The relevant taxes that investors purchasing property in Bulgaria will be liable for will vary from person to person due to a number of factors including your tax domicile, the extend of your business activities in Bulgaria, the nature of the property transaction and more.

A foreign investor can invest in properties in Bulgaria either directly or through a local entity. Only Bulgarian-resident individuals and entities can acquire title to land, while non-residents may acquire only buildings and limited rights (e.g., leasehold and construction rights) to land.

In the case of a direct investment, the tax treatment of the foreign investors depends on whether or not their activities constitute a permanent establishment. The definition of a permanent establishment under Bulgarian law is very broad: the mere fact that a foreign company owns and rents out property in Bulgaria (except where such activity is carried out through an independent agent) may create a permanent establishment under domestic law. The various tax treaties entered into by Bulgaria usually contain a narrower definition of permanent establishment. If the activities of a foreign person owning real property in Bulgaria do not constitute a permanent establishment, the person will be liable for only 15% withholding tax on the rentals and capital gains, unless an even lower rate is applied under a double tax treaty.

Transfer taxes

Apart from corporate tax, no other direct taxes are levied on the transfer of real property. The transfer is, however, subject to notary and municipal fees. The notary fees are paid on the higher of the market price or the book value of the property at varying rates. In addition, 2% of the market value of the property is paid to the municipality in which the real property is situated.

Local taxes and rates

The owner of a building or a plot is obliged to pay a real property tax. Where a building is built on a State or municipal plot, the value of the plot will also be included in the tax base. The tax is equal to 0.15% of the book value of the property. Arable land is exempt from local taxes. In addition to the real property tax, owners also pay waste-collection fees.

Value Added Tax (VAT)

Transactions with land and lease of property for residential purposes are exempt from Value Added Tax. All other real estate transactions are subject to VAT at the uniform rate of 20%. The buyer/lessee is entitled to a VAT refund, provided that it is registered for VAT purposes.