Belcheva & Karadjova Legal blog

Business Formations in Bulgaria I part

Possible business formations is a matter regulated under Bulgarian Commercial Act. There are situated the rules with regards of incorporation, management, relation between shareholders and managers, insolvency, bankruptcy, liability and so on.

Issues not addressed in the Commercial Act are redirected to the general civil legislation of the Republic of Bulgaria.

Starting a business in Bulgaria is very easy and stress free, but which form may fit your needs. Well, that is what we will try in this post – to help you better understand the differences of possible business formations allowed by Bulgarian commercial legislation.

Normally these are business formations very similar to those known to other countries over the world. So let’s start with some general information.

19th century Bulgarian Merchants

The law defines the term Merchant as follows:

For the purposes of this Act a merchant shall mean any natural or legal person engaged by occupation in any of the following transactions:

1. purchasing goods or other chattels for the purpose of reselling them in their original, processed or finished form;
2. sale of one’s own manufactured goods;
3. purchasing securities for the purpose of reselling them;
4. commercial agency and brokerage;
5. commission, forwarding and transportation transactions;
6. insurance transactions;
7. banking and foreign-exchange transactions;
8. bills of exchange, promissory notes and cheques;
9. warehousing transactions;
10. license transactions;
11. supervision of goods;
12. transactions in intellectual property;
13. hotel operation, tourist, advertising, information, entertainment, impresario and other services;
14. purchase, construction or furnishing of real property for the purpose of sale;
15. leasing.

Merchants are as well:

1. Companies;
2. The cooperatives, except housing cooperatives.
3. Any person which has established a business, which in accordance with its purposes and volume requires that its activities be conducted on a commercial basis even if not listed under para 1, shall also be deemed a merchant.

Well, Who Are Not Merchants:

The following shall not be deemed merchants:
1. Natural persons engaged in farming;
2. Artisans, persons providing services through their own labor or members of the professions, except where their activity may be defined as a business within the meaning of Article 1, para 3;
3. Persons providing hotel services by letting rooms in their own home.

Every Merchant is obligated to keep accounts in accordance with Accountancy Act.

Well, finally we are ready to go with possible company formations.

SOLE PROPRIETOR (also known as SOLE TRADER)

Any natural person possessing capacity whose domicile is in the country may register as a sole proprietor, except the following:

1. who is bankrupt and his rights have not been restored;
2. who has intentionally gone bankrupt and has left unsatisfied creditors;
3. any person who has been convicted for fraudulent bankruptcy;
4. any person who has occupied the position of a manager, or an ex member of a managing or controlling body of a company that was suspended due to insolvency, in the last two years prior to the date of the decision to declare insolvency, in case there were unsatisfied creditors;

5. who had been manager, member of managerial or supervisory body of any company, in regard to which non-performance of obligations to constitute and hold stocks under the Crude Oil and Petroleum Products Stocks Act at levels, prescribed for it, had been ascertained by an effective penal decree.

A sole proprietor shall be registered on the basis of an application into Commercial Registrar.

SOLE PROPRIETOR liability is unlimited. He is responsible with all his assets, even personal – real estate, land, etc.

COMPANIES

There are two main group of companies based on their ownership:

1. PUBLIC ENTERPRISE MERCHANT – state owned or municipality

2. PRIVATE COMPANIES

PRIVATE COMPANIES

A company is an association of two or more persons for effecting commercial transactions with joint means. In cases provided by a law a company may be incorporated by one person. Companies are always legal persons – entity.

There are few types of companies provided be law:

1. General partnership;
2. Limited partnership;
3. Limited liability company;
4. Joint-stock company;
5. Partnership limited by shares;

6. Variable Capital Company.

GENERAL PARTNERSHIP

A general partnership shall be a company formed by two or more persons for the purpose of effecting commercial transactions by occupation under a joint trade name. The partners shall be liable jointly and severally and their liability shall be unlimited.

A partnership’s articles shall be drawn up in writing with notarized signatures of the partners.

Each partner shall be entitled to take part in the management of the partnership’s business, except when management has been assigned with the articles of partnership to one or several of the partners or to a third party.

When taking an activity against the partnership the claimant may also name as defendants one or more of the partners. Forcible execution shall be directed first against the partnership, and, in case of impossibility for satisfaction, against the partners.

Second Part should be available soon and will cover:

Limited partnership;
Limited liability company;
Joint-stock company;
Partnership limited by shares;

Variable Capital Company.

This article was updated on 30.11.2023.

Number of aspects relating to appeals in civil cases reviewed

Into the Interpretative Decision N: 1 of 12.09.2013 of the SCC has been given answer to number of questions related to the powers of supervisory court instances in appeals of rulings and decisions ahead.

Supreme Court Judges clarify the scope of the second instance and indicate that the appeals court is not limited in its application of that when the next official interest of any party to the case.

In this sense, the SCC held that the verification of the correctness of the judgment at first instance may be given mandatory substantive rule even if its violation was not introduced as a ground for appeal.

Examining the activities of the appellate court, the SCC stated that it is not a repeat of first instance, only a continuation and therefore the appellate court did not follow its own motion made by the first instance court procedural irregularities in reporting the case.

Supreme Court Judges indicated that the appellate court is required to gather evidence that is collected automatically by the court if it is implemented complaint allowed in the first instance procedural violation or if the evidence is necessary for official application of mandatory substantive rules.

Supreme Court Judges pay attention to the question of how are current principal positions displayed in Interpretative Decision N: 1 of 2000. Has expressed the opinion that under the new Civil Procedure Code objections to repayment and acquisitive prescription can be introduced for the first time on appeal only if the litigant due to violation of the court rules, could not have told them first instance.

Current interpretations are on when can be claimed for the first time on appeal and set-off defense of lien.

In connection with the constitution of the litigants in the interpretative decision stated that if the first instance was not constituted as a necessary party whose participation in production is required, the appellate court should invalidate as inadmissible first instance decision and remit the case to the trial court for new hearing with the participation of the necessary party.

The cassation instance should invalidate the appellate decision if it finds that the application is incorrect because a contradiction between the factual part, which sets out the allegations pointing interest in bringing proceedings to seek protection against a specific person, and whatsoever the relief sought against another person.

With regard to acts of first instance, subject to appellate review, the SCC determined that cannot be appealed first instance court‘s refusal to accept a joint processing step in the action.

On the other hand, may appeal, rejecting a request to increase the claim is not brought as a partial, and the definition / order of the first instance court, which was returned due to a cross-application outstanding guidelines to eliminate its irregularities .

As regards the scrutiny by the cassation instance, are not subject to such acts CFI judgment that is discharged and the case was terminated if the claim is below 5000 lev in civil cases, respectively, less than 10 000 Levs in commercial matters.

Subject to cassation appeal the acts of the appellate court, which upheld the lower court‘s ruling, which was denied mainly constituted of an intervener, but not those with which it has upheld the lower court definition of refusing to constitute a third party facilitator.

By continuing to lists acts of the appellate court on which the cassation instance may control, the SCC stated that these are the definition of the appellate court confirming order of the first instance to terminate the proceedings because of lack of jurisdiction of the dispute, but not those confirming order of the Court, which was rejected based on objection of lack of jurisdiction.

Shall not be subject to appeal and the definition on the grounds of art. 122 of the Civil Procedure Code given in a dispute over jurisdiction between the courts.

Transfer penalty runs fine up to the amount provided for in the Penal Code

Questions regarding transfer of sentenced persons are governed by the Criminal – Procedure Code (CPC) in Chapter 36, Section I.

The transfer of a sentenced person from abroad to Bulgaria, ie when the Bulgarian state is executing intervening Criminal Court with a view to implementing the procedure for resolving issues related to the execution of judgment.

SCC

Response to the key issues relating to the implementation of an additional penalty fine imposed by the foreign court is given in Interpretative Decision N: 3 from 12.11.2013.

The judges indicated that there is no legal basis on which to display the unequal treatment of persons with the transfer of an EU Member State and from outside it.

The decision held that, in proceedings of art. 457 of the Code further penalty fine is considered performance when sentence is imposed by a foreign court of a country outside the European Union to the marginal maximum penalty provided for under sanction of the proper rate of the Penal Code, unless an international agreement involving Republic of Bulgaria and the sentencing country outside the European Union provides otherwise.

To justify its decision , the judges indicated that homogeneous or similar criminal activity in the different countries is referred to various penalties. This stems from unequal legislative views on the degree of social danger of the particular offense in light of the political – socio- economic relations in each country and on the figure. Supreme Court Judges agree that when a fine is imposed by a foreign court , it shall be served in Bulgaria to a marginal maximum fine provided for in the relevant text of the Penal Code.

This conclusion is reached it is applied by analogy the provisions of art. 457, para. 4 of the Code, shall mitigate the punishment of imprisonment up to a maximum term of punishment that the law of the Republic of Bulgaria if certain verdict this is – high.

The decision is also given an answer the question whether the fine should be converted into Bulgarian Lev and at what point should do it.

According to the judges is necessary to fine recalculated to achieve adaptation of the foreign judgment to the rules of domestic law and in accordance with what the Bulgarian currency.

The decision explains that the course should be the official of the Bulgarian National Bank and authoritative restatement of the moment to be the day of entry into force of the sentence passed by the competent court of a country outside the EU. The reason for this is that since the judicial act of the sentencing State becomes enforceable and the opportunity arises for the execution of public duty, such as fine.

The competent Bulgarian court decides matters relating to the implementation of the verdict and render a ruling. Supreme Court justices indicated that this should also resolve all the issues related to the enforcement of a foreign judgment or punishment – original mode type prison facility to serve the sentence of imprisonment deduct served in the sentencing State punishment and served their pre-trial detention. According to SCC in case the transferred sentenced Bulgarian citizen is rendered in the sentencing state, this work must be respected by the court to reduce the sentence. Respect is due only when designated by the issuing state correctional residue is calculated after deduction of positions in the foreign country work.

When a cartel agreement restricts competition?

As you may know the EU law prevail over national law of Member States. This is a very important factor and helps greatly to the unification of jurisprudence in all Member States. Over the years, it proved to be particularly important for case law on tax matters and issues related to the protection of competition.

The fact that the undertaking concerned by the a cartel agreement, which aims to restrict competition at the time of the conclusion of the cartel operates in the market in a way that is claimed to be unlawful is irrelevant for determining whether that a cartel agreement infringed Article 101 TFEU. In this context I suggest you to look at the findings of the European Court of Justice in Case C-68/12.

David Simonds watchdogs

In Case C-68/12 (Protimonopolný úrad Slovenskej republiky / Slovenská sporite??a as) CJEU concludes that in respect to finding that a restrictive agreement is not necessary to prove the existence of personal actions of the legal representative of a company or individual approved by the agent in the form of authorization of the actions of its employee who was involved in anti-competitive appointment.

Settled according to case-law, where it is established that an undertaking has participated in meetings with competitors who are anti-competitive in the weight of this company is to point data based on which it can be assumed that its participation in those meetings was without any anti and prove that it is indicated to its competitors that it was participating in those meetings in a spirit that was different from theirs.

To render it impossible participation of an undertaking in such a meeting be considered tacit approval of an unlawful initiative, nor to join its outcome, it is necessary that undertaking to distinguish open from this initiative so that other participants understand that it discontinue participation or she would tell her administrative authorities.

According to the Court, Article 101, paragraph 3 TFEU may apply to prohibited by Article 101 paragraph 1 TFEU agreement only when the entity that relies on this provision, it is proved that the four cumulative conditions laid down in this Article.

General power of attorney also includes representation in bankruptcy proceedings

The principle of access to justice enshrined in the provisions of Art. 6, para. 1 of the ECHR required in civil proceedings in each litigant to provide a real opportunity to take part in the proceedings to protect their interests . When the litigant was deprived of his right to be represented , the final decision be set aside.

That is why the Supreme Court Decision ? 100 of 09.04.2013 , repealed the ruling of the lower court judgment because it considered that the defendant was deprived of his right to be represented in the process. Its legal representative possesses general power of attorney under Art. 34 of the Civil Procedure Code and this gives him the right to represent him in the open by the creditor bankruptcy .

Supreme Court of Cassation of Bulgaria

Supreme Court justices agree that empowering proxy rights under Art. 34 , para . 1 of the CPC , the principal has given general power of attorney to his attorney , allowing him to represent him before all courts and in all instances, including bankruptcy proceedings . Neither the CPC nor the CA requires the express authorization in the event of an appeal against the debtor’s application for opening of insolvency proceedings .

Therefore, the previous court had no reason to refuse the participation of the lawyer as a legal representative of the defendant on the grounds that the mandate is worded too broadly . Requirement for power of attorney exists only in the provision of Art. 626 , para . 4 of the CA when the initiator of bankruptcy is the debtor , while in the case the case is initiated by the creditor.

VAT deduction even when the issuer of the invoice is in violation

Such a conclusion reached by the Court of the EU in Case C-324/11 (Gabor Toth / Nemzeti Ado-es Vamhivatal), which considers the situation in which the issuer of the invoice has been terminated for VAT, in addition to it was found that had not declared to the tax authorities persons employed by him.

EU VAT laws

According to the judges in Luxembourg there are the following points in relation to the right to deduct:

A) EU law precludes the tax authority to deny the taxpayer the right to deduct VAT for services rendered only because the license for the individual entrepreneur biller is withdrawn before the latter has provided the services in question, or is issued the invoice when the latter contains all the required information, in particular information that is needed to identify the person who has prepared, and the nature of the services provided.

B) It is also not permissible tax authority to deny the taxpayer the right to deduct VAT on services supplied to him because the issuer of the invoice for these services has not declared his hired workers without the authority to establish, based on objective evidence that the person knew or should have known that the transaction, which justifies the right to deduct a portion of tax fraud committed by that publisher or other entity up the supply chain.

C) The fact that the taxpayer has not checked whether between employees of the construction workers and biller relationship existed or whether the publisher has declared those workers is not an objective fact , which may be inferred that the recipient is aware of the invoice or should have known to be involved in a transaction connected with fraudulent VAT if the recipient did not have data on which to suspect the existence of irregularities or fraud in this regard by the publisher. The right to deduct cannot be refused on such grounds as provided substantive and procedural conditions for the exercise of this right are met.

D) When the tax authority provides concrete evidence of the existence of tax fraud, EU law allows a national court to ascertain , on the basis of an overall assessment of all the circumstances of the case whether the invoice itself publisher has committed the transaction in question . Right of deduction may be denied only when the tax authority determines that the invoice recipient knew or should have known that the transaction , which justifies the right to deduct a portion of tax fraud committed by the issuer or other entity up the supply chain.

Relocating your road transport business to Bulgaria.

Reducing operational business costs is a matter that interests every business owner. With increasing competition within the EU this occurs as a fundamental opportunity to beat your competitors making your business much more successful.

More and more companies from different business niches are discovering the benefits of doing business in Bulgaria and establish businesses, and even relocate existing one to Bulgaria. This also applies to companies operating as a road transportation service provider.

As of 4 December 2011 admission to the occupation of road haulage operator and road passenger transport operator in the European Union is governed by Regulation (EC) No 1071/2009

Is that true and what really makes it beneficial? Is it legal?

– In general Bulgaria offers the lowest corporate tax within all EU state members as of 10% on net profit and lowest operational cost;

– Cheaper EU road transport operator’s license of around €1000;

– Much cheaper vehicle insurance starting off – €500;

– Cheaper MOT, TUV, ITV, Autokeuring and so on inspection as of €140;

– Lower expenses for salaries for traditionally high qualified employees;

– Lower annual truck tax;

– Lower levels of financial bank guarantees required namely €9000 for the first and €5000 for every next truck;

– Lower expenses for accountancy and legal support;

– You may continue to use your existing drivers and transport managers;

– Lower social insurance contributions;

– It’s absolutely legal

In addition we should refer besides the strategic geographic location of Bulgaria and a crossroads between Europe and Asia.

Strategic geographic location of Bulgaria

It’s easy to start up a new fully operational limited liability company in a few weeks only. Few weeks are needed as well to grant EU transport operators license.

Limited Liability Company can be constituted by one or more natural persons or entities. Liability is limited to the amount of subscribed foundation capital and minimum foundation capital by law is only 1 euro.

There are 4 criteria that the operator must fill to access the profession according to Regulation (EC) No 1071/2009:

Good repute criterion, which shall ensure the adequate entrepreneurial ethical conduct. Manipulating a Tachograph, for example, would be considered a serious infringement leading to the loss of the good repute.
Financial standing, which requires operators to have available capital assets every annual accounting year of at least € 9.000 for the first vehicle and € 5.000 for each additional vehicle.
Professional competence, which assesses the practical knowledge and aptitude of professionals in the sector by means of an obligatory exam with common arrangements, marking and certificates.
To have an effective and stable establishment in a Member State.

In addition all steps could be treated without your personal presence so you can stay focused on your current activity.

If everything mentioned here makes sense to you and can help to improve the competitiveness worthwhile to conduct more in-depth financial analysis.
If you have any further questions you know how to find us.

Unfair competition in the use of similar domain names

Technology and business on the Internet are evolving at a furious pace. In our personal opinion Bulgarian legislation in this direction behind.

More recently, the Commission for Protection of Competition, considered an interesting case, namely for unfair competition in the use of similar domain names.

Unfair competition using similar domain names

These approaches are not uncommon phenomenon and an attempt to be deceived and stolen your customers. The Protection Act regulates competition generally in Bulgaria.

According to the CPC (Commission for Protection of Competition) essential constituent elements of the offense under Art. 35, para. 3 of the CPA (Competition Protection Act) is the way of use of a domain. For constitute of the offense is necessary thus be such as to cause or be likely to mislead or confuse consumers, thus damaging the interests of competitors.

The actual constitute of art. 35, para. 3 of the CPA is complex and the use of identical or similar domain is not sufficient to fully implement. A condition allowing the possibility of imitation is the presence of a been imposed market reputation of the merchant or of offered goods and services that could bring undeserved benefits of acting in bad faith (simulated) trader.

This is what is commented in Decision 562 from 17.05.2012 CPC.
Same decision has expressed an opinion about the misuse of the appearance of the website, identical or similar to another merchant.

The facts show that there are a similarity and differences between these websites subject of the event, but this similarity is seen with other websites offering the same products. The Commission considers that this similarity is due to the conventional approach to building a website of this type.

Such a similarity in terms of the basic elements of the sites cannot be assumed that undoubtedly is due to deliberate behavior simulation of site ownership to another person.

An allegation that there is a similarity in the products offered by companies such as assortment of two sites, the committee believes that such similarity and / or identity of the range should not be a reason to justify the violation of Art. 35, para. 3 of the PCA when both sites only offer products from foreign brands and names as well as descriptions of the technical parameters of products related to their functionality and applications as they do not depend on the preferences of companies.

Registering Limited Liability Company in Bulgaria

We are receiving a huge volume of inquiries on how the process for registration of Limited Liability Company in Bulgaria LLC/Ltd/GmbH goes. Most commonly you are asking about the following:

1. How the process usually goes?

2. How long the incorporation will take?

3. Is it required client’s personal presence?

4. Is it possible to be completed online?

5. What kind of documents are required?

6. Is it possible to open business and or personal bank account including with online banking and prepaid cards associated?

That is why we are writing this post in order to provide you with more information in advance.

The Bulgarian legislation allows several business formations. The matter is under regulation of Bulgarian Commercial Act regarding incorporation, corporate transaction, liability, mergers and acquisitions, bankruptcy etc. Unregulated matter is redirected at general Bulgarian civil legislation.

You can read more about available forms of commercial activities in Bulgaria in this post.

Registry Agency

Bulgarian (LLC/Ltd/GmbH) can be formed by one or more shareholders (natural persons or entity), local persons or foreigners.
The minimum foundation capital is 2 euro.

Shareholders’ liability is limited to the amount of subscribed foundation capital.
At least one director is required by law. The director could any person – local or foreigner.

What we will require from you?

1. A copy of national ID documents of all shareholders (if more than one). If a company should be a shareholder – Certificate of Good Standing stating the legal presence and representation issued by Chamber of commerce or other appropriate authority.
2. Scope of business activity
3. Three variants of desired name

All other documents are drafted by us such as – Articles of Association, Management Agreement, needed Declarations and so on.

We will prepare as well POA (Power of attorney) in which you authorize us to complete the process of registration of your Bulgarian ( LLC / Ltd / GmbH ) Limited Liability Company.

We will prepare and send you the necessary papers to sign. Some of them must be signed in front public notary with an Apostille or in any Bulgarian diplomatic mission aboard.

Normally this takes us 3 to 5 working days for drafting.

When we received already signed by you papers we will submit the company to the Commercial Register. A week later your new Bulgarian LLC / Ltd/ GmbH will be ready and we will provide you with a Certificate of Good Standing.

We are opening business and or personal bank accounts including with online banking and prepaid card associated with just one day after you provide us with POA.

Business bank account normally can be opened after formation of your brand new company in Bulgaria.

For all the steps mentioned above your personal presence in Bulgaria is not required.

For sure and in any way will be better to contact us and discuss the most appropriate formation for your plans. Every business is unique and require unique solutions and special attention.

Here you will find information about the current fees for incorporation of LLC / Ltd / GmbH.

For all other questions please do never hesitate to reach us.

Bulgarian Parliament amended changes in IPA

At the beginning of 2013 Bulgarian Parliament amended changes in Bulgarian Investment Promotion Act after the veto of the president.

Bulgarian President Rosen Plevenliev

The President returned to the law because of provisions that do not match the overall concept of increasing investment activity in the country in crisis. The President stated that in the adopted IPA there are provisions which He approved the introduction of incentives aimed at creating and maintaining jobs in economically disadvantaged areas and in high-tech activities and an opportunity for the promotion of local government investment of municipal significance. However, the return of the law is motivated by the fact that some of the proposed amendments do not fully comply with the overall concept of increasing investment activity in the country in crisis.

The president points out that one of the areas in which the state must do more to encourage investment is intellectual property. In this sector enabling environment requires predictability and stability. It is important that all conditions under which the state supports this type of investment, are regulated by law. Conditions and the lack of measures to encourage this type of investment would lead to uncertainty in the legal world. The law should guarantee unequivocally that the incentives will not adversely impact on the state budget.

According to President Rosen Plevneliev diversity of objects of intellectual property and investment opportunities in this area requires further analysis and needs a clear vision of how government support will be combined with the need to stimulate Bulgarian culture.

Next president opposes such amendments to the Foreigners Act in the Republic of Bulgaria on the scope of persons who can obtain a permanent residence permit in the country. According to him, the proposed changes do not contribute to the overall goal of the law – to encourage investment and bring unreasonably high requirements for granting a permit for permanent residence in Bulgaria and would be an additional obstacle to foreign investors.

So back to the topic – changes in regulation on investment promotion in several key areas, including improving and decentralizing the certification of projects and providing opportunities for investment promotion at the municipal level.

Two key changes:

To achieve this purpose a new section was created “Investment projects of local importance” in Chapter IV of the on Investment Promotion Act (IPA). It is envisaged that investment of municipal significance to promote through reduced time for administrative services and other benefits specifically provided by law. Along with the legal framework provides and local governments to adopt regulations in this area.

Another part of the changes are aimed at introducing additional criteria for certification of a class investments.

According to the amendments project will be classified as priority investment project based on the criteria of a minimum amount of investment and employment. Certificate of priority investment project will be issued on the basis of a decision of the Council of Ministers.

Certified Investment Projects

Implementing measures to promote investment provides a proposal from the Minister of Economy, Energy and Tourism Ministers Council may allocate funds for partial reimbursement for a period not exceeding 24 months from the opening of the workplace, as that of investor for its own account in its capacity as employer contributions for obligatory state social insurance, supplementary pension insurance and mandatory health insurance for employees occupying the new jobs, where the conditions laid down in the law.

For the implementation of this measure new jobs must be filled by Bulgarian citizens, nationals of another State of the Union, another country – party to the Agreement on the European Economic Area or the Swiss Confederation.

In addition foreign investor my acquire residency permit and Bulgarian Citizenship on basis of implemented investment projects in Bulgaria.

Bulgarian Passport

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