World trade has seriously slowed since the onset of COVID-19 and the conflict in Ukraine. The lingering pandemic combined with the ramifications of the war resulted in disrupted supply chains, high inflation, and declining trade growth. Even the economic interdependence system that until recently was generallyseen as a key element of the sustainable economic growth and peace around the world has been called into question. Considering current events and the sharp deterioration in the forecasting environment entailed by them, the evolution of world trade patterns is rather difficult to predict. 

On a positive note, it is reassuring to see that international trade has shown considerable resilience to the latest economic shocks. Despite the global trade conflicts, the extended COVID-19 disruptions, and the war in Ukraine, world trade continued to grow, albeit with some hesitation. 

The situation in Bulgaria does not differ to any significant extent from that picture. The Bulgarian economy remained quite resilient until the first half of 2022 and is now set to slow down in line with global and regional trends. For more than 30 years outside the sphere of influence of the Soviet bloc and 15 years as part the European Union (EU), Bulgaria has made some important steps towards integrating into European and global production networks. Nowadays, the country falls within the ambit of the EU investment environment, among the most open and secure in the world. 

The attractiveness of Bulgaria as an investment destination lies in the combination of three main factors: the committed and skilled workforce; the low costs for doing business; and the full openness to trade and investment. For many of our foreign clients Bulgaria is expected to continue to serve as an entry point to the EU single market that, with its over 440 million consumers, is the largest single market in the world. There are also various EU and non-EU companies that are deciding to set up operations in the country to benefit from its comparative advantages. 

Quite the reverse - over the last three decades Bulgaria’s government has been continuously seeking to attract foreign investors by offering them national treatment, state financing, favourable tax treatment (including a 10% flat income tax rate), options for preferential purchases of land and many other types of assistance and advantages, as well as by building a sound business environment in which foreign investors can start, invest, expand, and exit. There are no general limits on foreign ownership or control of companies, nor is there screening at local level or restricting of foreign investment. 

Certain restrictions exist with respect to foreign investments made by offshore companies from tax havens, as well as in the gambling business and when it comes to the acquisition of farmland, but they are rather limited in scope and effect (see Question 3, below). Regulatory restrictions on business activities such as licensing, registration and permission requirements sometimes imply corporate registration under the laws of Bulgaria or another member state of the EU or the European Economic Area (EEA), but this is not in itself an obstacle to investment because foreign investors are free to incorporate or participate in Bulgarian companies without local partners or other similar restrictions. 

There are no general restrictions upon foreign investors wishing to invest in Bulgaria either by acquiring an existing business or by establishing a new business. Certain limited exceptions to this general principle are addressed below.

Restrictions on investments by offshore companies and entities under their control

The Offshore Companies Act was enacted in 2014. It prohibits companies registered in jurisdictions with preferential tax regimes (also called tax havens), and the entities under their control, from directly or indirectly engaging in 27 different types of economic activity in Bulgaria (mostly in traditionally highly regulated sectors such as banking and finance, insurance, gambling, energy, waste management, and public procurements). 

The current list of tax havens is approved by the Minister of Finance and indicates 26 countries or territories, which are considered tax havens from the point of view of Bulgarian law. Companies and other forms of business, corporate or unincorporated, registered there, such as offshore companies, and the entities under their control, are subject to the prohibitions against carrying on business in Bulgaria under the Offshore Companies Act. 

There are eight groups of exceptions to the prohibitions introduced by the Offshore Companies Act, which could be applied by the offshore companies, or the entities under their control, to be allowed to carry on the otherwise prohibited activities. These exceptions are in any case subject to disclosure of the individuals who are the ultimate beneficial owners of the company and certain preliminary registrations in the Bulgarian Commercial Register. 

Restrictions on foreign investments in the gambling industry

The 2012 Gambling Act stipulates that gambling operations may be performed in Bulgaria only after the issuance of a game-specific licence. In general, companies registered under the laws of Bulgaria, another EEA member state or Switzerland are deemed eligible to apply for such licences. In early 2020, however, by way of amendments to the Gambling Act, Bulgaria’s Parliament, the National Assembly, granted the state-owned enterprise Bulgarian Sports Totalisator a legal monopoly over lottery products and restricted all private lottery operations in the country, except for raffle, bingo and keno games.

Furthermore, pursuant to the Gambling Act, foreign persons (i.e., persons other than companies or individuals registered in or citizens of an EEA Member State or Switzerland) may not have any interest in a locally licensed company unless they have invested at least EUR 10 million in other activities in Bulgaria and have created more than 500 jobs or unless they own a hotel rated with four stars or more and operate a casino in it. 

Restrictions on foreign investments in farmland

Bulgarian law and, in particular, the Agricultural Land Ownership and Use Act, enacted in 1991, provides for restrictions on foreign ownership of agricultural land. Foreign (non-EEA) nationals and legal entities as well as commercial companies held by them are generally prohibited from acquiring farmland in the country, unless expressly permitted by an international treaty to which Bulgaria is a party. Companies that are directly or indirectly held by offshore companies, political organisations and foreign states are also prohibited from acquiring agricultural land in Bulgaria.

Pursuant to the terms of accession of Bulgaria to the EU, from 2014 onwards the EU or EEA citizens must enjoy national treatment in respect of the acquisition of agricultural land in Bulgaria. Despite this, in 2014 Bulgaria modified its national regime by introducing long-term residence requirements for Bulgarian nationals and legal entities wishing to acquire farmland, thus also creating acquisition barriers for EEA companies and citizens. In particular, the Agricultural Land Ownership and Use Act stipulates that ownership rights over agricultural land may be acquired by individuals or legal entities that have resided or been established in Bulgaria for more than five years. Legal entities that have been registered under the laws of Bulgaria for less than five years are allowed to acquire farmland provided that their shareholders are natural persons who have resided in Bulgaria for more than five years.

It is important to first understand the role played by Bulgaria in the global supply chains. In essence, global value chains capitalize on the comparative advantages offered by different countries, thus leading to fragmentation and internationalization of the manufacturing process. Bulgaria in turn has been offering a skilled and committed workforce, low costs for doing business, diversified economy, a safe investment environment brought about by the EU and close proximity to the more developed European countries. This has helped Bulgaria become an integral part of the European and global supply chains, mainly on account of its manufacturing industry. 

Given that the country is rather low on natural resources, it has become deeply involved in the assembly and processing of goods within certain European and global value chains characterized by higher fragmentation of the production process. Bulgaria produces and exports predominantly intermediate products such as parts, components and other items used as an input in the production of products for the end-consumers.

According to the European Commission’s 2022 Country Report for Bulgaria, the Bulgarian economy has been less affected by the global supply chain disruptions compared to other EU countries: in 2022, shortages of materials are reported by 7% of the Bulgarian companies, compared to an EU average of 26%. Most probably this is due to the manufacturing production in Bulgaria being relatively diversified. 

In response to the COVID-19 pandemic and the current economic turmoil related to the war in Ukraine, the Bulgarian government adopted various measures to stimulate economic activity and safeguard the current business climate, including among others: monetary compensations for the high electricity and gas prices; reduced VAT rates; higher unemployment benefits; job protection schemes; and state financing. Since these measures are applied on a provisional basis, those that are currently in effect should be checked before contemplating an investment in Bulgaria.  

Foreign investors contemplating a transaction in Bulgaria should not expect to face any abnormal legal challenges because Bulgarian law is safely rooted in the European continental legal system and for 15 years has been part of the EU legal order too. 

The main legislative act setting out the legal framework for M&A transactions in Bulgaria is the 1991 Commerce Act, which contains the general rules for formation of companies, sales of shares, sales of businesses as going concerns, and company reorganisations. In certain cases, there are stricter regulations such as, for example, in respect of public companies, which are heavily regulated and any M&A transaction involving public companies is subject to specific regulatory requirements. M&A transactions that relate to state-owned and municipality-owned shares, or separate parts of the property of companies with more than 50% equity interest owned by the state or municipality, are also regulated by a special procedure for privatisation. In specific regulated sectors such as banking, energy, insurance and social security, M&A transactions may be subject to special regulation and close scrutiny.

Joint ventures as commercial projects jointly undertaken by two or more parties are not specifically regulated under Bulgarian law so both the general civil law and the corporate laws apply. In most cases, the parties establish a new commercial company under the Commerce Act (as a new legal entity), and then share in the revenues, expenses and control of the enterprise. Contractual joint ventures, in the form of general partnerships, are more suitable for joint ventures with a specific purpose that can be achieved in a shorter period of time.

One of the most critical steps that foreign investors should take prior to proceeding with an M&A transaction or joint venture in the country is to conduct a thorough legal, economic and tax due diligence. To this end, it is recommended to seek support from local advisors with a strong track record of providing such services. Nowadays, finding a trusted advisor in Bulgaria is not in any way a barrier to investment because on the Bulgarian market there already are internationally recognised advisors with 20-30 years of relevant experience who can easily facilitate such an exercise and help foreign investors with their first steps in the country. 

The acquisition of interests in real estate or other tangible property in Bulgaria can generally be structured as an asset deal by acquiring the specific property, or as a share deal by acquiring the shares in a legal entity that holds ownership of the property. Before deciding how to proceed, the foreign investor should carefully examine the advantages and disadvantages each option will entail. 

In real estate transactions taking place in Bulgaria the performance of an ownership due diligence is a vital step and should cover a period of at least 10 years before the transaction. Further investigations may be deemed necessary considering the circumstances of the case: e.g., the acquisition of farmland in areas with industrial background may necessitate environmental checks, or the acquisition of land plots for construction purposes in areas with high density of cultural values (such as the city center of Sofia, the capital of Bulgaria) may require the performance of cultural heritage checks. 

At the practical level, the due diligence exercise is preceded either by a letter of intent or by a binding preliminary contract between the parties, based on which the seller provides the buyer with the respective legal documents about the real estate (this is necessary as the publicly available information in the land registry would be generally insufficient to conclusively determine ownership). 

Although not mandatory, the conclusion of a preliminary contract is strongly recommended and is considered standard practice for large-scale transactions. Preliminary contracts lay down, among others, the framework of the legal and economic relations of the parties, the conditions precedent to closing and clauses allowing for the preliminary contract to be declared as final by the court if the seller refuses to transfer title over the real estate.

As a rule, real estate in Bulgaria is to be transferred by means of а notary deed with the assistance of a notary with territorial jurisdiction at the location of the property. In financial terms, it is customary to use escrow agents (financial institutions or notaries) to facilitate the closing in respect of the payment of the purchase price. The acquisition of property from the municipalities and the state is subject to specificities compared to the purchase of real estate from private individuals and legal entities. 

Foreign nationals or legal entities are generally free to acquire ownership of buildings or parts thereof, as well as limited rights in rem (e.g., right of use and construction right) over land plots in Bulgaria. However, they may not directly acquire full legal ownership of land plots (except if not specifically permitted under international treaty effective for Bulgaria); that restriction does not apply to foreign nationals and legal entities from member states of the EU and the EEA. There also is no legal prohibition for non-EU/EEA entities or nationals to incorporate entity in Bulgaria or in another EU/EEA member state for the purpose of acquiring full legal ownership over land plots in Bulgaria. Thus, at the practical level, the main restrictions on foreign investments in real estate are those addressed in the response to Question 3, above. 

The main legislative act on personal data protection at EU level is Regulation (EU) 2016/679 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (GDPR) which became directly applicable in Bulgaria as of 25 May 2018. The main act at country level supplementing the GDPR is the Personal Data Protection Act which ensures the effective enforcement of the EU rules by the local supervisory authority – the Bulgarian Commission on Personal Data Protection, contains a few locally-specific rules on data protection, and implements the Law Enforcement Directive (EU) 2016/680. Further rules protecting privacy may be found in other sector specific pieces of legislation (e.g., in respect of electronic communications, health, employment, gambling, private security).

As regards intellectual property protection, there are various remedies at the disposal of foreign investors against infringements of intellectual property rights under the Bulgarian civil and criminal law. The main remedy is filing a civil litigation case for IP rights infringement where the right holder may request from the court to: 

• establish the infringing activity; 
• issue against the defendant an injunction prohibiting the continuation of the infringement; 
• order the destruction of infringing goods; and 
• award a compensation for the damages suffered by the plaintiff because of the infringement. 

In the course of such litigation, it is also possible to file an application for a preliminary injunction requesting the court to impose certain injunctive measures, such as prohibition on a provisional basis of the continuation of the infringement.

Brands and other trademarks can be protected either by registration of national trademarks with the Bulgarian Patent Office or by registration of EU trademarks with the EU Intellectual Property Office. Certain logo designs may also be protected by copyright as artistic works. The Bulgarian law does not provide for a copyright registration regime or any other administrative measures for the copyright to occur. Copyright arises automatically from the moment of creation of the work, provided that the work is original and the other requirements of the law are fulfilled. Bulgarian law offers also other types of IP protection such as for patents, industrial designs, and trade secrets.

Investments in Bulgaria are usually carried out either through establishment of a local subsidiary or branch office, or through entering a joint venture with a local or another foreign partner. These points are covered in more detail below.

Establishment of a local subsidiary

Foreign investors may freely set up a local company through which they can conduct business in Bulgaria. Bulgarian law allows for the incorporation of several different types of companies, but the most frequently used are the limited liability company (OOD) and the joint-stock company (AD).

A limited liability company may be formed by one or more shareholders who, subject to limited exceptions, are not liable for the company’s liabilities. The minimum registered capital of a limited liability company is BGN 2. The capital contributions may be monetary or in kind. The company’s affairs are administered by its manager or managers and by the general meeting of the shareholders. The managers legally represent the company and do not need to be shareholders. There are no restrictions on the participation of foreigners in the management of the company or as shareholders. A transfer of shares in a limited liability company requires a sale and purchase agreement in notarised form. The transfer must be registered in the Commercial Register. If the transferee is a non-shareholder, the transfer must be approved by at least three-quarters of the shareholders in the company. Because of the existence of potentially serious risks for expulsion by the other shareholders, it is advisable that foreign investors avoid using limited liability companies when they do not hold 100 per cent of their share capital.

Joint-stock companies are generally preferred by foreign investors because of their greater flexibility in management and decision-taking. The minimum registered share capital of a joint-stock company is BGN 50,000. Shares of a joint-stock company may be physical (evidenced by transferable share certificates) or non-physical (book-entry form) shares existing in the form of entries in a registry maintained by the Central Depository. There are two systems of management: the one-tier system (with a board of directors); and the two-tier system (with a supervisory board, and a management board appointed by the supervisory board). The ultimate managing body for both systems is the general shareholders’ meeting, which approves certain decisions of the utmost importance for the company. In practice, the two-tier system is preferred for companies with many shareholders and complicated activities. Physical shares are transferred by endorsement on the back of the share certificates, which, to be binding on the company, must be recorded in its shareholders’ book. Non-physical shares are transferred by way of registration of the transfer with the Central Depository. Joint-stock companies are widely used by foreign investors because of the straightforward process of share transfers, flexible majorities for decision-making, flexibility in management and the impossibility of expelling shareholders (which exists in limited liability companies). Joint-stock companies are particularly suitable for joint ventures.

Setting up a branch office

Foreign companies may open a branch office in Bulgaria. A branch office must be registered with the Commercial Register, based on an application indicating the seat and purposes of the branch, the person who manages the branch and the scope of their representative powers. Branches, including those of foreign companies, are not independent legal entities. All contracts to which a branch is a party are in fact contracts with the principal. Therefore, the decision whether to open a branch office or a company (independent legal entity) is also an element of the risk management policy of the foreign investor.

Joint venture with a local or foreign partner

A foreign investor may choose to establish a joint venture with a local or foreign partner or partners to carry on business in Bulgaria and there are no specific statutory requirements in respect of arrangements of this kind. Usually, the joint venture is established and governed by a joint venture agreement (or a shareholders’ agreement, when the joint venture is in the form of a jointly owned company).

Joint venture projects are usually implemented through the incorporation of a local company (typically a joint-stock company) in which the joint venture partners hold shares. Another option is to have the joint venture established in the form of a contractual general partnership (therefore, it is not a separate legal entity), and this is usually established by a general partnership agreement for completion of special projects (e.g., infrastructure construction projects or concession award procedures). In the latter case, the partners are responsible for the obligations of the partnership in relation to third parties.

After the Ministry of Transport successfully finalised a EUR 37 million concession procedure for the civil airport in the capital city of Sofia, it announced further plans for concessions for public transport of national importance including seaports in Varna and Burgas, a river port in Ruse and an intermodal terminal in Dragoman. 

In 2018, the Bulgarian Financial Supervision Commission granted an approval to the Bulgarian Stock Exchange (BSE) to create the new Small and Medium Enterprises Growth Market (BEAM), which is a special new market allowing for small and medium companies in Bulgaria to receive financing. More information on the current investment opportunities through the SME Growth Market is available on the website of the BSE at https://beam.bse-sofia.bg/en. 

For some time now, Bulgaria has been trying to attract new greenfield investments by, among other things, stimulating the development of industrial parks. An important step towards this was the adoption of special legislation, which came into force in March 2021, regulating the status and conditions for the establishment, construction, operation and development of industrial parks.

At the international level, Bulgaria is a party to, among others, the Convention on the Settlement of Investment Disputes between State and Nationals of Other States, the Agreement establishing the World Trade Organization, as well as more than 130 agreements on mutual encouragement and protection of investments or avoidance of double taxation. Domestically, the principle of protection of foreign investment and economic activity is enshrined in the Constitution of 1991 and forms part of the substantive foundation of fundamental principles underpinning the Bulgarian legal order.

Bulgarian law offers foreign investors protection from unfavourable changes in national legislation. Pursuant to the Investments Promotion Act (IPA) enacted in 1997, any foreign investment made prior to the adoption of legislative changes imposing legal restrictions solely on foreign investments is to be governed by the legal provisions that were effective at the time of implementation of the investment.

There is special legal framework for promotion and certification of foreign investments, which is provided for mainly in the IPA and the Regulation for the Implementation of the IPA adopted in 2007. The IPA supports foreign investments by introducing a system of incentives for certified investments in tangible and intangible assets and the creation of new jobs related thereto. The Minister of Innovation and Growth, with the support of the Invest Bulgaria Agency, is directly responsible for implementing government policy on foreign investments.