two Bulgarian Leva), which is equal to approximately 1 EUR (1 Euro).

The company shares may be transferred by a notarized contract for transfer of shares. Transfer of shares is possible between shareholders or to a third party.

The company is governed by a Manager. This position may be occupied by one or more persons. Only a natural person may be appointed as a manager of LTD. The manager can be a shareholder or a third person and there are no restrictions for his/her nationality.

Joint Stock Company

JSC is another widely used type of business organization and startup. The most intriguing for investors are the lack of legal restrictions on the transfer of shares and the lack of personal commitment of shareholders in the company activity. This type of company could be founded by one or more Bulgarian and/or foreign individuals and/or legal entities.

The minimum registered capital for registration and operation of JSC is 50 000 BGN (fifty thousand Bulgarian Leva), which is equal to approximately 26 000 EUR (twenty six thousand Euro). For certain types of activities, such as banking or insurance activities, a higher minimum capital is required. At the moment of company formation at least 25 % of the value of each share must be paid. This means that the minimum for starting the company registration is 12 500 BGN, as the remainder of total capital (37 500 BGN) shall be paid within two years.

The company is governed by Board of Directors (in one-tier system) or by Supervisory Board and Management Board (in two-tier system). It is required at least 3 persons to participate in the governing body.

Shares of a joint stock company are tradable instruments. The shares may be:

  • registered shares or bearer shares;
  • common shares or preferred shares;
  • stock shares or dematerialized shares;

The transfer of registered shares must be recorded in the book of registered shareholders of JSC. In most cases, the acquisitions of shares by new shareholders doesn’t meet with special difficulties.

Bulgarian General Partnership

A general partnership is a company formed by two or more persons for the purpose of conducting commercial transactions by occupation, under a joint trade name. This kind of enterprise does not require a minimum amount of capital. The partners bear joint and unlimited liability, beyond the amount invested by each one. Profits are shared equally, and each general partner has an equal right to participate in the management and control of the business.

Bulgarian Limited Partnership

This organization is established by one or more general partners who manage the project, and limited partners who invest money, but have limited liability in conformity with the amount of the agreed upon contribution. Usually limited partners receive income, capital gains, and tax benefits, similar to a dividend. The general partner collects fees and a percentage of the income and benefits, previously established.

Bulgarian Partnership Limited by Shares

This kind of partnership is defined by a transitional entity between a joint-stock company and a limited partnership. The general partners have unlimited liability, while a minimum of three limited partners have a liability influenced by their share contribution. The general partners form the company and have the right to select their limited partners from subscribers. The provisions and the organs of the partnership limited by shares are applied as in the joint-stock company.

Sole Proprietorship

The company is owned and run by one person. There is no legal distinction between the owner and the business. The owner’s personal property and assets are tied to the company and vice versa. All possible liabilities can lead to seizure of personal property. 

Branch

Opening a branch is one of the ways for the realization of business operations of a foreign company in Bulgaria. Foreign companies registered as traders in the country where they are established are able to organize their business in Bulgaria by registration of branch of a foreign trader.

Branch of a foreign trader is being created with registration in the Commercial Register. After its formation, according to Bulgarian legislation, the branch of a foreign company is not an independent legal entity but it has a certain degree of independence from the parent company. There is a requirement for the branch to have independent accounting and to draw up separate balance sheet. Assets and liabilities of the branch are considered as assets and liabilities of the parent company.

The branch is governed by a Manager. Regarding the taxes, as place of business (a permanent establishment) of the branch of foreign company shall be considered Bulgaria. For tax purposes the foreign parent company will be liable to corporate tax on profits from the activity of the branch in Bulgaria.

Trade Representative Office

A foreign person or legal entity may register a trade representative in Bulgaria, provided that it is entitled to conduct business under the national law of its home country. Trade representative office (commercial representation) is being registered in the Bulgarian Chamber of Commerce and Industry.

TRO is not a separate legal entity and cannot carry out business activity. Thus, commercial representation aims to carry out activities such as promotions, exhibitions, demonstrations, training or advertising of products and services. Therefore, in general TRO does not generate any income and it is not a subject to corporate tax in Bulgaria.

If TRO is involved in business activities in the country it can be classified as “a permanent establishment” for the purposes of taxation and the foreign parent company will be liable to corporate tax on profits in Bulgaria made as a result of business activity of the TRO.

Bulgarian Foundations

Forming a foundation is especially beneficial when the ultimate beneficial ownership of a company or business, including investment assets needs to be structured in a neat and orderly fashion. The functioning of Foundations in Bulgaria is governed by a thorough and far-reaching statutory act. We can provide professionals to act as some or all of the governors under trust. The founder(s) of the foundation can be any person and even a third person. The beneficiaries can be either explicitly named persons or people that meet certain criteria or decided by the board. In all cases the structure can be fine-tuned to meet your needs, requirements and ultimate objectives. This structure can be used for both temporary and permanent needs and survive generations intact.

Company Formation of Bulgaria

Preliminary procedure before registration. At the beginning of company incorporation in Bulgaria, the entity’s representative must execute the minutes of the constituent meeting of the shareholders or the general meeting of the general partners. After that, it is mandatory to obtain a notary certified statement of consent, the signature specimen of the manager and a certified copy of the articles of incorporation or the partnership agreement. A certificate from a bank stating that at least 70% of the minimum required capital has been paid must be obtained before starting the actual entity registration. The certified statement of consent and signature specimen of the manager must be notarized.

The actual registration process of a company in Bulgaria consists in depositing the notarized foundation deeds, minutes of the meeting of incorporation and the bank certificate stating the share capital. The procedure takes around four working days.

After that, the following step of the company incorporation in Bulgaria consists in filling an application to the National Revenue Agency accompanied by the foundation deed, the bank account document or a document attesting the contributions value, an excerpt from the Commercial Register in order to get the VAT number. This process doesn’t take longer than 12 working days.

The whole process of Bulgarian company incorporation performed by a Bulgarian law firm takes around two working weeks. After the registration, you should hire an accountant and we can recommend you a professional, because we are in contact with many specialists in accounting in European countries.