Bulgaria has a civil law system which is harmonised with EU law. The main sources of law are:
- the Constitution;
- acts and codes adopted by the Bulgarian Parliament;
- regulations adopted by:
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- the Council of Ministers;
- individual ministers; and
- government agencies and bodies; and
- international treaties to which Bulgaria is a party.
The following are considered subsidiary, indirect sources of law:
- case law;
- legal doctrine;
- legal customs;
- moral rules; and
- equity ('justice').
The establishment and operation of enterprises in Bulgaria is primarily governed by:
- the Commercial Act;
- the Commercial Registry and Registry of Non-Profit Legal Persons Act; and
- the Public Offering of Securities Act.
Certain types of business are regulated by specific laws, such as:
- the Credit Institutions Act;
- the Insurance Code; and
- the Markets in Financial Instruments Act.
Bulgaria's legislative body is the National Assembly. The body responsible for the registration of enterprises in Bulgaria is the Commercial Registry at the Registry Agency. Acts issued by the Commercial Registry are subject to appeal before the court at two instances.
The Commerce Act regulates the following types of business structures:
- general partnerships;
- partnerships limited by shares;
- limited liability companies (LLCs);
- joint stock companies (JSCs);
- companies limited by shares; and
- companies with variable capital.
The LLC and the JSC are the most commonly used structures for doing business in Bulgaria. Both are separate legal entities, responsible for their liabilities with their own assets, which can also exist as sole shareholder companies. The exposure of the shareholders is limited to the amount they invest.
The corporate governance structure of the LLC consists of a general meeting and one or more managers. The shareholders are registered in the Commercial Register. The transfer of shares:
- requires an agreement with notarised signatures and notarised content; and
- is registered with the Commercial Register.
The JSC has a more complex corporate governance structure, consisting of:
- a general meeting and a board of directors (in case of a one-tier system); or
- a management board and a supervisory board (in case of a two-tier system).
The shareholders are registered in the Commercial Register only if the company has a single shareholder. The shares are registered only. The materialised shares are transferred by endorsement and the transfer is entered in the shareholders' book. The transfer of dematerialised shares is made via cession and is registered in the Central Depository. A JSC can be private or public (under Bulgarian law, the JSC is the only type of company that can be listed).
A company with variable capital (CVC) is the newest type of commercial entity, introduced in August 2023. The registration of these companies will become possible on 30 June 2024. The capital of CVCs is not subject to registration in the Commercial Register; however, if certain parameters of the CVC exceed a specific amount as defined in the Commerce Act, the CVC must be transformed into an LLC or a JSC. The governing bodies are:
- the general shareholders' meeting; and
- a management board or a manager.
The minimum capital for LLC is BGN 2; upon company incorporation, at least 70% of the capital must be paid in. The minimum capital for JSCs is BGN 50,000; upon incorporation of the company, at least 25% of the capital and at least 25% of the nominal or the issuing value of each share must be paid by the respective shareholder. The capital must be fully subscribed by the shareholders; the company cannot subscribe shares in its own capital. In both cases, if the capital is not fully paid upon incorporation, a term of up to two years following registration of the company may be specified in the articles of association for payment. Contributions in kind are allowed for both LLCs and JSCs, subject to the assessment of three independent experts appointed by the Commercial Registry. These contributions must be made in full and correspond to the par value of the shares.
There are no minimum capital requirements for a CVC, as the capital is not subject to registration in the Commercial Register; there is also no requirement for this amount to be recorded in the articles of association.
All types of companies are established through registration in the Commercial Register. The registration requirements are detailed in the Commerce Act. The registration is completed within one business day of submission of the standard application form, together with the relevant documents for the specific type of entity. The business structure starts to legally exist from its registration date. The unified identification code that the company obtains upon registration is used for all tax, social security, statistical and other public purposes. No secondary registrations are required from the newly incorporated entity to commence business activities.
No general restrictions apply to foreign players that wish to establish a business in Bulgaria. Foreign investors are treated equally to local investors in all respects, including in relation to:
- company formation;
- shareholder participation; and
- the conclusion of transactions.
Certain restrictions apply to companies that are registered in jurisdictions with preferential tax regimes and entities controlled by them and their ultimate beneficial owners under the Act on Economic and Financial Relations with Companies Registered in Preferential Tax Treatment Jurisdictions, the Persons Controlled Thereby and Their Beneficial Owners. Such entities are prohibited from:
- directly or indirectly participating in licensing procedures under specific laws (eg, the Credit Institutions Act, the Insurance Code, the Social Security Code or the Markets in Financial Instruments Act); and
- acquiring shareholdings above a certain percentage in companies operating in regulated sectors, such as:
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- radio and television; and
- public electronic communications networks and services.
Foreign nationals are restricted from acquiring agricultural land in Bulgaria. Only foreign individuals who have been residing in Bulgaria for more than five years are eligible to obtain agricultural land. Bulgarian legal entities with foreign shareholders are also eligible to acquire agricultural land if they have been registered for more than five years prior to the acquisition. If this requirement is not satisfied, an entity can acquire land only if its foreign shareholders have been residing in Bulgaria for more than five years.
Companies in Bulgaria are free to work with commercial agents and resellers. No specific requirements or restrictions apply in this regard.
The management structure of a limited liability company (LLC) consists of one or more managers acting jointly or severally (the LLC has no management board). The management structure of a joint stock company (JSC) consists of:
- a board of directors (in case of a one-tier governance system); or
- а managing board and supervisory board (in case of a two-tier governance system).
In the case of a company with variable capital (CVC), the management structure consists of a management board. The company's articles of association can also assign the management and representation of the company to one or more managers, in which case the rules of the management board will apply.
Specific types of enterprises must establish specialist committees. 'Public interest entities' as defined in the Accountancy Act (eg, credit institutions, insurance companies, investment intermediaries and public companies) must have an audit committee. Certain investment intermediaries must establish:
- a nomination committee;
- a risk committee; and
- a remuneration committee.
Significant banks must have a nomination committee to select candidates for the management and control bodies and the remuneration committee. A significant managing company or significant company managing alternative investment funds must have a remuneration committee.
The establishment of specialist committees to support the managing bodies of companies
is recommended for public companies by the National Code for Corporate Governance.
The appointment of corporate directors is permitted in JSCs and CVCs; however, such directors must be members of the respective company board.
An LLC can have one or more managers. JSCs with a one tier-system have a board of directors consisting of between three and nine directors. JSCs with a two-tier system have:
- a management board consisting of between three and nine directors; and
- a supervisory board consisting of between three and seven members.
No minimum or maximum requirements are set out in the Commerce Act with regard to the management boards of CVCs.
No nationality or residency requirements apply to the managers or directors of a company. Specific types of companies – such as public companies, banks and insurance companies – must have a certain number of independent board members. In some industries, members of the managing bodies must comply with certain education and professional experience requirements, which are verified by the competent regulators.
In addition to the statutory requirements and restrictions on members of the managing bodies, further requirements can be imposed in the company's articles of association.
The managers (LLC), the members of the management board (CVC), the board of directors (JSC, one-tier system) and the supervisory board (JSC, two-tier system) are appointed and removed by the general shareholders' meeting. The supervisory board of a JSC appoints and removes the members of the management board. The board members of JSCs are elected for a term of up to five years unless a shorter term is specified in the articles of association. The members of the first board of directors or supervisory board of a JSC are appointed for a term of up to three years. The members of the management board of a CVC are elected for a certain term as defined in the articles of association. Board members may be re-elected without limitation. Directors' terms are not fixed, as appointment or removal can be effected at any duly convened general shareholders' meeting or supervisory board meeting.
The directors' role and responsibilities primarily concern the implementation of the internal corporate organisation of the company. They have the following obligations, among others:
- convening the general meeting;
- ensuring that the book of shares in LLCs, or the shareholders' book in JSCs and CVCs, is properly maintained;
- providing shareholders with access to certain information relating to the company's activities;
- overseeing financial reporting and budgeting; and
- overseeing personnel.
The directors of a JSC are also obliged to attend the board meetings personally or by authorising another director, as if the necessary quorum for passing resolutions is not met, this will impede the normal business operations of the company.
The directors' role is to conduct the business activities of the company. Therefore, the members of the management body are expected to:
- exercise their representative powers in the interests of the company;
- act as 'good businesspersons';
- achieve the set goals; and
- aim for the best possible financial results.
They have joint responsibility for the successful operations of the company.
The members of the management and control bodies of a public company are obliged to answer truthfully, exhaustively and essentially all questions asked by the shareholders at the shareholders' meeting in relation to the economic and financial situation and the commercial activity of the company, except where this would constitute insider information.
The directors' roles and responsibilities can be further detailed in the company's articles of association and the management agreement.
The board of directors or the management board of a JSC or a CVC respectively consists of executive and non-executive directors. Each board has a chair and a deputy chair. The executive director of a JSC cannot be the chair of the board. The executive directors are responsible for the day-to-day running and operation of the company; while in most cases, non-executive directors have a monitoring role. Board members may have specific roles concerning the company's activity, such as chief executive director, chief financial director and chief operations director. According to the Commerce Act, the board members have equal rights and obligations, regardless of:
- the internal distribution of functions among them; and
- the allocation of management and representative rights to some of them.
The directors' duties are as follows:
- Duty of care: The standard of care is set as that which would be exercised by a 'good businessperson' (ie, professional). This standard will be observed if, among other things, a director:
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- uses his or her best efforts to achieve the company's business objectives;
- has good knowledge of the market sector in which the company operates; and
- uses the company's assets prudently.
- Duty of loyalty: The managers of an LLC or the members of managing boards or boards of directors of a JSC must not carry out activities in competition to the company – such as concluding transactions that fall within the company's scope of activity or participating in the management of companies having a similar scope of activity – unless that is allowed by the articles of association or by the general meeting. The directors are also obliged not to:
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- disclose information relating to the company's activities and development to third parties, unless such information is available by virtue of law or is already disclosed by the company; or
- vote on matters which may give rise to a conflict of interest between the company and the director.
- Duty to notify: The general meeting must be notified of any circumstances material to the manager/director's election that have arisen after the election or any situation giving rise to a conflict of interest.
- Duty of obedience: Directors must ensure that the company's activities are carried out in compliance with:
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- all laws and regulations;
- the company's articles of association; and
- the resolutions of the general meeting.
Overall, the directors must perform their duties in the best interests of the company and all shareholders.
Members of the management bodies can be subject to civil, administrative and criminal liability as follows.
Civil liability before the company: The managers of an LLC are liable for:
- damages caused during their office or by engaging in competitive activity; and
- damages caused by fault while exercising their functions – in particular, when they or related persons conclude, without approval by the competent corporate body, contracts that:
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- fall outside its usual business activity; or
- significantly deviate from market conditions.
A director can be released from liability if it is established that he or she was not responsible for the damages.
Civil liability before the company's creditors: This may result from:
- the provision of false data upon registration of a reduction in the company's capital;
- the delayed opening of insolvency proceedings; or
- non-performance of the obligation for separate management of an acquired commercial enterprise (upon the transfer of a commercial enterprise) or transferred assets by the companies involved in the transformation (upon merger by acquisition or by a formation of a new company) for six months.
Members of the management board in a CVC can also be jointly liable before the company's creditors for damages caused by the conclusion of a transaction which has been declared invalid, in the event that they acted intentionally.
Administrative liability can arise under legislation such as:
- the Tax and Social Security Procedure Code (eg, where, due to the director's actions, tax or mandatory social security instalments were not paid or cannot be collected);
- the Protection of Competition Act;
- the Measures Against Money Laundering Act; and
- the Public Offering of Securities Act.
Criminal liability can arise for crimes against creditors, including:
- failure to request the initiation of insolvency proceedings as stipulated in the law;
- insider trading;
- mismanagement;
- declaration of false circumstances before an authority; or
- crimes against the financial, tax and social security system.
The founders of a company must be Bulgarian or foreign individuals or legal entities with legal capacity. Those declared bankrupt cannot be founders of a joint stock company (JSC). A bankrupt legal entity cannot be a founder of a company with variable capital (CVC). Minors cannot be shareholders in a limited liability company (LLC).
The shareholders enjoy the following rights:
- Non-property rights: These include:
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- management rights, such as the right to:
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- attend the general meeting;
- express an opinion; and
- make remarks and proposals;
- voting rights; and
- the right to elect and be elected to the management bodies (shareholders in an LLC can be also elected as controllers).
- Control rights:
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- shareholders in an LLC and CVC have the right to:
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- be informed as to the progress of company's affairs; and
- review the company's accounting books and other commercial documentation;
- shareholders in a JSC or CVC have the right to receive copies of the written materials for the general meeting of the shareholders; and
- shareholders in a JSC have the right to:
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- request copies of the minutes of the general meetings;
- request from the court the annulment of resolutions of the general meeting passed in violation of the law or the articles of association;
- submit a claim to protect their rights as shareholders where these have been violated by the company's bodies;
- receive dividends and liquidation quotas; and
- subscribe to new shares pro rata to their share in the capital.
The Commerce Act also recognises certain collective (minority) rights of the shareholders with a protective nature.
LLCs: Shareholders holding:
- more than one-fifth of the capital can file a claim for dissolution of the company for important reasons;
- more than one-tenth of the capital have the right:
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- to convene the general meeting where the manager has not satisfied their request to convene a meeting within two weeks; and
- to request the appointment of a liquidator by the court other than the manager or the one appointed by the general meeting where the company is in liquidation proceedings; and
- more than one-twentieth of the capital can request the court to appoint or dismiss liquidators due to important reasons.
JSCs: Shareholders:
- that have held shares representing at least 5% of the capital for more than three months can:
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- request the convening of a general meeting; and
- introduce new items on the agenda of the general meeting after the announcement or receipt of the invitation for the meeting;
- holding at least one-tenth of the company's capital can:
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- request the general meeting to appoint an auditor to check the annual financial statements; and
- file a claim seeking liability from members of the board of directors or the supervisory and management boards for damages caused to the company; and
- holding at least one-twentieth of the capital can request the court to appoint or dismiss liquidators due to important reasons.
CVC: Shareholders with holdings of:
- at least 5% of the voting rights can request the convening of a general meeting; and
- more than one-fifth of the shares can file a claim for dissolution of the company for important reasons.
The POSA also provides for specific minority rights of shareholders that hold at least 5% of the capital.
Shareholders exercise their rights through the general shareholders' meetings. Each shareholder must receive prior notice of the general meeting in accordance with the articles of association. The minimum notice periods are set forth in the Commerce Act. In an LLC, resolutions can be passed in absentia, provided that all shareholders consent in writing to the respective resolution.
Companies must convene a regular general meeting once per year by 30 September to vote on the annual financial statements. Otherwise, general meetings can be held when necessary to approve specific resolutions. Generally, resolutions are passed by simple majority; however certain material corporate resolutions – such as an amendment to the articles of association, a capital increase or reduction, or the winding up of the company – require a qualified majority.
The general meeting of an LLC is convened by the manager at least once a year. The manager must also convene a general meeting at the written request of the shareholders holding more than one-tenth of the capital. If a meeting is not convened within two weeks, the shareholders that requested the meeting are entitled to convene it.
The general meeting of a JSC is convened by the board of directors or the management board. It can also be convened by the supervisory board or at the request of shareholders that have held shares representing at least 5% of the capital for more than three months. If the request of the shareholders is not satisfied within one month or if the general meeting is not held within three months of the request being made, the district court will convene a general meeting or authorise the shareholders that requested the meeting or their representative to convene the meeting.
The general meeting of a CVC is convened by the management board. Shareholders holding shares representing at least 5% of the voting rights can also request the convening of a general meeting. If a meeting is not convened within one month of this request, or if the general meeting has not taken place within a three-month period, the shareholders that requested the general meeting can convene it by filing an invitation to the Commercial Register.
Shareholders control:
- the appointment and removal of the managers; and
- the composition of the boards.
The management bodies should organise and direct the company's activities in accordance with the resolutions of the general meeting. Through the articles of association, the shareholders delegate to the management bodies the day-to-day operations of the company; however, certain powers listed in the Commerce Law are specifically reserved for them, including:
- amendments to the articles of association;
- company transformations (eg, mergers by acquisition or formation of a new company, demergers, spin-offs, change of the legal form); and
- winding up of the company.
The Commerce Act also requires shareholders' approval for material transactions, such as:
- the transfer of the entire commercial enterprise or the grant of the right to use it to a third party;
- disposal of assets whose total value in the current year exceeds half of the value of the company's assets according to the last certified annual financial report; or
- the assumption of obligations or provision of collateral to one person or related persons in an amount which, in the current year, exceeds half of the value of the company's assets according to the last certified annual financial statement.
The POSA also provides for the shareholders' approval of specific transactions with related parties that involve the directors.
The main obligation of the shareholders in an LLC is to pay their share of the capital of the company. A shareholder that has not paid its share in due course owes statutory interest to the company plus compensation for damages in excess. The shareholders in an LLC may also be obliged to pay additional monetary contributions to the company to cover losses or in case of a temporary need for funds. Such additional contributions must be approved by the general meeting. Further, the shareholders in an LLC are obliged to:
- participate in the management of the company;
- provide assistance in carrying out the company's activities (personal efforts and care);
- abide by the resolutions of the general meeting; and
- be loyal to the company.
Other non-property obligations of the shareholders may be specified in the articles of association. Non-performance of the above obligations may lead to the expulsion of the shareholder from the company.
The only obligation of shareholders in a JSC regulated by law is the obligation to contribute their share of the capital. Shareholders have no obligation to participate in the company's activity personally. Shareholders that fail to make the agreed contributions on time owe interest to the company unless a penalty is provided for in the articles of association. If a non-monetary contribution is delayed, the company may seek compensation for the actual damages suffered. If the shareholders fail to make the due contributions after being given one month's written notice, they are considered expelled from the company. As per the Commerce Act, the company's articles of association may stipulate that the shareholders must provide collateral for the outstanding part of the contribution. The Commerce Act also provides that the transferor of registered shares which are not fully paid or from which other obligations to the company arise is jointly liable together with the transferee to the company.
The main obligation of shareholders in a CVC is to pay their contribution in respect of the acquired shares in the company. The shareholders in a CVC are obliged to:
- provide assistance in carrying out the company's activities (personal efforts and care);
- abide by resolutions of the general meeting; and
- be loyal to the company.
Other specific obligations may be included in the articles of association.
The main principle for LLCs, CVCs and JSCs is that the liability of shareholders is limited to the amount of their investment. The company has a separate legal personality from its shareholders. However, the Tax and Social Security Procedure Code provides for the liability of majority shareholders that voted to approve certain actions if the company's assets decreased and tax and/or mandatory social security contributions were not paid as a result. Also, the controlling shareholders in a CVC are liable to the company's creditors for damages caused by the conclusion of a transaction which is declared invalid if they acted intentionally. They are liable up to the amount for which the creditors have not been satisfied by the company.
In a JSC, each shareholder has the right to new shares corresponding to its shareholding in the capital in case of a capital increase. This right can be limited or cancelled only by resolution of the general meeting, passed by a two-thirds majority of the votes of the shares represented. The management board or the board of directors must present a report on the reasons for the cancellation or limitation of the pre-emptive right.
The law imposes no limitations on the number of shares that a shareholder can hold or the speed of stake building in a company. Specific regulations are set forth in the POSA regarding public companies. A shareholder in a listed company must notify the Financial Supervision Commission and the company where the percentage of voting rights it holds directly or indirectly reaches, exceeds or falls below 5% or a multiple of 5% of the total number of the voting shares. The same rule applies to shareholders that have the right to acquire, transfer or exercise voting rights in the general meeting. According to the POSA, shares in a public company may be bought up to the threshold triggering a mandatory offer without initiating a bid procedure. If a shareholder acquires directly or indirectly more than one-third but less than two-thirds of the voting shares in the company, it may not acquire, within each subsequent annual period, voting shares exceeding 3% of the total number of shares without making a bid.
The shareholders may provide working capital by subscribing for new shares in the company. Working capital can also be obtained via loans granted to the company by the shareholders or third parties on an arm's-length basis. Interest payments on the debt are generally tax deductible (subject to capitalisation and thin capitalisation rules); however, usually the loan must be collateralised.
The shareholders in a limited liability company (LLC) can make additional monetary contributions to the company for a fixed term to cover losses or a temporary shortage of funds. Such contributions are made by resolution of the general meeting pro rata to the shareholders' respective shares in the capital, unless otherwise resolved by the general meeting. The advantage of the additional monetary contribution is that the company is not required to pay interest on it. However, a shareholder that fails to make an additional monetary contribution approved by the general meeting can be expelled from the company. If a shareholder votes against the additional monetary contribution, it has the right to leave the company.
The activities of a joint stock company (JSC) can be financed by issuing bonds (simple or convertible). The issue of bonds must be approved by the general shareholders' meeting, or by the board of directors or the management board if it is so authorised. Bonds can be offered to the public, including through the stock exchange. Convertible bonds, however, may involve a loss of control when the bonds are converted into equity.
A company with variable capital (CVC) may:
- issue rights for the acquisition of company shares; and
- conclude convertible loan agreements under terms and conditions specified in the articles of association.
The main routes for the return of proceeds from an investment are as follows:
- Dividends: Payment of dividends is subject to:
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- approval of the company's annual financial report;
- available profits; and
- a resolution of the general meeting on the payment of dividends.
- Distributions are not permitted if the net assets of the company drop below the aggregate of the sum of the share capital of the company plus any statutory fund reserves not available for distribution. Usually, dividends are paid in cash but they can also be satisfied via asset transfer.
- Capital reduction: Payments resulting from a capital reduction can be made only after:
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- the reduction has been entered in the Commercial Register; and
- collateral has been provided to creditors that objected to the reduction.
- Creditors have the right to make objections to and request collateral for their outstanding receivables within three months of the announcement of the resolution of the general meeting on the capital reduction in the register.
- Sale of shareholding: Shares of an LLC are sold through a notarised agreement; while the sale of shares in a JSC requires merely an ordinary signature. Shares of a CVC are sold through a notarised agreement unless the articles of association provide otherwise.
- Company loans: A company can grant loans to its shareholders on an arm's-length basis.
- Share buyback: A company can purchase its own shares based on a resolution of the general meeting following the procedure detailed in the Commerce Act.
- Liquidation quota: A liquidation quota can be distributed once:
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- six months have passed since the announcement of the invitation to the creditors in the Commercial Register; and
- all of the company's creditors have been satisfied.
In March 2024, amendments in the Investment Promotion Act were published in the State Gazette introducing the requirements of EU Regulation 2019/452. As per the new rules, Foreign Direct Investments (FDIs) will be screened by an Inter-Ministerial Council for Screening of Foreign Direct Investments where the intended investment:
- is made by a foreign investor as per the definition in the IPA.
- falls within the areas specified in Article 4 (1) of EU Regulation 2019/452, and
- meets one of the following conditions:
- at least 10 % of the capital of an operating enterprise is acquired, or the FDI exceeds the threshold of EUR 2,000,000.
- at least 10 % of the capital of an operating enterprise engaged in high-tech activities is acquired.
- a new investment is made which exceeds the threshold of EUR 2,000,000.
Specific FDIs, such as those involving investors from Russia or Belarus, or individuals engaged in certain activities related to, among others, the production of petroleum-based products concerning critical infrastructure) are subject to screening under the act regardless of the aforementioned conditions. Under certain conditions even exempt investments may still be subject to screening. In addition, as opposed to the EU Regulation 2019/452, the local definition also includes expansions of an existing investment.
In case the investment falls under the scope of the new regime, the foreign investor shall be prohibited to undertake the investment until it has received clearance. The procedure ends in an express conditional or unconditional clearance, a tacit unconditional clearance, or an express prohibition. Two further regulations are expected to be implemented in the next six months in order the regime to be fully operational. Upon violation of the obligations to provide accurate and correct information, if FDI is made without an issued permit or in violation of a permit, a sanction equal to 5% of the investment value but not less than BGN 50,000 will be imposed.
Under the Currency Act, transactions and payments between domestic and foreign persons can be made freely, subject to the following requirements:
- Payment services suppliers can make transfers and payments to recipients abroad only once the grounds for the transfer have been specified to them.
- A person making a transfer or currency payment that exceeds BGN 30,000 to recipients abroad must provide the payment services supplier with certain information and documentation concerning the payment (eg, origin of the funds, documents proving the grounds of the transfer).
- Any transaction connected with an initial direct investment made abroad by local legal entities, the provision of financial credit between local legal entities and foreign persons, the opening of accounts abroad, the issuance of securities by Bulgarian legal entities abroad and/or the purchase of securities without the mediation of a Bulgarian investment intermediary is subject to a declaration to the Bulgarian National Bank (BNB) within 15 days of its conclusion. Where a local legal entity orders a local bank to transfer funds in connection with a transaction that must be declared, the bank will execute the transfer order once such a declaration has been proved.
- Local legal entities must report to the BNB on:
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- their operations;
- their receivables from and liabilities to foreign entities; and
- their direct investments abroad.
- Local individuals must report to the BNB annually by 31 March their receivables from and liabilities to foreign persons if the aggregate of these receivables or liabilities exceeded BGN 50,000 as of 31 December in the previous calendar year.
A company with more than 50 employees must have a representative at the general meeting, who has an advisory vote. In a JSC, the employees' representative has the right to receive all written materials for the general meeting. Employees also participate through their representatives in the discussion and resolution of issues related to the management of the company, such as:
- health and safety working conditions;
- labour and social matters; and
- company transformation.
A reduction in the company's capital is subject to:
- the consent of the company's creditors; or
- the provision of collateral for their outstanding receivables.
Creditors can also submit a claim for the opening of insolvency proceedings.
Customers and suppliers have no specific legal role in shaping business operations.
Since the entry into force of the new anti-money laundering (AML) legislation in 2018, it has become significantly more difficult for foreign parties to open bank accounts in Bulgaria, in view of the extensive AML requirements applied by local banks. Further, companies whose legal representative does not permanently reside in Bulgaria must appoint a contact person to satisfy this requirement for AML purposes. The slow resolution of disputes relating to commercial contracts should be also borne in mind.
All companies that perform business activities must publish their annual financial statements in the Commercial Register by 30 September of the respective calendar year. If the company is dormant, a declaration of lack of business activities must be submitted to the Commercial Register by 30 June; new filings will not be required until business activities have commenced or resumed.
Public companies must disclose publicly, for a period of at least 10 years:
- their annual financial report:
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- within 90 days of the end of the financial year; or
- if obliged to prepare a consolidated financial report, within 120 days of the end of the financial year; and
- their six-month financial reports:
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- within 30 days of the end of the six-month period; or
- if the reports are consolidated, within 60 days of the end of the six-month period.
Listed companies must disclose publicly, for a period of at least five years, a notification on:
- their financial status within 30 days of the end of the first, second and third quarter of the year; or
- the consolidated base of their financial status (if applicable) within 60 days of the end of the first, second and third quarter of the year.
They must also publish the minutes of the general meetings on their websites for at least five years. Each bank also has specific disclosure requirements under the Credit Institutions Act.
Managers and directors who are legal representatives of the company are responsible for observing the statutory reporting requirements. By 30 June each year, the board of directors or management board of a joint stock company must:
- prepare:
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- an annual financial report for the past calendar year; and
- an annual activity report; and
- present them to the auditors elected by the general meeting if:
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- a mandatory audit is required by law; or
- a resolution on an independent financial audit was passed by the general meeting.
The company's annual financial report is prepared by an accountant or an accountancy firm, which must comply with certain criteria specified in the Accountancy Act. The financial report is further subject to audit in specific cases provided by law and in such cases, completion of the audit is a condition for approval of the annual financial report. The auditors are elected by the general meeting before the end of the calendar year.
Sanctions can be imposed on the respective responsible members of the managing bodies and the company in case of failure to comply with the accounting reporting requirements within the statutory term.
The relationships between the company and its executives, managers or executive directors are regulated contractually. The management contract is not an employment contract but a civil contract, and thus is regulated by:
- the Commerce Act; and
- the Obligations and Contracts Act.
Although the management contract is not an employment contract, for tax and social security purposes, it is treated in the same way as such.
The general meeting determines:
- the managers' compensation in a limited liability company (LLC); or
- the compensation of the members of the management board in companies with variable capital (CVCs).
In joint stock companies (JSCs):
- with a one-tier system:
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- the compensation of the executive directors is determined by the board of directors; and
- the compensation of the non-executive members is determined by the general meeting; and
- with a two-tier system:
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- the compensation of management board members is determined by the supervisory board; and
- the compensation of the supervisory board members is determined by the general meeting.
Statutory disclosure requirements on executive compensation apply to JSCs and public companies. The total compensation of the board members in a JSC must be included in the periodic activity reports of the executive boards (management board or board of directors). Public companies are subject to a specific and comprehensive disclosure regime under the Public Offering of Securities Act.
Executive performance monitoring is not foreseen for LLCs or CVCs. However, the managers or members of the management board will be financially liable for any damage caused to the company. In JSCs, the periodic activity reports and the annual financial report serve as indicators of executive performance. The board of directors reports to the general meeting, while the management board reports to the supervisory board.
The monthly insurance base of an executive is equal to his or remuneration but must be:
- no more than the maximum monthly insurance base (BGN 3,400); and
- no less than the minimum monthly insurance base (BGN 710).
Employment in Bulgaria is regulated:
- by the Labour Code; and
- partially by secondary legislation.
The employment relationship arises from the employment contract. There are different types of employment contracts; however, the most common type is a contract of indefinite duration. The law also provides for the conclusion of an employment contract with a trial period of up to six months.
Employees have the right to form, join or leave a trade union. Another means of employees representation is through the general meeting of employees, which:
- comprises the entire staff of an enterprise; and
- may elect employees' representatives as specified in the Labour Code.
The employer must:
- provide information;
- conduct consultations; and
- coordinate either with the trade union or with the representatives in the cases provided for by the law.
Dismissals must be executed in writing. The law provides statutory protection against dismissal to certain categories of employees listed in the Labour Code, such as:
- mothers of children younger than three years of age; and
- employees suffering from certain diseases.
To dismiss an employee who falls within any of these categories, the employer needs the prior consent of the Labour Inspectorate.
An employer must:
- consult with trade union representatives and employees' representatives before undertaking collective dismissals; and
- provide written information to employees with specified information on the planned dismissals, including:
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- the reasons for the planned redundancies;
- the number of employees who will be laid off;
- basic economic activities; and
- the qualification groups and professions to which the dismissal corresponds.
In the case of collective dismissals, the employer must also inform the National Employment Agency in writing.
A comparatively high remuneration in proportion to the local standard of living is a basic requirement for the successful recruitment of foreign workers. Depending on the country of origin of the foreign worker, visa requirements may apply. There is also a specific procedure for highly qualified employees/workers from non-EU countries: the EU Blue Card procedure.
The current minimum wage in Bulgaria is BGN 780. The aggregate rate of social security contributions amounts to circa 25% of the gross salary of the employee, 14%-15% of which is payable by the employer. In Bulgaria, maternity leave lasts for 410 days per child.
Corporate income tax (CIT): CIT in Bulgaria is applied at a rate of 10%. The tax base is the taxable profit (after adjustments) and the tax period is the calendar year.
Bulgarian tax residents (companies and individuals) are taxed on their worldwide income; while non-residents are taxed only on their Bulgarian-source income or income accrued through a permanent establishment (or a fixed base) in Bulgaria.
Withholding tax (WHT): This is levied on non-residents' Bulgarian-source income from:
- dividends and liquidation quotas;
- interest;
- royalties;
- technical services;
- rental of movable or immovable property;
- payments under franchising and factoring agreements; and
- management fees.
The WHT rate is generally 10% in the general case with certain exceptions.
Dividends and liquidation quotas are subject to WHT at a rate of 5%. An exception is provided for dividends and liquidation quotas distributed to non-resident companies that are tax residents of another EU or European Economic Area (EEA) member state, in which case WHT is 0% (except in the case of hidden profit distribution).
Interest and royalty payments to EU-based associated companies are exempt from WHT in Bulgaria under the conditions of the CIT Act.
Capital gains of non-residents from the transfer of shares in a Bulgarian company are subject to WHT at a rate of 10% (an exemption applies to the shares of listed companies). This also applies to capital gains of non-resident companies from the transfer of immovable property located in Bulgaria.
Tax exemptions and relief may apply under the double tax treaties that Bulgaria has signed with other countries.
Value-added tax (VAT): The standard VAT rate in Bulgaria is 20%. A reduced VAT rate of 9% applies to certain supplies, such as:
- accommodation services provided in hotels and similar establishments;
- delivery of books, newspapers and magazines (physical or electronic); and
- baby foods and hygiene products.
Under the VAT Act:
- certain supplies are VAT exempt (eg, certain land transactions); and
- certain supplies are zero-rated (eg, exports outside the European Union).
The tax period for VAT purposes is the calendar month.
No tax applies to capital inflows in Bulgaria through the acquisition of an equity against cash payment.
For capital outflows, the applicable tax rate on the distribution of dividends and liquidation quotas is 5% for all natural persons and non-resident companies, except where the non-resident company is a tax resident of another EU or EEA member state (in which case the WHT rate is 0%).
Distributions by means of capital reductions are not subject to tax in general (although exceptions apply).
In addition to the relatively low tax rates and the exemptions outlined in questions 9.1 and 9.2, it Bulgaria has signed over 70 double tax treaties with other countries. Tax incentives may apply subject to the rules of the CIT Act and applicable state aid regulations, including:
- a partial retention of CIT constituting state aid for farmers;
- additional tax deductions for the hiring of long-term unemployed and certain other categories of workers; and
- retention of up to 100% of CIT in case of investments in manufacturing activities in municipalities with high unemployment.
There is no group consolidation under Bulgarian law for tax purposes. Under Bulgarian law, taxpayers must determine their taxable profit and incomes on an arm's-length basis (this also applies to transactions between non-related parties). The obligation to maintain transfer pricing documentation applies to enterprises that exceed certain thresholds. Interest deductible by local companies is subject to the thin capitalisation rules. Bulgaria has implemented the EU regulations on matters such as:
- controlled foreign companies;
- hybrid mismatch arrangements; and
- country-by-country reporting.
Mergers and acquisitions are governed mainly by the Commerce Act, which governs:
- the transfer of shares;
- the transfer of going concerns; and
- company transformations such as:
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- mergers (by acquisition or the formation of a new company);
- demergers; and
- spin-offs.
The general rules on the validity and performance of the contract, default and so on are set out in the Obligations and Contracts Act. Certain aspects of an M&A transaction may be governed by laws such as:
- the Competition Protection Act; and
- the Labour Code.
Specific laws will apply if an M&A transaction involves a specific target, such as:
- public companies (the Public Offering of Securities Act);
- banks and other financial institutions (the Credit Institutions Act);
- pension funds (the Social Insurance Code); and
- insurance companies (the Insurance Code).
The merger control procedure is regulated by the Protection of Competition Act. The Commission on Protection of Competition (CPC) must be notified if:
- a transaction will lead to a lasting change of control over an undertaking or part thereof; and
- the statutory thresholds are met.
Concentrations are subject to mandatory prior notification to the CPC if:
- the sum of the total turnover of all undertakings participating in the concentration in the territory of Bulgaria in the previous financial year exceeded BGN 25 million; and
- either:
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- the total turnover of each of at least two of the participants in the concentration in Bulgaria in the previous financial year exceeds BGN 3 million; or
- the total turnover of the target in Bulgaria in the previous financial year exceeded BGN 3 million.
The acquirer must notify the transaction to the CPC if the thresholds are met. Notification must be submitted following execution of the relevant agreement but prior to taking any actions to implement it.
The employment relationship remains valid and binding in the event of an M&A transaction. The rights and obligations that ensue from the employment relationship are transferred to the new employer.
The parties to an M&A transaction should consider:
- any approvals required from a competent regulatory body; and
- the time needed to obtain them.
Shares in a limited liability company or commercial enterprise can be transferred only if there are no unpaid wages, benefits or mandatory social insurance contributions for workers and employees, including those whose employment relationships were terminated up to three years before the transfer.
Money laundering is governed by:
- the Measures Against Money Laundering Act; and
- the Measures Against the Financing of Terrorism Act.
Separately, Chapter 7 of the Criminal Code regulates crimes against the financial, tax and security systems.
To prevent, detect and prosecute financial crimes in Bulgaria, a legal and institutional framework, influenced by the development of EU law, has been adopted for:
- supervision;
- collection of information; and
- prosecution of perpetrators.
However, prevention measures must be strengthened to reflect the evolving criminal environment. Know-your-customer, screening and anti-money laundering monitoring and investigations are the main controls to prevent financial crime used by the key participants in investment and business activities, including:
- banks and other payment institutions;
- investment intermediaries;
- notaries;
- lawyers; and
- accountants.
The annual and consolidated financial statements of the following businesses are subject to a mandatory audit requirement:
- small enterprises that, as of 31 December of the current reporting period, exceeded at least two of the following indicators:
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- an asset balance-sheet value of BGN 2 million;
- net sales revenues of BGN 4 million; or
- at least 50 members of staff on average;
- medium and large enterprises;
- enterprises of public interest;
- medium and large groups and groups in which there is at least one enterprise of public interest; and
- enterprises for which this requirement is established by law.
Notwithstanding the above, the annual and consolidated financial statements of joint stock companies and partnerships limited by shares are subject to a mandatory audit, except where:
- the companies are micro-enterprises; and
- as of 31 December of the current reporting period, at least two of the following indicators were not exceeded:
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- an asset balance-sheet value of BGN 700,000;
- net sales revenues of BGN 1.4 million; and
- at least 10 members of staff on average.
The consolidated financial statements and the annual financial statements of enterprises included in the consolidation are subject to an independent financial audit.
The annual financial statements of non-profit legal entities of public benefit are subject to a mandatory audit if, as of 31 December of the current reporting period, they exceeded one of the following indicators:
- an asset balance-sheet value of assets of BGN 1 million;
- net income from business and non-business activity of BGN 2 million; and
- a total sum of funding received in the current year, plus funding received in previous reporting periods which was not utilised as of 31 December of the current year, of BGN 1 million.
The annual financial statements of non-profit legal entities of public benefit carrying out mediation in international adoption are subject to a mandatory independent financial audit.
Pursuant to Bulgarian law, financial audits are divided into two categories: mandatory and voluntary. A mandatory financial audit is an obligatory audit of the annual financial statements of a company where this is required by Bulgarian or EU law. A voluntary financial audit is like any other audit which is not a mandatory audit.
Financial audits must be performed by auditors that are registered with the Register of Registered Auditors, which is maintained by the Commission for Public Oversight of Registered Auditors.
Auditors are appointed by resolution of the general meeting, which must include:
- the auditor's relevant data; and
- the year for which the audit will be completed.
Any change in the auditor for the respective period requires a new resolution from the competent body. In the case of a joint stock company, if an auditor has not been appointed by the end of the calendar year, it can be appointed by the Bulgarian Registry Agency on the grounds of an application submitted by the respective management body.
Auditors must:
- be independent from the company that is subject to audit; and
- not participate in its decision-making process.
In the case of a transformation of companies (ie, merger by acquisition or formation of new company, demerger, spin-off), the respective transformation agreement or plan must be verified by a registered auditor that meets the criteria set forth in the Commerce Act. The auditor is appointed by the company's management body.
Pursuant to Bulgarian law, a registered auditor which is carrying out a mandatory audit of a public interest enterprise is restricted in the non-audit services it can provide to that enterprise. Specifically, and in relation to EU Regulation 537/2014, an auditor must not directly or indirectly provide to an audited entity, its parent undertaking or its controlled undertakings within the European Union any prohibited non-audit services during:
- the period between the start of the audited period and the issue of the audit report; and
- the financial year immediately preceding the period referred to above in relation to legal services, consisting of:
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- providing legal counsel;
- negotiating on behalf of the audited entity; and
- acting in an advocacy role in the resolution of litigation.
Pursuant to the regulation, prohibited non-audit services generally include the following:
- tax services;
- services relating to participation in the management or decision making of the respective entity;
- accounting services;
- bookkeeping services;
- payroll services;
- evaluation services; and
- legal services.
Public interest enterprises in Bulgaria include, among others:
- insurance companies;
- banks;
- credit institutions;
- financial institutions;
- special investment companies; and
- companies whose main activity relates to the sale, transfer and/or generation of energy
A registered auditor may provide tax advice outside the financial audit if:
- the approval of the audit committee of the public interest enterprise is obtained; and
- such approval is communicated to the Commission for Public Oversight of Registered Auditors.
There are no specific regulations that cap the remuneration of auditors for the provision of non-audit services pursuant to Bulgarian law.
Business activities can be terminated either voluntarily or mandatorily. Mandatory termination takes place:
- in the event of the commencement of insolvency proceedings; and
- at the order of the court in cases determined by law.
The voluntary (solvent) liquidation of a company is the typical route chosen by the shareholders to terminate all company activities. It involves the appointment of a liquidator to handle all matters relating to the company's estate, including:
- publishing an invitation to the creditors in the Commercial Register;
- completing any pending transactions;
- collecting the receivables;
- liquidating the remaining estate; and
- satisfying the creditors.
This process takes a minimum of six months. Once all creditors have been duly satisfied or provided with collateral for their receivables, the remaining property is distributed among the shareholders and the company is closed.
Insolvency proceedings are initiated when a company is unable to pay its obligations to its creditors or is overindebted. After completion of the insolvency proceedings, the company is deleted from the Commercial Register, unless a recovery plan relating to the discharge or rescheduling of its payments has been adopted.
A company can be terminated without the initiation of a liquidation procedure through transformation (merger, demerger or the change of the legal form of a company). In this case, the transforming entity is terminated and all of its assets, rights and obligations are transferred to its legal successor through universal succession by operation of law.
The termination of business activity under Bulgarian law in its most common form (voluntary liquidation) includes a variety of supplementary administrative activities that must be completed alongside the main procedure. Prior to initiating a liquidation procedure, the Bulgarian National Revenue Agency must be notified of the upcoming winding-up of the company. Before completion of the liquidation, a certificate issued by the National Social Security Institute should be obtained. The liquidation process takes at least nine months and there is no fast-track procedure.
If the company being terminated is value-added tax (VAT) registered, it must apply to the tax authorities for deregistration within a certain period after the commencement of the liquidation procedure. However, it is possible for the VAT registration of the respective company to be extended until its deregistration from the Commercial Register.
The company can carry out commercial activity during the liquidation period, provided that such activity relates to the purpose of the winding-up.
There have been several positive developments in the current business landscape in Bulgaria, including:
- the introduction of the company with variable capital, which aims to provide competitive conditions for the establishment and development of innovative start-ups;
- the adoption of the Protection of Persons Reporting or Publicly Disclosing Information on Breaches Act, which officially transposed the EU Whistleblowing Directive into Bulgarian law; and
- the launch on 1 July 2023 of an online public Central Register of Registered Pledges administrated by the Registry Agency, which is an important step towards reducing the administrative burden and providing efficient and easily accessible electronic services for businesses.
Bulgaria has:
- a growing economy;
- a skilled and affordable labour force;
- low tax rates; and
- a strategic location at the crossroads of Europe, Asia and the Middle East.
As a result, Bulgaria has been attracting significant foreign investment in recent years, particularly in the IT, manufacturing and logistics sectors.
Prevailing trends include:
- a growing focus on innovation and digital transformation; and
- a strong push towards renewable energy sources.
Additionally, there has been renewed emphasis on attracting high-value-added investments that can create more skilled jobs and help drive economic growth.
Looking ahead, we anticipate amendments to:
- the Bulgarian Constitution; and
- the Judicial Systems Act.
In July 2023, a bill on the amendment of the Constitution was submitted to the National Assembly, aimed at reforming the judicial system.
Overall, we believe that Bulgaria is well positioned to continue to attract foreign investment and to promote a favourable business climate.
Starting business in a new country is often challenging, as a good understanding of local law and business practices is needed. Before starting a business in Bulgaria, especially a large one:
- conduct thorough research on the relevant industry; and
- ensure that all necessary permits, licences and registrations are in place.
Be prepared for the inevitable bureaucracy and be aware that the approval process can take longer than planned. The resolution of commercial disputes or insolvency in Bulgaria can also be slow. Finally, it is essential to hire well-versed advisers when navigating business expansion. Experienced professionals can:
- manage the paperwork and ensure that your business complies with all regulations;
- keep you apprised of the evolving nature of the laws and any reporting obligations; and
- mitigate the risk of any sanctions.