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The Biggest Tax Trap

Have you done everything right when you bought your property in Bulgaria? We’ve published numerous articles on the pitfalls and dangers of buying but it will do no harm again to go through one of the biggest tax traps of all which you might face when you come to resell your property.

It all starts when you buy your Bulgarian home. From your agent or developer you will no doubt hear the words ‘Tax Estimation Price’. They are talking about the price you put on the deeds which states the legal and declared price at which you are buying the property. Some agents will tell you that this is common practice and perfectly alright - it is not.

You may save on notary fees and property tax by doing this but these come to a very tiny amount, especially compared with the potential hell of a tax bill you might later face when reselling the property.

The most common instance of under declaring on the deeds is where the buyer has given a Power of Attorney to an agent or the agent’s lawyer to sign the deeds on their behalf. The agent / their lawyer frequently fail to tell the buyer that the price is being under declared and it is only after the event, sometimes a year or more later, that the buyer discovers what has happened.

Agents usually get away with persuading buyers to under declare by telling them that it means the vendor pays less tax. Don’t listen to this, Bulgarians and those resident in Bulgaria can sell one property in any year without paying any tax on the gains. Sometimes, it is so that the agent can pocket the difference between the price on the deeds and the price you are actually paying, as their “commission”.

However, none of this changes the fact that you could be in a financially difficult position when you come to sell. If you are not resident in Bulgaria, you will be paying tax on the gain you make in your home country. For example, you bought a property for 90,000 euros but on the deeds it stated you had bought at 40,000 euros. You are selling at 100,000 euros. The gain on which gains tax will be payable is 60,000 euros (whereas in reality, you should only be paying tax on the real gain of 10,000 euros). Now you can see the problem.

There are allowances to help mitigate the tax burden such as legal fees and building / renovation works. These are, of course, only allowable if you have proper invoices (a ‘faktura), not a till receipt. How many people have paid on the black / cash for renovation works or builders? Without proper invoices you cannot claim any of these expenses to reduce the tax. Ensure when employing a builder, that you get a written contract and full proper invoices for all materials and labour.

Don’t put yourself in a situation where you are likely to pay unnecessary capital gains by under declaring the price you are really paying nor by paying builders cash. Make sure you protect yourself against any future capital gains tax!