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Executive Summary

Bulgaria is seen by many investors as an attractive investment destination, with government incentives for new investment.  The country continues to offer some of the least expensive labor in the EU and low and flat corporate and income taxes.  However, the steady rise in wages, significantly outpacing the growth rate of labor productivity, may gradually erode this competitive edge.

The COVID-19 pandemic sent shockwaves through the Bulgarian economy, resulting in large-scale layoffs and a revision of the 2020 GDP from growth of about three percent to a three-percent contraction; some projections foresee a still-deeper contraction.  As of late April 2020, the government’s aggressive fiscal measures to support the economy reached 3.9 percent of the projected 2020 GDP.  This will lead to a projected fiscal deficit of 2.9 percent of the GDP for the year.

The pandemic severely affected a wide range of sectors.  Bulgaria’s automotive sector, which specializes mainly in production of spare parts, suffered due to the disruption of global supply chains.  Also hit hard by the crisis were the tourism, transportation and logistics, and aviation sectors.  By contrast, the IT sector appeared to be faring relatively well.

As of late April 2020, the government appeared resolved to apply for membership in the Eurozone’s precursor mechanism ERM II.  While even in the best scenario full Euro adoption is years away, successful adoption of the Euro would fully eliminate the currency risk and help reduce transaction costs with some of Bulgaria’s key trading partners.

Foreign investors remain concerned about rule of law in Bulgaria.  Corruption is endemic, particularly on large infrastructure projects and in the energy sector.  Investors cite other problems impeding investment, such as unpredictability due to frequent regulatory and legislative changes and a slow judicial system. As of early 2020, there are questions as to the government commitment to upholding its contracts, including with U.S. investors.  A key factor to watch will be the fairness of these negotiations. Another U.S. company has faced extended regulatory obstacles in its attempts to enter the energy market.

Table 1: Key Metrics and Rankings  
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 74 of 180
World Bank’s Doing Business Report 2020 61 of 190
Global Innovation Index 2019 40 of 129
U.S. FDI in partner country ($M USD, historical stock positions) 2018 928
World Bank GNI per capita 2018 8,860

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment  

There are no legal limits on foreign ownership or control of firms. With some exceptions, foreign entities are given the same treatment as national firms and their investments are not screened or otherwise restricted.  There is strong growth in software development, business process outsourcing, and building services for technical maintenance.  The IT and back office outsourcing sectors have attracted a number of U.S. and European companies to Bulgaria, and many have established global and regional service centers in the country.  U.S. and foreign investors have also been attracted to the automotive sector in recent years.

While Bulgaria generally affords national treatment to foreign investors, some U.S. investors have encountered significant problems.  Two major U.S. investors in Bulgaria have had to enter into negotiations to end their  long-term government contracts.  In another instance, a U.S. company has faced bureaucratic hurdles in its efforts to compete in the energy sector with a monopolistic state-owned Russian incumbent, but now seems to be making some headway.  More often, however, investors cite general problems with corruption, rule of law, frequently changing legislation, and weak law enforcement.  Transparency International’s (TI) Corruption Perception Index for 2018 ranked Bulgaria as the worst- performing EU member in the 74th place out of 180 surveyed countries, up three places from last year’s 77th, and scoring 43 on a 100-point scale, well below the EU average of 66.

The Invest Bulgaria Agency (IBA), the government’s investment attraction body, provides information, administrative services, and incentive assessments to prospective foreign investors. Its website  contains general information for foreign investors.

Limits on Foreign Control and Right to Private Ownership and Establishment  

Generally, there are no existing limits for foreign and domestic private entities to establish and own a business in Bulgaria. The Offshore Company Act lists 28 activities (including government procurement, natural resource exploitation, national park management, banking, insurance) banned for business by companies registered in offshore jurisdictions with more than ten percent foreign participation. The law, however, allows those companies to do business if the physical owners of the parent company are Bulgarian citizens and known to the public, if the parent company’s stock is publicly traded, or if the parent company is registered in a jurisdiction with which Bulgaria enjoys a bilateral tax treaty  (including the United States).  Bulgaria has no specific law or established mechanism in place for screening individual foreign investments.  A potential foreign investment can be scrutinized on the grounds of its potential national security risk or through the Law on the Measures against Money Laundering.  As of April 2020, Bulgaria has not taken concrete action to implement the EU’s April 2019 directive on investment screening.

Other Investment Policy Reviews  

There have been no recent Investment Policy Reviews of Bulgaria by multilateral economic organizations.  In 2019 the OECD published reviews of Bulgaria’s healthcare sector and state-owned enterprises.  As part of Bulgaria’s Action Plan for deeper cooperation, the OECD is expected to conduct an economic survey of Bulgaria, a public governance review and an investment policy review.

Business Facilitation  

Bulgaria typically supports small- and medium-sized business creation and development in conjunction with EU-funded innovation and competitiveness programs and with a special emphasis on export promotion . The state-owned Bulgarian Development Bank has committed to support small- and medium-sized businesses in Bulgaria, but its recent track record of lending targeted at large- scale enterprises has called this into question.  Typically, a new business is expected to register an account with the state social security agency and, in some cases, with the local municipality as well. Electronic company registration is available at: .

Bulgaria dropped two places to 61st  (out of 190 surveyed economies worldwide) in the World Bank’s 2020 Doing Business Index, scoring lowest in the Starting a New Business category, in113th place, and in the Getting Electricity category, in 151st place.  The relatively large number of administrative procedures, along with the associated delays, contributed to the low score in both categories.

Outward Investment  

There is no government agency promoting outward investment promotion, and no restrictions exist for any local business to invest abroad.

3. Legal Regime

Transparency of the Regulatory System  

In general, the regulatory environment in Bulgaria is characterized by complexity, lack of transparency, and arbitrary or weak enforcement.  These factors create incentives for public corruption. Bulgarian law lists 38 operations subject to licensing. Public procurement rules are at times tailored to match certain local business interests.  The law requires all regulations to be justified by defined need (in terms of national security, environmental protection, or personal and material rights of citizens), and prohibits restrictions merely incidental to the stated purposes of the regulation. The law also requires the regulating authority, or the member of Parliament sponsoring the draft law containing the regulation, to perform a cost-benefit analysis of any proposed regulation. This requirement, however, is often ignored when Parliament reviews draft bills. With few exceptions, all draft bills are made available for public comment, both on the central government website and the respective agency’s website, and interested parties are given 30 days to submit their opinions. The government  maintains a web platform, at , on which it posts draft legislation. Additionally, the GOB posts all its decision on

Following the outbreak of COVID-19, the government made its related decisions, measures and data available on  In addition, the law eliminates bureaucratic discretion in granting requests for routine economic activities, and provides for silent consent when the government does not respond to a request in the allotted time. Local companies in which foreign partners have controlling interests may be requested to provide additional information or to meet additional mandatory requirements in order to engage in certain licensed activities, including production and export of arms and ammunition, banking and insurance, and the exploration, development, and exploitation of natural resources. Bulgarian government licenses exports of dual-use goods and bans the export all goods under international trade sanctions lists.  The Bulgarian government’s budget is assessed as transparent and in accordance with international standards and principles.  Data on government debt is publicly available but data on the debt accrued by state-owned companies is not.

International Regulatory Considerations  

Bulgaria is a WTO member. Under the provisions of Article 207 of the Treaty on the Functioning of the European Union (Lisbon Treaty), common EU trade policies are exclusively the competence of the EU and the European Commission, which coordinates with the 27 member states.

Legal System and Judicial Independence  

The 1991 Constitution serves as the foundation of the legal system and creates an independent judicial branch comprised of judges, prosecutors, and investigators. The judiciary continues to be one of the least trusted institution in the country, with widespread allegations of nepotism, corruption and undue political and business influence. Despite some recent improvements, The busiest courts in Sofia continue to suffer from serious backlogs, limited resources, and inefficient procedures that hamper the swift and fair administration of justice and trials often take years to complete.

There are three levels of courts. Bulgaria’s 113 regional courts exercise jurisdiction over civil and criminal cases. Above them, 29 district courts (including the Sofia City Court and the Specialized Court for Organized Crime and High Level Corruption) serve as courts of appellate review for regional court decisions and have trial-level (first-instance) jurisdiction in serious criminal cases and in civil cases where claims exceed BGN 25,000, excluding alimony, labor disputes, and financial audit discrepancies, or in property cases where the property’s value exceeds BGN 50,000. Six appellate courts review the first-instance decisions of the district courts. The Supreme Court of Cassation is the court of last resort for criminal and civil appeals. There is a separate system of 28 specialized administrative courts which rule on the legality of local and national government decisions, with the Supreme Administrative Court serving as the court of final instance. The Constitutional Court, which is separate from the rest of the judiciary, issues final rulings on the compliance of laws with the Constitution.

Bulgaria has adequate means of enforcing property and contractual rights under local legislation. In practice, however, the government’s handling of investment disputes has been slow, and intervention at the highest level is often required. Investors sometimes perceive that jurisprudence is inconsistent, and that national legislation is used to deter competition from foreign investors.

Laws and Regulations on Foreign Direct Investment  

The 2004 Investment Promotion Act stipulates equal treatment of foreign and domestic investors. The law encourages investment in manufacturing and high technology, as well as in education and human resource development. It creates investment incentives by helping investors purchase land, providing state financing for basic infrastructure and training new staff, and facilitating tax incentives and opportunities for public-private partnerships (PPPs) with the central and local governments. The most common form of PPPs presently is concessions, which include the lease of government property for private use for up to 35 years.

Foreign investors must comply with the 1991 Commercial Code, which regulates commercial and enterprise law, and the 1951 Law on Obligations and Contracts, which regulates civil transactions.

Competition and Anti-Trust Laws  

The Commission for Protection of Competition (the “Commission”) oversees market competition and enforces the Law on the Protection of Competition (the “Competition Law”). The Competition Law, enacted in 2008, is intended to implement EU rules that promote competition. The law forbids monopolies, restrictive trade practices, abuse of market power, and certain forms of unfair competition. Monopolies can only be legally established in enumerated categories of strategic industries. In practice, the Competition Law has been applied inconsistently, and the Competition Commission has been seen as subject to influence and as having overstepped its mandate.

Expropriation and Compensation  

Private real property rights are legally protected by the Bulgarian Constitution. Only in the case where a public need cannot be met by other means, the Council of Ministers or a regional governor may expropriate land, provided that the owner is compensated at fair market value. Expropriation actions by the Council of Ministers or by regional authorities can be appealed at a local administrative court. In the Bilateral Investment Treaty (BIT) with the United States, Bulgaria committed to international arbitration in the event of expropriation and other investment disputes.

As noted above, two major U.S. investors were forced into negotiations to are involved in a dispute in regard to the government’s threats to abrogate their long-term contracts.

 Dispute Settlement  

ICSID Convention and New York Convention  

Bulgaria is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York convention) and the 1961 European Convention on International Commercial Arbitration. Bulgaria is also a member state to the International Centre for the Settlement of Investment Disputes (ICSID).

Investor-State Dispute Settlement  

Bulgaria accepts binding international arbitration in disputes with foreign investors. There are more than 20 arbitration institutions in Bulgaria, with the Arbitration Court of the Bulgarian Chamber of Commerce and Industry (BCCI) being the oldest.

International Commercial Arbitration and Foreign Courts  

Arbitral awards, both foreign and domestic, are enforced through the judicial system. The party must first petition the Sofia City Court for a writ of execution and then execute the award according to the general framework for execution of judgments. Foreclosure proceedings may also be initiated.

Bulgarian law instructs courts to act on civil litigation cases within three months after a claim is filed. In practice, however, dispute settlement can take several months and up to a few years.

Bankruptcy Regulations  

The 1994 Commercial Code Chapter on Bankruptcy provides for reorganization or rehabilitation of a legal entity, maximizes asset recovery, and provides for fair and equal distribution among all creditors. The law applies to all commercial entities, except public monopolies or state-owned enterprises (SOEs). The 2015 Insurance Code regulates insurance company failures, while bank failures are regulated under the 2002 Bank Insolvency Act and the 2006 Credit Institutions Act. The 2014 bankruptcy of the country’s fourth-largest bank, Corporate Commercial bank, was a test case that showed serious deficiencies in the process of recovery and preservation of bank assets during bankruptcy proceedings.

Non-performance of a financial obligation must be adjudicated before the bankruptcy court can determine whether the debtor is insolvent. There is a presumption of insolvency when the debtor is unable to perform an executable obligation under a commercial transaction or public debt or related commercial activities, has suspended all payments, or is able to pay only the claims of certain creditors. The debtor is deemed over-indebted if its assets are insufficient to cover its short-term monetary obligations.

Bankruptcy proceedings may be initiated on two grounds: the debtor’s insolvency, or the debtor’s excessive indebtedness. Under Part IV of the Commercial Code, debtors or creditors, including state authorities such as the National Revenue Agency, can initiate bankruptcy proceedings. The debtor must declare bankruptcy within 30 days of becoming insolvent or over-indebted. Bankruptcy proceedings supersede other court proceedings initiated against the debtor except for labor cases, enforcement proceedings, and cases related to receivables securitized by third parties’ property. Such cases may be initiated even after bankruptcy proceedings begin.

Creditors must declare to the trustee all debts owed to them within one month of the start of bankruptcy proceedings. The trustee then has seven days to compile a list of debts. A rehabilitation plan must be proposed within one month after publication of the list of debts in the Commercial Register. After creditors’ approval, the court endorses the rehabilitation plan, terminates the bankruptcy proceeding, and appoints a supervisory body for overseeing the implementation of the rehabilitation plan. The court must endorse the plan within seven days and put it forward to the creditors for approval. The creditors must convene to discuss the plan within a period of 45 days. The court may renew the bankruptcy proceedings if the debtor does not fulfill its obligations under the rehabilitation plan.

The Bulgarian National Bank may revoke the operating license of an insolvent bank when the bank’s own capital is negative and the bank has not been restructured according to the procedure defined in Article 51 in the Law on the Recovery and Resolution of Credit Institutions and Investment Firms. The license of a bank may also be withdrawn under the conditions set out in Article 36, par. 1 of the Law on Credit Institutions.  In the World Bank’s 2020 Doing Business Report, Bulgaria ranked  61st for ease of “resolving insolvency”.

9. Corruption

Bribery is a criminal act under Bulgarian law for both the giver and the receiver. Individuals who mediate and facilitate a bribe are also held accountable. With the gradual introduction of technology in public administration, some progress has been made in addressing petty corruption.  However, widespread higher-level corruption, particularly in public procurement and use of EU funds, continues to be one of the most difficult problems in Bulgaria’s investment climate. Human trafficking, narcotics, and contraband smuggling channels contribute to corruption in Bulgaria. Bulgaria has laws, regulations, and specialized institutions penalties on the books to combat corruption, but its law enforcement investigative capacity remains limited and the authorities often opt for easy-to-prove, low-level cases. As a result, Bulgaria has yet to convict a senior corrupt official.  There have been a few cases of high public interest, such as involving alleged siphoning of millions from the state coffers or EU funds, and in particular those involving public tenders for large energy and infrastructure projects.  The high-profile prosecutions that do take place are often seen as selective or politically motivated and typically end in acquittals after a lengthy judicial process.  Bulgaria ranks 77th  out of 180 countries in Transparency International’s Corruption Perception Index for 2019, the most challenging environment among EU members.

In early 2018, the government established a new Anti-Corruption Commission as an Center for Prevention and Countering Corruption and Organized Crime became the umbrella agency incorporating previously independent bodies combating corruption.

Bulgaria has ratified the Anti-Bribery Convention and is a participating member of the OECD Working Group on Bribery. Bulgaria has also ratified the Council of Europe’s Convention on Laundering, Search, Seizure, and Confiscation of Proceeds of Crime (1994) and Civil Convention on Corruption (1999). Bulgaria has signed and ratified the UN Convention against Corruption (2003); the Additional Protocol to the Council of Europe’s Criminal Law Convention on Corruption; and the UN Convention against Transnational Organized Crime. In 2018, the Bulgarian Parliament adopted the Anti-Money Laundering Act, which transposes the 2015 EU Directive on the prevention of the use of the financial system for the purposes of money laundering and terrorist financing.
Resources to Report Corruption  

Organizations or agencies responsible for reporting on or combating corruption:

Mr. Plamen GeorgievSotir Tsatsarov, Chairman
Commission on Corruption Prevention and Illegal Assets Forfeiture
Rakovski Blvd, Sofia, 1000
Mr. Ognyan Minchev, Board President

Transparency International Bulgaria
50 Sandor Petofi Str., Sofia

10. Political and Security Environment

There have been no incidents in recent years involving politically-motivated crime.

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