This topic once again became relevant in Bulgaria after the increase of the tax on onerous acquisition of property by some municipal councils and the unaccepted proposal of the government to introduce taxation on in-kind contributions. In addition, the construction boom and the desire of investors to limit their liability as much as possible has led to a broadened usage of companies, which serve as holders of ownership of the property under construction, but do not have any activity.
Real estate acquisitions in Bulgaria can be performed in various ways, including through the establishment of a capital company with capital, which is constituted by an in-kind contribution of real estate and subsequent purchase of the shares in this company. The procedure involves several stages and takes about two months at the least, but its main advantage is that when it comes to high-value properties, it could prove to be significantly cheaper than direct acquisition through a legal transaction.
In the standard case scenario of a purchase-sale of real estate in the Bulgarian capital, the taxes and fees due are calculated on the basis of the sales price of the real estate or on the basis of a property tax evaluation, depending on whichever is higher, and include:
1) 3% state tax on onerous acquisition of property (called local tax) under Article 35, paragraph 2 of the Sofia Municipal Council Ordinance for determining the amount of local taxes;
2) 0.1% entry fee under Article 2, paragraph 1 of the Tariff of the state fees, collected by the Registry Agency;
3) notary fee for issuing a title deed under item 8 of the Tariff for notary fees to the Notaries and Notary Activities Act;
4) notary fee or attorney's fee for the preparation of a draft title deed, calculated in accordance with item 17 of the Tariff for notary fees to the Notaries and Notary Activities Act or respectively,in accordance with Article 6, paragraph 8 of Ordinance № 1 of July 9, 2004 on the minimum attorneys' fees amounts.
For comparison purposes, when acquiring real estate in the Bulgarian Capital through a capital company, first of all:
○ No local tax is due (argument from Article 48, paragraph 1, item 9 of the Local Taxes and Fees Act).
○ No title deed is prepared and the related taxes or fees are waived.
○ As a starting point for calculating any due fees, neither the property tax evaluation nor the sale price of the real estate are used, but the assessment of the property performed by experts (which in many cases turns out to be lower than the sale price). Therefore, the registration fee, which overlaps only in the two acquisition cases, is calculated on the basis of a lower value.
However, it should be noted that in the various stages of acquisition through a capital company, some additional fees are due (which, nonetheless, are significantly lower):
○ fee for the preparation of real estate appraisal by three experts pursuant to Article 72 of the Bulgarian Commerce Act (determined at the discretion of a registration official from the Commercial Register and the Register of Non-Profit Legal Persons, but the practice shows that it varies between BGN 600 and BGN 1500);
○ fees for a notary verification of signatures on various documents (consent for management, consent for performance of an in-kind contribution, declaration for absence of outstanding public obligations, shares transfer agreement), necessary for the establishment of the company and for the transfer of company shares, calculated in accordance with the Tariff for notary fees to the Notaries and Notary Activities Act;
○ initial registration fee and fee for the registration of changes according to the selected type of company under Article 16a, paragraph 2 of the Tariff of the state fees, collected by the Registry Agency;
○ attorney’s fee for legal services and assistance in the various stages of the procedure.
The acquisition of real estate through a capital company conditionally goes through four stages:
1) conducting an evaluation of the in-kind contribution – real estate;
2) registration of a capital company;
3) entry of the articles of association/ incorporation act/ statutes of the company in the Land Register;
4) transferring the company shares/stocks;
The evaluation of an in-kind contribution - real estate is carried out pursuant to Article 72 of the Bulgarian Commerce Act by three experts appointed by the Bulgarian Commercial Register and the Register of Non-Profit Legal Persons. The procedure starts by a request for evaluation filed by the owner of the real estate addressed to the Commercial Register and the Register of Non-Profit Legal Persons, to which are attached all documents establishing the right of ownership (title deeds, sketches, certificates of inheritance and others).The registration official issues an act for appointment of experts, determining specifically who the three experts will be, as well as the due fee for performing the assessment. After paying the fee, the experts have 14 days to submit the assessment. The amount indicated in the evaluation is the maximum value at which shares/stocks can be subscribed in the capital of a company against the import of real estate.
The registration of a capital company with anin-kind contribution as registered capital is carried out in accordance with Article 73 of the Commerce Act and in application of the respective requirements of the Commercial Register and Register of Non-Profit Legal Persons Act. The applications for entry of initial registration of capital companies are considered by the end of the working day following their receipt in the Commercial Register and the Register of Non-Profit Legal Persons, and the ruling is made immediately after examining the application.If all the required documents are submitted and the required state fee has been duly paid, the entry can be expected no later than two working days from the submission of the application for registration. By virtue of the registration, the newly established company becomes the real estate owner, and the current owner of the property acquires shares/stock from the capital of the company.The transfer of the real estate takes effect with the entry of the newly established company in the Commercial Register and the Register of Non-Profit Legal Persons, but in order to oppose this transfer to third parties, the articles of association/ incorporation act/ statutes must be entered in the respective Land Register Office, based on the location of the real estate. For this entry are applied the rules of Article 73 of the Bulgarian Commerce Act and the rules of the Statute for entries.The entry is made on the basis of an application on behalf of the owner company to which are attached 2 notary certified transcripts of the company’s articles of association/ incorporation act/ statutes, receipt of paid state fee and other documents according to the specific requirements of the relevant Land Register Office. The application is considered by a Land Register Official, who orders the entry of the articles of association/ incorporation act/ statutes on the day of receipt of the application, in case all of the requirements are met.
The last stage is for the subscriber of the company shares against the in-kind contribution of the real estate to transfer them to the person who wishes to acquire the real estate. This person will become the owner of the company shares/stock, where the company itself is an owner of the real estate. Thus, by taking control of the company the shareholder will control and dispose of the real estate.The transfer of company shares is carried out pursuant to the Bulgarian Commerce Act and is entered in the Commercial Register and the Register of Non-Profit Legal Persons in accordance with the Commercial Register and Register of Non-Profit Legal Persons Act. The registration official rules on the application for entry of a change in the account of the newly established company immediately after the expiration of three working days from its receipt and provided that all necessary documents and proof of paid state fee have been submitted.
In summary, the acquisition of real estate through a capital company may be a preferred option, taking into account all the features of the presented stages through which the procedure passes and considering the resulting tax and other aspects related to the rights of commercial companies, which are owners of real estates.
[1] In accordance with Article 64, paragraph 3 of the Bulgarian Commerce Act, capital companies include limited liability companies, joint-stock companies and partnerships limited by shares.
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