Bulgarian Property -Useful Information About Buying

Premier Property Bulgaria primarily seeks to facilitate investment in off-plan developments in the Bulgarian property market using the criteria detailed below. The markets of South East Europe currently offer some of the best returns in continental Europe. We believe that these potential returns, coupled with structural and legal reform programs currently in place as a result of EU entry ambitions should lead to asset price inflation as a result of risk reduction.
The criteria used in choosing the locations are:
· Prime strategic locations
· Infrastructure, and
· Current and future contingent developments
Even if your budget is small, property in Bulgaria offers considerably value for money when compared to other European destinations.

The majority of people who are buying property in Bulgaria are looking for holiday/second homes often with a view to retirement in later years although there are an increasing number of investors who are simply buying property with a view to making a capital gain in the short or long term. This increasing interest, along with other factors such as the rise in tourist numbers, better awareness and EU entry on the cards for 2007 is pushing prices higher.

Although purchasing property in Bulgaria is not too dissimilar from buying anywhere else there are some differences and important points for you to bear in mind below. We hope you find this guide both useful and informative.

The Buying Process

1) Property Selection
Having chosen the apartment you want and confirmed its availability; complete a reservation form and pay a €1500 reservation fee. This can be done on-line on our web page www.premierapartmentsbg.com.
Note: Your reservation fee is non-refundable. It will however be deducted from the purchase price of your property upon receipt of the first instalment.

2) Use a Company or Not?
According to the Bulgarian Constitution, foreign individuals may purchase buildings/ apartments but not land. Therefore the preferred option for foreigners buying property in Bulgaria where they also wish to own the land is to set up a company which then owns the land and the buildings.
The law is expected to change on this within the short to medium term with the expected entry of Bulgaria into the European Union (2007). Don’t however hold your breath as current amendments will EU citizens to acquire land directly only in 2014. In the meantime a company is still required for land ownership.

Hence, there are 2 methods to acquire an apartment:
· With a portion of land; or
· Freehold unit title (with no land).

Property Acquired with Land
First step is the establishment of a locally registered company. This is a standard process that most local legal firms offer, and takes anywhere from a few days to several weeks. Allow around €1500 for legal fees relating to the company formation and €500 pa for administration costs.
Key points worth noting are as follows:
· Articles of Incorporation must be prepared & signed by all shareholders in front of a Notary in Bulgaria; a Bulgarian Embassy or apostled in your home country.
· A local bank account must be established;
· The minimum share capital required is €2,600 (5,000 leva);
· Company taxes are calculated at 15% of net profit.

Property Acquired without Land
There is no need to set up a company. The apartment is acquired freehold and is owned directly by the acquirer. There is no need for the acquisition documents to be signed in Bulgaria or at a representative Embassy.

3) Sale & Purchase Contracts
· Once you have selected your apartment and paid the reservation, you will receive a preliminary sale and purchase contract.
· Check all the details are correct before signing 2 copies; we recommend the use of an independent lawyer to review the contract before you sign;
· Return the documents to either our London or Sofia offices along with your initial instalment as detailed in the contracts within 30 days.
· Should you wish to arrange an inspection trip, we would be more than happy to assist you.

4) Construction & Final Completion
· Usually there are one or more interim instalment payments to be made prior to the full completion of the property. We will notify you of the estimated payment dates.
· Upon completion of the property and payment of the final instalment, the transfer of title may occur. In Bulgaria, the property registry system works in conjunction with local Notaries.
· In order to take delivery of your property, you will need to sign the ‘Notary Act’. This is a standard form document transferring ownership of the property into your name.
· You will receive title deeds within 7-10 days of the Notary Act from the local council.

Note: If you are unable to attend the Notary Act in person, your legal representative may attend in your place. This individual will need to be a qualified Bulgarian solicitor in possession of a ‘Power of Attorney’ agreement. We are able to liaise with you to arrange this.

5) Additional Acquisition Costs
Local tax
According to the Local Taxes and Fees Act, the tax payable upon the sale-and-purchase of an apartment is 2% local tax.
The basis for calculating the tax is the higher of:
· The apartment’s price as specified in the notary deed, and
· The tax evaluation of the apartment.

Such tax is payable by the purchaser, unless the parties have agreed otherwise.

Notary fees
The notary fees are determined in accordance with the tariff for the Notary Fees. There are various charges but you should allow €1,500-€2,000.
Legal fee
Each lawyer or law firm is free to determine its fees, subject to certain constraints. There are also different schemes of determining the fees (e.g. on an hourly basis, a fixed fee etc.).
The rates of the lawyers vary from €80 to €150 per hour. Total legal fees are estimated at €500-€600.

6) Other Expenses
· Annual property taxes amount to 0.15% of the tax value of the property (usually significantly below the acquisition price);
· Maintenance of your property is covered by the Management Contract and is charged at a fixed rate in euros per square metre per year; and
· Waste-collection fees are determined when you register ownership with the local municipality; rates vary from region to region.

Remember to register your new property ownership with the local authorities after completion for rating purposes. This should be done within 60 days following completion.

BUYER BEWARE
Understanding the vat implications on any property purchase in the Bulgarian property market is extremely important, given the potential mortgage and tax implications.

The Bulgarian property market is characterized by poorly clarified regulatory and tax policy resulting in inconsistent implementation and varying valuations (both market related and tax based); all of which if misunderstood may result in potential tax liabilities in future periods combined with lower debt/equity borrowing facilities been available to the acquirer. In this section we attempt to clarify and demystify the situation.
Notary System
The Bulgarian property system uses Notaries and a Notary Act in order to transfer the ownership of buildings and/or land.
Upon completion of the property and prior to signing the Notary Act, the local municipal council conducts a tax evaluation of each property. This valuation represents the minimum value that must be reflected on the Notary Act. It is this value that at a minimum must appear on the Notary Deed in property transactions in Bulgaria.
Tax evaluation rates vary by region across Bulgaria but in general range from 25-50% of the full market value; this is however set to change in the coming months given the current tax valuations were set back in 1999.
Payment Structures
In general developers require settlement to be made in one of two ways:
· Part “on-shore” (meaning 100% of the payment comes into Bulgaria) and part off-shore; the tax valuation of the property (see above) is paid on-shore and the remainder of the balance is paid off-shore; or
· Full payment on-shore.
The payment structure has various knock on effects as further detailed below:
· The on-shore payment is the amount reflected on the Notary Deed;
· Notary fees are based on the amount reflected on the Notary Deed;
· Local municipal fees are based on the amount reflected on the Notary Deed; and
· Local Mortgage facilities are based on the Notary valuation and not on the sale and purchase contract.

Example:
Property to be acquired costs €100,000. Payment is 50% on-shore (tax valuation) and 50% off-shore.
· €50,000 is paid into a Bulgarian bank account. The Notary deed discloses the final purchase price as €50,000. The following points are worth noting:
· Current mortgage facilities allow for 70% of the notary deed to be borrowed – hence in effect the property is 35% mortgaged (50% of the 70% allowed);
· Were the property to be sold after a period for say €120,000 the owner would be subject to a €70,000 capital gain (€120,000 less €50,000) resulting in a tax liability of €10,500 rather than €3,000; unless of course the property could be sold for a part on-shore part off-shore payment again.
· €50,000 is paid off-shore. From a developers perspective this payment structure avoids a vat payment of €10,000 (€50,000 x 20%) as well as corporate taxes on the profits.
In general, if a purchaser wishes to reflect a value higher than the tax evaluation on the Notary Deed, extra costs incurred as a result of this action are paid by the purchaser. These costs can include extra notary fees, municipal taxes and VAT. In particular for new build properties, a higher Notary Act price can increase the purchase price by up to 14% alone.
Please note, at the top of all of our availability and price lists we have clearly outlined the pricing structure.
Premier Property Bulgaria accepts no liability for the following:
1. Content of the tax evaluation;
2. Ability to obtain mortgage facilities;
3. Future capital gains on sale of property holdings

Disclaimer:
We will not be liable to any customer or member of the public for any information supplied in this document or on our web-site. Our website is provided on an "as is" basis and we do not make any representations or warranties if such information subsequently proves to be inaccurate or out of date. We cannot be held liable for any consequential loss resulting from the information we provide. Any decision made in relation to purchasing goods and/or services as a result of information obtained from this document or our site is your sole responsibility. The only warranty that we can provide regarding the accuracy of the information is to state that all reasonable endeavours are made to remove inaccurate information from the site as soon as we are able.

For further information please contact us.