Doing Business In: Bulgaria

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Bulgaria, with its myriad of advantages as a business location, has emerged as an increasingly attractive destination for investors. These advantages span across fiscal benefits, strategic geographical location, a skilled workforce, investment incentives, and a stable economic environment. The amalgamation of these factors bolsters Bulgaria’s appeal as a promising destination for both domestic and international businesses.

This article provides a comprehensive overview of the critical factors to consider when conducting business in Bulgaria. These factors include the political environment, legal framework, economic conditions, taxation system, labour market, types of business entities, intellectual property rights, contract enforcement, and investment opportunities.

Political and economic environment

Bulgaria is a member of the European Union (EU), NATO and the World Trade Organization (WTO).

In 2022, the country started discussions with the Organization for Economic Cooperation and Development (OECD) which is an important milestone towards its accession to the organisation.

Worldwide Ranking

Bulgaria holds top positions on the Global Startup Ecosystem Index 2024, according to the annual report of StartupBlink: 37th place worldwide, 2nd position of Sofia (Bulgaria’s capital) on the Balkans, which proves that the country nourishes a favourable environment for the development of startup companies.

Bulgaria maintains good positions in the World Bank Ease of Doing Business Index.

Bulgaria also holds top positions worldwide for fastest mobile internet speed.

Geographical location advantages

Bulgaria is a country in Southeast Europe, located west of the Black Sea. The country provides fast connectivity to all major destinations in Europe. Situated at the crossroads of Europe, Bulgaria serves as a strategic gateway connecting Europe, the Middle East, and Asia.

Due to its location Bulgaria provides direct access not only to the European market but also to other key markets such as Turkey, Middle East and North Africa.

Stable currency, future Euro adoption and the Schengen area

Bulgaria boasts a stable currency, with the Bulgarian Lev (BGN) pegged to the Euro at a rate of 1.96.

In addition, it should be noted that Bulgaria has been in ERM-II since 10 July 2020, and it is envisaged for the country to officially adopt the Euro as its national currency in 2025.

As of March 2024, Bulgaria entered into the Schengen area, starting with lifting controls at air and sea borders. Discussions for a final date for lifting control on land borders continue which confirms that the country is at its final stage towards its complete accession to the Schengen area.

Favourable tax regime

Bulgaria boasts one of the lowest corporate tax rates in the European Union, set at a flat rate of 10% (15% for some large corporations). Personal income tax is also 10 %, flat rate. Industries in high-unemployment areas may be granted tax exemptions.

  • Dividend taxation rate is 5%;
  • VAT rate is 20%;
  • Reduced VAT rate of 9 % applies to certain services;
  • 70 Double Tax Treaties apply in Bulgaria.

Favourable business environment

Numerous other factors contribute to the development of a favourable business environment in Bulgaria, among which are the following:

  • Access to the European Union Market: as an EU member state, Bulgaria provides businesses with access to the world’s largest single market, enabling them to benefit from the free movement of goods, services, capital, and labou
  • Stable Economic Environment – Bulgaria has maintained economic stability and steady GDP growth in recent years. The country has weathered global economic challenges well and continues to present a favourable economic climate for businesses;
  • Low costs for establishing a company and expedited registration process – the capital requirement for the registration of a Limited Liability Company (LLC) in Bulgaria is a mere BGN 2 (EUR 1). Furthermore, the registration process is streamlined and typically takes between 1 to 3 business days.
  • Skilled and Cost-Effective Labour Force – Bulgaria has a well-educated and skilled workforce, particularly in sectors such as information technology, engineering, and science. In addition, the workforce is multilingual and quickly adapting to new technologies. Labour costs are relatively low compared to other European countries, making it an attractive destination for companies seeking cost-effective solutions.
  • Investment Incentives – the Bulgarian government actively encourages foreign investment by offering various incentives, including grants, subsidies, and tax breaks. These incentives are designed to attract businesses to invest in specific sectors and regions.
  • Technological Innovation and Growth – Bulgaria is continually experiencing growth in innovative sectors, particularly in information technology and research and development. The government is actively promoting innovation, making it an attractive location for technology-driven businesses.
  • Investments in Infrastructure – Significant investments in infrastructure, including roads, railways, and ports, have improved connectivity within the country. This facilitates the efficient movement of goods and services, supporting business operations.
  • Lifestyle Quality – Bulgaria offers a high quality of life at a lower cost compared to many other European countries. This can be appealing to expatriates and employees relocating to the country.

Bulgaria: A Promising Destination for IT Investments

Bulgaria has built a reputation of an attractive IT destination mainly for developing software and outsourcing business processes. IT & BPO is the fastest growing sector in Bulgaria. Some of the multinational IT organisations operating in Bulgaria are companies like HP, IBM, SAP, Microsoft and VMware.

Major factors for attracting international IT investments in Bulgaria are the advanced IT infrastructure, the high speed internet, the multilingual and highly skilled tech professionals, as well as numerous government initiatives in the technology and digital field, such as the adopted National Program “Digital Bulgaria 2025” which aims at modernising and increasing the widespread implementation of intelligent information technology (IT) solutions in all areas of the economy and social life in the country.

Bulgaria has а constantly growing IT workforce with an immense annual increase of talents graduating from 50 national universities. These tech experts are proficient in various technologies and coding languages which place the country among the top 20 European countries for IT expertise, according to the Global Skills Report 2024.

In Sofia, the capital of Bulgaria, is located the Institute for Computer Science, Artificial Intelligence and Technology (INSAIT), which is the first of its kind in Eastern Europe to offer world-class research facilities and conditions. INSAIT partners with world’s best technical universities, such as Switzerland’s ETH Zurich and EPFL, and top academics from most elite U.S., European, and Israeli universities and research labs. INSAIT is recognized and supported by donations from Google, Amazon Web Services, DeepMind, SiteGround, VMware as well as many tech entrepreneurs. INSAIT’s mission is to establish a first-of-its-kind research institute for computer science and artificial intelligence in Eastern Europe with sole focus on scientific excellence. In March 2024, INSAIT officially launched BgGPT, the first open large language model for Bulgarian, created for the Bulgarian state, users, public and private organisations. BgGPT can be used freely by public and private organisations. In addition, organisations can use it locally on-site, without having to share sensitive data.

Investment Opportunities in Bulgaria

In the ever-evolving landscape of global investments, Bulgaria has emerged as a hotspot, witnessing a substantial influx of funds. The investments span across various sectors, with a notable focus on production, processing, and the automotive industry. The energy sector also witnesses significant investments, reflecting a diversified and resilient economic landscape. Notably, the automotive industry stands out as a growth leader, currently contributing nearly 10% to Bulgaria’s total GDP. Bulgaria has become a key player in the automotive industry, with approximately 80% of electric cars manufactured in Europe incorporating components produced within the country. Despite this significant contribution to the industry’s supply chain, the government is actively pursuing initiatives to attract companies willing to assemble cars within Bulgaria’s borders.

Bulgaria’s geopolitical location, low debt levels, growing GDP, stability, and a commitment to innovation collectively make it an attractive destination for foreign investors. The nation has transitioned from being perceived solely as a source of cheap labour to one that offers competitiveness on par with other European countries. Highly qualified staff and a vision to attract export-oriented high-tech companies further enhance Bulgaria’s appeal.

Beyond economic factors, the safety and security offered by Bulgaria play a pivotal role in attracting foreign investors. Many investors, often relocating with their families, prioritise a secure environment with access to quality education, healthcare, and services. This holistic approach contributes to creating a favourable and sustainable environment for foreign businesses.

Contrary to the assumption that foreign investors predominantly repatriate profits, many companies, including those with foreign capital, reinvest a significant portion of their profits locally. The constant need for technological advancements necessitates continuous investments in capacity renewal, fostering a sense of security and contributing to regional development.

While Bulgaria’s investment landscape flourishes, challenges still persist. A survey by the Bulgarian Industrial Association reveals certain concerns among businesses, mostly related to      excessive state regulations and      frequent changes in the regulatory framework.     .

 

General Information

Legal system

Bulgaria has a civil law system and recognizes the Acts of the Parliament as a main source of law. The legal system is transparent and provides a solid foundation for business operations. The Constitution of the Republic of Bulgaria serves as the supreme law, guaranteeing fundamental rights and freedoms.

As a member of the European Union (EU), EU regulation applies to Bulgaria and the local law is harmonised with EU law and aligned with EU standards.

The courts

The court system in Bulgaria is designed to provide access to justice, uphold the rule of law, and safeguard the rights of individuals and businesses. The legal procedure in Bulgaria is a three-instance one (with some exceptions to this rule). The system of the courts is decentralised, i.e. courts of various ranks are distributed throughout the country.

The Supreme Court of Cassation is the supreme judicial instance in criminal and civil cases. It exercises supreme judicial review over the proper and uniform application of laws by all courts.

The Supreme Administrative Court exercises supreme judicial oversight as to the precise and equal application of the law in administrative justice. The Supreme Administrative Court has jurisdiction over (i) challenges to statutory regulations, (ii) challenges to decisions of the Council of Ministers, and ministers, (iii) appeals in cassation and procedural appeals against judgments issued by courts of first instance, (iv) appeals by parties to proceedings against rulings and orders, etc.

Arbitration Court at the Bulgarian Chamber of Commerce and Industry

The Arbitration Court settles civil disputes and disputes over filling gaps in contracts or adapting contracts to new circumstances, regardless of whether one or both parties have their registered office or domicile in the Republic of Bulgaria.

Constitutional Court of the Republic of Bulgaria

The Bulgarian Constitutional Court ensures the supremacy of the Constitution over the laws and bylaws that Parliament passes and over the presidential decrees. This court is not part of the judicial system. It is an independent body which derives its powers directly from the Constitution. The Constitutional Court decisions are final (i.e. cannot be challenged) and binding on all courts included. They are binding by the interpretation of the Constitution by the Constitutional Court’s interpretative decisions and also by its other decisions.

 

Financial and Capital market

The financial and capital market regulation in Bulgaria is governed by a comprehensive legal framework aligned with EU standards. The aim is to promote market transparency, investor protection, and the efficient functioning of the capital markets while ensuring compliance with international best practices and regulatory requirements.

The Bulgarian financial system includes different regulatory structures. The Bulgarian National Bank (the BNB) is in charge of the banking system, whereas the Financial Supervision Commission (the FSC) is the main regulator of capital markets, investment intermediaries and investment companies (including insurance companies and pension funds).

The Bulgarian Stock Exchange (BSE-SOFIA) is currently the only functioning stock exchange in Bulgaria and it is also a public company listed on the stock exchange. The Central Depository AD (the CD) is the institution that provides the settlement of corporate securities in book-entry form. The Central Depository is controlled by the Financial Supervision Commission, the Bulgarian National Bank and the Ministry of Finance.

In June, 2007 BSE-Sofia was accepted as a full member of the Federation of European Stock Exchanges (FESE), in which only the regulated markets in the EU recognized by the European Commission are members. Since 2008, the Bulgarian Stock Exchange uses the T7® electronic trading platform, operated by Deutsche Boerse.

BSE’s regulated market consists of two markets – BSE Main Market (divided in several segments) and BaSE Alternative Market. These markets are segmented according to qualitative and quantitative criteria regarding the issuers and their emissions of financial instruments, including the financial instruments type, specific requirements regarding the issuer’s shareholder structure, their financial results, liquidity and information disclosure requirements.

Alongside the regulated market, the Bulgarian Stock Exchange (BSE) also operates the Small and Medium Enterprises (SME) growth market, known as BEAM. This platform facilitates the financing of SMEs within Bulgaria. The SME Growth Market, BEAM, offers numerous advantages to companies compared to the requirements imposed on issuers listed on the regulated market operated by the BSE-Sofia. The lowered requirements for companies are present both in the admission to trading process as well as in their subsequent life as listed companies. Some of the advantages include: (i) The beam market allows companies to raise funds of up to EUR 8 million without the need of an approved prospectus by the Financial Supervision Commission for an initial public offering; (ii) A relieved prospectus, approved by the Financial Supervision Commission is required for a company listed on BEAM to raise funds and increase its capital for more than EUR 8 million; Companies can be transferred to the BSE main market more easily; (iii) Shareholders in companies are not obliged to disclose their shareholdings after exceeding a certain threshold and /or  their acquisitions of a certain percentage of the company’s voting shares; (iv) Shareholders in companies are not obliged to place tender offers for buying the shares of minority shareholders after acquiring a certain percentage of the company’s voting shares and exceeding a certain threshold.

Corporate Governance

Corporate governance of Bulgarian public companies is regulated at legislative level with numerous legal acts, such as Public Offering of Securities Act, the Accountancy Act, the Credit Institutions Act, the Independent Financial Audit Act, and the Commercial Act.

Furthermore, public companies are subject to the National Corporate Governance Code, which aligns with the Organisation for Economic Co-operation and Development (OECD) Principles of Corporate Governance and implements the “comply or explain” principle. Public companies must issue an annual corporate governance report on their compliance with the National Corporate Governance Code and provide information on the company’s diversity policy or explain the reasons for not maintaining one. The National Corporate Governance Code complements the Bulgarian legislation and provides guidance to Bulgarian companies on how to apply established best practices and principles of corporate governance.

The applicable corporate governance law in Bulgaria sets out requirements regarding the remuneration and composition of management and supervisory bodies of a public company, the establishment of an independent audit committee, rules ensuring the protection of minority shareholders’ rights and others.

It should be noted that a number of circumstances, including the favourable tax regime in Bulgaria, the introduction of legal rules and practices from the European Union law in the field of regulation of the financial markets, the high regulatory and supervisory requirements to all market participants create conditions for sustainable and progressive development of the Bulgarian capital market.

 

Business structures and company registration

Who can register a company in Bulgaria?

The founders of a company may be Bulgarian or foreign natural persons or legal entities. There is no requirement for residence or nationality of the shareholders (or partners) and the managers of the Bulgarian companies.

What type of companies may be registered in Bulgaria?

The main types of business structures in Bulgaria include:

  • limited liability company (abbreviated in Bulgaria: OOD);
  • joint stock company (abbreviated in Bulgaria: AD);
  • limited partnership (abbreviated in Bulgaria: KD);
  • general partnership (abbreviated in Bulgaria: SD);
  • partnership limited by shares (abbreviated in Bulgaria: KDA).
  • company with variable capital (abbreviated in Bulgaria: CVC).

Limited liability company (OOD):

  • the most common business structure in Bulgaria;
  • can be set up by one or more individuals or legal entities;
  • requires a capital of at least 2 BGN (1 EUR), divided in minimal nominative parts of 1 BGN each; Where the company is registered with a capital higher than the legal minimum at least 70 % of the capital should be paid up prior to the registration of the company. The reminder of the capital should be paid up within 2 years from registration of the capital;
  • capital is held by the shareholders and the liability is limited to the amount of the registered capital. i.e. it offers limited liability to its shareholders, meaning their personal assets are generally protected from the company’s debts;
  • all shareholders are granted equal rights in relation to the company’s management, profit distribution, internal affairs, and liquidation procedures.
  • there are two statutory bodies – the General Assembly which is held at least once per year and the Manager (optional body is the Controller). The General Assembly is the governing body, forming the will of the company. The General Assembly consists of all partners who exercise its powers at meetings. The Manager is the only representative body of the OOD and is elected by the General Assembly. The Manager of an OOD may be only a natural person. His name has also to be entered in the Commercial Register together with a notarized consent signed by the Manager.
  • each year the company has to prepare annual financial statements which shall be announced into the Bulgarian Commercial Register.

Joint stock company (AD):

  • this business structure is particularly suitable for larger enterprises that aim to raise capital from a diverse group of investors.
  • AD in Bulgaria can be founded by one or more individuals or legal entities;
  • must have at least BGN 50,000 (approximately 25,000 EUR) share capital, with a minimum nominal value of 1 BGN per share. When founding the company, all shares of the capital must have been subscribed and at least 25 % of their value must have been paid up (T he remaining part must be paid within 2 years after the foundation
  • two kinds of management structures are possible under the AD – the single-stage (Board of Directors) system and the two-stage (Supervisory Board and Management Board) system. Another permanent company organ is the General Shareholder A Managing Director of the AD may be either a natural person or a legal entity.
  • the shareholders are not obligated to participate in the management. The participation in the company is in a material form; the capital contribution may be monetary or in kind;
  • the liability of the shareholders is limited to the shares subscribed in the company’s capital;
  • an independent audit is required regarding the annual accounts: annual financial statements and annual activity reports (an independent audit is not required for micro sized enterprise);
  • JSCs have easier transferability of shares to third parties compared to the transferability of the LC’s shares to third parties;

Limited partnership (KD):

  • the limited partnership represents a partnership agreement to perform commercial activity under common company name;
  • may be set up by a minimum of two There are two categories of partners: one or more of the partners are liable to the company’s creditors limitedly – to the amount of an invested capital (Limited partners), while for the other part of the partners no such limitation of liability exists (General Partner);
  • the company name of the limited partnership must include the name of at least of one of the General (unlimitedly liable) partners;
  • the management and representation of the limited partnership is performed by the General Partners;
  • the Limited partners are not entitled to manage, and cannot suspend the decisions made by the General Partners.

General partnership (SD)

  • General partnership can be formed by minimum two persons, under a joint trade name;
  • it does not require a minimum share capital;
  • all of the partners in the partnership are liable with their assets and are joint debtors. Each partner is personally liable for the partnership’s obligations;
  • the trade name of the company has to contain the name of at least one of the partners;

Partnership limited by shares (KDA):

  • represents a mixture of a joint stock company and a limited partnership;
  • must have at least three limited partners chosen by the general partners from subscribers;
  • two types of shareholders take part in partnerships limited by shares: general partners and limited partners whereby the latter ones bear liability only for the company’s obligations.
  • It has a single-stage management system – General meeting and the Board of Directors. The General Meeting consists of general partners and limited partners who have subscribed shares. The Board of Directors consists only of general partners. Its responsibility may not be limited by the General Meeting;
  • the Board of Directors bears the responsibility for the management and its members represent the partnership jointly towards third parties.

Company with Variable Capital (CVC):

A new form of entity was recently established to facilitate start-ups to scale up their businesses. Thus, the Company with Variable Capital was created. Bulgaria therefore stands among countries such as France with its “Société d’investissement à Capital Variable”, the Netherlands and Germany.

Unlike the existing forms of companies, the Company with Variable Capital will meet the needs of innovative and growth-oriented start-ups.

The Capital with Variable Company will be able to be incorporated after March 2025, when the complete software infrastructure is expected to be built by the Commercial Register.

Some of the main features of the CVC are:

  • a company with variable capital can only be a company that has an average number of employees of less than 50 and an annual turnover that does not exceed BGN 4 000 000 and/or an asset value that does not exceed BGN 4 000 000.
  • the company’s capital is variable and is not subject to entry in the commercial register. A resolution of the ordinary annual general meeting convened to consider the annual financial statements shall establish the amount of the capital at the close of the financial year and its variation in relation to the previous financial year.
  • the governing body, per se, may be either a sole body (‘Manager’) or a collective body (‘Management Board’).
  • workers employed by the company, regardless of the type of employment agreement or employment relationship, may be granted a right to acquire shares which shall be exercised only by transferring the company’s own shares.

Company registration process:

All companies in Bulgaria must be registered in the Bulgarian Commercial Register and the Register of Non-profit legal entities. There are some main steps prior to registering the company into the Commercial Register, such as: (i) reserving a firm name for the company in Bulgaria (optional); (ii) opening a capital contribution account in the name of the company in a bank in Bulgaria; (iii) and payment of the subscribed capital.

Along with the application for the registration, other documents must be submitted, such as: company By-laws, some formal declarations signed by the manager, declaration of actual beneficial owner/s, evidence for paid state fee and paid deposited capital.

A company can be registered by a local lawyer who can act on behalf of the company in Bulgaria or by a representative, both of which options require a power of attorney. The registration is done using a standard formal application.

The registration procedure before the Bulgarian Commercial Register, as well as any subsequent submission of documents subject to announcement can be done entirely online. The fees of online submission of the required documents are significantly lower than those of hard copy applications.

The registration procedure may take from one to three business days.

Subsidiaries and Branches:

Foreign companies can establish subsidiaries or branches in Bulgaria. Subsidiaries and branches of foreign companies are subject to registration to the Bulgarian Commercial Register and the register of Non-profit legal entities. A branch operates as an extension of the parent company, and both entities share the same legal identity.

Representative offices:

Foreign merchants may open a trade representative office (RO) in Bulgaria. A representative office is a non-trading entity that represents a foreign company in Bulgaria. It is limited to promotional and marketing activities and cannot engage in commercial transactions. However, ROs may hire premises and employ staff in order to carry out their activity.

Holding company in Bulgaria:

Holding companies in Bulgaria can be set up as limited liability companies (OOD), as joint stock companies (AD) or partnership limited by shares (KDA). A Holding company’s aim is to, in any form, participate in other companies or in their management, with or without carrying out its own production or commercial activity.

Bulgarian holding companies are required to invest at least 25% of their capital stock in a subsidiary. The holding company will thus own at least 25% of the subsidiary’s shares and will represent at least 50% of the management board of the subsidiary.

There is a special regime for dividend payments that applies for holding companies in Bulgaria. The dividends received by a holding company in Bulgaria can be tax exempt, provided that certain requirements are met.

Joint ventures in Bulgaria:

According to Bulgarian law the establishment of both contractual JVs (a consortium, a general civil partnership) and corporate JVs in the form of commercial companies is permissible. A contractual JV is registered in the BULSTAT Register, and a corporate JV – in the Commercial Register.

Sole trader in Bulgaria (Natural person merchant)

Any legally capable natural person whose domicile is in Bulgaria may register as a sole trader/entrepreneur. A sole trader is the simplest form of business structure, where an individual operates a business without partners. The owner is personally responsible for all aspects of the business, including its debts and liabilities and its liability is unlimited. A sole entrepreneur’s trade name shall incorporate without abbreviation the person’s given name and either the surname or patronymic by which he is generally known.

 

Real estate investments

All foreign individuals, whether natural persons or legal entities, are permitted to purchase properties in Bulgaria under the national law, with the restrictions for non-EU/non-EEA citizens that cannot buy land in Bulgaria directly (unless they set up a form of a local legal entity in the country first).

Statistics in the last few years confirm the liquidity of real estate investments. It should be noted that upon transaction the buyers pay a transfer tax to the respective municipality and special fees – notary fees, registration fees and eventually an agency fee, the fees depending on the transaction amount.

Before investing in real estate, a full check and due diligence of the property and all ex-owners, ensuring there are no encumbrances or any burdens over the real estate, are highly recommended.

The following basic types of real estate investment scenarios can be outlined:

  • rental services
  • investments at an early stage of construction (with rising value)
  • vacation homes – usage the property as a holiday home and rent it for the rest of the season/year
  • business development – in case of starting business endeavour in the country.

Investing in real estate in Bulgaria can be profitable if approached sensibly and with advance care.

 

Labour Law

The Bulgarian Labour Code governs all employment relationships in Bulgaria. Other important acts governing employment relationships in Bulgaria are Bulgarian Social Insurance Code, Law on Health and Safety at Work, Law on the settlement of collective labour disputes, several Ordinances, etc.

The Executive Agency “Chief Labour Inspectorate”, under the auspices of the Minister of Labour and Social Policy, exercises comprehensive control over compliance with labour legislation across all sectors and activities. In instances of violation of labour laws, the Agency is authorized to enforce administrative measures and impose penalties.

Employment contract

As per the Bulgarian Labour Code (LC), it is mandatory that all employment contracts be executed in writing. The contract’s validity hinges on this written form.

The employment contract has a mandatory content defined by the Labour Code such as: identity of the parties, place of work, job description, term and duration, termination notice period, basic remuneration and additional labour remunerations with permanent nature as well as the periodicity of their payment, etc. In addition to the mandatory clauses, the employment contract may incorporate other provisions, including a probationary period (not exceeding 6 months) that can be arranged to the benefit of the employer, the employee, or both parties. It is to be noted that, if there is a collective labour agreement concluded prior to the individual contract, the individual clauses of the latter should be more favourable to the employee than those in the collective agreement, otherwise the individual clauses shall be considered void.

An inseparable part of the employment contract is the job description (a detailed description of the employee’s obligations and requirements regarding the respective position). The job description must be provided by the employer to the employee at the conclusion of the contract.

The employer shall notify the National Revenue Agency of the finalization of an employment contract within three days, and this must be done prior to the commencement of the employee’s duties.

Working hours / Leave

The normal working day in Bulgaria is 8 hours and the working week has a usual duration of 40 hours. Each employee is entitled to a lunch break of at least 30 minutes, a rest of minimum 12 hours between the working days and a weekly rest of two consecutive days, one of which is usually Sunday. The non-working days and holidays are set by the law. There are special rules for night work and overtime.

Employees in Bulgaria are entitled to an annual paid leave (not less than 20 working days). Upon request, the employee may be granted unpaid leave of up to 30 days per year. The Law regulates different types of leaves – for the performance of civil, public and other duties, in case of temporary disability, for studies, etc.

According to the Bulgarian Labour Law female employees are entitled to a leave for pregnancy and birth amounting to 410 days for each child, of which 45 days shall obligatorily be used before the childbirth. The father is entitled to 15 days of paid leave from the date of childbirth and also to paternity leave, when the child reaches the age of six months, subject to the mother’s consent and according to the remaining days of the available maternity leave. After the leave for pregnancy, childbirth or adoption has been used, in case the child is not placed in a child-care establishment, a parenting employee is entitled to an additional leave for raising a child until it reaches 2 years of age.

Social security

Any person working in Bulgaria is subject to social security in the country. The employer, in the capacity as an insurer in accordance with Art. 5 of the Social Security Code (SSC), is obliged to withhold and pay social security and health insurance contributions to its employees on a monthly basis. The social security and health insurance contributions are due on the total gross remuneration of each employee within the minimum and maximum thresholds set out by law. Social security contributions in Bulgaria are divided between the employer and the employee. The employer has to pay 60 % of the insurance contributions and the employee the remaining 40 %.

Termination of an employment contract

In Bulgaria, employers are permitted to dismiss employees solely on grounds that are explicitly stipulated in the law, and they must adhere to the strict formalities as required by the LC. When an employee is dismissed, he/she is normally entitled to their notice period salary and compensation for unused annual paid leave. In case the dismissal turns out to be unlawful, confirmed with a court decision, the employee is also entitled to compensation for the period of unemployment due to the dismissal (up to six months).

The notice periods applicable for termination are as follows: one month for employment contracts with an indefinite term (unless otherwise specified in the contract, but not exceeding three months), and three months for fixed-term contracts.

The employer and the employee have the option to terminate the employment contract without a notice of termination when: (i) there is a mutual consent (expressed in a termination agreement); (ii) upon the expiration of the contractual term; (iii) if it is impossible for the employee to perform his work (because of an illness resulting in permanently reduced working capacity or health contraindications established by an expert medical commission), (iv) and other grounds explicitly stated in the law.

The Bulgarian Labour Code provides special protection for employees according to which before proceeding to the termination of employment on the grounds expressly provided for, the employer must seek and obtain preliminary permission from the labour inspectorate or the consent of a trade union body. This protection applies to special cases, for example when the employee is on permitted leave, when there are staff cuts or reduction of the volume of work, etc.

Work/Residency permits

The rules governing the employment contract with a foreign citizen are defined in the Foreigners in the Republic of Bulgaria Act, the Labour Migration and Labour Mobility Act, the Regulations on the Application of the Labour Migration and Labour Mobility Act.

Employers are entitled to hire foreign citizens in the Republic of Bulgaria only if they have obtained a work permit (for non-EU citizen), save for the cases where, by exception, a permit for access to the labour market is not required (e.g. family member of a Bulgarian citizen, family member of an EU citizen, students etc.). The work permit is issued by the Migration Directorate in the Republic of Bulgaria.

There are two types of permits allowing the employment of a foreign national in Bulgaria based on a direct employment contract with a Bulgarian employer – an “EU Blue Card” work and residence permit (which requires higher education with a duration at least 3 years) and a “Single residence and permit”, issued by the Ministry of Interior after a positive resolution from the Employment Agency to allow access to the labour market. The foreigner has the right to commence work for his/her employer in Bulgaria only after obtaining the respective work and residence permit.

In order to apply for an EU-Blue Card the foreigner must meet certain requirements stated in the law such as possessing a university degree of at least three years of studying. In order to apply for an EU Blue Card, the foreigner should first obtain a permit (positive resolution for access to the Bulgarian labour market) for exercising of highly-qualified employment and a long-stay visa.

EU citizens can work in Bulgaria, without being obliged to have a work permit. However, citizens of the European Union may reside in the Republic of Bulgaria with a valid ID card or a valid passport for up to three months. If an EU citizen has to reside on a long-term or permanent basis in the Republic of Bulgaria, she/he should obtain a certificate issued by the respective authorities to the Ministry of Interior.

 

Tax Law

The Corporate Income Tax Act (CITA) and the Personal Income Tax Act (PITA) stipulate some of the main tax rules and procedures in Bulgaria.

Corporate income tax

Corporate income tax in Bulgaria is 10% (15% for some large corporations). The tax base for calculating the corporate tax is the tax profit.

The tax due shall be declared through an annual tax return, which could be submitted online with an electronic signature. The declaration can also be submitted by an authorized representative. Along with the annual tax form the companies shall submit an annual activity report.

Some companies are obliged to make advance payments when their net sales revenues for the year before the previous year exceed certain thresholds. The advance payments for the corporate tax are monthly and quarterly. They are determined based on the estimated tax profit for the current year.

The payment of the due corporate tax shall be made within the deadline for filing the annual return form – by June 30 of the year following the year to which the submitted declaration relates. It is worth mentioning here that the law provides for tax relief for carrying out production activities in municipalities with unemployment higher than the national average. Industries in high-unemployment areas are granted 0% tax rate, provided that they meet certain criteria.

Withholding tax

Dividends and liquidation proceeds payable by resident entities to both resident and foreign natural persons are subject to a 5% final withholding tax at the source. When a foreign individual is treated for tax purposes as a resident of a member-state of the European Union or in another country – member of the European economic area, then certain incomes are not subject to tax.

Capital gains from transactions with shares in public companies and traded rights in such shares realized on a regulated EU or Bulgarian stock market are not subject to withholding tax.

Withholding tax on the income of foreign persons

The tax rate on the income tax from interest, author and licence fees is 5% (under the provisions of the CITA) and 10% on all other income.

Persons required to deduct and pay withholding tax shall declare the tax for the quarter by submitting a declaration form by the end of the month following the quarter. The declaration form shall be submitted to the territorial directorate of the National Revenue Agency where the payer of the income is registered or is to be registered.

Agreements for avoiding double taxation

When in a tax treaty or another international agreement ratified by Bulgaria there are provisions different from those of the CITA, the provisions of the relevant tax treaty or agreement shall be applied.

Taxable persons are entitled to a tax credit under the terms and conditions of the CITA for taxes paid abroad in case the provisions of an international treaty are not applied.

The tax credit is determined for each country and for each type of income individually and is limited to the amount of the Bulgarian tax on such profits or income.

In order to benefit from the advantages for the avoidance of double taxation, provided for in a contract, the foreign person must submit an application form to the tax administration.

Personal income tax

Taxation of personal income, including income from a sole trader, is governed by the PITA.

Taxable persons under the PITA are:

  • local physical persons – on income from sources in Bulgaria and abroad;
  • foreign physical persons – on income from sources in Bulgaria;
  • local and foreign persons required to withhold and pay taxes under the PITA;
  • legal representatives of the said persons;

 

The types of taxes on personal income are:

  • tax on the total annual tax base – 10% (levied on the income of: employment; other business activities, such as profession, trade, etc; rental or other paid granting of rights or property for use; income from other sources);
  • tax on the annual tax base – 15% for sole traders (levied on the income of the business as a sole trader, as well income from economic activity accruing to any natural persons, registered as agricultural producers);

Value Added Tax (VAT)

The Value Added Tax Act (VATA) governs the imposition of value added tax (VAT). Under VATA, a taxable person is any person who independently carries out any economic activity, whatever the purpose and results.

VAT rate is 20% and applies to:

  • any taxable supply of goods or services effected for consideration, except those specified in the law, which are subject to a tax rate of 0%;
  • imports of goods within the country;
  • any paid intra- European Union acquisition with place of performance within the country.

Reduced rate of 9% applies to certain industries. A 0% tax rate is applicable to the explicitly provided for in the VATA supplies.

Subject to compulsory registration under the VATA is any taxable person having a taxable turnover of BGN 100,000 or more for a period not exceeding twelve consecutive months last preceding the current month. That person is obligated to submit an application for registration under the VATA within 7 days after the lapse of the tax period during which such turnover has accrued to the said person. A person who is not established on the territory of the country and makes taxable supplies of goods/services with a place of performance on the territory of the country, and the tax for them is not required by their recipient, is obliged to register, regardless of the taxable turnover.

Intra-Community delivery

Intra-Community (intra-European Union) supply of goods is the supply of goods transported by or on behalf of the provider /a VAT registered person/ or the recipient from the territory of a Member State to the territory of another Member State, where the recipient is a taxable person or a non-taxable legal person that is VAT registered in another Member State. Any intra-European Union acquisition of goods, whose supply within the territory of the country, is an exempt supply under the VATA.

Corporate income tax for large Bulgarian groups and Bulgarian members of foreign large corporate groups

Minimum effective taxation of 15 % applies for constituent entities located in Bulgaria that are members of a multinational enterprise (MNE) group or of a large-scale domestic group which has an annual revenue of EUR 750,000,000 or more in its ultimate parent entity’s consolidated financial statements in at least two of the four fiscal years immediately preceding the current fiscal year.

 

Personal data protection

The protection of personal data in Bulgaria is governed by the General Data Protection Regulation (Regulation (EU) 2016/679) (“GDPR”). On a national level the Personal Data Protection Act (“PDPA”) is the main source of local data protection law. The right to privacy is also a constitutional right recognized and protected by the Constitution of the Republic of Bulgaria.

According to the GDPR there are six grounds that permit the processing of personal data: i) the consent of the data subject, ii) a contract, iii) the controller’s legal obligation, iv) the protection of vital interests, v) a task carried out in the public interest or the exercise of public authority, vi) and the legitimate interests of the controller or a third party.

Notification requirements

According to the applicable law a notification should be filed with the CPDP by controllers/processors who have designated a data protection officer (“DPO”). The notification form should contain the name of the appointed DPO, identification number and contact details.

Supervisory authority and sanctions

The national supervisory authority in Bulgaria within the meaning of the GDPR is the Commission for Personal Data Protection (“the Commission”). The Commission is an independent public authority, carrying out protection of individuals in processing their personal data and in providing access to this data, as well as control over the observance of data protection legislation. The Commission has the duties and rights to monitor and enforce the application of the GDPR, carry out data protection audits, and impose sanctions (fines), as well as compulsory administrative measures. The commission has also the power to issue by-laws in the field of personal data protection. During the years since the GDPR initially came into force, its decisions and official statements have combined business approach and consistency to the guidelines and practise of the European authorities. In 2023 the Commission was additionally entrusted with a set of public powers granted by the newly adopted Whistleblowing Law aligning the national legislation with the applicable European requirements in this legal sphere.

In regards to the fines, the PDPA refers to the respective GDPR provisions and does not introduce minimum amounts. The fines provided for in the GDPR shall be determined in accordance with the criteria set out therein and shall be imposed in their BGN equivalence.

For other violations under the PDPA, a fine of up to BGN 5,000 (approx. €2,500) may be imposed on the respective personal data controller or processor.

In the event of repeated violations of the GDPR and the PDPA, the regulatory authorities may impose a fine that is double the amount of the initially imposed fine. A violation is considered repeated if it is committed within one year from the enforcement of the act imposing a sanction for the same type of violation.

 

E-Commerce

E-commerce in Bulgaria is regulated by a multitude of laws including, but not limited to, the Electronic Commerce Act (which implements the eCommerce Directive), the Consumer Protection Act, the Act on the Supply of Digital Content and Digital Services and On the Sale of Goods, the Commercial Act, the Personal Data Protection Act, the Omnibus Directive, and the recently introduced EU Digital Services Act.

These laws set forth obligations for traders, including online marketplaces, online stores, platforms, and search engines, that offer their products online. They are required to provide consumers with a specified amount of mandatory information. This information includes details about the product or service, any product warranties, information about the trader, its general terms and conditions, advertising content, and the criteria used for profiling users for targeted advertising content.

The Electronic Commerce Act permits businesses to send commercial messages to legal entities, provided that these entities have not explicitly expressed their wish not to receive such messages. However, Bulgarian law prohibits the sending of commercial messages to consumers without their prior consent. Bulgarian e-commerce legal framework fully implements EU regulatory framework and provides businesses and users with the guarantees for a fair and transparent digital trade, such as ban of unfair commercial practices, guarantees for lawful collection and protection of personal data, transparent advertising and terms of doing business, and so provides for a well-functioning environment for business-to-consumer and business-to-business relations alike.

Regarding the personal data protection, according to the applicable law, the online traders may retain information or receive access to information kept on the consumer’s device, whenever they provide the consumers clearly and fully with information on the identity and the contact details of the administrator and, where applicable, of the administrator’s representative, the purposes of the personal data processing and the legal basis for the processing. Traders also must provide consumers at all times with the option to receive information about data relating to them that the trader is storing.

The VAT Act includes provisions that apply to e-commerce, particularly regarding the VAT treatment of cross-border digital services. Following EU rules, e-commerce businesses may need to register for VAT in Bulgaria or use the Mini One-Stop Shop (MOSS) scheme for the VAT on digital services sold to consumers in the EU.

In terms of digital services and their regulation, it is worth mentioning the proposed in 2023 amendments to Bulgaria’s Health Act in relation to the telemedicine services. They aim to explicitly regulate telemedicine, highlighting the increasing significance of telemedicine services within the country’s healthcare landscape. The amendments are designed to safeguard the rights and interests of both patients and healthcare providers. This proactive step demonstrates the dynamic nature of Bulgarian legislation, which remains responsive to evolving societal needs. The proposed amendments are at their final stage of review and are expected to be soon adopted into the legislation.

All in all, it should be noted that Bulgaria provides a relatively free, decentralised and balanced regulatory landscape for the development of e-commerce, with relatively few established restrictions and limitations, mostly related to the prohibition on the sale of a relatively narrow category of products (such as prescription medicine and tobacco products), so a significant number of established players on the market as well as startups provide their services here.

 

Intellectual Property (IP) rights

The legal framework for Intellectual Property (IP) rights in Bulgaria aims to protect and enforce the rights of creators and innovators, in line with international standards and agreements.

The primary laws governing IP rights in Bulgaria include the Copyright and Neighbouring Rights Act, the Patent and Utility Registration Act, the Trademark and Geographical Indications Act, the Industrial Design Act, and other related laws. These laws cover the protection of copyrights, patents, trademarks, industrial designs, and other forms of intellectual property.

Bulgaria is a member of several international treaties and conventions that deal with IP rights. These include the World Intellectual Property Organization (WIPO) treaties, the Paris Convention for the Protection of Industrial Property, the Berne Convention for the Protection of Literary and Artistic Works, and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) among others. Membership in these treaties ensures that Bulgaria’s IP laws are harmonised with international standards and that Bulgarian IP rights are protected abroad.

Copyright protection in Bulgaria covers literary, scientific, and artistic works, including writings, musical compositions, films, and software, among others. Copyright protection is automatic upon the creation of the work and lasts for the life of the author plus 70 years after their death. Neighbouring rights protect the interests of performers, producers of phonograms, and broadcasting organisations.

The Patent Act provides protection for inventions that are new, involve an inventive step, and are industrially applicable. Patents are granted for a period of 20 years from the date of filing the application.

Trademarks, including service marks, collective marks, and certification marks, are protected under the Trademark and Geographical Indications Act. Trademark protection is obtained through registration and is valid for 10 years from the filing date, with the possibility of renewal. Geographical indications are also protected, ensuring that only products genuinely originating from a certain place can bear the name of that place.

The protection of industrial designs in Bulgaria is aimed at the appearance of the whole or a part of a product resulting from its features. Registration of an industrial design is valid for 10 years from the date of filling the application for registration and can be renewed up to 25 years.

It is worth mentioning that the latest amendments in the Bulgarian IP law introduced new copyright rules, adapted to the requirements of technological progress and the construction of a Digital Single Market within the European Union. The amendments addressed the digital and cross-border use of protected content, creating mandatory exceptions and limitations to copyright aimed at protecting public interests in the digital world.

 

Contract enforcement

The main legislative acts that govern contract law in Bulgaria are the Obligations and Contracts Act and the Commerce Act. Contract law also includes other specific legislation related to various types of contractual relationships (e.g., employment contracts, insurance contracts, distance selling contracts, etc.).

In Bulgaria, the primary means of resolving contract disputes is through the judicial system, which operates on a three-instance proceedings structure. Nonetheless, alternative dispute resolution mechanisms, including arbitration and mediation, are also utilized in Bulgaria for contract dispute resolution. These methods are often considered faster and more cost-effective than court proceedings. For example, the Arbitration Court at the Bulgarian Chamber of Commerce and Industry, among others, offers arbitration services. In addition, Bulgaria is a party to several international treaties that impact contract enforcement, including the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).

The efficacy of enforcing contracts is contingent upon a multitude of factors, such as the intricacy of the case, the caseload of the courts, and the competency of the legal representation. Despite facing challenges pertaining to judicial efficiency and protracted legal proceedings, Bulgaria has, in recent years, undertaken substantial efforts via legal reforms to surmount these issues, as well as to implement alternative dispute resolution mechanisms.