Investment in Bulgaria 2016 KPMG in Bulgaria kpmg.com/bg 2 | Investment in Bulgaria 2016 Investment in Bulgaria Edition 2016 Investment in Bulgaria 2016 | 3 Preface Investment in Bulgaria is one of a series of booklets published by frms within the KPMG network to provide information to those considering investing or doing business internationally. Every care has been taken to ensure that the information presented in this publication is correct and refects the situation as of May 2016 unless otherwise stated. Its purpose is to provide general guidelines on investment and business in Bulgaria. As the economic situation is undergoing rapid change, further advice should be sought before making any specifc decisions. For further information on matters discussed in this publication please contact Gergana Mantarkova, Managing Partner. KPMG in Bulgaria Sofa Varna Burgas 45/A Bulgaria Boulevard 3 Sofa Street, foor 2 2B Serdika Street, foor 2 1404 Sofa 9000 Varna 8000 Burgas Bulgaria Bulgaria Bulgaria Tel: +359 2 96 97 300 Tel: +359 52 699 650 Tel: +359 56 826 086 Fax: +359 2 96 97 878 Fax: +359 52 611 502 Fax: +359 2 96 97 878 4 | Investment in Bulgaria 2016 Contents General Information ........................................................................................................7 Geography and climate ......................................................................................................7 Population and language ....................................................................................................7 Infrastructure .....................................................................................................................8 Communications .............................................................................................................. 10 Internet ............................................................................................................................ 11 Currency .......................................................................................................................... 11 Labor force ......................................................................................................................12 Political system ................................................................................................................12 Opportunities created via EU funding ..............................................................................12 Bulgaria and NATO ...........................................................................................................14 Economy ..........................................................................................................................14 Restrictions with regard to offshore companies ..............................................................16 Opportunities for International Investors ....................................................................18 Protection and promotion of foreign investments ...........................................................18 Eligibility for investment incentives ................................................................................21 Profit and capital repatriation ...........................................................................................22 Establishment of new business entities or acquisition of shares in existing entities ......22 Branches ..........................................................................................................................23 Representative offices .....................................................................................................23 Capital markets ................................................................................................................23 Concessions ....................................................................................................................24 Licensing .........................................................................................................................24 Renewable energy ...........................................................................................................26 © 2016 KPMG Bulgaria OOD, a Bulgarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Investment in Bulgaria 2016 | 5 Banking and finance ........................................................................................................28 International private law...................................................................................................29 Company Law ................................................................................................................31 uR les applicable to all forms of business association ......................................................13 iL mited liability company (OOD) ...................................................................................... 53 oJ ints- tock company (AD) ................................................................................................ 73 Other forms of business association ...............................................................................04 Commercial eR gister .......................................................................................................14 Real Estate .....................................................................................................................42 yT pes of ownership over real estate ................................................................................24 Condominium ownership management .......................................................................... 34 vE idence of title ............................................................................................................... 34 Acuq isition of real estate ................................................................................................. 34 Proej ct development ........................................................................................................ 54 Participants in the development process ......................................................................... 84 Accounting and Auditing ..............................................................................................51 Accounting .......................................................................................................................15 Auditing ........................................................................................................................... 5 Taxation ..........................................................................................................................58 Corporate tax ................................................................................................................... 85 aT ax tion of individuals ......................................................................................................68 UE social security ............................................................................................................ 37 Property transfer, gift, inheritance and tourist taex s ........................................................ 37 aV lue added tax ............................................................................................................... 57 Customs duties ............................................................................................................... 48 cxE ise duties ................................................................................................................... 78 Insurance Premium aT x (IP)T ........................................................................................... 8 Employment Regulations .............................................................................................89 eL gislation ....................................................................................................................... 98 © 2016 KPMG Bulgaria OOD, a Bulgarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 6 | Investment in Bulgaria 2016 mE ployment contracts .................................................................................................... 98 oW rking hours .................................................................................................................19 oH lidays ...........................................................................................................................19 Medical checku- ps ...........................................................................................................29 eH althy and safe working conditions ...............................................................................29 eT rmination of employment contracts ............................................................................. 39 oF reign nationals working in Bulgaria .............................................................................. 39 Foreign Nationals ..........................................................................................................94 eL gislative framework and general principles .................................................................. 49 iV sas ................................................................................................................................ 59 eR sidence permits, residence certificates and residence cards ..................................... 89 oW rk permits ................................................................................................................. 102 Government Control. ...................................................................................................106 Public procurement ....................................................................................................... 106 Concessions .................................................................................................................. 110 Publicp- rivate partnerships ............................................................................................. 112 Competition and antitrust regulations ........................................................................... 113 Supervision of the Bulgarian aN tional Bank over the activities of credit and financial institutions ....................................................................................................... 115 Investment intermediaries in Bulgaria .......................................................................... 116 Insurance companies and insurance intermediaries in Bulgaria .................................... 116 iL mitations of cash payments ........................................................................................ 117 oF reign ecx hange regime .............................................................................................. 117 Appendix A ...................................................................................................................120 Bilateral Agreements for the Mutual Protection and nE couragement of oF reign Investment ........................................................................................................120 Appendix B ...................................................................................................................121 Double aT ax tion rT eaties to which Bulgaria is a party .....................................................121 Appendix C ...................................................................................................................124 Bilateral Social Security Agreements concluded by Bulgaria .........................................124 © 2016 KPMG Bulgaria OOD, a Bulgarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Investment in Bulgaria 2016 | 7 General Information Geography and climate 61% is between the age of 20 and 64, and Bulgaria is situated in South-Eastern approximately 20% is over the age of 65. Europe, in the eastern part of the Balkan According to the statistics from the most Peninsula. It borders Romania to the north, recent population census, held in 2011, the Republic of Serbia to the west, the ethnic Bulgarians represent almost 85% Former Yugoslav Republic of Macedonia to of the population, while ethnic minorities the southwest, Greece to the south and of Turkish and Roma descent make up Turkey to the southeast. The Black Sea is another 8.8% and 4.9% respectively. to the east of the country; it enables direct Smaller ethnic groups in Bulgaria include maritime links with the Russian Federation, Russian, Armenian and Jewish among Ukraine and Georgia. To the north, the others. Nearly 76% of the Bulgarian Danube River separates Bulgaria from population is Eastern Orthodox Christian. Romania. Bulgaria is strategically located Another 10% of the population state they along key land routes from Europe to the are Muslim. Catholicism and Judaism are Middle East and Asia. also represented. Bulgaria’s total area is 110,910 sq km, with Since 1990, the country’s net population 1,808 km of land borders and 354 km of growth has been negative (an average coastline. The country’s terrain is partly annual decrease of -0.7% was recorded for mountainous, with lowlands in the north the period 2001 – 2011), in part as a result and the southeast. The climate is Continental Mediterranean, it is temperate, of significant outward migration, but also with cold, damp winters and hot, due to the country’s aging demographics. dry summers. The trend of increase in the birth rate in the country in the period 2004 – 2009 reversed Population and language from 2010 onwards and the number of births cumulatively decreased by 18.5% in 2015 As per information of the National compared to 2009 levels further contributing Statistical Institute, as at 31 December to the decrease in the population. 2015 Bulgaria’s population is approximately 7.15 million, representing 1.4% of the The country’s official language is Bulgarian. population of the European Union. Nearly Secondary languages closely correspond 73% live in urban areas. The capital – to ethnic background. English, and to a Sofia – is by far the largest urban center lesser extent German and French, are used having nearly 1.32 million inhabitants. frequently in business. Approximately 18% of the population is under the age of 20, while approximately © 2016 KPMG Bulgaria OOD, a Bulgarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 8 | Investment in Bulgaria 2016 Infrastructure of motorways (Maritsa, Struma, Kalotina, Hemus and Black Sea motorways) and oR ads and railways construction/rehabilitation of speedways, A network of international highways two new bridges over the Danube River connects Bulgaria to Western Europe, and the construction of Shipka Tunnel. Russia, Asia Minor, the Adriatic, the The total budget for the planned road Aegean, and the Black Sea. infrastructure projects listed above (excluding the two bridges) is estimated The European corridors No. 4 (from to amount to EUR 5,209 million until Germany to Istanbul), No. 7 (Rhine, Main, 2020. Financing sources for the planned and Danube), No. 8 (from Durres, Albania infrastructure projects include Operational to Varna), No. 9 (from Helsinki, Finland to Program Transport and Operational Program Alexandropoulos, Greece) and No. 10 (from Regional Development (European Union Salzburg, Austria to Thessaloniki, Greece) (EU) financing), the state budget, state pass through the territory of Bulgaria. investment loans, financing from the According to the 2014 annual statistics European Investment Bank and the published by the National Statistical World Bank. Institute, the total length of the country’s In 2013, the second bridge on the Danube road network managed by the Road River at Vidin – Kalafat and the last section Infrastructure Agency is 19,728 km, which of the Trakia Motorway were completed. includes 610 km of designated motorways, The Trakia Motorway is the first entirely 2,965 km of category I roads, 4,042 km of completed motorway in Bulgaria with a category II roads, and 12,111 km of category total length of 360 km. III roads. In addition, there are approximately 20,000 km of category IV roads, which are After the successful completion of the managed by the respective municipalities. Maritsa Motorway, connecting the Trakia Road transportation across most of the Motorway and the main entrance to country relies primarily on two-lane roads. Turkey – Kapitan Andreevo and Lots 2 and The main transport corridors are Corridor 4 of the Struma Motorway during 2015, No. 10 Kalotina-Svilengrad linking Serbia development will continue in 2016 with to Turkey, Corridor No. 4 Vidin-Sofia-Kulata the construction of Lot 3 of the Struma linking Romania to Greece, Corridor No. 9 Motorway and a tender for selection of Ruse-Kazanlak-Kardzhali linking Romania contractors for future works on Lots 1 and to Greece and Turkey and Corridor No. 8 2 of the Hemus Motorway. 16.5 km of Kyustendil-Burgas-Varna linking Macedonia Sofia’s northern bypass highway were also to the port of Varna. finalized in 2015 and construction goes on in 2016. The bypass is expected to cost a Development plans focus on upgrades and total of EUR 120 million and will connect investments, particularly of motorways, to four motorways – Trakia, Hemus, Lyulin and further integrate the country’s road system Kalotina, and three pan-European corridors into the international network. According – No. 4, No. 8 and No. 10. to data from the Ministry of Regional Development and Public Works, priority Bulgaria’s railroad network includes about road infrastructure projects in Bulgaria 4,023 km of railway lines. Some 71.1% until 2020 include construction of 620 km of them are electrified and 24.6% are © 2016 KPMG Bulgaria OOD, a Bulgarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Investment in Bulgaria 2016 | 9 doublet- rack. hT e maoj rity of the network have an estimated cost of RUE 608 million is designed to support a running speed of and will connect heavily populated Ovcha up to 100 km per hour, with only 105 km Kupel and eL vski districts to the city center. supporting a speed of up to 103 km per hour. According to Sofia Municipality, currently 13 0,000 people use the subway daily and oF llowing the failed attempt for privatiaz tion their number is epx ected to increase up of the state owned rail company BD ZoT varni to 05 ,000 people daily by 2020 upon prevoiz OE OD in 201,3 the government completion of the third metro diameter. announced plans to launch another process for the sale of the company during Ports spring 2016. Both sea and river routes – the Black Priority railway infrastructure proej cts in the Sea and the Danube iR ver – offer reliable country until 2020 include rehabilitation, shipping transportation to and from the overhaul and moderniaz tion works of country. hT e largest Bulgarian seaports are more than 04 0 km of the eix sting railway Burgas and aV rna on the Black Sea coast. infrastructure and construction of new aV rna mainly handles containers, grain highs- peed railroads in the following and bulk goods, while Burgas mainly deals directions – SofiaP- lovdivB- urgas, Sofia- with crude oil and some bulk commodities. iV din, PlovdivS- vilengraduT- rkish border, A ferry connection from aV rna to Odessa SofiaD- ragoman, SofiaP- ernikaR- domir, (kU raine), Kavka z (uR ssia) and Poti Medz raG- orna Oryahovitsa, Sofia (Georgia) facilitates the transport of goods intermodal terminal and railroad uj nction between the countries. and others. hT e total budget for the hT e Danube iR ver is navigable during most planned railroad infrastructure proej cts as of the year and supports inland water listed above is estimated to amount to transport. With the hR ine – Main – Danube RUE ,4 617 million, which will be financed canal in use since 129 , Bulgaria has mainly by UE funds and the state budget. access to the large uE ropean ports on the hT e maoj rity of the planned works on oN rth Sea. hT e main Bulgarian ports on the the SofiaP- lovdivB- urgas and Plovdiv- Danube iR ver are uR se, oL m and iV din. SvilengraduT- rkish border highs- peed railroad lines were completed in 201 4 Bulgaria has 1 5 Black Sea and 1 3 Danube and 201.5 In 2016, there are plans for iR ver ports for public transport with the repair of 2 4 railway stations and 20 national importance consisting of a total railway crossings. of 48 and 4 7 wharves, respectively. hT e ports with regional importance for public In 201,5 Sofias’ subway infrastructure transport are 9 on the Black Sea coast and reached important milestones. hT e subway 21 on the banks of the Danube iR ver. network was further epx anded and now connects Mladost area to Sofia Airport. It According to the aN tional Concession is also epx ected that the second metro eR gistry, a total of 1 3 ports with national diameter will be completed during 2016 importance are currently under concession. with the construction of the iV tosha station, In 201,3 the government granted a y-53 ear while works on the entirely new third concession for the port terminals uR se- diameter were launched in 201.5 As per the eW st, iN kopol, iV din South and oL m. proej ct plan, the third metro diameter will © 2016 KPMG Bulgaria OOD, a Bulgarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 10 | Investment in Bulgaria 2016 In addition, according to the Ministry of airport in Gorna Oryahovitsa was awarded rT ansport, Information eT chnology and under a y-53 ear concession following two Communications, concession calls for unsuccessful calls in 2011 and 201.3 the port terminals uR seC- enter and Sofia Airport, which handled more than uT trakan took place at the end of 2012 .4 1 million passengers in 201 5 (.72 % and the beginning of 201.3 Meanwhile, up from the 201 4 level), has undergone eN sebar port terminal is already under significant investments in the last few concession agreements. years, including a new traffic control tower, In 201,5 the Ministry of rT ansport, thus increasing its capacity and providing Information eT chnology and modern facilities to respond to the growing Communications performed a pre- demand for international air travel. hT e concession evaluation on port terminal newly constructed terminal ensures a uR seaE- st and port iV dinC- enter and the higher standard of passenger handling and concession call is still ongoing. landing of wideb- odied aircraft. Airports Communications Bulgaria has four operating commercial Fixed-line communications airports – in Sofia, Plovdiv, Burgas and aV rna. According to the latest available information hT ey handle both international and domestic as of 201,3 the fiex d voice services had flights. A tender for a y-53 ear concession 1.09 million subscribers. hT e overall for the management of Burgas and aV rna telephone penetration is estimated at Airports was held in uJ ne 2006 and the 26.1 % in 201,3 representing a decrease in government awarded the concession to a recent years due to the shift in consumer consortium between rF aport AG, Germany preferences in favor of mobile phones. and a local company, named BM Star. hT ere is an ongoing market trend for uF rthermore, in response to the demand bundling fiex d and mobile service offerings for cargo transport, the government has to subscribers. added the airports in Plovdiv (southc- entral Bulgaria), Gorna Oryahovitsa (northc- entral Mobile communications Bulgaria) and uR se (northern Bulgaria) to the list of airports which accept hT ree mobile telephone companies currently international air traffic. In relation to Plovdiv provide services in Bulgaria : Mobiltel AE D, Airport, the government is in the process Bulgarian eT lecommunication Company AD of identifying concessioners for both the (BCT ) and eT lenor Bulgaria AE D – respectively passengers and the cargo terminals of branded as MeT- l, iV vacom and eT lenor – the airport. In late 201,5 the government operating under the GSM 09 0 standard. In announced its plans to launch a concession aJ nuary 201,3 Bulsatcom AD, G4 Com AE D call for Sofia Airport. hT e purpose of the (revoked in 201)4 and Ma ex T lecom AD were concession of Sofia Airport is to further granted licenses to utiliez the 1,08 0 M zH etx end the cargo and passenger handling band network in the country. hT e market capacity of the airport and moderniez has grown uq ickly, with the number of its infrastructure. In aJ nuary 2016, the mobile subscriptions rising from .8 2 million © 2016 KPMG Bulgaria OOD, a Bulgarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.