Uhy Business in Bulgaria

Doing Business in Bulgaria
2011
Content
1. 2. 3. 4. 5. 6. 7. 8. 9. Introduction...................................................................................................2 BusinessEnvironment.................................................................................3 ForeignInvestment .......................................................................................7 Settingupabusiness....................................................................................8 Taxation ........................................................................................................23 Accounting&reporting.............................................................................34 Labour..........................................................................................................39 UHYfirmsinBulgaria...............................................................................45 UHYofficesworldwide.............................................................................47
Copyright2011UHYInternationalLtd
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1.
Introduction
UHYisaninternationalorganizationprovidingaudit,accountancy, businessmanagementandconsultancyservicesthroughfinancialbusiness centresover80countriesworldwide.Businesspartnersworktogether throughoutthenetworktoconducttransnationaloperationsforclientsas wellasofferingspecialistknowledgeandexperiencewithintheirown nationalborders.Globalspecialistsinvariousindustryandmarketsectors arealsoavailableforconsultation. Thisdetailedreportprovidingkeyissuesandinformationforinvestors consideringabusinessoperationinBulgariahasbeenprovidedbythe officeofUHYsrepresentativethere: UHYBrainStormConsultLtd. Mladost1A,Bl505A,Entr.2 BG1729Sofia Bulgaria Tel: +35928099740 Email: office@uhybrainstorm.com Website: www.uhybrainstorm.com Contact: ilina@brainstorm.bg YouareinvitedtocontactUHYBrainStormConsultLtdusingthedetails abovewithanyinquiriesyoumayhave. Informationinthefollowingpageshasbeenupdatedsothattheyare effectiveatthedateshown,butinevitablytheyarebothgeneraland subjecttochangeandshouldbeusedforguidanceonly.Forspecific matters,investorsarestronglyadvisedtoobtainfurtherinformationand takeprofessionaladvicebeforemakinganydecisions.Thispublicationis currentatJuly2011. WelookforwardtohelpingyoutodobusinessinBulgaria.
UHYBrainStormConsultLtd(theFirm)isamemberofUrbachHackerYoung InternationalLimited,aUKcompany,andformspartoftheinternationalUHYnetworkof legallyindependentaccountingandconsultingfirms.UHYisthebrandnamefortheUHY internationalnetwork.TheservicesdescribedhereinareprovidedbytheFirmandnotby UHYoranyothermemberfirmofUHY.NeitherUHYnoranymemberofUHYhasany liabilityforservicesprovidedbyothermembers.
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2.
Business Environment
Geography BulgarialiesinthesoutheasternpartoftheBalkanPeninsula,coveringan areaof110,993squarekilometresapproximately42,855squaremiles). BulgariahasastrategicgeographicallocationintheBalkanregionwitha longbordertothenorthalongtheriverDanubewithRomania.Bulgaria hasborderstothesouthwithGreeceandTurkeyandtothewestwiththe SerbiaandtheFormerYugoslavRepublicofMacedonia.TheBlackSea formsanaturalbordertotheEast.ThecapitalcityofBulgariaisSofiaand othermajorcitiesincludePlovdiv,Varna,BourgasandRousse. Thelandscapeofthecountryispredominantlymountainous,although arablelandaccountsforapproximately41%oftheterritory.Allland routesfromEuropetoAsiapassthroughtheterritoryofBulgaria.Bulgaria hasamoderatecontinentalclimate.ThecoldestmonthisJanuarywhen averagetemperaturesareminus2degreescentigradeandthewarmest monthisJulywithaveragetemperaturesofaround25degreescentigrade. Theannualaveragetemperatureis12degreescentigradeandtheaverage annualrainfallis700mm. Populationandlanguage Accordingtothelatestofficialdataasof2006yearend,Bulgarias populationis7,351.234people.Urbanpopulationconstitutesalmost72.9%. TheofficiallanguageofthecountryisBulgarian. Publicholidays Thefollowingtablelistspublicholidays,asprovidedbytheBulgarian governmentin2011: NewYear January1 DayofLiberationfromtheOttamanRule SecondDayofEaster LabourDay St.GeorgesDay/DayoftheBulgarianArmy DayofBulgarianEnlightenment,Cultureandof SlavonicAlphabet BulgariasUnificationDay BulgariasIndependenceDay March3 April9 May1 May6 May24 September6 September22
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EnlightenmentLeadersDay(adayoffforeducational establishments) ChristmasEve ChristmasDay SeconddayofChristmas
November1 December24 December25 December26
Governmentstructure BulgariaisaparliamentaryrepublicheadedbyaPresident.ThePresident isdirectlyelectedforatermoffiveyearsandcanheadtheRepublicfora maximumoftwoterms.ThePresidentemanatestheunityofthenation andrepresentstheRepublicofBulgariainitsinternationalrelations. Amonghispowersareratificationofcertaindiplomaticandmilitary agreementsandpromulgationoflaws,commandofthearmedforces,etc. ThecurrentPresident,GeorgiParvanov,whowaselectedinNovember 2001andthenreelectedinNovember2006,becamethefirstreelected presidentinthenewestBulgarianhistory.ThenextPresidentialelections areonOctober23,2011.BulgariahasaunicameralNationalAssembly with240seats.IntheNationalAssembly209membersareelectedthrough aclosedlistproportionalrepresentationsystemtoserve4yeartermsand 31membersareelectedbypluralityvoteinsinglememberconstituencies toservefouryearterms.Thenextparliamentaryelectionsarein2013. Twentytwopartiesandcoalitionsand13independentcandidatestook partintheelections. Bulgariaisrepresentedby18membersintheEuropeanParliament,which wereelectedinMay2007.TheCitizensforEuropeanDevelopmentof BulgariaandtheBulgarianSocialistPartywonfiveseatseach,the MovementforRightsandFreedomswonfourseats;theAttackCoalition wonthreeseatsandSimeonIINationalMovementwononeseat. Infrastructure BulgariaislocatedattheheartoftheSoutheasternEuropeanmarket whichcomprisesapproximately56millionpeople.Thecountrysstrategic geographicallocationisfurtherenhancedbythenumberofinternational railandmotorwayscrossingthecountryandthecommercialportsonthe BlackSeaandtheDanubeRiver.ThePanEuropeanTransportCorridors crossingBulgariaare:IV,VII,VIII,IXandX.Anetworkofeight motorways(79,83,871,772,70,773,87,and85)crossesthe country,makingconnectiontoWesternEurope,Russia,MinorAsiaand theBlackSea.
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Bulgariahasfivemainports.ThelargestareVarnaandBourgas,both locatedontheBlackSea.Rousse,Lom,andVidinaresignificant commercialportsontheDanube.Bulgariahasthreemajorairports, situatedinthecitiesofSofia,VarnaandBourgas.Sofiaairportisthe countrysleadinginternationalairport,whichhandled2.2million passengersin2006.Effective2007,thenewlyconstructedairportterminal canserviceabout2.6millionpeopleandhandle26,000tonsofcargo volumeyearly.FraportoperatestheairportsofVarnaandBourgasundera 35yearconcession.In2007,VarnaAirportdoubleditscapacitywiththe openingofanewpassengerterminal. Skilledworkforceavailability Bulgariasworkforceofficiallyconsistsof3,480,800(thirdquarter2010) welleducatedandskilledmen(53percent)andwomen(47percent).The officialadultliteracyrateinBulgariais98.3percent.Ahighpercentageof theworkforcehascompletedsomeformofsecondary,technical,or vocationaleducation.ManyBulgarianshavestrongbackgroundsin engineering,medicine,economics,andthesciences,butthereisashortage ofprofessionalswithWesternmanagementskills.Thedemandforskilled managersisincreasingwithaninfluxofhightechnology,innovative,and knowledgebasedcompaniesfromtheEU.Theaptitudeofworkersand therelativelowcostoflabourareconsiderableincentivesforforeign companies,especiallythosethatarelabourintensive,toinvestinBulgaria. Financialsystem Centralbankandcommercialbankingsector AmendmentstotheBulgarianNationalBank(BNB)law,effectiveasof January2005,warrantacompleteinstitutional,financialandfunctional independenceoftheBNB. AftertheintroductionofaCurrencyBoardin1997,thenumberof monetarypolicyinstrumentsatthedisposalofBNBwassignificantly reduced.Badloanstoenterpriseswereconvertedbylawintostatebonds withlowinterestratesforthefirstsixyears.Thetighteningofregulatory controlsandthepositiveeffectsbroughtaboutbytheintroductionofthe currencyboardhavehelpedthesectortograduallyregainconfidence. Thebankingsystemhasnowcompletelystabilisedandcontinuesto mature.Themarketisdominatedbyfivelargebanks,whichcontrolabout 56%ofthesystemstotalassets.Highcorporateliquidity,coupledwith attractivetermsandratesondeposits,havecontributedtoahighlevelof depositconcentration.
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Bulgariahasalmostcompletedtheprivatisationofitsstateownedbanks. About90%ofBulgarianbankassetsareownedbylargeforeignbanks, alreadywellestablishedinCentralandEasternEuropeorbybanksthat arecommittedtoachievingbiggermarketsharesintheregion.Someofthe majorshortfallsofthebanksectorincludesluggishcorporateloangranting processandunderdevelopedebanking. Currency TheintroductionoftheCurrencyBoardinthecountryinJuly1997ledto improvedconfidenceinthelocalcurrency,exchangeratepredictability andlowerinflation.Aftertheintroductionofthecurrencyboard,all constraintsontradingwithforeigncurrencywithinthecountrywere removed.Localbankscansellhardcurrencytophysicalandlegalentities withoutanylimitations. ThecurrencyunitinBulgariaistheBulgarianLev.AtpresenttheBGNis fixedtotheEURattherateofBGN1.95583perEUR1.TheBulgarian NationalBankannouncesreferenceratesoftheLevtotheothermajor foreigncurrenciesonthebasisoftheirinternationalmarketrates.TheBGN denominationsareasfollows: Notes:BGN2,BGN5,BGN10,BGN20,BGN50andBGN100; Coins:BGN0.01,BGN0.02,BGN0.05,BGN0.1,BGN0.2,BGN 0.5andBGN1.
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3.
Foreign Investment
Theannualflowofforeigninvestmentfor2010wasEUR52.9million.Itis expectedthataround1.0billioneuroofFDIinthefinance,realestateand retailsectors,andaround1.5billioneurointheothersectorsofthe economyfor2011,aforecastthatimpliesaresurgentinvestorinterestin theformer.Continualeconomicdevelopmentandstrongmarketpotential areamongthedecisiveforcesthatenhanceBulgariasabilitytoattract respectedinternationalinvestors.Overthelastyearstheinternational creditratingagencieshaveimprovedthecreditratingofthecountrymany timesreachinganinvestmentgrade. Theseinvestmentgradeincreaseswerejustifiedbythecontinued reductioninBulgariasgeneralgovernmentdebtburden,improved liquidity,andthelastingcredibilityofthegovernmentsfiscalpolicy.The Bulgariangovernmenthassignednumerousinternationaltreatiesfor EncouragingandMutualProtectionofInvestmentswiththeNetherlands, Cyprus,Finland,France,Denmark,Israel,Sweden,theUnitedKingdom, Greece,Romania,Portugal,Slovakiaandmore.
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4.
Setting up a business
Formsofenterprises BulgarianCommercialActprovidesthemainframeworkforcommercial entitiessetupandcorporategovernanceinBulgaria. ForeignpersonscandobusinessinBulgariawithoutincorporation throughapermanentestablishment.UnderBulgarianlawtheycanalso usethefollowingformsofcommercialbusinessorganization: Soletraderindividual; Partnership:generalpartnership,limitedpartnership, partnership,limitedbyshares; Commercialentity(company)setupbytwoormore individualsorlegalentitiesforthepurposeofcarryingout business; Branch; Representativeoffice; Consortiumandholding; Cooperativesociety. TheCommercialActprovidesforthefollowingtypesofcompanies: Jointstockcompany(AD); Limitedliabilitycompany(OOD); Generalpartnership; Limitedpartnership; Partnershiplimitedbyshares. Thejointstockcompanyandthelimitedliabilitycompanymaybesetup assoleownershipcompaniesinwhichcasetheiracronymschangetoEAD andEOOD,respectively. Aperson(regardlesswhetheranindividualoralegalentity)may participateasashareholder/partnerinmorethanonecompany.An individualmayregisterasonlyonesoletrader. TheCommercialRegisterisdefinedinthelawasastandardcentralized electronicdatabasewhichcontainscertaincircumstancesanddisclosures andwhichisoperatedbyaninformationsystem.Aseparatefilein electronicformiskeptforeachtraderandbranchofaforeigntrader.The CommercialRegisterispublicandisoperatedbytheRegistryAgency withtheMinisterofJustice.
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TheRegistryAgencyisempoweredtoverifythecomplianceofthe incorporationactionsanddocumentswiththestatutoryrequirementsper theCommercialAct.Acompanysexistencecomestovalidityasofthe resolutionoftheRegistryAgencyforrecordingitintheCommercial Register,statingthecompanyunifiedidentificationcode.Thestatutory deadlinefortherecordingofthecompaniesisonedayasofthe submissionofthedocumentstotheRegistryAgency.Inpractice,the registrationprocesstakesusuallyfivetotendaysduetotheworkloadof theRegistryAgency. TheRegistryAgencyprovidesautomatedsubmissionofinformationabout enteredtraders,branchesofforeigntradersandthecircumstancesrelated andtheactsannouncedintheCommercialRegister,totheNational RevenueAgency,aswellastoothersubjectsestablishedbylaw.Traders, branchesofforeigntradersandcircumstancesrelated,subjectto registrationasperalaw,areenteredintheCommercialRegister.Acts pertainingtothetradersandbranchesofforeigntraderssubjectto registrationshouldbedisclosedintheCommercialRegister.Allthe personswhoareregisteredintheCommercialRegisterreceivean obligatoryunifiedidentificationcodewhichservesasaproofforthe circumstancesandactsenteredintheregister. TherulesforregistrationofacommercialentityapplytobothBulgarian andforeignnationals.Specialregulatory/licensingregimesareestablished forcompaniesintendingtooperateinthefieldofbanking,insurance, voluntarypension,investmentbrokerageandcertainothers.TheBarAct (BA)introducedanewtypeoflawyersassociations(lawfirms).Alaw firmisanoncommercialentity,recordedinaspecialregisterwiththe respectiveBarAssociationandwiththeDistrictCourt.Lawfirmscombine thedescriptionsofapartnership(e.g.nofixedcapital,partnersare personallyliableforthefirmsliabilitiestoclients)andacooperative(e.g. theGeneralMeetingisthelawfirmssupremebody). TheBarActprovidesfortermsandconditionsunderwhichforeign lawyersmaypracticeinBulgaria.TheregimeregardinglawyersfromEU memberstatesispreferential.AsoftheentryintoforceoftheEUBulgaria AccessionTreaty,thelawyerswhoarecitizensofEUMemberStatesand haveobtainedtheirlegalqualificationsinoneoftheEUMemberStatesare entitledtoexercisethelegalprofessioninBulgariathroughassistanceor defenceforaspecificcaseorthroughpermanentestablishmentonthe territoryofBulgaria.Inprovidingassistanceanddefenceforspecificcases, theforeignlawyerisplacedonequalfootagewithBulgarianlawyersand isboundtousethesamenameinwhichexercisesthelegalprofessionin thestatewherehasacquiredlegalcompetency.WhereunderBulgarian
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lawproceduralrepresentationismandatory,theforeignlawyermaytake actionofproceduralrepresentationonlytogetherwithaBulgarianlawyer. AforeignlawyercanestablishpermanentlyontheterritoryofBulgariafor exercisinglegalactivitiesunderthenameusedinthestatewherethelegal competencyhasbeenacquired,afterinscriptionintheRegisterofForeign Lawyers.FollowingregistrationintheRegisterofForeignLawyersand threeyearsofactualanduninterruptedexerciseoflegalprofessionunder thenameusedinthecountrywherelegalcompetencyhasbeenacquired, orfollowinganequivalentexamination,aforeignlawyerhastherightto applyforinscriptionataBarAssociationintheRepublicofBulgaria. InscriptionataBarAssociationgivesforeignlawyerstherightsofa Bulgarianlawyer. LegalrepresentationbeforeaBulgariancourtwillbepossibleforathird countrylawyer,whenthelatterappearsincourtjointlywithaBulgarian lawyerandabilateralagreementbetweenthelawyershomecountryand Bulgariaexistsortheprincipleofreciprocityisapplicable. Soletraders Everyindividualover18yearsofagewithpermanentaddressinthe RepublicofBulgaria,andwhoisnotinsolventorbankrupt,canrecorda soletraderintheCommercialRegister. Thecommercialregistrationinthiscasedoesnotinfertheestablishmentof aseparatelegalentity.Theperson,soletrader,preserveshis/herstatusof anindividual,andanaturalpersonbutaddsuptotheabilityofatrader, i.e.tobepartytocommercialrelations.Thecommercialnameofthesole tradershouldincludetheindividualsfirstandlastname,andtheacronym ET. SoletraderswouldbedeletedfromtheCommercialRegisteruponthe followingcircumstances: Upontheindividualswrittenrequestincaseofclosureof activityorpermanentestablishmentabroad; Incaseofdeathoftheindividual:uponrequestoftheheirs; Incasetheindividualslegalcapacitieshavebeenrestricted, e.g.duetomentaldisease,uponrequestofthetrustee. Companies LimitedLiabilityCompanies(OOD) Limitedliabilitycompaniescanbeestablishedbyone(inthecaseofsole ownershiplimitedliabilitycompany,EOOD)ormoreindividuals/legal entitiesprovidedthatallrequirementssetoutinthelawarecomplied with.
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Limitedliabilitycompaniesareincorporatedfurthertoresolutionofthe ownershipinterestholdersandrecordingintheCommercialRegisterwith theRegistryAgency. AnOODsminimumcapitalisfixedtoBGN5,000tobeallocatedinshares (ownershipinterests)ofvaluenotlessthanBGN10.Atleast70%ofthe authorizedcapitalpertheArticlesofAssociationshouldbepaidinpriorto thecommercialregistration.Capitalinstalmentscanbemadebythe shareholderseitherincashorinkind,whereasaspecialprocedureforthe evaluationoftheincashcontributionisprovidedforbythelaw. AnOODisgovernedbyitsArticlesofAssociation(AA)executedbythe shareholders.TheAAincludesinformationonthename,seatandaddress ofmanagement,scopeofactivities,managingbodies,booksoftheOOD, etc.TheAAisdepositedwiththeCommercialRegister. InBulgariathereisnopracticethatshareholdersarrangetheirrelationsby aseparateShareholdersAgreement(inadditiontotheAA).However, suchanagreementisnotprohibitedandcanbeexecuted,providedthatits stipulationsdonotinflictimperativeprovisionsofthelaw. ThegoverningbodiesofanOODareasfollows: TheGeneralMeetingofitsShareholders;and OneormoreManagersappointedbytheGeneralMeeting. TheGeneralMeetingoftheShareholdersistheOODssuprememanaging bodyandiscompetenttoresolveonthemostimportantcorporateissues, e.g.changesintheauthorizedcapital,assignmentofManagers,opening andclosureofbranches,adoptionoftheannualfinancialstatements.The ShareholdersaresummonedtosessionsbythecompanysManager. Votingrightsareproportionatetoashareholdersparticipationinthe registeredcapitalunlessotherwiseagreedtointheArticlesofAssociation. TheGeneralMeetingtakesmostofthedecisionswithsimplemajority(i.e. morethan50%ofthecapital).Theunanimousvoteoftheshareholdersis requiredfortheGeneralMeetingtoresolveonincreaseordecreaseinthe capital;andofthecapitalisnecessaryfordecisionson:(i)changesinthe ArticlesofAssociation,(ii)acceptanceofandexpulsionofshareholders, and(iii)resolutionsforadditionalincashcontributions. TheCommercialActallowstheGeneralMeetingofanOODtoobligeits shareholderstomakeadditionalincashcontributionsproportionateto theirparticipationinthecapital,whichwouldserveforthecoveroflosses ortosatisfythecompanystemporaryneedoffunds.Thesecontributions aregrantedtotheOODasaloanandtheGeneralMeetingcanresolveon
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thepaymentofinterestthereon.Consequencesforashareholderwhohas failedtocomplywiththedecisionforadditionalcontributionsarethe sameasincasehe/shehasfailedtopayitsmaincontributiontothe companyscapitalandmayleadtohis/herexpulsionfromtheOOD. AnOODsManagerisnominatedbytheGMoftheshareholders.He/sheis responsibleforthedaytodaymanagementofthecompanyandforthe implementationoftheresolutionsoftheGeneralMeeting.TheManageris alsotheOODsstatutoryrepresentativetoanythirdparties.Incasethereis morethanonemanager,eachofthemisentitledtorepresenttheOOD independentlyunlesstheAAortheresolutionoftheGMofthe shareholdersisprovidedotherwise.NootherrestrictionsoftheManagers representativepowerwouldbeapplicablevisvisthirdparties.Thename oftheManagerisrecordedintheCommercialRegister. Thepersonalelementinvolvedintherelationsamongtheshareholdersin alimitedliabilitycompanyisstrongerthantheoneinajointstock company.Therefore,aspecialprocedureisappliedforthetransferof sharesfromashareholdertoanonshareholder.ShareholdersinanOOD havetherightandtheobligationtotakepartinthecompanys managementandactivity,tobeinformedandtocheckthecompanys booksandfinancialstatements. TheArticlesofAssociationofanOODcanprovideforanadditional supervisorybodyinthecompany,anamedController.TheControlleris assignedtosupervisetheobservanceoftheArticlesofAssociation,andthe managementofthecompanysproperty.TheControllershouldreportto theGeneralMeetingdirectly. Inthecaseofasoleownershiplimitedliabilitycompany(EOOD),thesole ownerofthecapitalhasthecompetenceoftheGeneralMeetingofthe Shareholders.ThesoleownercanmanageandrepresenttheEOOD personallyorthroughaManager.AnEOODwouldbeterminatedwiththe deathofthesoleowner,unlesshis/herheirsdecidetocontinuethe companysactivity.ShouldtheEOODbepropertyofalegalentity,the EOODwouldbeterminateduponwindingup/terminationofitsowner. Limitedliabilitycompaniesarenotstatutorilyobligedtoformspecial reserves.Thereisnoimpediment,however,fordecisiononthe establishmentofreservestobeadoptedbytheGeneralMeetingofthe Shareholders/SoleOwneroftheCapitalorprovidedforintheArticlesof Association.
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Jointstockcompanies Ajointstockcompanycanbesetupbyone(EAD)ormore individuals/legalentities(AD). ThesetupofanADshouldberesolvedbyaMeetingoftheFounding Shareholdersatwhichthesubscriptionofsharesinthecapitaland adoptionofthebylawstakeplace.Thenewlyincorporatedcompany comestolivefurthertoitsrecordingintheCommercialRegister. AnADsminimumcapitalcanamounttoBGN50,000dividedintoshares, eachofnominalvaluenotlessthanBGN1.Atleast25percentofthe capitalshouldbepaidinpriortothecommercialregistration. TheshareparticipationinanADcanbeevidencedbythefollowingtypes ofshares: Registeredsharesthenameoftheownerisindicatedonthe sharecertificateandinthecompanysBookoftheShareholders. Suchsharescanbetransferredbymeansofendorsement.The transferwouldbindthecompanyafterbeingrecordedinthe BookoftheShareholders. Bearersharestitlethereoverisevidencedbythemere physicalpossessionofthesharecertificate. Preferencesharesincorporatesomespecialrightstotheir holders(e.g.guaranteeddividend,liquidationquota,etc.). TheADistheonlylegalentityundertheBulgarianlawthatisallowedto issuebonds.Fromthecompanysincorporationuntiltheissuanceofpaper formshares,theshareholdersevidencetheircapacitybytemporary certificatesissuedagainstthecontributionstothecapital. Ajointstockcompanycanbemanagedthrougha: onetiersystemofmanagement,i.e.bytheGeneralMeetingof theShareholdersandaBoardofDirectors(39members);ora: twotiersystemofmanagement,i.e.bytheGeneralMeetingof theShareholders,ManagingBoard(39members)and SupervisoryBoard(37members). TheGeneralMeetingoftheShareholdersistheADssupremebody, competenttoresolveonthemostimportantissuesrelatedtothecorporate operationofthecompany(e.g.changestothecapital,amendmentsand supplementationtothebylaws,adoptionoftheannualfinancial statements).TheGeneralMeetingconsistsofallshareholderswithvoting rights.Inthecaseofasoleownershipjointstockcompany(EAD),thesole ownerofthecapitalhasthecompetenceoftheGeneralMeeting.
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TheGeneralMeetingoftheShareholdersshouldbeheldatleastonceper year(RegularGeneralMeeting).TheGeneralMeetingshouldtakeplaceat theseatofthecompanyoralternativevenueintheRepublicofBulgaria. TheGeneralMeetingissummonedbythecompanysmanagingbody, respectivelybytheBoardofDirectors,orManagingBoard/Supervisory Board.Shareholdersinpossessionofmorethanfivepercentofthe authorizedcapitalcanrequestthesummoningofaGeneralMeeting. Shouldtheirrequestnotbesatisfiedwithinthreemonths,theGeneral MeetingwouldbeconvenedbytherespectiveDistrictCourt. TheinvitationfortheGMshouldbepublishedintheStateGazetteatleast 30dayspriortothescheduleddateofthesession.Allmaterialsforthe meetingshouldbeatthedisposaloftheshareholdersintheofficeofthe company.Shouldnobearerssharesbeauthorised,andifallowedbythe bylawsofthecompany,themanagingbodycansendwritteninvitations totheshareholders,andnotpublishtheinvitationintheStateGazette. ThelawprovidesforstatutoryrequisitesoftheinvitationtoaGM.It shouldincludeinformationaboutthedate,hour,place,agendaand specificproposalforresolutionsofthesession.Incasemembersofa managingbodywouldbeelected,thenamesandaddressesofthe proposedindividuals/entitiesshouldbementioned. TheGMtakesdecisionswithsimplemajorityoftherepresentedcapital. Specialmajorityof2/3oftherepresentedcapitalisnecessaryfor amendmentofthebylaws,changesinthecapital,andwindingupofthe company.Qualifiedmajorityof3/4oftherepresentedsharesisrequired for:restrictingtherightsunderpreferenceshares;capitalizationofprofit; transformationofthecompany;andforcontinuingtheoperationofa woundupcompany.TheGMsessionsandthedecisionstakenshouldbe documentedinMinutesundertheagendaandalistoftheattending shareholderstowhichthedocumentsareattached.Uponrequestofa shareholderoraboardmember,aNotaryPubliccanbeinvitedtothe sessionandprepareaNotaryDeedfortheGeneralMeeting. OnlytheGMor,ifthebylawsallow,themanagingbodybyunanimous vote,canresolveonthefollowingtransactions: transferorgrantingtheuseovertheentirecommercial enterprise; disposalofassetsamountingtomorethanhalfofthe companysassetsaccordingtothelatestcertifiedannual financialstatements;
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undertakingofliabilitiesorprovisionofsecuritiestheamount ofwhichduringthecurrentyearexceedshalfofthecompanys assetsaccordingtothelatestcertifiedannualfinancial statements. BoardmembersinanADcanbeindividualsorlegalentitiesthroughtheir authorizedrepresentative.Nomembertoaboardcanbeanindividual who:(i)hasbeenmembertoaboardofacompanydeclaredinsolvent duringthetwoyearsprecedingtheresolutionoftheinsolvencyand unsatisfiedcreditorshaveremained;(ii)doesnotcomplywithother requirementssetforinthebylaws.Anindividualproposedformemberto aboardshouldpriortohis/herappointmentnotifytheshareholderson beinganunlimitedpartner,orforholdingmorethan25%ofanother companyscapital,andforhis/herparticipationinthemanagementof otherentities. Quorumofatleasthalfoftheboardmembersisneededforthemeetings. Decisionsaretakenbysimplemajorityunlessotherwiseprovidedforin bylawsorthelaw.Thebylawscanallowboardstoadoptresolutionsper rollamprovidedthatallboardmembersstatetheirconsentinwriting. Minutesoftheboardmeetingsshouldbekeptandpreservedinaspecial bookofthecompany. Boardmembersarejointlyliablefordamagestothecompanyresulted fromtheiractivity.Therefore,aguaranteeshouldbedepositedbythe boardmemberstothecompanysbankaccountamountingtonotlessthan threefoldtheirgrossmonthlyremunerations.Claimsagainstboard memberscanbebroughtbyshareholdersofmorethan10%ofthe companyscapital. JointstockcompaniesareobligedtoformandmaintainReserveFundofat leastonetenthoftheauthorizedcapital.TheReservesFundcouldbeused onlytocovercurrentandprioryearlosses.Thecompanyisfreeto capitalizeanyreserveexceedingthisamount. NotlaterthantheendofFebruaryeachyear,theBoardof Directors/ManagingBoardshouldprepareannualfinancialstatementsand reportontheactivityoftheADfortheprecedingyear.Theannual financialstatementsaresubjecttoverificationandcertificationbya certifiedauditorappointedbytheGeneralMeeting.Thefinancial statementsandthereportfortheactivityshouldbefurtherapprovedby theGM.Dividendscanbedistributedonlyifthecompanysnetproperty perthefinancialstatementslessdividendsexceedsthecumulativeamount oftheauthorizedcapitalandthereservefunds.Dividendscanbeuptothe
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amountoftheprofitfortherespectiveyear,undistributedprofitfrom previousyears,theportionoftheReserveFundsandtheotherfunds exceedingtheminimumestablishedbythelaworbytheArticlesof Incorporationdecreasedbytheuncoveredlossesfrompreviousyearsand themandatoryaccrualsfortheReserveFundsandtheotherfundsofthe company. Publicjointstockcompanies AnADthathasissuedsharesfollowingpublicofferingatastockexchange marketorhasfurtherregisteredastockeditionfortradeataregulated marketofsecuritiesorhasmorethan10,000shareholdersonthelastdayof twosuccessivecalendaryearsisaPublicCompanyunderthePublic OfferingofSecuritiesAct(POSA).Onlyajointstockcompanycanbea publicone,anditisrecordedinaspecialregisterwiththeCommissionon FinancialSupervision.Suchcompaniesaresubjecttocertainrestrictions andreportingrequirements.Specialrulesapplytotheprocedurefor summoningaGeneralMeetingoftheShareholders,themajorityfortaking decisions,membershipofamanagingbody,etc.Publicjointstock companiescanapplyfordelistingfromtheRegisterofPublicCompanies providedthattheconditionsofthePOSAarefulfilled. Specialinvestmentpurposecompanies Companiesofspecialinvestmentpurposesarejointstockcompanies formedtoinvestthefundsacquiredthroughissuanceofsharesinreal estateorreceivables(securitizationofrealestate/receivables).Thistype ofcompaniesisregulatedbytheSpecialInvestmentPurposeCompanies Act. Pensioninsurancejointstockcompanies Jointstockcompaniescanbesetupwiththepurposeofestablishingand operatingpensionfunds.Suchjointstockcompaniesshouldbelicensedfor theiractivitybytheCommissiononFinancialSupervision.Theregulation applicabletopensioninsurancecompaniesisprovidedforintheSocial SecurityCode. Partnerships TheBulgarianCommercialActrecognisesthefollowingtypesof partnerships: Generalpartnership(inBulgarianSabiratelnoDrujestvo,SD) thepartnersarefullyandjointlyliablefortheentitysliabilities. Foreignnationalsshouldhavepermanentestablishmentin Bulgariainordertobepartnersinageneralpartnership; Limitedpartnership(inBulgarianKomanditnoDrujestvo,KD) somepartnersarefullyandjointlyliablefortheentitys
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liabilitiesandtheremainingpartnersareliableuptothevalue oftheirsharecontribution.Foreignnationalsshouldhave permanentestablishmentinBulgariainordertobeunlimited partnersinaKD; Partnershiplimitedbyshares(inBulgarian,Komanditno DurjestvosAktzii,KDA)thistypeofentityisamixture betweenaKDandanAD,asthelimitedshareholdersare issuedcertificatesagainsttheircontributiontothecapital.The provisionsoftheCommercialActregardingjointstock companies(AD)applytoKDA,includingtheminimum authorizedcapitalrequirementBGN50,000.TheKDAis managedbyaGeneralMeetingwhereonlytheunlimited partnershavevotingrightsandaBoardofDirectorsconsisting ofthelimitedpartners. Jointventures Twoormorepersonscanconcludeajointventureagreementinorderto combinetheireffortsfortheachievementofamutualbusinessobjective. Jointventuresarenotlegalentitiesbutunincorporatedpartnerships.The partnersinputcapital/inkindcontributions,whichbecomejoint ownershipofallparticipants.Jointventuresareregardedforseparate entitiesfortaxpurposesandaresubjecttocorporateincometaxation. Cooperativesocieties Acooperativesocietyisavoluntaryassociationforbusinessactivitiesof atleastsevenindividuals.Thecooperativesocietyisalegalentitythe numberofmembersandcapitalamountofwhichcanvary.Itismanaged byaGeneralMeetingofCooperators,ManagementBoard,anda ControllingBoard.ThecooperativesChairman,representsitbeforethird parties.Sevencooperativesocietiescanformacooperativeunion. Consortia TheBulgarianCommercialActdefinestheconsortiumasagroupof tradersunitedtoperformcertainactivity.Aconsortiumcanbeorganized eitherasacommercialcompany(e.g.limitedliabilityorjointstock company),orasajointventurewhereasthecivilcontractuallegislation wouldapplytotherelationsbetweenthepartnersintheconsortium. Holdings Aholdingcanbeajointstockcompany,apartnershiplimitedbyshares,or alimitedliabilitycompanypurposedtohaveshareparticipationor manageothercompaniesandwithoutfurtherobligationtoperformitself commercialactivity.Atleast25%oftheholdingscapitalshouldbe investedinitssubsidiaries.Subsidiariesarecompaniesinwhichthe
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holdinghasorcontrolsdirectlyorindirectlynotlessthan25%ofthe shares,orhasthepowertoappointthemajorityofthemanagingbodys members. Branchesofforeignlegalentities Anyforeignentityregisteredunderitsdomesticlawwiththerighttocarry outcommercialactivitycanopenabranchinBulgaria.Thebranchshould berecordedwiththeCommercialRegister.Branchesarenotregardedas separatelegalentities.However,branchesofforeigncompaniesare obligedtokeepfinancialbooks,andprepareseparatefinancialstatements. Commercialtransactionsbetweenforeignentitiesthroughtheirbranches inBulgariaandlocalpersonsaregovernedbytherulesapplicabletolocal persons.In2005theCommercialActwasamendedinordertoimplement EleventhCouncilDirective89/666/EEC.Theamendmentsdetailthe requirementsforregistrationofbranchesinBulgaria. Representativeoffices Aforeignlegalentitycanopenarepresentativeoffice(RO)inBulgaria. Representativeofficesarenotseparatelegalentitiesandhavenolegal capacitytoundertakebusinessactivities.ROscanonlyadvertiseand promotetheactivityoftheparentcompany,liaisonwithpossibleclientsin Bulgaria,etc.ROsshouldberegisteredwiththeBulgarianChamberof CommerceandIndustry,andaresubjecttoBULSTATregistration.All transactionsconcludedbytheforeignentitywithlocalpartiesforthe purposesofthetraderepresentationaresubjecttolocalregulations. Mergersandacquisitions Typesofreorganization: Previouslytherewerefourtypesofreorganizations: acquisitiononeormoreexistingcompaniesacquiredby anotherexistingcompany; mergers(consolidation)anewcompanycreatedbytwoor moreexistingcompaniesmergingwithoneanother; divisionsonecompany,afterbeingwoundupwithoutgoing intoliquidation,transfersitsassetsandliabilitiestotwoor morenewcompanies; spinoffsonecompany,withoutbeingwoundup,transfers partofitspropertytoanothercompany. Twonewformsofreorganization,unknownsofartotheBulgarian legislation,wereaddedbythelatestamendmentstotheCommercialAct: spinoffofawhollyownedenterpriseonecompanytransfers partofitsassetstooneormoresoleownershiplimitedliability
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orjointstockcompanies,whereasthetransformedcompany becomestheirsoleowner; transferofpropertytothesoleownerasoleownedcompany iswoundupwithoutliquidationanditspropertyisfully transferredtoitsownerprovidedthatheisregisteredassole trader. TheCommercialActprovidesforaverydetailedproceduretobefollowed inviewofthereorganizationofcorporateentities,whichincludesthe followingmajorstages: conclusionofwrittenagreementfortransformationbetween theparticipatingcommercialentities,orpreparationofaplan fortransformationinthecasesofdivisionandspinoff; themanagingbodyofeachoftheparticipatingcompanies shouldprepareareportprovidingreasoningoftheconcluded agreement/preparedplanfortransformation; presentingtheagreement/planandthereportofthemanaging bodytotheCommercialRegister; reviewandreportonthereorganizationbyaregistered auditor; approvaloftheagreement/planandallrelatedchangesbythe GeneralMeetingsoftheinvolvedcompanies,takenwitha certainqualifiedmajority(e.g.3/4oftherepresentedcapitalfor jointstockcompanies); filingtheresolutionforreorganizationwiththeCommercial Register; resolutionoftheregistryagencyonthereorganization. ThereorganizationiseffectivewhenitisrecordedintheCommercial Register. Consequencesandprinciples Thereorganizationresultsinthelegalsuccessionbetweenthetransformed andacquiring/newlyestablishedcompaniesofallrightsandliabilities.The acquisitionisbasedonthefollowingprinciples: Theshareholdersinthecompaniesretaintheirshareportion, eventhroughmonetaryequalization. Thepropertyofthereorganizedcompanywouldbemanaged separatelyfromthepropertyoftheadopting/newlyestablished companyforasixmonthperiodaftertheresolutionforthe reorganization,sothatcreditorsinterestsareguaranteed. Shareholderswhoselegalpositioninthereorganizedcompany wouldbechangedandhavevotedagainstthereorganizationat
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theGeneralMeetingcanleavethereorganizedcompanyby submittinganotarisednotice.Theleavingshareholderis entitledtoreceivetheamountofhis/hersharepriortothe reorganization. Competitionrulesinrelationtomergersandacquisitions Competitionimplicationsapplyincasethetotalturnoverofthecompanies participatinginamergeroracquisitionexceedsBGN15millionforthe yearprecedingthemerger/acquisition.Thepreliminarypermissionofthe CompetitionProtectionCommissionisrequiredinsuchcases,orthe Commissioncanimposemonetarysanctionsandunwindthetransaction. Permissionisgrantedtomergersandacquisitions,whichwouldnotlead tolimitationofthecompetenceatacertainmarketbutarepurposedto productionmodernizations,market,improvementofBulgarias competitiveadvantagesatinternationalmarkets,etc. Involvementofpubliccompaniesinamergeroracquisition Mergersandacquisitionsinvolvingatleastonepubliccompanymustbe doneinaccordancewiththePublicOfferingofSecuritiesAct(POSA), whichwouldbeapplicabletogetherwiththeCommercialAct. Competition TheCompetitionProtectionActandtheRulesfortheOperationofthe CompetitionProtectionCommission(CPC)arethemainregulativeactsin thefieldofcompetition.TheCompetitionActprescribestherestrictionson commercialentitiesdesignedtoensuretheregularoperationofthefree marketandtheprotectionofconsumers.Thelawwasconsiderablyrevised inthebeginningof2003inviewofitsharmonisationwiththeacquisandis currentlyfullyinlinewiththeEuropeanstandards. Thefollowingpracticesandagreementsareprohibitedunderthe protectionofcompetition: Agreementsandconcentratedpractice Tradersareprohibitedtonegotiateandmakeagreements,whichmay resultinpreventing,restrictingordistortingcompetitionintherelevant market(e.g.determiningprices,distributionofmarkets).Theprohibition (Art.9oftheCompetitionProtectionAct)isbroadlyformulatedand includesbothformalstipulationsandoralagreements.Inaddition, agreementsareprohibitedbothbetweencompetitorsinoneandthesame market(thesocalledhorizontalagreements)butalsobetween participantsindifferentfields(verticalagreements,e.g.stipulation betweenaproducerandasupplier).Exemptionfromtheprohibitionis
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providedforagreementswithimmaterialeffect,i.e.concludedbetween enterprisesthetotalmarketshareofwhichisnotmorethan10%incaseof verticalagreementsandnotmorethan5%,inthehorizontalagreements case. TheCPCshouldbenotifiedwithin30daysfromtheconclusionof agreement,whichmayimpactcompetitionatacertainmarket.The regulativeauthorityiscompetenttoalloworbantheapplicationofsuch transactionsbasedoncompetitionimpactassessment. Abuseofdominantposition Companiesareconsideredofdominantormonopolisticpositionshould theirmarketshare,financialresourcesandbusinessrelationsallowthem toinfluencecompetition.Companieswithmorethan35%marketshareare presumedtobeofdominantposition.Suchentitiesareforbiddenfrom activities,whichmaydirectlyorindirectlyimposeprices,limitproduction, urgecontractingpartiesintoundertakingadditionalliabilities,etc.It shouldbenotedthatthedominant/monopolypositionitselfisnot prohibitedbythelaw. Concentrationofbusinessactivity Concentrationofbusinessactivityistheacquisitionormergerbetween twoindependentcompanies,theacquisitionofcontroloveraseparate enterprise,theestablishmentofjointventure,etc.Companiesparticipating inaconcentrationofbusinessactivitiesshouldnotifyinadvancetheCPC incasethattheircombinedturnoverfortheprecedingyearintheterritory ofthecountryexceedsBGN15million.TheCPCshouldwithinonemonth ofthenotificationperformanassessmentoftheconcentrationandissuea decisionbymeansofwhichtoalloworforbidthetransaction. Unfaircompetition TheCompetitionProtectionActprohibitsallactionsthatcontradictthe bonafidecommercialpracticeandisintendedtodamagetheinterestsof competitors.Severalexamplesarelistedinthelaw: Damagingacompetitorsgoodreputation; Providingmisleadinginformation; Imitation; Disclosureofconfidentialinformation TheCPCistheauthorityassignedtocontroltheobservanceofthe competitionrulesandtoimposesanctionsincaseviolationsareidentified. ThepenaltiesamountbetweenBGN5,000toBGN300,000forfirst violationandBGN100,000toBGN500,000shouldtheviolationbe committedagain.
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Concessionregime AsofMay2006thereisanewConcessionAct(CA)whichharmonizesthe legislationintheareawithEuropeanstandards.Thelawintroducesanew definitionofthetermconcessionwhichsignificantlydefersfromtheold one.AsperthedefinitionoftheCAaconcessionistherighttooperatea facilityofpublicinterest,madeavailablebyagrantortoamerchant(the concessionaire),inexchangeforthelattersobligationtobuildand/or manageandmaintainthefacilitysubjecttotheconcessionathis/herown risk. Accordingtoitsobject,therearethreetypesofconcessionspublicworks concession,serviceconcession,andminingconcession.Aconcessionis grantedonthebasisofalongtermagreementinwritinginvolvinga definedmaterialinterest,executedbetweenthegrantorandthe concessionaire. Publicprocurement PublicProcurementisregulatedinPublicProcurementAct(PPA).Asper thelaw,subjectmatterofpublicprocurementissupplyofgoodsthrough purchase,lease,rentalwithorwithoutoptiontobuy,orhirepurchase,as wellasallpreliminaryoperations,necessaryfortheactualuseofthe products,etc.(Article3ofthePPA). Contractingauthoritiescanbestateauthorities,thePresident,andother institutions,bodiesgovernedbypubliclaw,publiccompaniesandany combinations,merchantsandotherpersonswhicharenotpublic companies,wherecarryingoutoneorseveraloftheactivitiescoveredby law.Thecontractingauthoritiesareobligedtoconductapublic procurementawardprocedurewhenthegroundsprovidedinthelaw exist. AnyBulgarianorforeignnaturalorlegalperson,aswellasany combinationofsuchpersons,mayparticipateinapublicprocurement procedure.Publicprocurementscanbeawardedbyconductinganopen procedure,arestrictedprocedure,acompetitivedialogueandnegotiated procedures.Anydecision,actionoromissionbythecontractingauthorities inapublicprocurementawardprocedureuntilconclusionofthecontract oroftheframeworkagreementissubjecttoappealastothelegal conformitybeforetheCommissionfortheProtectionofCompetition.
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5.
Taxation
Personalincometax Scope BulgarianresidentsunderthePersonalIncomeTaxActarepersonswho: havepermanenthomeinBulgaria,or spendinBulgariamorethan183dayswithineach365dayperiod, or aresentabroadbytheStateofBulgariaandmembersoftheir families,or havetheircentreofvitalinterestsinBulgaria. Bulgarianresidentsaresubjecttoincometaxontheirworldwideincome. NonresidentsaretaxedontheirBulgariansourceincomeonly.Thetax yearforpersonalincometaxpurposesisthecalendaryear. Rates SinceJanuary1,2008,10%flatincometaxratehasbeenintroduced.The onlyexceptionappliestoincomeearnedassoleproprietor,whichistaxed at15%. EmploymentIncome Taxonemploymentincomeiswithheldbytheemployerandisremittedto thestatebudgetonamonthlybasis.Emolumentsfromemployment includesalary,bonuses,benefitsinkind,inflationarycompensation,etc. Travelandaccommodationbusinesstripexpensescoveredbydocuments aswellastheamountofperdiemsuptothedoubleamountofthe statutoryperdiemsaretaxexempt.Furthermore,certainsocialbenefits providedbyemployersaretaxexempt,whentaxedatthelevelofthe employer. Inaddition,theemployerhastheobligationtorecalculatethefinal personalincometaxliabilitydueonanannualbasis. Thesalarytaxiscalculatedonthegrossamountofincomereceivedinthe respectivemonth,afterthestatutorydeductions,whichareasfollows: mandatorysocialsecurityandhealthinsurancefortheaccountof theindividual; voluntarypensionandvoluntaryunemploymentinsurancefor anamountupto10%ofthegrossincomeamount; lifeinsuranceandvoluntaryhealthinsuranceforanamountupto 10%ofthegrossincomeamount;
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donationstocertaininstitutions,upto5%oftheannualtaxable baseaftertheabovedeductionsandupto50%fordonationsin favouroffundforchildrenmedicaltreatment. Alternatively,thetaxreliefforvoluntarypensionandunemployment contributions,forlifeandinsuranceandforvoluntaryhealthinsurance, mayalsobeutilizedasabenefitupontheannualrecalculationofthe taxableincome(mandatoryforeachemployer)oruponfilingoftheannual taxreturn. Nonemploymentincome Royaltyandinterestincome,incomefromshareparticipationsandincome fromthesaleofmovables,etc.istaxedannually. Directorsofcompaniesrenderingservicesundermanagementcontracts arealsotaxedfollowingthenonemploymentrulesapplicabletoincome. Inaddition,individualsperformingeconomicactivityassoletradersare requiredtoadjusttheirtaxableincomeundertherulesstipulatedinthe CorporateIncomeTaxAct. Individualsreceivingotherthanemploymentincomei.e.,freelancers, rentalincomeareliabletomonthlyadvancepaymentsat10%calculated onthegrossamountoftheincomereceived,afterthestatutory,which deductionsareasfollows: 40%ofanyincomefromagricultural,forestryandfishery activities; 40%ofanyincomefromintellectualpropertyexploitationorsale; 25%ofanyfreelanceincome; 10%ofanyrentalincome; Mandatorysocialsecurityandhealthinsurancefortheaccountof theindividual;voluntarypension,voluntaryunemployment insuranceforanamountupto10%ofthegrossincomeamount afterstatutorydeductions; Lifeinsuranceandhealthinsuranceforanamountupto10%ofthe grossincomeamountafterstatutorydeductions; Donationstocertaininstitutions,upto5%oftheannualtaxable baseaftertheabovedeductionsandexceptionallyupto50%%of theannualtaxablebaseafterdeductionsfordonationsinfavourof fundforchildrenmedicaltreatment. Individualsareobligedtoreporttheirincomebyfilinganannualtax returnandpaytheannualtaxasperthetaxreturnby30Aprilofthe
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followingyear.Incasetheyearnemploymentincomeonly,thereisno obligationforfilinganannualtaxreturn. Patenttax Individualsoperatinghotelsandrestaurants,aswellasindividuals involvedinretailtrade,differenttypesofcraftsmanship,etc.,withan annualturnoverforthepreviousyearnotexceedingBGN50thousandand whoarenotregisteredforVATpurposes,withtheexceptionof registrationforintraCommunityacquisitions,areliabletoaoneoff annualpatenttaxundertheLocalTaxesandFeesAct.Ifduringtheyear theturnoverexceedsBGN50thousandtheindividualisliabletopersonal incometaxandthepatenttaxpaidistreatedastaxcredit. ThetaxisdeterminedbyeachLocalCouncilonthebasisofcertaincriteria relevantforthecorrespondingtypesofbusinessandwithinthelimitsset inthelaw.Atthebeginningofeachyearthepayersofthepatenttax shouldsubmitadeclaration,statingallcircumstancesnecessaryfor determiningtheapplicabletax. Capitalgains Capitalgainsrealizedfromthedisposalofcertainassetsaresubjectto personalincometax,namely: incomefromthesaleofimmovableproperty;however,income fromthesaleofoneresidentialpropertyisnottaxable,regardless ofthedateofacquisitionofthesaidproperty,whereasincome fromthesaleofuptotwoimmovableproperties,aswellasofany numberofagriculturalandforestpropertiesisnottaxableonlyif morethanfiveyearshaveelapsedbetweenthedateofacquisition andthedateofsaleorexchange; incomefromthesaleofmotor,airandwatervehicles,whensold afteroneyearasofthedateofacquisition; incomefromthesaleofsharesandanykindofsecurities; incomefromthetransferofasoletradersenterprise. Exemptions Underthecurrentregimethefollowingtypesofincomearetaxfree: pensions,scholarships,childallowances,remunerationpaidtoforeign diplomatsandcommercialrepresentativesbytheirhomecountry,interest onbankandsavingsdepositsinlocalbanks,incomefromlotteries,certain elementsofcompensationunderinsurancecontracts,etc.
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Corporateincometax Scope Bulgariancorporateincometaxisimposedontheprofitsofthetaxliable personsaccordingtotheBulgarianCorporateIncomeTaxAct.Taxliable personsareallBulgariancompaniesandothercorporateentitiesregistered inBulgaria,aswellasnonincorporatedentities,includingpartnerships, fortheirprofitfrombusinessactivities.Foreignlegalentitiesaretaxedon theirprofitfromactivityexercisedinBulgaria,includingviaapermanent establishment.Forthepurposesoftaxationofincomesourcedfrom Bulgaria,anynonresidentorganizationallyandeconomicallydistinct formation(trust,fundandother),whichindependentlycarriesout economicactivityorperformsandmanagesinvestments,shalllikewisebe ataxablepersonwheretheowneroftheincomecannotbeidentified. Specialtaxationregimesapplyforcertainactivities,e.g.gambling. Shippingcompaniesmayoptfortaxationbasedonthetonnageofthe operatedshipsapplying10%taxrate.Oncetheshippingcompanieshave electedtobetaxedonthetonnage,theyshallapplythistaxationregimeat leastfora5yearperiod. Thecorporateincometaxrateis10%. Determinationoftaxableprofit Inthegeneralcase,theannualaccountingprofitforthefiscalyear (coincidingwiththecalendaryear),definedasadifferencebetweentotal incomeandtotalexpenditureaccordingtotheBulgarianAccountancyAct, isadjustedfortaxpurposestoformthetaxableprofit,whichissubjectto corporateincometaxation. TaxliablepersonsshouldfiletheirannualCorporateIncomeTaxReturn andpaythecorporateincometaxdueforthefiscalyearnotlaterthan31 Marchofthefollowingyear. Depreciation Companiesmustprepareandkeeptaxdepreciationplan.Bulgariantax depreciationisappliedonastraightlinebasisasillustratedinthetable below.Theaccrualoftaxdepreciationsofanassetshouldbediscontinued whenthesaidassetisnotinuseforaperiodlongerthan12months.
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Assetcategories Fixedbuildings,includingbuildings heldasinvestmentproperty,facilities, communicationdevices,electricity carriers,communicationlines Machines,manufacturingequipment andapparatus Transportationvehicles,excluding automobiles,coverageofroadsand aircraftrunways Computers,peripheraldevices,software andtherighttousesoftware,andmobile phones Motorvehicles Intangibleandothertangibleassets whicharelegallyprotectedforalimited periodoftime
Annualdepreciated rate% 4
II II
30or50** 10
IV
50
V VI
VII Allotherdepreciableassets *Nodepreciationallowanceisavailableforland,forests,culturalmonumentsand goodwill. **TheannualdepreciationrateapplicablefortheassetsofcategoryIIshallnot exceed50%,wherethefollowingconditionsaresimultaneouslymet: Theassetsarepartofaninitialinvestment; Theassetsarenewandhavenotbeenusedbeforetheiracquisition Losses Lossescanbecarriedforwardconsecutivelyinthenextfiveyears. Exceptionally,incasethelossoriginatesfromanEUorEEAcountryin relationtowhichBulgariaappliesthecreditmethodfortheavoidanceof doubletaxation,suchlosscanbeoffsetagainstdomesticsourceprofitsof thesameperson.IfthelossoriginatesfromanEUorEEAcountryin relationtowhichBulgariaapplies,onthebasisofaDoubleTaxation Treatyconcludedwiththatcountry,theexemptionmethodforthe avoidanceofthedoubletaxation,thensuchlosscanbeoffsetagainst domesticprofitsonlyifthepermanentestablishmentintheothercountry, whichcausedsuchlosshasceasedtoexist. Losscarrybackisnotallowed. 27-
25 Dependingonthe periodinwhichthe legalprotectionapplies (100/yearsof protection)butnot higherthan331/3 15
Overseasaspects Treatyreliefmaybeavailabletoavoiddoubletaxationonforeignsource incomeofBulgarianlegalentities.GenerallyBulgariafollowsthe exemptionmethodfortheavoidanceofdoubletaxationofincomefrom branchesandrealestatepropertylocatedinTreatycountries. Groupsofcompanies Bulgariadoesnotcurrentlyhaveanyspeciallegislationforthetaxationof groups. Taxyear Inallcases,thetaxyearisthecalendaryear. Returnsandpayments Allcompanies(includingbranches)mustsubmittothelocaltaxofficean annualtaxreturnaccompaniedbyaBalanceSheet,aProfitandLoss StatementandallothercomponentsoftheFinancialStatement,aswellasa copyofthereportundertheIndependentFinancialAuditActwhen applicable.Theannualtaxreturnshouldbefiledandtheannualtaxbe paidnotlaterthan31Marchoftheyearfollowingtheyeartowhichit relates. Companiesandentitiessubjecttocorporateincometaxmakemonthly advancetaxpayments,calculatedon1/12thoftheannualtaxableprofit declaredforthepreviousyear,updatedwithaspecialcoefficientforthe correspondingyear.Fortheperiodof1Januarythrough31March,thetax baseforthemonthlyadvancepaymentsis1/12ofthecompanystaxable incomeforthetaxyeartwoyearsbeforethecurrenttaxyear.Forthe periodof1Maythrough31December,thetaxbaseis1/12ofthetaxable incomefortheprecedingtaxyear.ForAprilthetaxbaseofonetwelfthof thetaxableincomefortheprecedingtaxyearshouldhenceforthbe adjustedbythreetimesthedifferenceofthisamountfromthemonthly advancepaymentfortheperiod1Januarythrough31March,whichis calculatedonthebasisof1/12oftheresultstwoyearsago.Dependingon whetherthetaxableincometwoyearsagowaslowerorhigherthanthe taxableincomeoftheprecedingyear,thesaidadjustmentiseffected throughacorrespondingincreaseordecreaseofthetaxbase. Monthlyinstalmentssodeterminedmaybereducedbysubmittinga specialdeclarationinthecasewheretheprepaymentsareexpectedto significantlyexceedtheanticipatedfinalannualcorporatetaxliability.
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Ifthetaxableprofitfortheprecedingyearisanegativeorzero,the advanceinstalmentsareduequarterlyonthebasisoftheaccumulated profitfortherespectivequarterofthecurrentyear,whereasforthelast quarternoquarterlyadvancetaxpaymentisdue. Theadvanceinstalmentsarecalculatedatarateof10%. NewlyestablishedcompaniesandcompanieswithsalesoflessthanBGN 200000(aroundEUR100000)fortheprecedingtaxyeararenotobligedto makeadvancecorporatetaxpaymentsintherelevantyear. Alternativecorporatetaxes Certainadditionalalternativemonthlycorporatetaxeswereintroducedin 1998.Intheirsubstance,thesearenottaxesonincomeorprofits,butare taxesleviedoncertaincategoriesofexpenditureinthecourseofthefiscal year,aspreconditionfortheirdeductibilityforthepurposesofthefinal annualcorporateincometaxation. Expensessubjecttothe10%oneofftaxinclude:representationrelated expenses,expensesonbenefitsinkindprovidedbytheemployertoits employees,expensesincurredfortheoperationofmotorvehiclesusedto servicemanagementactivities. Thincapitalizationrules Thincapitalizationprovisionsregulateinteresttaxdeductibilityoncertain typesofinterestexpensessuchasinterestonloansfromrelatedandnon relatedparties;financialleasefromrelatedparties;bankloansfromrelated partiesorguaranteedbyrelatedparties. Shouldthedebtsofacompanytoshareholders,thirdpartiesand/orto banksofthedebtorsgroupofcompaniesorfrombankloansguaranteed byrelatedparty,exceedthreetimestheCompanysequity,thenthin capitalizationrelatedinteresttaxdeductibilityrestrictionsaretriggered. Specifically,taxdeductibilityforinterestexpensesexceedinginterest incomeislimitedto75%ofEBIT(accountingresultbeforeinterest expensesandinterestincome).IncasetheEBITisaloss,theentireamount oftheinterestexpenseisconsiderednondeductible.Capitalizedinterest expensesdeductedthroughthedepreciationoftheassetacquired,arenot includedinthethincaprelatedaddback. ThethincapitalizationaddbackisatimingdifferenceandtheBulgarian thincapitalizationrulesallowforafiveyearcarryforwardofsuchportion oftheinterest.
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Withholdingtaxoncrossborderpayments Afivepercentwithholdingtaxislevieduponpaymentofdividendsor liquidationquotastononresidentpersons,aswellasresidentindividuals orresidentlegalentities,whicharenotmerchants,includingany municipalitiesThusdividendsdistributedtoaparentcompany/its permanentestablishment,residentofamemberstatebyitssubsidiaryin Bulgariashallnotbetaxedatsource,providedtheparentcompanyhasa minimumholdingof15%inthecapitaloftheBulgariansubsidiaryand maintainsthatholdingforanuninterruptedperiodofatleasttwoyears. A10%withholdingtaxappliestotheaccrualforpaymentinfavourof foreignpersonsofincomefrom: royalties; technicalassistanceandconsultancyfees; managementservices; interest(includinginterestunderfinanciallease);taxexemptare interestonbondstradedonanregulatedBulgarianorEUmember countrystockmarket; rent(includingincomefromoperationalleaseaswellasanyother incomefromthelettingofuseofmovables); franchisingandfactoring; capitalgainsfromthealienationofimmovableproperty,sharesand stakes,securitiesandfinancialassets. BulgariahasquiteawidenetworkofDoubleTaxationTreatiesthatmay significantlyreduceoreliminatethewithholdingtaxburdenuponcertain oftheaboveitemsofincome.However,treatyprovisionsmaynotbe automaticallyapplied.TheforeignpersontaxableatsourceinBulgaria shouldfollowanadvancetaxclearanceprocedure,inorderforTreaty relieftoapply. Transferpricing ThereareantiavoidanceandtransferpricingrulesundertheCorporate IncomeTaxAct,whichrequiretransactionsbetweenrelatedpartiesor betweennonrelatedpartiestobecarriedoutonanarmslengthbasis. Theserulesalsoapply,mutatismutandis,toanyflowsbetweena permanentestablishmentandotherforeigndivisionsofthesame enterpriseofanonresidentperson,conformingtothespecificsofthe permanentestablishment.Thereisnospecifictransferpricing documentationrequirements.However,itisthetaxpayerandnotthetax authoritieswhomustprovethattransactionsarenegotiatedatmarket value.
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Valueaddedtax Scope ThestandardVATrateis20%. PersonsregisteredforBulgarianVATpurposesshouldchargeVATupon allsuppliesofgoodsandserviceswithaplaceofsupplyintheterritoryof Bulgaria,exceptfor: zeroratedsupplies(e.g.,intraCommunitysupplyofgoods,the supplyofgoodswhicharedispatchedortransportedfromaplace withintheterritoryofBulgariatoadestinationinathirdcountryor territory,byorfortheaccountofthesupplier,suppliesrelatedto internationaltransport);and exemptsupplies(e.g.,relatedtoland,exceptforregulatedplot; salesofoldbuildings,financialservices,insuranceandreinsurance services;socialsecurityandhealthinsuranceservices;medicalcare; educationservices;donations;gambling,etc.).Thereportingperiod forallregisteredpersonsisonemonth. RegistrationforVATpurposes Theprovisionofthefollowingsuppliesleadstotheobligationfor compulsoryVATregistration: VATablesupplies(includingzeroratedsupplies)andfinancial andinsuranceserviceswhenrelatedtothemajoractivityofthe personwithatotalvalueofatleastBGN50,000accumulated withinaperiodnotlongerthan12months,resultinanobligation forcompulsoryVATregistration; Suppliesofgoodswhichareinstalledand/orassembledbyoron behalfofthesupplier,irrespectiveoftheturnover; DistancesalesofgoodsexceedingBGN70,000,whereoftheplace oftransactioniswithintheterritoryofthecountryundertheterms ofdistanceselling; IntraCommunityacquisitionsexceedingBGN20,000. OptionalVATregistration Anytaxableperson,forwhomtherequirementsforcompulsory registrationdonotapply,canregisterundertheBulgarianVATActand hencerecovertheVATsufferedfortheactivityhegetsVATregisteredfor. ForeignentitiesnothavingalocalbranchcanregisterforBulgarianVAT purposesonlythroughaVATagent(i.e.alocalindividualorcompany withoutanyoutstandingpublicdebts).
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VATrecovery Generalrules TheexcessofinputVAToveroutputVATforagivenmonthisoffset againstVATpayableinthenextthreemonths.Theexcesswhichisnot offsetisrecoverable.Shorterrefundperiodswithoutoffsettingapplyfor exportersandbiginvestors. TherighttoVATcreditcanbeexercisedifthefollowingrequirementsare satisfied: thegoodsorservicesobtainedbytheregisteredpersonwillbeused fortheprovisionoftaxablesupplies; theregisteredpersonpossessesproperdocumentation; therightisexercisedwithinthreemonthsafterthemonthof issuanceofthedocument. SpecificProvisions TaxpayersareentitledtoVATcreditforassetsacquiredbeforethedateof theirVATregistration,iftheyarestillavailableatthedateoftheVAT registration. ForeignEUentitiesmayrecoverinputVATundertheconditionssetinthe Bulgariantaxlegislationimplementingthe8thEUVATDirective. ForeignnonEUentitiesmayalsorecoverBulgarianVATunderthe conditionsoftheBulgariantaxlawimplementingthe13thEUVAT Directiveiftheyareresidentsofacountryincludedinthelistofcountries providingreciprocalrefundstoBulgarianentities. ANewTaxandSocialSecurityProcedureCodewasenforcedinBulgaria, effective1January2006.Thisisthefirstattemptforcodificationofthetax materialandprocedurenormsrelatedtotaxationandsocialsecurity legislation.TheTaxandSocialSecurityProcedureCoderegulatesthe registrationfortaxpurposes,theprocedureforassessment,securingand collectionoftaxesandotherstateandmunicipalpublicreceivablesaswell astheappealingprocedure.Anewadministration,namedNational RevenueAgencylaunchedon1January2006combiningthefunctionsof thetaxadministrationandthestatesocialsecurityauditdivisionofthe NationalSocialSecurityInstitute. Customstax NoCustomsTaxexistsinBulgaria.ForCustomsDutiesseesectionC.8. Stampduty TherearenoapplicableStampDutiesinBulgaria.
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Exciseduty Excisedutyisleviedbyproducersandimportersofexcisablegoodslisted intheBulgarianExciseTariff.Theseinclude:alcohol,tobaccoproducts, luxuryvehicles,electricity,petrol,etc.AsofJanuary2008,coffeeandcoffee extractsareexcludedfromthescopeofproductssubjecttoexciseduties. Specialexcisedutydeferralpaymentregimesmayapply(e.g.Tax Warehouses)forproductsnotconsumedinBulgaria. Customdutiesestatetransfertax(RETT) BulgariaappliestheprinciplesoftheInternationalHarmonised CommodityDescriptionandCodingSystemandtheEUCombined Nomenclature. GoodsimportedintoBulgariaaresubjectto: Customsduty; Exciseduties(ifapplicable)and 20%VAT,unlessthegoodsareVATexempt. TheCustomsTariffanditsannexesprovidesforthefollowingbasictypes ofrates: Conventionalrateappliedtocommoditiescomingfromcountries towhichBulgariagrantedtheMostFavouredNationPrinciple (WTOaswellasothercountries); ReducedrateappliedtocommoditiescomingfromTurkey, FYROM,Albania,Moldova,SerbiaandMontenegro,Bosniaand HerzegovinaandIsrael; PreferentialrateappliedundertheGeneralSystemof Preferencesforcommoditieslistedinaseparateannex,coming fromthedevelopingcountries(70%oftheconventionalrates)and fromtheleastdevelopedcountries(suspensionofrates). Temporarydutiesrelief Certaincustomsregimesmaydefer,suspendorallowtherefundofthe customsdutiesandotherimportapplicabletaxesundercertainconditions specificallydeterminedbythedomesticcustomsrules.Suchtemporary dutyrelievesthatmaybeappliedbyBulgariancustomsauthoritiesmay includebondedwarehousingregime,inwardandoutwardprocessing reliefortemporaryadmissionregime. Freezones TheCustomsLawprovidesforspecialstatusofthefreezonesandfree warehouses.
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6.
Accounting & reporting
Methodofaccounting Bulgarianaccountingandtaxlegislationarebasedontheaccrualmethod ofaccounting.Cashbasisisnotallowedforaccountingandtaxpurposes. Sourcesofaccountingprinciples TheAccountancyActprovidesthelegalframeworkofaccountingin Bulgaria.TheLawdefinestheapplicationontheterritoryofBulgariaof theInternationalFinancialReportingStandards(IFRS)adoptedbythe EuropeanUnion(EU). IFRSincludes: InternationalAccountingStandards(IAS); InternationalFinancialReportingStandards(IFRS)and interpretationontheirapplication(SICIFRIC); IFRSincludesalsosubsequentamendmentsandadditional provisionsofthesestandardsandtheinterpretationoftheir application,futurestandardsandtheirinterpretationsbythe InternationalAccountingStandardsBoard(IASB). Thefollowingentitiesareobligedtoprepareandpresentfinancial statements(FS)onthebasisofIFRS,asendorsedbytheEU: Creditinstitutions,insuranceandinvestmentundertakings, companiesforadditionalsocialsecurityandthefundsmanagedby them; EnterprisesissuingsecuritiesaspertheBulgarianPublicStock OfferingAct. Thefinancialreportingframeworkforsmallandmediumsizedenterprises (SME)isBulgarianNationalFinancialReportingStandardsforSMEs. Annualfinancialstatementsshallbepreparedandpresentedonthebasis oftheNationalFinancialReportingStandardsforsmallandmediumsized enterprisesbyenterpriseswhich,foratleastoneofthetwopreceding years,donotexceedtheindicatorsundertwoofthefollowingcriteria: Balancesheetassetsasof31December:BGN8million; Netincomefromsalesfortheyear:BGN15million; Averagenumberofpersonnelfortheyear:250persons. Smallandmediumsizedcompaniesandthenewlyestablishedcompanies maychoosetoprepareandpresenttheirfinancialstatementseitheronthe
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basisofIFRSoronthebasisoftheNationalFinancialReportingStandards forsmallandmediumsizedenterprises.Anenterprisewhichhas,inone reportingperiod,preparedandpresenteditsannualfinancialstatements onthebasisofInternationalAccountingStandardscannotapplythe NationalFinancialReportingStandardsforsmallandmediumsized enterprises. Fundamentalconcepts TheaccountingconceptsandprinciplesfollowedinBulgariaare:going concern,accrualbasis,matchingconcept,prudence,consistency,substance overform,historicalcost,trueandfairpresentation,nonoffsettingof assetsagainstliabilitiesorincomeagainstexpenses,unlessotherwise expresslyprescribedbygoverningaccountingrules. Disclosure Disclosurerequirements ThefinancialyearinBulgariacoincideswiththecalendaryearandendson 31December. Enterprisesprepareannualfinancialstatementsby31Marchofthe followingyear. ParentcompaniesshallprepareandpresentconsolidatedFSby31March ofthefollowingyear.AccountancyActandIASincludeexemptioncriteria forpreparationofconsolidatedFS. AnnualfinancialstatementsarepreparedinaprescribedformatforSME. Theyconsistofabalancesheet,anincomestatement,acashflow statement,astatementofchangesinequityandnotes.Enterpriseswhose financialstatementsaresubjecttoanauditbyindependentregistered auditors(CPAsorspecialisedauditingcompaniesseethesectionbelow) shouldalsopreparereportsbymanagement. Thenotestothefinancialstatementsshouldpresentinformationaboutthe basisofpreparationofthestatementsandaccountingpoliciesadopted withregardtosignificanttransactionsandevents.Theyshouldalso containdisclosures,whicharerequiredbyapplicablefinancialreporting frameworkbutnotincludedelsewhereinthemainfinancialstatements,or whicharerelevantandnecessaryforfairpresentationoftheaccounts. Reportsbymanagementshouldpresentinformationondevelopmentofa companysbusiness,forecaststhereon,researchanddevelopment activities,significanteventsthatoccurredafterthedateofpreparationof
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theannualfinancialstatementsaboutthejointstockcompaniestheshare capitalstructureandchangesduringthefinancialyear,theexistenceof anybranches,thefinancialinstrumentsusedbytheentityaswellasthe financialriskmanagementandhedgingpoliciesandexposuresforprice, creditandliquidityrisks.Theauditorsareobligedtoopineonthe consistencyofthemanagementreportwiththeFS. Specialdisclosurerequirementsapplyforbanks,insurancecompanies, investmentcompaniesandsomeotherentities. Reportingandfilingrequirements Ingeneral,companiesarerequiredtosubmitannualfinancialstatements (togetherwiththecorporateincometaxreturn)totheTaxauthoritiesand statisticalinformationinaprescribedformattotheNationalStatistical Instituteby31Marchofthefollowingyear.Publiccompanies,banks (branchesofforeignbanksinclusive),insurancecompanies,pensionfunds andinvestmentfundsshouldfollowspeciallegallydefinedreportingand filingrequirements.Forinstance,banksarerequiredtosubmitanumberof specialreportstotheBulgarianNationalBank.Theyarealsoobligedto publishbalancesheetsandincomestatementsinanapprovedformatfor halfyearreporting,inatleastonemaindailynewspaper.Insurance companiesshouldsubmitannualfinancialstatementstotheFinancial SupervisoryCommissiontogetherwithannualstatementsofallocated insurancereservesandadditionalspecialformatreports.Companies carryingoutadditionalsocialsecurityactivitiesreporttotheStateSocial SecurityAgency. Annualfinancialstatements,approvedbytheshareholders/ownersorthe relevantlegalbody,shouldbepublishedinthemedia(i.e.traderegister, dailynewspaper,relevantmagazinesorInternet),accompaniedbythe reportfromthemanagementandtheauditorsreport,by30Juneofthe followingyear.Incasefinancialstatementsarepublishedonlyonthe Internet,freeaccesstothecorrespondingInternetsiteshouldbeavailable foratleast3yearsafterthedateofpublishing. Booksandrecords AllcompaniesandsoletradersinBulgariaareobligedbyCommercialAct tokeepaccountingbooksandrecordsandtoprepareannualfinancial statements.TheAccountancyActregulatestherequirementsforthe comprehensivenessandreliabilityoftheaccountingsystems;thecontents, preparationandpublicationoftheannualfinancialstatements,thepersons whopreparetheannualfinancialstatementsandtheireligibilityto performsuchatask.TheActdefinestheaccountingdocumentsandthe
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formofaccountingandthefrequencyofthestocktakingprocess.Chapter sixoftheActsetstherulesonarchivingofaccountinginformation: Payrollregistersshouldbekeptfor50years; Ledgersandfinancialstatementsfor10years; Documentationontaxcontroluptofiveyearsafterexpiryofthe prescribedtermofpayingupthepublicobligation,certifiedby thesedocuments; Documentationonfinancialaudituntiltheconductofthenext succeedinginternalauditoranauditbytheNationalAuditOffice; Anyotherrecordsshouldbekeptforthreeyears Auditrequirements Unlessotherwiseprovidedforbythelaw,annualfinancialstatementsof thefollowingshallbesubjecttoanindependentfinancialauditby registeredauditors: Jointstockcompaniesandpartnershipslimitedbyshares; EnterpriseswhichareissuersinthemeaningofthePublicStock OfferingAct; (amended,SGNo.108/2006)creditinstitutions,insuranceand investmentundertakings,companiesforadditionalsocialsecurity andthefundsmanagedbythem; Enterprisesforwhichthisrequirementisestablishedbyalaw; Allenterprisesnotmentionedinitemsabove,withtheexceptionof enterprisesapplyingasimplifiedformoffinancialreportingand budgetfundedenterprises. Enterprisesapplyingasimplifiedformoffinancialreportingrefersto enterpriseswhichoverthecurrentorthepreviousyeardonotexceedthe indicatorsundertwoofthefollowingcriteria: Balancesheetassetsasof31December:BGN1.5million; Netincomefromsalesfortheyear:BGN2.5million; Averagenumberofpersonnelfortheyear:50. Statutoryauditors TheIndependentFinancialAuditAct(IFAA)providesfor: Theobjectivesandprinciplesofauditing; TheprofessionalstandardsonauditingapplicableinBulgaria; TheobtainingofCPAcertificates; Rights,obligationsandresponsibilitiesofregisteredauditors; StatusoftheInstituteofCertifiedPublicAccountants(ICPA)in Bulgaria. Theprofessionofauditorsischaracterizedbyselfregulationand independencewithinthelimitssetbythelawandprofessionalstandards.
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IFAAprovidesthatanauditshouldbecarriedoutincompliancewith InternationalStandardsonAuditing,accordingtowhichanauditor shouldissueanindependentopiniononwhetherthefinancialstatements ofacompanypresentfairly,inallmaterialrespects,itsfinancialposition andtheresultsofoperationsandchangesincashflowsincompliancewith Bulgarianaccountinglegislation. AstatutoryauditmaybeperformedbyaBulgarianCertifiedPublic AccountantorbyaspecialisedauditingcompanyregisteredwiththeICPA inBulgaria.Aspecialisedauditcompanyisacompanyregisteredunder theCommercialLawintheRepublicofBulgaria,withfinancialstatement auditingbeingitsmainobjectofactivities,andwhichis: Ageneralpartnershipwithmorethanhalfofthepartnersare registeredCPAs; Alimitedpartnershipwithmorethanhalfoftheunlimited liabilitypartnersareregisteredCPAs; Alimitedliabilitycompanywithmorethanhalfofthevotesin theGeneralMeetingofShareholdersbelongtoregisteredCPAs andthemanager(themajorityofmanagers)ofwhichisa registeredCPA.
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7.
Labour
Labourlaw ProtectionoftheBulgarianlabourforceandlimitationofunemploymentis contemplatedbytheauthorities;thereforesomespecialrequirements applytoforeignnationalsintendingtoworkinBulgaria. ForeignersmustobtainaworkpermitfromtheNationalEmployment Agencybeforetheyactuallycometothecountryfortherespective position.Thepermitisissuedforoneyearatmaximum,andcanbe extendedonlytwice(i.e.totalvalidityofthreeyears).Anexceptioncould bemadeandlongerworkpermittobeissuedforhighmanagerial positionsandsomespecialcasesofinstallationofforeignequipment,etc. Theworkpermitgroundstheissuanceofresidencepermitfortheforeign national,whichvalidateshis/herphysicalstayinthecountry. ThepracticeoftheBulgarianEmploymentAgency(theauthority competentforissuanceofworkpermits)regardingEUdoesnotrequire workpermitforEUnationals.Amendmentsinthelegislationareexpected sothatthelegislation,theactsofthegovernmentandthepracticeofthe EmploymentAgencyareharmonizedinthisregard. Thelabourandsocialinsuranceaspectsoftheemploymentofforeign individualsinBulgariaaregovernedbythedomesticlabourandsocial insurancelawsunlessotherwiseisprovidedforininternationaltreatiesto whichBulgariaisaparty. EmploymentremunerationscanbenegotiatedinBGNorinaforeign currency.However,theactualpaymentisusuallyperformedinBGN,i.e. intheBGNequivalenceofthestipulatedsalary,assomeimperfectionsof thesocialsecurityandtaxsystemsdonotalloweffectivesalarypaymentin foreigncurrency. From1January2009,theminimumremunerationofallemployeesisfixed atBGN240fornormalworkingtime(i.e.eighthoursperdayand40hours perweek). Employmentcontractsshouldbeconcludedinwritingandsignedbyboth theemployeeandtheemployer.Theemployerisliabletonotifythe NationalRevenueAgencyfortheconclusion,amendmentortermination ofanemploymentrelation.
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Employmentcontractscanbe: foranindefiniteperiod; foratrialperiodnotexceedingsixmonths; forafixedterm:incaseofseasonalorshorttermworks; forthecompletionofspecificassignment:whentheworkis preliminarylimitedintermandinscope,e.g.onspecificprojects andprogrammes; forfiveworkingdayswithinacalendarmonth:whereasan employeewouldworkonlyfornotmorethan40hoursforthe sameemployer. Employmentcontractsshouldstipulateonthefollowingissues: position(name)andcharacterofthejobfunction; termoftheemploymentcontract; workingtime:normalworkingtimeis8hoursperday,40hours perweek; paidannualleave:notlessthan20workingdays; additionalremunerations; noticeperiod:notlessthan30daysandnotmorethanthree monthsforindefinitetermemploymentcontracts;andnotmore thanthreemonthsbutnotexceedingthevalidityofafixedterm contract. Employmentcontractscanbeterminatedonlyonthegroundsexplicitly listedintheLabourCode,suchas: disciplinarydismissal; expiryofterm(incaseoffixedtermemployment); mutualconsent; unilaterallyviaapriornoticeinwriting; uponinitiativeoftheemployeragainstcompensationofnotless thanfourfoldremunerationlastlyreceivedbytheemployee,etc. Socialsecuritylaw TheSocialSecurityCodeisthemainsourceofregulationinthefieldof socialsecurity.Italsoincludesregulationofstatutoryandprivatepension funds.AdditionalprovisionscanbefoundintheAnnualBudgetofthe StateSocialInsuranceAct(ABSSIA),wherethespecificamountsofthe minimumandmaximumsocialinsuranceincomeandsocialsecurity contributionsareindicated. Securedrisksandcompensation Thestatesocialsecurityprovidescompensation,aidandpensionsto securedpersonsuponoccurrenceofthefollowingsecuredrisks:
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Temporaryinabilitytoworksuchoccursshouldan employee/assigneebetemporarilyunabletoperformhis/her employmentobligationsduetosicknessasevidencedbyamedical certificate. Disabilityinvalidityshouldbeestablishedbyaspecialmedical committeeassignedtoassesstheextenttowhichthesecured personhaslosthis/herabilitytowork.Thecompensationor pensionfromthestatesocialsecurityisbasedonthatassessment. Maternitymothersreceivecompensation,grantedforaperiodof 315calendardays(45priortoand270afterthechildsbirth). Mothersreceivemonetarycompensationforraisingachildona monthlybasisuntilitreachestheageoftwoyears. Unemploymentindividualswhohavebeeninsuredforall insurancerisksduringatleastnineofthe15monthsprecedingthe terminationoftheiremploymenthavetherighttobecompensated incaseoftermination.Thecompensationamountsto60percentof theindividualsaveragemonthlyincomefortheninemonths precedingthetermination.Themaximumcompensationfor unemploymentisdeterminedbytheSocialSecurityBudgetActon anannualbasis(BGN220for2008).Thecompensationisduefora termcalculatedaccordingtotheindividualsprofessional experience,whichcountsforsocialsecuritypurposes,the maximumtermbeing12monthsincaseofover25yearsofeligible professionalexperience. Oldageindividualsacquiretherighttopensionuponreaching certainageandyearsofexperience. Deaththerelativesofaninsuredindividualacquiretherightto inheritedpensionuponhis/herdeath. Socialinsuredpersonsandsocialinsurers TheBulgarianSocialSecurityCode(SSC)setsforthefollowingmajor groupsofinsuredindividualsforsocialsecuritypurposes: Insuredforallsocialinsurancerisksindividualswhoworkunder anemploymentcontracts,stateofficials,militaryofficers, managers,andmagistrates; Insuredforinvalidity,oldageanddeaththefreelancers,sole traders,agriculturalproducers,andassigneesundercivillaw relations.Insurersareindividuals/legalentitiesinchargewiththe paymentofsocialsecurityinstalmentsfortheiremployees, assignees,etc.Freelancershavethecombinedcapitalofinsured personsandinsurersastheyareliabletopaytheirownsocial securityinstalments.
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Socialsecurityincomeandsocialsecurityinstalments Socialsecurityincomeistheincomeonwhichsocialinsurance contributionsarecalculatedandincludesallremunerationandother incomefromworkingactivities. TheBudgetoftheStateSocialSecurityActdeterminessocialsecurity relatedthresholdsforpaymentsforeachcalendaryear,namely: themaximummonthlyamountofthesocialsecurityincome(BGN 2.000); theminimummonthlyamountofthesocialsecurityincomefor selfinsurers(BGN240); theminimummonthlyamountoftheinsuranceincomepermain businessactivitiesandgroupsofprofessions. Differentregimesandratesapplyinregardstosecurityinstalments. Socialsecurityexperience Theprofessionalexperiencerecognizedforsocialinsurancepurposes (socialsecurityexperience)doesnotnecessarilymatchanindividuals yearsofemployment.Socialsecurityexperienceisgenerally: thetimeduringwhichanindividualhasworkedunder employmentcontractandsocialinsuranceinstalmentshavebeen dueorpaidin; thetimeforwhichselfinsuringindividualshavepersonallyduly paidintheirsocialinsuranceinstalments; certainspecificcategoriesoftimeduringwhichnosocialinsurance instalmentshavebeenmade,namely:paidandunpaidleavefor childbirthandraisingofachild;paidandunpaidleavedueto temporarydisability;unpaidleavenotexceeding30workingdays inonecalendaryear; thetimeduringwhichanindividualhasreceivedcompensationfor unemployment; thetimeduringwhichselfinsuringindividualswhichpaytheir insurancefeesforallinsurancerisksexceptforlabouraccident, professionaldiseaseandunemploymenthavereceivedmonetary compensationfortemporarydisability,pregnancyanddelivery andforraisingofachildandtheperiodsoftemporary unemployment,pregnancy,deliveryandforraisingofachild duringwhichtheydidnothavetherightofmonetary compensation. Thecumulatedsocialinsuranceistakenintoaccountwhencomputingan individualseligibilitytopensioning,righttocompensationcausedby temporarydisability,righttopensionduetoinvalidity,etc.Insomecases,
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individualsareallowedtobuyoffgapsintheircontributionbypaying socialsecurityinstalmentsfortherespectiveperiod,e.g.individualswho havereachedtheagefortheirpensioningbutdonothavetherequired lengthofsocialsecurityexperiencecaneffectabulkpaymenttocoverthe missingpartofthestatutoryrequiredlengthofsocialsecurityexperience. Unemploymentlaw TheBulgarianstatehasundertakentoimplementapersistentpolicy towardsthestimulationofoccupationanddecreaseoftheunemployment rate.ItspolicytothiseffectisgenerallyruledbytheStimulationof EmploymentAct(SEA).Thisactdeterminesthestateauthoritiesassigned toplananddeveloptheactivitiesandmeasuresforstimulationof employmentandthespecificdocumentsinwhichtheseshouldbe incorporated.Theperformanceoftheseactivitiesisfinancedbythestate budget. TheSEAsetsouttherightsandobligationsofindividualsseekingfor employment,aswellasthoseofemployers.Inordertobecomea beneficiaryoftheunemploymentrelatedstatesystemandreceivemonthly compensationforunemploymentfromthesocialsecurityfund, individualsshouldregisterasunemployedwiththelocaldivisionsofthe NationalEmploymentAgency.EachBulgariancitizen,aswellaseach citizenofanotherMemberStateoftheEuropeanUnion,orofanother ContractingStatetotheAgreementontheEuropeanEconomicArea,who isactivelyseekingajobmayregisterwiththecompetentlocaldivisionof theEmploymentAgency.Ontheotherhand,employerswillingtotake partinthestatesprogramsforstimulationofemploymentshould announcetheirvacanciestothissameagency. Pensionfundlaw AccordingtoBulgarianlaw,pensionsformapartofthegeneralsocial securitysystemandtheirregulationisincorporatedintheSocialSecurity Code.Paymentofpensioninstalmentsandthegrantingofpensionsand compensationsarestructuredonthreemainbenchmarks: Statutorypensioninsurance:allindividualsareentitledtopension insuranceaccumulatedinthestatesPensionFund. Additionalstatutorypensioninsurance:additionalpension insuranceisstatutoryforindividualsbornafter31December1959. Pensioninsurancecontributionsaredepositedinauniversalor professionalpensionfundandservefortheaccrualofadditional pensiontobereceivedatthetimeofretirement.Universalor professionalpensionfundsarelegalentitiesincorporatedby licensedpensioninsurancejointstockcompaniesandregistered undertheCommercialLaworthelegislationofanotherMember
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State.Theshareholdersinthelicensedpensioninsurancecompany shouldadoptrulesfortheoperationoftheuniversal/professional pensionfundtospecifytheproposedconditionsforadditional statutorypensioninsurance,thefeesanddeductionstobecollected bythepensioninsurancecompany,thetermsandconditionsfor thepaymentofpensionsandtheoneoffordeferredpayments. Permissionfortheoperationofuniversal/professionalfundsare issuedbytheDeputychairmanoftheCommitteeforFinancial Supervision. Additionalvoluntarypensioninsurance:everyindividualhaving reachedtheageof16yearsisallowedtomakevoluntarypension instalmentstoafundforadditionalvoluntarypensioninsurance. Suchinsurancewouldgranttherespectiveindividualtherightto receivepersonalpensionforoldage,ortoreceiveasaoneoff paymenttheamountaccrued.Thepersonsinsuredunderan occupationalschemeforwhosocialinsurancecontributionsareno longermadeasaconsequenceoftheirmovingfromtheRepublicof Bulgariatoanothermemberstate,preservetherightstothesame extentasfortheinsuredpersonsinrespectofwhomsocial insurancecontributionsarenolongermadebutwhoremainwithin theRepublicofBulgaria.
Paymentsforanypersonsinsuredunderanoccupationalscheme,aswell asforanyotherpersonsholdingentitlementunderanysuchschemeare madeinothermemberstatesnetofthetaxesandtransactionschargesdue. Voluntarypensioninstalmentsaretaxdeductible. Privatepensions Individualswhohavereachedtheageof16areentitledtomakevoluntary pensioninstalmentstoaprivatefundforvoluntarypensioninsurance. Suchfundsshouldbesetupbyalicensedpensioninsurancejointstock companyandpermissionfortheiroperationisissuedbytheDeputy chairmanoftheCommitteeforFinancialSupervision.Voluntarypension insurancefundsshouldberegisteredundertheCommercialLaw.The GeneralMeetingoftheShareholdersofthepensioninsurancecompany shouldadoptrulesfortheorganizationandactivityofthefund.
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8.
UHY firms in Bulgaria
TheCompanywasfoundedin1997withanofficeofonly5employeesand tenclientsonaretainerbasis.FromitsfirstbusinessstepstheCompany providedtheservicesofpublicaccountancy,whereitworkedwiththe cooperationofthereputablecertifiedaccountantMr.IvanDochev.In2000 theCompanybeganservicesinthefieldofthepublicauditseparatelyby itsfounderMrs.Terziyska,whobecameamemberoftheInstituteofthe certifiedpublicaccountantsinBulgaria.TheCompanyapprovesitsgood standingattheBulgarianbusinessenvironmentinthefieldofaccounting, auditingandconsultancyservicestogetherwiththereputationofits founderMrs.Terziyska. In2001Mrs.Terziyskabecamealecturerintheeconomysdepartmentof theNationalUniversityofChemistryinSofia,wheresheisteachingupto thepresentasaChiefassistantinthesubjectAccountingandfinances.In 2002sheenforcestheinvolvementofaninnovativesubjectinthestudents educationalprogramconsideringenterprisesbookkeepingonthe softwareproduct.Duringthesameyearshebecameachieflecturerinthe majorofInternationalfinancialreportingstandardsandinternational standardsofaudit,whichincludedaltogethereightsubjects.RecentlyMrs. Terziyskaobtainedadoctorsdegreeineconomy. AlongwithitsestablishmenttheCompanystartedthedevelopmentofthe softwareproductFinancialAccountingsoftwareMIRAGE.In1999the Miragewascompletedandreleasedonthemarket.Withitsfirst recognitionfromthebusiness,theproductwasawardedwiththemost valuableestimationthefirstawardforasoftwareproductfor1999ofthe InternationalTechnicalFair,Plovdiv99.Atthepresenttheproductis alreadywellknownandveryprofitablefortheclients. AfterthesuccessfulrealizationoftheMirageonthemarket,in2003the companystartedwiththedevelopmentofsoftwareKARTELLEnterprise planningresources.In2006theproductistestedandincorporatedinthe companyandnowtherearealreadythreemoreexternalinstallations pending. ERPKARTELLisanintegratedsoftwareapplicationofclassERP (EnterpriseResourcePlanning).Theproductiscompliantwiththemodern managementstyle,whichrequiresfullautomation,streamliningand controlofprocessesattheenterprise.Thesystemworksinrealtimewith fullsynchronizationofdataamongdifferentworkplacesandprovides theirsingleentryandstorageinanintegrateddatabase.ERPKARTELL
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offersapossibilityfordefiningindividualusedaccessandoperationrights foranyofthefunctionalitiesofthesystem,dependingontheirjob descriptionofcompanysemployeesandimplementationoftheirtasks. ERPKARTELLsystemhasseriesofadvantageswhichensurehigh efficiencyofbusinessactivity.Itsadvantagescanbesummedupas follows: Fullrangeofbusinessprocessesinthecompany Obtainingrealandwelltimedinformation,whichcontributesto adequateandappropriatedecisions Increaseoflabourproductivity,efficiencyandprofitability Userfriendlyinterface Easysystemadaptationtowardschangesinthecompany Riskfreeimplementationatlowestpossiblecosts Ongoingoversightofemployeeswork BrowsingthepagesofInternetatanytimeandensuringinstant informationaccessfromeverycorneroftheworld. Technicalcharacteristics: Technologyselected.NETtechnologyensureshighqualityof developedapplications.Thisisanadvancedtechnologywhich providesaqualitativelynewapproachforsoftwaredevelopment Architecturemultilayerarchitecturewithownserver OperationalsystemMSWindows,NetworkServerKartell ApplicationServerdevelopedbyBrainStormConsult InternetServerInternetInformationServer;DatabaseServerfree versionofMSSQLServer2005ExpressEditionorMSSQLServer 2005incaseswhentheclientownsapaidlicense LanguageofprogrammingC#(Csharp) ResearchanddevelopmentToolsMicrosoftVisualStudio Programmingtechniquesclassicobjectorientedprogramming (OPP) Sofia UHYBrainStormConsultLtd Mladost1A,Bl.505A,Entr.2 BG1729Sofia Bulgaria Tel: +35928099740 Fax: +35928099757 Email: office@uhybrainstorm.com Website: www.uhybrainstorm.com Contact: IlinaIvanovaatilina@brainstorm.bg
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Partners: KameliaTerziyska kamelia@brainstorm.com Alsoanotherofficein: Sofia 42VitoshaAvenue,fl.1,ap.2 BG1000Sofia Bulgaria Tel:/Fax+35929806694
9.
UHY offices worldwide
ForcontactdetailsofUHYofficesworldwide,orfordetailsonhowto contacttheUHYexecutiveoffice,pleasevisitwww.uhy.com
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Appendix 1: Useful information

Usefuladdressesandtelephonenumbers
1,DondukovBoulevard Sofia1194,Bulgaria Tel.:+35929402770;9402999 Fax:+35929802056 Email:gis@government.bg www.government.bg BulgarianNationalBank 1,KnyazAlexanderSquare Sofia1000,Bulgaria Tel.:+359291459,Fax:+35929802425 Email:press_office@bnbank.org www.bnb.bg MinistryofForeignAffairs 2,AlexanderZhendovStreet Sofia1040,Bulgaria Tel.:+35929482999,Fax:+35929713620 Email:iprd@mfa.government.bg www.mfa.government.bg FinancialSupervisionCommission 33,SharPlaninaStreet Sofia1303,Bulgaria Tel:+35929404999,Fax:+35928294324 Email:bg_fsc@fsc.bg www.fsc.bg MinistryofFinance 102,G.S.RakovskiStreet Sofia1040,Bulgaria Tel.:+359298592022/2023/2078 Email:feedback@minfin.bg www.minfin.government.bg MinistryofRegionalDevelopment 1719,KiriliMetodiiStreet andPublicWorks,Directorate Sofia1202,Bulgaria PublicRelationsandInternational Tel:+35929405430,Fax:+35929882954 Relations Email:press@mrrb.government.bg www.mrrb.government.bg CouncilofMinistersGovernment InformationServices
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PrivatizationAgency
MinistryofEconomyandEnergy, DirectoratePublicRelationsand Protocol
NationalStatisticalInstitute
MinistryofTransport
BulgarianInternationalBusiness Association
MinistryofJustice
BulgarianChamberofCommerce andIndustry
29,AksakovStreet Sofia1000,Bulgaria Tel:+35929873294,Fax:+35929809827 Email:bgpriv@priv.government.bg www.priv.government.bg 8,SlavianskaStreet Sofia1052,Bulgaria Tel:+35929407304,Fax:+35929885532 Email:PUBLIC@mee.government.bg www.mee.government.bg 2,PanayotVolovStreet Sofia1038,Bulgaria Tel:+35929857457/7729,Fax:+3592985 7799 Email:Presscentre@nsi.bg www.nsi.bg ,DyakonIgnatiiStreet Sofia1000,Bulgaria Tel.:+35929409301/9534,Fax:+3592940 9824 Email:press@mtc.government.bg www.mt.government.bg 55,Al.StambolijskiBlvd.3rdfloor Sofia,Bulgaria Tel/Fax:+35929819169,9819564,Fax:+ 359 9886776 Email:office@biba.bg www.biba.bg 1,SlavyanskaStreet Sofia1040,Bulgaria Tel:+35929237555,Fax:+35929819157 Email:pr@justice.government.bg www.justice.government.bg 9,IskarStreet Sofia1058,Bulgaria Tel.:+359298117400,Fax:+35929873209 Email:bcci@bcci.bg www.bcci.bg
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MinistryofEnvironmentand Water
BulgarianIndustrialAssociation
MinistryofAgricultureand Forestry
InvestBulgariaAgency
MinistryofLabourandSocial Policy
BulgariaEconomicForum
67,W.GladstoneStreet Sofia1000,Bulgaria Tel:+35929406224,Fax:+35929885913 Email:contact@moew.government.bg www.moew.government.bg 1620,AlabinStreet Sofia1000,Bulgaria Tel.:+35929320911,Fax:+35929872604 Email:office@biabg.com www.biabg.com 55,HristoBotevBlvd. Sofia1040,Bulgaria Tel.:+359298511254,Fax:+35929806256 Email:press@mzgar.government.bg www.mzgar.government.bg 31,AksakovStreet Sofia1000,Bulgaria Tel.:+35929855500,Fax:+35929801320 Email:iba@investbg.government.bg www.investbg.government.bg 2,TriaditsaStreet Sofia1051,Bulgaria Tel:+35928119443,Fax:+35929884405 Email:mlsp@mlsp.government.bg www.mlsp.government.bg 86,VitoshaBlvd. Sofia1463,Bulgaria Tel:+35929515259,Fax:+35929532924 Email:info@biforum.org www.biforum.org
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Uhy Business in Bulgaria

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Uhy Business in Bulgaria

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Doing Business in Bulgaria

EnlightenmentLeadersDay(adayoffforeducational establishments) ChristmasEve ChristmasDay SeconddayofChristmas

November1 December24 December25 December26

25 Dependingonthe periodinwhichthe legalprotectionapplies (100/yearsof protection)butnot higherthan331/3 15

Accounting & reporting

UHY firms in Bulgaria

Partners: KameliaTerziyska kamelia@brainstorm.com Alsoanotherofficein: Sofia 42VitoshaAvenue,fl.1,ap.2 BG1000Sofia Bulgaria Tel:/Fax+35929806694

UHY offices worldwide

Appendix 1: Useful information

MinistryofEconomyandEnergy, DirectoratePublicRelationsand Protocol

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