BULGARIA is located between Europe, the Middle East, Russia and Africa
POPULATION: 7.8 million
FOREIGN LANGUAGES: English, German, French, Russian, Spanish, Turkish
COLLEGE DEGREE: 15%
REAL GDP GROWTH: 5.6%
INFLATION: 6.8 %
CURRENCY: 1 Euro = BGN 1.95583
S&P CREDIT RATING: BB
Location and Population
Bulgaria is located in the Southeastern part of the Balkan Peninsula. Bulgaria is 520 km. east to west and 330 km. north to south. It stands at a crossroads between Europe, and the emerging markets of the Middle East, Russia and Asia, sharing borders with Greece and Turkey to the South, FYROM to the Southwest and Serbia to the West. The Danube River is the Northern border with Romania and Black Sea is the country s Eastern border. Bulgaria ranks 15th in size among European countries where 7.8 mln. people live in a area of 111 000 km².
Within 500 km of Bulgaria s capital Sofia, over 60 mln. people are concentrated throughout 10 countries.
Bulgaria is divided into 28 districts and 263 municipalities within 6 regions of economic development.
Bulgarian largest cities: Sofia (pop. 1 130 000), Plovdiv (pop. 340 000), Varna (pop. 320 000) and Bourgas (pop. 210 000), Rousse (pop. 185 000).
Politically, Bulgaria is one of the most stable countries in the Balkan region. Bulgaria adopted the current constitution in July 1991 and became a Parliamentary Republic.
New Bulgarian Government
The most recent Bulgarian elections were on June 25, 2005, the Parliament exercises legislative power and parliamentary control, the Judiciary is independent.
The government formed by the Bulgarian Socialist Party (BSP), the Simeon IINational Movement (SNM) and the ethnic Turkish Movement for Rights and Freedoms (MRF) should be able to push through the measures required forBulgaria's EU accession. The government has committed itself to a cautious budget policy and the continuation of the currency board.
The new government (the Coalition of Bulgaria) enjoys a 169-seat majority in Bulgaria’s 240-seat Parliament - a wide enough majority to not only force through any legislation it deems necessary, but even to amend the country’s constitutional processes to ensure all relevant changes are adopted for EU membership. For the first time in a long while, European commentators are finding themselves marveling at Balkan stability.
In December 1997, Bulgaria was invited by the European Union to open accession negotiations for admission to membership of the Union. In March 2004 Bulgaria joined NATO and in June of that year, negotiations with the EU led to a Treaty with full membership planned for 2007. Meanwhile it is already a member of the EU Customs Union with duty free movement of goods in both directions. It also has free trade agreements with many other countries, giving unrestricted access to a trading market with 560 million consumers.
Although one of poorest of the new EU entrants, Bulgaria remains one of the most economically disciplined:
- GDP growth of 6.3%, which is forecast to continue for the next two years.
- Unemployment fell to 11.7% in June 2005 and is expected to continue to fall as foreign companies continue to outsource and utilize the skilled labor resources of the Country
- Bulgaria has run a fiscal surplus for the past 2 years which has allowed gross government debt as a percentage of GDP to fall from 77% in 2000 to 41% in 2004
- In 1997 a sound monetary and fiscal policy was adopted and a Currency Board established. The Bulgarian currency, the Lev was tied to the Euro at a fixed exchange rate of 1.95583 (it is expected to formally adopt the Euro in 2009). These measures have resulted in sound economic growth, a stable economy, low inflation and a declining government deficit.
Bulgaria has FREE TRADE AGREEMENTS WITH EU, EFTA, CEFTA, Turkey, FYROM, Albania, Estonia, Lithuania, Latvia, and Israel.
- Bulgaria will receive €3,5bn. in funds for infrastructure development upon joining the EU.
In its 2002 report, the European Commission assessed Bulgaria as a "functioning market economy" with a high degree of macroeconomics stability. With no restriction on transfer of profits, royalties and fees or on repatriation of invested capital, it has already met most of the criteria for inclusion in the Euro-zone.
Transport and Logistics
International highways cross the country making vital connections to Western Europe, Russia, Asia, Adriatic, the Aegean and Black Seas.
Legislation and Institutions
Bulgaria is a Parliamentary Republic and the Legislature is the basic power within the country. The Constitution provides for a multi-party, parliamentary system and free elections on the basis of universal suffrage. The National Assembly is vested with the legislative power and exercises parliamentary control. Its mandate is for a term of four years. The President serves as Head of State, and is directly elected once every five years for a maximum of two terms. The President is the Supreme Commander in Chief of the Armed Forces of the Republic of Bulgaria as well. The President appoints the Prime-Minister designate to form a government schedules the elections for a National Assembly and for the bodies of local self-government and sets the date for national referendums, pursuant to a resolution of the National Assembly promulgates the adopted laws with a decree countersigned by the Prime Minister or the minister concerned.
The Council of Ministers is the principal body of the Executive Branch. Chaired by the Prime Minister, it heads and implements the domestic and the foreign policy of the state, ensures the public order and the national security, exercises overall guidance over the state administration and the Armed Forces.
The municipality is the basic administrative territorial unit at the level of which self-government is exercised. The Municipal Councils, one of the local bodies of the executive branch, determine the policy of the municipality with regards to its development, the preservation of the environment, the health, social, educational, cultural activity, etc. The chief executive in the municipality is the Mayor. He manages the entire executive activity of the municipality, and is responsible for the public order maintenance, organizes the implementation of the municipality budget. The region is an administrative territorial unit where the state authority is decentralized for the purpose of pursuing an effective regional policy. The government of the region is performed by a regional governor, appointed by the Council of Ministers.
Bulgaria has an independent judiciary and based on Three-Instances-procedure. The Supreme Administrative Court and the Supreme Court of Cassation oversee the application of all laws by lower courts and judges the legality of government actions. A separate Constitutional Court rules on the constitutionality of laws and treaties. Judicial reforms are being implemented to bring Bulgaria s judiciary to European Union standards. The Supreme Judicial Council was established to organize the activities of the judiciary.
Investment Climate in Bulgaria
- Five year average GDP growth of 4.9%
- Budget surplus, low inflation, currency peg to EUR
- 80% private economy
- EU accession in 2007, NATO member
- Investment grade rating BBB by S&P and Fitch
- Foreign direct investment at 11.7% of GDP (EUR 2.3 bn in 2004)
- Quality of human capital:
- Education levels among Europe top 5%
- 7% of workforce has engineering degrees
- English language studied by 70% of students
- Motivated and entrepreneurial attitude
- Quality of business environment:
- Strong institutional support for foreign investors by IBA
- No restrictions to capital flows
- Quality of life:
- Ample opportunities for all-season outdoor recreation
- Diverse cultural heritage and art activities
- World renown food and beverages
- Highly qualified workforce, especially in engineering field
- 10% corporate tax rate
- Tax exemptions and investment incentives for qualified investment
- Among lowest operational cost in a European market economy
- Duty free agreements covering markets with 550 million customers
- Foreign direct investment at 11.7% of GDP (EUR 2.3 bn in 2004)
- 58 Double Taxation Treaties and 56 Agreements on the mutual protection and promotion of foreign investment
Industrial Zones in Bulgaria
Industrial Zones development is an important factor for attracting new production enterprises. The Bulgarian state is stimulating Green field investments.
The Bulgarian state is trying to help attracting of new investors through a system of incentives formulated mainly in the Encouragement of Investment Act and Corporate Income Tax Law.
Up to the end of 2005 the following industrial zones are working or are in a process of creation in Bulgaria: Maritza Industrial and Commercial Zone (Radinovo village near by Plovdiv city), Rakovski Industrial Zone, Kuklen Industrial and Commercial Zone, Hi-Tech Industrial Park Opticoelectron – Panagiurishte city, as other industrial zones with different development stages like the zone in Rousse, Burgas and Elin Pelin.
One of the best successful examples for Public-Private Partnership is Rakovski Industrial Zone which is located near Plovdiv city. In accordance with expert’s opinion Rakovski Industrial Zone, which development has started in the middle of 2004 and it enjoys a great interest so far, has all premises to become in Zone №1 in Bulgaria.
According to the Colliers International 2004 annual market report, "the industrial real estate market has taken off!
Current supply of industrial property is mostly coming from privatized properties, which were constructed in the late forties and beginning of the fifties. The existing structures therefore are of little or no value. The supply of contemporary warehouse space is very limited. Most of the structures are stand alone or small-scale projects and are usually owner occupied. Rakovski Industrial Zone is the first green field development of such scale, which offers tailored to particular needs space for rent and sale. The tendency towards consolidation, i.e. development of large-scale projects, rather than stand-alone facilities is valid for the industrial real estate sector as well. Industrial parks are actually the oldest cluster developments dating back from the 17 hundreds. Industrial parks are located either at ports /sea or river/, close to airports if they rely mainly on air-freight, on railroad terminals and/or on main transportation corridors. It is crucial for an industrial development to be located on the crossroads of strategic locations next to major transportation arteries so that the supply and distribution is obstacle free. Due to the strategic location of Bulgaria, 5 out of the 10 Trans-European Corridors pass through the country. And 3 out of these five pass in close proximity to Rakovski Industrial Zone – the first industrial cluster in Bulgaria, facilitating the movement of goods all around Europe…
The experience of the Central and East Europe approve convincingly that the industrial zones are centers for foreign and local production enterprises development and bring to a catalytic effect for attracting investments and local economies development.
Disposing of new manufactures in industrial zones in Bulgaria in the recent years seems to get a great interest from local and foreign investors. Reasons are pretty clear - such a union of productions, facilitates their own functioning, reduces the expenses, raises the competitive power and it has proved its world-wide effectiveness a long time ago. Besides that kind of unions involves certain incentives by the side of Bulgarian state. It is an unwritten rule that the investments are in a direct ratio to the good business climate, good technical infrastructure and the good quality of life.
Bulgaria enforces the European industrial politic principles in developing and implementing of the competitive power raising politics, for enterprise developing of the small and middle companies, encouraging the export business and the investments. The main purpose of the industrial politics is entire improvement of the business environment so the Bulgarian economic could resist the EU market forces competitive pressure.
|Rakovski Industrial Zone
||Maritza Industrial and Commercial Zone
|- The first industrial zone in Bulgaria offering attractive conditions for establishing production, warehousing and logistic;
- Terrain of 815 000 square meters in the village of Stryama, Municipality of Rakovski;
- Distance to the capital, the city of Sofia – 140 km; Providing land, fit for industrial construction;
- Providing production buildings for renting or purchasing;
- 100% exemption of corporate income tax; Nice climate;
- More information ...
|- Three sectors with the total area of 1 950 000 m²; An excellent transport access;
- Direct connection to the International motorways crossing the country and making connections to Western Europe, Russia, Asia, Adriatic, Aegean and Black Sea;
- Providing land, fit for industrial construction;
- Construction of industrial production facilities upon leasing scheme with bank financing;
- Providing production buildings for renting or purchasing;
- More information ...
Investment Incentives in Bulgaria
The incentives are available to companies registered in Bulgaria, regardless owner’s nationality.
|10% corporate tax as of January 1, 2007;
0% for manufacturing companies in areas with high unemployment
Regions with high unemployment
Incentives are available for investments in high unemployment regions included in a list approved by the Minister of Finance. The incentives are subject to some advance and subsequent filing requirements and notifications. Where the value of the exemptions/incentives and other state aids for regional development exceeds BGN 75 million, a clearance from the Competition Protection Commission is required. Where the amount of the state grants and subsidies (including the tax incentives) does not exceed BGN 200,000 in a three-year period, the tax incentives can be used under less strict conditions.
Tax exemption for manufacturing companies
Manufacturing companies which invest in high unemployment regions are entitled to complete exemption from corporate income tax, subject to the following basic conditions:
- All business sites and premises of the taxpayer have to be located in the respective high unemployment region;
- All assets of the taxpayer (except for cash in bank accounts and investments in associates and subsidiaries) have to be located in the respective high unemployment region;
- The taxpayer should not have outstanding and non-disputable liabilities for taxes or social insurance or penalty interest thereon for the respective year in which the exemption is claimed.
The amount of the tax credit for each year should be invested in manufacturing activities within a period of three years after the end of the year in which the exemption was claimed. The eligible investment should consist of fixed tangible assets or licenses, patents and know-how at a value not exceeding 25% of the costs of the fixed tangible assets. The investor is also required to invest own funds of at least 25% of the amount of tax credit. Some other additional conditions are also required to be met. The assets acquired could not be disposed for a period of 5 years, except for in cases of merger or reorganization.
The incentive is available continuously, subject to meeting its conditions in each respective year. If the respective region is excluded from the list of the high unemployment regions, the incentive can be applied only for another 5 consecutive years. Where a company started preparatory work for investing in a high unemployment region, but prior to commencement of manufacturing the region was excluded from the list, the company is still eligible to use the incentive for a period of four years.
Reduction of corporate tax base with the expenditure made for research and development (R&D) in cooperation with research institutes and/or universities;
- Opportunity for R&D expenditure write-off
- Depreciation of 2 years for computers and new manufacturing equipment;
- 2-year VAT exemption for imports of equipment for investment projects over €5million, creating at least 50 jobs
Special preferential VAT regime for imports of goods necessary for the implementation of an investment project:
VAT-registered investors performing certain eligible investment projects are entitled to import assets needed for the project without effective payment of import VAT. Moreover, such investors are entitled to refund VAT incurred on local purchases within 10 days after filing of the tax return, provided that at least 80% of the monthly VAT charges incurred on purchases are paid through a VAT account.
In order to benefit from the special investment rules, the investor needs to obtain an advance approval from the Ministry of Finance. In order to receive the approval, the investment project must meet certain conditions:
- The size of investment should be at least BGN 10 million (EUR 5 m) for a period not exceeding 2 years;
- The period for the completion of the project should not exceed two years;
- The project should result in the creation of at least 50 new jobs;
- The project should be eligible for state aid for regional development;
- The investor should prove his ability to finance the project.
|7% withholding tax on dividends and liquidation quotas
0% for EU tax residents holding at least 20% of the Bulgarian company
Dividends and liquidation shares, calculated by a local person in favour of a foreign natural or legal person, local for an EU member country, are not subject to withholding tax under the conditions that:
- According to the tax legislation of the respective EU member-country, the person is considered as local of this country for tax purposes and, by force of an agreement for avoiding the double tax levying with a third state, is not considered as local person of a state out of the EU.
- The person is levied with corporate tax, without having the right of choice or exemption from levying with this tax.
- The person is the actual owner of the income and holds at least 20% of the shares/stocks of the local entity.
|24% highest bracket for personal income tax monthly income over €300
Up to 1 year minimum salary and reimbursement of social/health care security for employing young people and disadvantaged people through the Employment Agency
Programmes and measures for employment of young and/or disadvantaged people on the labour market in Bulgaria:
If the requirements below are met, the Employment Agency may cover the amount of salary expenses and the due installments on account of the employer to the funds of the Social Security Institute and to the Health Insurance Fund for the duration of the employment contract for each hired person (but no longer than 12 months), as well as the expenses for training for acquiring professional qualification (no longer than 6 months).
- The person has to be directed by the division of the Employment Agency on the basis of contract between the Agency and the employer
- Unemployed up to 29 years of age or disabled militaries
- Unemployed up to 29 years with reduced working capacity
- Young people from social institutions who have completed their education
- Unemployed with permanently reduced working capacity
- Unemployed – single parents (adoptive parents) or mothers (adoptive mothers) with children up to 3 years of age
- Unemployed women over 50 years of age and men over 55 years of age
The same incentive is valid for employer who admits for training for acquiring professional qualification and/or work on probation unemployed persons under 29 years of age, directed by the divisions of the Employment Agency on the basis of the contract concluded, for the term of education or work on probation, but no longer than 6 months.
Programmes and measures for training during lifetime:
An employer who provides maintaining and improvement of the qualification of the hired workers and employees can apply for granting of half of the maximum determined size of the sums for training of one person (the maximum sum is BGN 450 according to the National Operative Employment Plan).
|The Encouragement of Investment Law:
The national investments stimulating strategy in Republic of Bulgaria is developed on the ground of the Encouragement of Investment Low.
The new Encouragement of Investment Low regulates the terms and procedures for investing in Bulgaria. The law equally applies to Bulgarian and foreign investors.
According to the new law, the Minister of Economy is the leading executive authority that shall perform the state policy in the investment sphere. In the implementation of this activity the Ministry of Economy prepares a strategy for encouraging investment in cooperation with other authorities of the executive power. In compliance with this strategy and the regional development strategies regional Governors shell develop investment encouragement programs for the respective region and coordinate their implementation.
The Encouragement of Investment Law sets forth preferential treatment measures for investment meeting certain criteria specified in the said law as follows:
- The investment to be in fixed assets acquisition with the purpose of creating new or enlarging or modernizing existing production of goods and/or services;
- New jobs to be created;
- The investment project to be implemented within 3 years;
Investment incentives according to the Investment category
The measures are differentiated according to the class of investment. There are three classes, depending on the investment project value. The value thresholds are stipulated in the Rules on the Enforcement of the Investment Encouragement Law as follows:
- 1st class – investment over BGN 70 million (€ 36 million).
For 1st-class investments, InvestBulgaria Agency assists investors by providing:
- Individual information and administrative services;
- Assistance with real estate acquisition – On the request of the 1st-class investor the Agency may propose to the corresponding authorities owning the land plot, selected by the investor, to sell ownership rights or establish limited ownership rights over the respective real estate (private state or private municipal property), necessary for the implementation of the investment project without opening tender procedure or on preferential price;
- Assistance for receiving infrastructure support – the state, through the Minister of Economy and Energy, supports eligible 1st-class investment projects through construction of the necessary technical infrastructure to the borders of the investment project site.
- 2nd class – investment from BGN 40 to 70 million (€ 20-36 million).
For 2nd-class investments, InvestBulgaria Agency provides investors with:
- Individual administrative services with respect to all central and regional government authorities. Investors will have the opportunity to authorize officials of the Agency to obtain from the corresponding competent bodies, on behalf of investors and for investors’ account, all necessary documents for the implementation of the particular investment project as may be required under the existing legislation.
- 3rd class – investment from BGN 10 to 40 million (€ 5-20 million).
Apart from faster administrative service, 3rd-class investments receive information services by InvestBulgaria Agency as follows:
- Country economic analysis and sector information materials;
- Information about potential partners in the country;
- Advice regarding all administrative procedures concerning the implementation of the investment project.
For all investment classes, central and regional government authorities, as well as municipal authorities provide faster administrative services (issue of licenses, permits, etc.) to investors i.e. within 1/3 shorter periods than the usually needed.
Why Invest in Bulgaria
- Strategic geographic location
- Highly-skilled, multilingual workforce at Europe's most competitive wages
- Stable and predictable business and political environment
- EU membership on January 1, 2007 gives access to markets of over 560 million consumers
- The lowest operational costs and tax rates in a European market economy
- Industrial goods traded duty free between Bulgaria and the EU, EFTA, CEFTA and Turkey
- Excellent climate, natural scenery, food and hospitality
- Flat corporate income tax rate of 10%
- VAT exemption on equipment imports for investment projects over Eur 5 million
- Annual depreciation rate of 30% for machinery & equipment, 50% for new equipment used in entirely new investment or expansion and 50% for software and hardware
- Acquisition of land and property through Bulgarian registered company with 100% foreign ownership
- Administrative services through InvestBulgaria Agency
- 55 treaties for avoidance of double taxation
- 52 agreements on mutual protection and promotion of foreign investment
- NATO membership – March 2004
- Institutional support for major foreign investments projects
- Robust legal framework focused on attracting and protecting foreign investment
- Low regulatory obstacles and start-up costs
- Significant reduction in bureaucracy
- Adoption of International Accounting Standards (IAS)
- Bulgaria is among the leading investment destinations in Europe.
- In 2004, the country has attracted 7% of the total DFI in Central and East Europe and has positive perspectives for the future.
FOREIGN INVESTMENTS (FDI) IN BULGARIA
Bulgaria takes 12th place in the world by FDI inflow, the World report of the United Nations conference for trade and development (UNCTAD), announces.
Over the last four years Bulgaria attracted more than EUR 5.7 billion foreign investments, which is 45% of the investments gathered in the years between 1992 to 2003.
Record high level of FDI was in 2003 and 2004. Bulgaria's 2004 foreign investments reached EUR 1.958 billion thus setting a record-high level. The total amount of foreign investments for the period 2001-2004 makes 62% of the whole direct foreign investments for the past 13 years.
FOREIGN DIRECT INVESTMENTS AS % OF GDP, 2004
Bulgaria is the European leader in attracting FDI.
Prospects for 2006
GDP growth is expected to achieve around 4 % in 2006. The acceleration in 2004 and 2005 was based on continued strong domestic demand resulting in a highly imbalanced growth composition. In 2005, growth was further stimulated by already announced measures of slightly expansionary fiscal and wage policies in view of national elections by mid-2005. This is likely to be followed by some adjustment in 2006 to rebalance the economy and to bring it closer to its medium-term potential growth rate. The projected growth path, driven by a similar development of domestic demand and, on the supply side, a good performance of all three broad sectors, will continue to trigger substantial imports, given the still weak industrial base of the economy. Private consumption remained very strong because of high credit growth, higher employment and increases in net income, which benefited from cuts in income tax rates and a 25% increase in the minimum wage planned for 2005. These effects on consumption are likely to moderate in 2006, but strong investment in view of the opportunities expected from EU accession in 2007 should prevent the economy from a more significant slowdown. Net exports have a strongly negative contribution to GDP growth until becoming less negative in 2006 as a result of a slower expansion of private consumption. In view of continuing high GDP growth, net employment gains would make an unemployment rate of 10% or lower possible in 2006. This assumes that the induced increase in the participation rate is likely to be higher than the decline in the working-age population.
EXPECTATIONS for 2006
GDP growth, 2005 -2007
Annual average inflation, 2006
- Bulgaria will become a member of the European Union in 2007;
- EU budget for 2007-2013 (adopted on 16 December 2005) foresees €11.1bn for Bulgaria (1.29% of the EU budget) for the 7 year period;
- Budget of €4,5 bnis allocated to Bulgaria for the period 2007 -2009;
- It is expected Bulgaria to change its national currency with euro in 2010;
- Wages in Bulgaria will increase some 6% in next 5 years, reaching USD1.49 per hour in 2010;
- Bulgaria is a perfect starting point for 125 million consumers from Balkan marketwith its strategic location, stable economy, low expenditures and possibility for free trade, high skilled labor force and relatively low operational costs;
- Stability and predictability