Before purchasing real estate it is recommended that you ensure verification of the ownership status of the targeted property, including the following: 1. The seller is the owner of title of the property; 2. There are no registered liens and/or encumbrances over the targeted real estate, e.g., mortgages, interlocutory injunctions, going-concern pledges, limited property rights in favor of third parties; 3. There are no other registered rights in favor of third parties – if there are registered rental or lease agreements over the targeted real estate then the buyer shall be bound by them until the expiration of their term; 4. There are no court or restitution claims; 5. The targeted real estate has all necessary construction permits if buying off-plan.

    RESERVATION DEPOSIT
Once one has found a property he wishes to buy, he needs to pay a reservation deposit to the seller. This is done in order for the seller to stop the marketing of the relevant real estate, thus avoiding double sales of one and the same property.

    PRELIMINARY CONTRACT
Once the checks on the property have been carried out, and after guaranteeing that the legal situation of the property allows the sale to take place, the buyer can sign the so-called Preliminary Contract.
This contract is called preliminary because it cannot itself transfer title on the property – a final contract in the form of a notary deed is needed. The Preliminary Contact describes the buyer and the seller, the property, the sale’s price, the method of payment, the date when the notary deed shall be signed, the date the buyer shall take possession of the property, rights and obligations of the parties, penalties in the event of default, etc. On one hand it allows the buyer to raise the funds necessary for the transaction and on the other hand it allows the seller to obtain all necessary documents for the transfer of the title. This contract is binding since if one of the parties refuses to perform under it the other party may go to the court to enforce it.

 The developer organizes and finances the whole construction process, issues all relevant documents, permits and certificates, controls the process and delivers the individual properties to their buyers. Since the developer is the owner of the land plot or the right to build upon the completion of the building he becomes the owner of all apartments in the premises. Then the developer starts to transfer the title of the apartments to the individual buyers by notary deeds. With the preliminary contract both the developer and the buyer assume an obligation to appear before a competent notary public once the building is completed and to transfer the title from the developer to the buyer. It is legally binding obligation and if one of the parties refuses to appear before the notary the other party can file a claim before the respective court and enforce the contract. The court decision will replace the final contract in the form of a notary deed and will transfer the title on the property to the buyer.

    COMPLETION (SIGNING THE TITTLE DEED)
The right of ownership of real estate is transferred in the form of a notary deed. The notary deed is a type of contract which form and content are prescribed by law. It is executed by a notary public within whose region the real estate is located. As the notary is under obligation to check the identity of the parties, their capacity, the authority of the representatives and the good title of the transferor, the process of execution of the notary deed offers considerable security. After the deed is executed it is registered by a registry judge upon request of the notary. Immediately after the deeds have been signed, the buyer is handed the property keys, and can take possession of the latter.
Upon execution of the notary deed certain taxes, charges and fees are due. A 2% local tax levied upon the price agreed between the parties, or the valuation of the property by the tax authorities, whichever is higher, is due. The notary fee is calculated according to rates specified in the law and it is up to 1%, depending on the price indicated in the title deed. Thirdly, a charge for the registration of the notary deed by the registry judge need be paid, amounting to 0.1 per cent of the price.

    POWER OF ATTORNEY
Usually everyone should sign all relevant documents (reservation agreements, preliminary contracts, notary deeds, mortgage deeds, bank account documents, etc.) by himself. Often this proves to be difficult since the person cannot come to sign the documents by himself and in this case he can authorize someone to do it on his behalf. The authorization is done through a Power of attorney, by the virtue of which the buyer authorizes third person (usually a solicitor) to do the relevant acts on his behalf. The power of attorney does not bind the proxy to do the act on behalf of the authorizer but only empowers him to do so. In order to have a binding effect another contract between the authorizer and the attorney is need – a service contract, which stipulates the rights and the obligations of each party. With a simple power of attorney signed by the represented person the proxy may perform various activities on behalf of the authorizer, however he cannot sign notary deeds, mortgage deeds or bank documents. In order to do so, the proxy needs a power of attorney with a notary verification of the signature. The notary verification can be done at any Bulgarian notary public in Bulgaria or in every Bulgarian consulate abroad. Another option is to get the Power of attorney notarized by a notary public in one’s respective country which is then legalized by the respective authorities in the country by appostile. The power of attorney then can be freely recognized in Bulgaria.

    PAYMENTS
Usually the payments are executed not directly to the seller but to purchasers’ own solicitors. The solicitors keep the money in their clients’ accounts. The solicitors’ clients’ accounts are regulated by the law. The relations between the client and the solicitors are fixed in a contract between them.

TAXES
 
    V.A.T.
VAT is chargeable on the sale of real estate in Bulgaria and it amounts to 20% of the purchase price. When one buys he pays the VAT as well, which the seller collects and remits to the government.

    ANNUAL PROPERTY TAX AND WASTE COLLECTION FEES
Owners of real estate in Bulgaria are liable to pay an annual tax and waste collection fees on the tax valuation of the property. The tax evaluation is determined by statutory rates and it depends on the location, structure, size, depreciation, etc., of the property. Generally these taxes are paid in four installments per year and in most of the cases do not surpass 150 Euro per annum.

    CAPITAL GAINS TAX
Capital gains tax is charged on the positive difference between the acquisition price and the resale price. The tax rate is 10%, however since the 1st of January 2007, there are some exemptions for both Bulgarian and EU tax residents:
- If one dwelling (house, apartment) is sold in the respective year – no capital gains tax is due on the profit;
- If two properties are sold in the respective year, no capital gains tax is due if they have been owned for at least five years.
 
    INCOME TAX FOR INDIVIDUALS
Generally speaking if one is Bulgarian tax resident he is subject to tax on all his incomes, regardless where acquired. If one is Bulgarian non-resident he shall be subject to tax on incomes with a source in Bulgaria only. These incomes are taxed with a final withholding tax at the source – if the person one is reselling to is a Bulgarian company, sole trader etc., he is obliged to collect the tax before transferring the income to the seller. If the person is not obliged to collect the tax from seller, the latter should pay it by himself within 30 days from the transaction.
 
    BULGARIAN TAX RESIDENTS
Irrespective of their citizenship, Bulgarian tax residents are deemed those persons who have their permanent domicile in Bulgaria or reside in the country for more than 183 days in any 365 days’ period (in this case the individual becomes a resident taxpayer for the calendar year in which the 183-day threshold is exceeded). Resident taxpayers are taxed in Bulgaria on their worldwide income – on incomes with source both in Bulgaria and abroad. All others are deemed non-residents and they have tax liability only for their income derived from Bulgarian sources. An income derived from a transaction with a real estate is always deemed to be from a source in Bulgaria. Income from flipping (selling a preliminary contract before the title deed) between foreign residents is usually not considered to be from a source in Bulgaria, however if one of the parties is Bulgarian tax resident then the income shall be taxed in Bulgaria.
All exemptions applicable to Bulgarian tax residents are applicable to EU tax residents.

    CORPORATE TAXATION
Corporate taxation is very specific and it depends on the overall performance of the company in the year.

    DOUBLE TAXATION
Foreign tax residents pay taxes on all income with a source in Bulgaria and any profits from real estates in Bulgaria are deemed with a source in Bulgaria. However foreign residents pay taxes in their home country on their world wide income, which may lead to double taxation. This double taxation is eliminated by the treaties signed by the different countries.
Bulgaria has concluded a number of treaties for avoiding double taxation with numerous countries, including UK and Ireland. Generally under these conventions taxes paid in Bulgaria shall be credited against taxes on the same item of income in the other country. If you are eligible for the capital gains exemption in Bulgaria, you shall be liable for the taxes in your country only.

    LEGAL DISCLAIMER
The above represents a general overview of the legal regime of real estate transactions in Bulgaria as of January 2007. It does not constitute legal advice and cannot be relied upon as such. Everyone should contact a lawyer for professional advice for his own particular circumstances.

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