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Tax considerations: Part 2 - VAT and Other Issues

VAT

I know what you are thinking – they surely don’t have VAT in Bulgaria too, do they? I’m afraid so.

If you have purchased your property as an individual (i.e. not under a corporate structure) then VAT will not be chargeable to the buyer when you sell your property unless you have had to register for VAT as an individual (e.g. if you are selling properties as an individual). However, if you have purchased property as a company, then when you come to sell your property
(if that’s your intention) you may have to add VAT to your sale price. It depends on whether you have registered your company for VAT purposes. Currently, you must register your company for VAT if the turnover (over the last 12 months) exceeds 50,000 Leva (approximately 25,500 Euros). It is therefore unlikely that you would charge VAT on the sale of your first property. However, for the second (and subsequent property sales) after you have registered your company for VAT purposes, you would need to add VAT and charge this to the buyer. You would also add VAT to any rental charges if the property rental is not invoiced for an individual’s residential use (e.g. if it was used as office space). VAT is currently set at 20 per cent. So it’s actually higher than it is in the UK (17.5 per cent). VAT is now payable on the purchase of regulated land if the seller is registered for VAT purposes (where the seller could be a company or an individual).

But won’t VAT put the potential buyer off buying my property? The fact that you will have to charge VAT on the sale of your property (if you have registered for VAT) obviously raises the concern of how it might affect the price of your property in the market place. As it clearly has the potential to make it appear to be up to 20 per cent higher than properties of a similar type.

This is one of the drawbacks of setting up a company structure when you buy a property in Bulgaria, particularly if you are planning to sell it one day. However, there are ways of addressing this. The most common way is to ensure that the buyer is buying under a corporate structure and is VAT registered. That way your output tax can be offset against the buyers input tax. At present, if you had to buy the property under a Bulgarian company and you are selling to another foreign individual, it is likely that the buyer will have to form a company anyway.

You do need to take into account that this practice of having to buy property under a company (for foreign individuals) is likely to change in the future. It is only a question of time before foreign ownership of land is likely to become accessible. An obvious advantage to Bulgaria, of relaxing the foreign ownership, is that it is likely to result in increased foreign investment in the country – which will ultimately help to drive the economy further forward.

Extract from Jonathan White’s “Buying a Property in Bulgaria” published by How To Books Ltd. Jonathan White. Jonathan first travelled to Bulgaria in 2003 – one of many subsequent trips. It was not long before he fell in love with the country and acquired a real estate portfolio and a passion to share his experiences with others. His real estate companies include www.varnarentals.com and www.propertydragon.com