Doing Business In Bulgaria?
04 November, 2013
Just like the rest of Eastern Europe, Bulgaria (the 14th largest Europe country) has suffered from 45 years of communism.
After adopting its democratic constitution in 1991, it has been a EU member since 2007 and nowadays still keeps attempting to get out of the post Soviet poverty. Despite the communist legacy, it is a country that has a lot to offer to a tax payer who seeks a tax friendly (business) environment.
Sofia, the capital and largest Bulgarian city, offers modern infrastructure and all the comforts of a modern metropolis. The countryside, however, still feels underdeveloped and poor.
But there are advantages to it: labour is very cheap. At EUR 327 per month, the average salary is 2-3 times lower than elsewhere in the EU. Together with low real estate prices and favourable tax regime, Bulgaria surely stands out as a low cost business location.
In 2007, Bulgaria introduced the flat tax of 10%, valid for both corporate and personal income. With this, the country jumped to the top three list of low tax EU members, right next to Cyprus and Ireland.
However, it is still a country with quite some communist legacy. Officially, corruption does not exist in Bulgaria as it is illegal (since 2002) and criminal charges can be pressed against both parties of the corruption process. Especially the young Bulgarian professionals do their best to make Bulgaria clean.
Unfortunately, the local government is still formed by the former communist bosses who treat themselves as the local tsars and consider themselves the top of the world. Big cities (Sofia, Varna, Plovdiv, Burgas) tend to be the worst. When setting up a business on the ground, you better pick a smaller community where the local authorities are happy you settle there and hopefully create some work opportunities for local population.
Nobody admits they are corrupted but often you are expected to offer small (or big) gifts like invite the local mayor for a nice holiday in Hawaii that is still being done in order to get your matters solved quickly.
Historically, the territory of nowadays Bulgaria has been a kettle where several religions and many ethnic groups were boiling. Nowadays over 85% of population are Bulgarians. The second largest ethnical group are Turks and there are hardly any frictions between the two. The relations between Bulgarians and Roma living close to the Romanian border are rather peaceful, too.
For Balkan standards, the criminality is low. The formerly popular carjacking is almost non existing and according to locals, any vehicle can survive on the street overnight.
Poverty shows most when it comes to Bulgarian social system. There are virtually no kindergartens nor homes for elderly citizens. The government stimulates foreign investors by addressing this issue and turning it into a business opportunity.
The legislation still shows some outdated regulations (e.g. labour law) and especially the older generation keeps working according to a socialist work ethos, with its low productivity, extreme hierarchy and low level of loyalty. This has to do with how unreliable the employers in Bulgaria can be.
The employees between 20-45 are definitely better. They are well educated and often consider themselves The Germans of the Balkans. Example: Lufthansa recently moved their technical HR department to Sofia and hires all graduates from the local Technical College. These young people honour their bosses, cherish their dreams, missions and ambitions and can be very loyal.
Bulgarians themselves say that when hiring an employee, pick a woman: women (over 60% of population in Bulgaria) work harder and are more reliable.
Take this into account as a foreign employer and you will hardly ever experience any bad habits of employees as long as the paycheck arrives on time.
Real estate in Bulgaria can be extremely cheap. The problem is that it is very difficult to find the owner: there is a tradition of different side letters, semi-formal arrangements with the municipalities etc. Also, Bulgarians fear that the Western investors will try to buy the land under their feet, that is why e.g. foreigners cannot buy the ground under apartment buildings. In Sofia, where the prices are the highest, the current sales price of an apartment is EUR 600-800 per sq/m.
Another interesting Bulgarian feature is banking. When opening a corporate bank account, the local banks still do not need to identify the beneficial owner. They collect data on the company representative. Bank accounts for offshore companies are not a problem either: as long as certified corporate documents and valid Certificate of Incumbency are presented. No utility bill is needed nor Letter of Reference and all businesses are allowed (without obvious law breakers). Both adult and gaming are also acceptable.
Bulgaria is a country that has a lot to offer. Although it is very different from western Europe, it is a safe and cheap working environment. Besides low tax and low cost labour, there are many more interesting features to consider think e.g. about the 5 year carry forward loss, anonymous property ownership or maximum 10% tax on your worldwide income.
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