Bulgaria Company Formation for Foreigners: A Step-by-Step Guide

Bulgaria, a vibrant member of the European Union, has increasingly emerged as an attractive destination for foreign entrepreneurs seeking to establish a business presence in Europe. Its strategic location, competitive tax regime, and evolving business environment offer significant opportunities for growth and expansion. This comprehensive guide is designed to navigate foreign investors through the intricacies of company formation in Bulgaria, providing a clear, step-by-step roadmap to unlock its full business potential.

Introduction: Unlocking Business Potential in Bulgaria for Foreign Entrepreneurs

For entrepreneurs and businesses looking to expand their horizons into the European market, Bulgaria presents a compelling proposition. Beyond its rich history and stunning landscapes, the country offers a robust framework for international business. Its accession to the EU has harmonized its legal and economic environment with European standards, while maintaining a distinct advantage in terms of operational costs. This guide aims to demystify the process of setting up a company in Bulgaria, ensuring that foreign investors are well-equipped with the knowledge needed for a successful venture from conception to compliance.

Why Bulgaria? Key Advantages for Foreign Investors

Bulgaria’s appeal to foreign investors stems from a combination of economic advantages and strategic positioning within the EU. Understanding these benefits is crucial for appreciating why Bulgaria might be the ideal location for your next business enterprise.

• Strategic EU Location: Positioned at the crossroads of Europe and Asia, Bulgaria serves as a gateway to the EU Single Market, the Balkans, and the Black Sea region, offering unparalleled logistical and market access.
• Favorable Taxation: Bulgaria boasts one of the most competitive tax regimes in the EU, featuring a flat 10% corporate income tax rate and a 5% dividend tax rate, significantly enhancing profitability for businesses.
• Low Operating Costs: Compared to Western European counterparts, labor costs, office rentals, utilities, and general operational expenses in Bulgaria are considerably lower, leading to substantial cost savings.
• Skilled and Educated Workforce: The country offers a highly educated and multilingual workforce, particularly proficient in IT, engineering, and various service sectors, at competitive salary levels.
• Stable Economic Environment: As an EU member and a prospective Eurozone member, Bulgaria benefits from economic stability, predictable policies, and access to EU funds and initiatives.
• Business-Friendly Environment: The Bulgarian government has implemented various reforms aimed at improving the ease of doing business, including simplified administrative procedures and digital services.
• Access to EU Markets: Companies registered in Bulgaria gain full access to the vast EU single market, facilitating seamless trade and services across member states without customs duties or significant bureaucratic hurdles.

Choosing Your Business Entity: Main Legal Forms for Foreigners

Selecting the appropriate legal form is a foundational step in establishing your business in Bulgaria. The choice depends on factors such as the number of founders, liability considerations, capital requirements, and the scale of planned operations. Here are the most common legal structures available to foreign investors:

• Limited Liability Company (OOD / EOOD):
  • OOD (Дружество с ограничена отговорност): Requires a minimum of two shareholders. It is the most popular choice for small and medium-sized businesses due to its simplicity, flexibility, and limited liability protection for shareholders.
  • EOOD (Еднолично дружество с ограничена отговорност): Similar to OOD but designed for a single shareholder. It offers the same benefits of limited liability and is ideal for individual entrepreneurs.
  • Key Features: Minimum registered capital of BGN 2 (approx. €1), shareholders’ liability is limited to their contribution.
• Joint Stock Company (AD – Акционерно дружество):
  • Suitable for larger enterprises, those planning to raise capital through public offerings, or businesses requiring a more complex corporate structure.
  • Key Features: Minimum registered capital of BGN 50,000 (approx. €25,000), liability is limited to share capital, more rigorous regulatory requirements.
• Branch Office:
  • A branch is not a separate legal entity but an extension of the foreign parent company. It carries out business activities in Bulgaria on behalf of the parent company.
  • Key Features: Parent company assumes full liability, relatively simpler setup than a subsidiary, but requires careful consideration of accounting and tax implications.
• Representative Office:
  • Primarily for non-commercial activities such as market research, advertising, or liaison. It is not permitted to conduct direct commercial operations.
  • Key Features: Easy to set up, minimal legal obligations, no corporate income tax liability on its activities (though expenses are taxable).

Essential Pre-Registration Requirements and Documents Checklist

Before initiating the formal registration process, it’s crucial to gather and prepare a set of necessary documents and meet specific pre-registration requirements. This meticulous preparation will streamline the entire process.

Pre-Registration Requirements:

• Company Name Selection: Choose a unique name and check its availability with the Bulgarian Commercial Register.
• Registered Address: Secure a physical registered office address in Bulgaria. This can be a rented office or a virtual office service.
• Minimum Share Capital: For an OOD/EOOD, the statutory minimum capital is BGN 2, which must be deposited into a provisional bank account.
• Defining Business Activities: Clearly outline the main business activities (NACE codes) your company will undertake.
• Appointing Management: Identify the manager(s) (director(s)) and shareholder(s), who can be foreign individuals or legal entities.

Documents Checklist (Typically Required for OOD/EOOD):

• Memorandum of Association / Articles of Association: The foundational document outlining the company’s structure, management, capital, and objectives.
• Declarations:
  • Declaration for non-existence of circumstances under Art. 142 of the Commercial Act (e.g., prohibition of competition).
  • Declaration under Art. 141, para. 8 of the Commercial Act (manager accepts management).
  • Declaration for authenticity of the signature (manager’s specimen signature).
  • Declaration under Art. 13 of the Anti-Money Laundering Measures Act (for beneficial owner identification).
• Bank Certificate: Proof from a Bulgarian bank that the initial share capital has been deposited.
• Lease Agreement / Title Deed: Document proving the right to use the registered office address.
• Passport Copies: Certified copies of passports/ID cards for all foreign individuals (shareholders, managers).
• Corporate Documents (if shareholder is a foreign legal entity):
  • Certificate of Incorporation/Registration.
  • Articles of Association/Memorandum.
  • Resolution of the foreign company to establish a Bulgarian entity and appoint its representative.
• Power of Attorney: If using a local representative or lawyer for the registration process.

Note: All foreign documents typically require an Apostille or legalization, and certified translation into Bulgarian.

Step-by-Step Company Registration Process in Bulgaria

The company registration process in Bulgaria is relatively streamlined, especially with the assistance of local legal professionals. Here’s a detailed breakdown of the steps involved:

1. Step 1: Choose Company Name and Legal Form
   • Decide on the legal structure (OOD/EOOD is most common for foreigners).
   • Verify the chosen company name’s availability through the online Commercial Register database.
2. Step 2: Draft Constitutive Documents
   • Prepare the Memorandum of Association or Articles of Association, outlining the company’s core details.
   • Draft other necessary internal documents and declarations (e.g., manager’s declarations, resolution for establishment).
3. Step 3: Open a Provisional Bank Account and Deposit Capital
   • Approach a Bulgarian bank to open a provisional “capital accumulation” bank account in the company’s name.
   • Deposit the minimum required share capital (BGN 2 for OOD/EOOD).
   • Obtain a certificate from the bank confirming the deposit.
4. Step 4: Notarize Documents
   • All signatures on key documents (e.g., Articles of Association, manager’s specimen signature, declarations) must be notarized by a Bulgarian public notary.
   • Foreign documents may need an Apostille and certified translation.
5. Step 5: Register with the Commercial Register (Registry Agency)
   • Submit all prepared and notarized documents to the Registry Agency (part of the Ministry of Justice) for company registration. This can be done electronically or physically.
   • Pay the state registration fee.
   • Upon successful review, the company will be registered and issued a Unique Identification Code (UIC / EIK).
6. Step 6: Obtain Tax and VAT Registration
   • Once registered with the Commercial Register, the company automatically receives a tax identification number (UIC).
   • VAT Registration: Companies must register for VAT if their taxable turnover exceeds BGN 100,000 within a 12-month period, or they can opt for voluntary VAT registration earlier. This is done with the National Revenue Agency (NRA).
7. Step 7: Register with National Revenue Agency (NRA) and National Social Security Institute (NSSI)
   • Even if not VAT registered, the company must register with the NRA for corporate tax purposes.
   • If the company plans to hire employees, it must register as an employer with the NRA and the NSSI.
8. Step 8: Obtain Specific Licenses or Permits (if applicable)
   • Depending on the nature of your business (e.g., finance, healthcare, tourism, construction), you may need to apply for specific licenses, permits, or authorizations from relevant ministries or regulatory bodies.

Navigating Bulgarian Taxation for Foreign-Owned Companies

Understanding the Bulgarian tax system is vital for financial planning and compliance. Bulgaria’s tax regime is one of its most attractive features for foreign investors.

Key Taxes for Foreign-Owned Companies:

• Corporate Income Tax (CIT): A flat rate of 10%, one of the lowest in the EU. This applies to the company’s net profits.
• Value Added Tax (VAT):
  • Standard rate: 20%.
  • Reduced rates: 9% for hotel accommodation, 0% for intra-community supplies and exports.
  • Mandatory registration: For businesses with taxable turnover exceeding BGN 100,000 in any 12 consecutive months. Voluntary registration is also possible.
• Dividends Tax: A flat rate of 5% on distributed profits. This rate can be reduced to 0% for dividends paid to EU/EEA parent companies under certain conditions (EU Parent-Subsidiary Directive).
• Withholding Tax: Applied to certain payments to non-residents, such as interest, royalties, and rental income. Rates vary but can be reduced or eliminated by Double Taxation Treaties (DTTs) that Bulgaria has with numerous countries.
• Social Security Contributions: Mandatory for employees and employers. The employer’s contribution rate is approximately 19-20% of the gross salary, with the employee contributing around 13-14%.
• Local Taxes: Including property tax and vehicle tax, levied by municipalities.

Bulgaria has an extensive network of Double Taxation Treaties (DTTs), which can prevent income from being taxed in both Bulgaria and the investor’s home country. It is advisable to consult with a tax advisor to optimize your tax strategy.

Banking in Bulgaria: Opening a Corporate Bank Account as a Foreigner

Opening a corporate bank account in Bulgaria is a crucial step for operationalizing your business. While relatively straightforward, foreign nationals might face some initial hurdles due to strict anti-money laundering (AML) regulations.

Requirements and Process:

1. Choose a Bank: Bulgaria has several reputable local and international banks (e.g., UniCredit Bulbank, DSK Bank, Postbank, Raiffeisenbank). Research their services, fees, and online banking capabilities.
2. Personal Presence: In most cases, the manager(s) or authorized representative(s) of the company must be physically present in Bulgaria to open the account. Some banks may allow remote opening with a Power of Attorney and specific protocols, but it’s less common for initial setup.
3. Required Documents:
   • Company registration documents (Certificate of Registration, Articles of Association).
   • UIC/EIK (company’s identification code).
   • Passport/ID card of the account signatory(ies) and beneficial owner(s).
   • Proof of address for the signatory(ies) and beneficial owner(s) (e.g., utility bill, bank statement).
   • Company seal (if applicable).
   • Business plan or clear description of the company’s activities to satisfy AML requirements.
   • Sometimes, proof of source of funds for the initial deposit may be required.
4. AML and KYC Procedures: Banks will conduct thorough Know Your Customer (KYC) and Anti-Money Laundering (AML) checks. This often involves detailed questions about the company’s activities, beneficial owners, and transaction patterns.
5. Provisional vs. Operational Account: Initially, a provisional account is opened for depositing share capital. Once the company is fully registered, this can be converted into a regular operational corporate account.

Expert Tip: Prepare all documents diligently and be ready to provide comprehensive information about your business to ensure a smooth banking experience. Engaging a local consultant can significantly expedite this process.

Visa, Residency, and Work Permit Implications for Non-EU Founders

The implications for visa, residency, and work permits differ significantly based on whether the foreign founder is an EU/EEA national or a non-EU/EEA national.

For EU/EEA and Swiss Citizens:

• No visa or work permit is required.
• They only need to register their residency with the local municipality (Migration Directorate) if their stay exceeds 90 days.
• This involves providing proof of accommodation, sufficient financial means, and health insurance.

For Non-EU/EEA Citizens:

Non-EU founders generally need a D-Type visa to enter Bulgaria for long-term stay, followed by an application for a residency permit. The route to residency can be complex and typically falls under several categories:

• Residency as a Foreign Investor:
  • One option is to establish a company in Bulgaria that employs at least 10 full-time Bulgarian citizens for a specified period. This can qualify the manager/owner for a long-term residency permit.
  • Another route involves significant investments (e.g., in real estate, government bonds), which can lead to permanent residency or even citizenship.
• Residency as a Trade Representative: Registering a trade representation office of a foreign company in Bulgaria can be a basis for D-Type visa and subsequent long-term residency.
• Residency as a Director/Manager: In some cases, if the foreigner is appointed as a manager or director of a Bulgarian company, they may qualify for a D-Type visa and residency. Specific conditions and requirements apply, often related to the company’s activities and capital.
• Work Permit: If the non-EU founder intends to be formally employed by their Bulgarian company (beyond merely being a director/owner), a work permit typically needs to be obtained. This process usually involves demonstrating that no suitable Bulgarian or EU candidate is available for the position.

Important Note: The regulations for non-EU citizens are subject to change and require careful legal advice. It is highly recommended to consult with an immigration lawyer specializing in Bulgarian immigration law before proceeding with company formation if residency and work permits are critical.

Post-Registration Compliance and Ongoing Obligations

Company formation is just the beginning. Maintaining compliance with Bulgarian laws and regulations is paramount for the long-term success and legal standing of your business.

• Annual Financial Statements: Companies must prepare and file annual financial statements with the Commercial Register and the National Statistical Institute (NSI).
• Tax Declarations:
  • Corporate Income Tax: Annual corporate income tax declarations must be filed.
  • VAT: If VAT registered, monthly VAT declarations are required.
  • Withholding Tax: Declarations for withholding tax on certain payments.
• Payroll and Social Security:
  • If employing staff, regular payroll processing, calculation, and payment of social security contributions and personal income tax are mandatory.
  • Monthly declarations (Form 1 and Form 6) related to social security and health contributions must be filed with the NRA.
• Accounting Records: Maintain accurate and comprehensive accounting records in accordance with Bulgarian accounting standards.
• Company Register Updates: Any changes in company details (e.g., registered address, manager, shareholders, capital) must be promptly registered with the Commercial Register.
• Data Protection (GDPR): Comply with the General Data Protection Regulation (GDPR) regarding the processing of personal data.
• Industry-Specific Compliance: Adhere to any specific regulations, licenses, or permits applicable to your industry.

Engaging a local accountant or accounting firm is highly recommended to ensure continuous compliance with Bulgarian tax and accounting regulations.

Key Considerations, Expert Tips, and Common Pitfalls to Avoid

A successful business venture in Bulgaria requires not only following the legal steps but also strategic planning and foresight.

Key Considerations:

• Local Expertise: Engaging local lawyers, accountants, and consultants is invaluable. They possess in-depth knowledge of Bulgarian law, regulations, and local business practices.
• Language Barrier: While English is increasingly common in business circles, official communication and legal documents are in Bulgarian. Professional translation services are often necessary.
• Cultural Nuances: Understand the local business culture and etiquette to build strong relationships and foster effective communication.
• Digitalization: Bulgaria is increasingly digitalizing its public services. Familiarize yourself with online platforms for registration, tax filings, and other administrative tasks.

Expert Tips for Foreign Founders:

• Start with a Clear Business Plan: A well-defined business strategy will guide your choice of legal entity, capital structure, and market entry strategy.
• Due Diligence is Paramount: Thoroughly research market demand, competition, and regulatory environment for your specific industry.
• Budget for Professional Fees: Allocate sufficient budget for legal, accounting, and consulting services to avoid costly mistakes.
• Network Locally: Attend industry events, join business associations (e.g., Bulgarian-American Chamber of Commerce), and connect with other entrepreneurs.
• Embrace Technology: Utilize online banking, accounting software, and digital communication tools to manage your operations efficiently.

Common Pitfalls to Avoid:

• Incomplete or Incorrect Documentation: This is a frequent cause of delays. Ensure all documents are correctly prepared, notarized, and translated.
• Ignoring Local Regulations: Assuming regulations are similar to your home country can lead to non-compliance and penalties. Always consult local experts.
• Underestimating Bank Account Opening Time: The process can take longer than expected, especially for non-EU founders, due to stringent AML checks.
• Choosing the Wrong Legal Form: An unsuitable legal structure can lead to operational inefficiencies or unnecessary tax burdens in the long run.
• Neglecting Post-Registration Compliance: Failure to meet ongoing tax, accounting, and administrative obligations can result in fines and legal issues.
• Lack of Professional Advice: Attempting to navigate the Bulgarian legal and tax landscape without expert guidance is risky and often leads to complications.

Conclusion: Your Path to a Successful Bulgarian Business Venture

Bulgaria offers a compelling environment for foreign entrepreneurs looking to establish a foothold in the European market. With its low corporate tax, strategic location, and growing economy, the opportunities are substantial. While the process of company formation involves several steps and requires adherence to specific legal and administrative procedures, it is entirely manageable with a structured approach and the right professional support.

By carefully selecting the appropriate legal entity, diligently preparing all required documentation, and meticulously complying with post-registration obligations, foreign investors can successfully navigate the Bulgarian business landscape. Embrace the advantages Bulgaria offers, leverage local expertise, and embark on a rewarding journey toward a prosperous business venture in the heart of the Balkans.