Bulgaria is still seen by many investors as an attractive investment destination with government incentives for new investment. Bulgaria continues to offer some of the least expensive labor in EU, with low and flat corporate and income taxes. 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, and USD 120 million was invested in the sector overall in 2018. EU multi-year funds support economic growth in the form of grants for selected infrastructure projects.
There are, however, emerging challenges. A shortage of skilled labor, due to out-migration and an aging population, is becoming more pronounced and driving labor cost increases in selected sectors. 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 2019, there are questions as to the government’s commitment to upholding its contracts, including with major U.S. investors. In another example, a U.S. company has faced extended regulatory obstacles in its attempts to enter the energy market.
Foreign Direct Investment (FDI) has continued to decline, remaining far below peak levels in the wake of Bulgaria’s entry into the EU in 2007. Structural funds from the European Union have helped sustained growth, filling in the gaps left by the declining FDI.
Bulgaria’s economy grew by 3.1 percent in 2018, driven mainly by domestic consumption, government procurement, EU funds and, to a lesser extent, exports. Official unemployment dropped to 5.2 percent in 2018, and the economy is near its full-employment level. The shortage of skilled labor in many sectors has led to wage increases far above gains in labor productivity, putting pressure on Bulgaria’s competitiveness. The wage gains have driven inflation up to 2.8 percent in 2018, putting an end to a three-year deflationary period between 2015 and 2017.
Table 1: Key Metrics and Rankings
|TI Corruption Perceptions Index||2018||77 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2019||59 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2018||37 of 126||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, stock positions)||2017||$848||http://www.bea.gov/international/factsheet/|
|World Bank GNI per capita||2017||$7,860||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
At present, there are no general limits on foreign ownership or control of firms, nor is there screening or restricting of foreign investment in Bulgaria. However, while Bulgaria generally affords national treatment to foreign investors, there are reports of discrimination against U.S. investors by government officials. Two major U.S. investors in Bulgaria have been subjected to open criticism by government officials as “American” companies responsible for high energy costs in Bulgaria. The government continues to threaten to have the companies’ long-term contracts abrogated. In another case, a U.S. company has faced bureaucratic hurdles in its efforts to compete in the energy sector with a monopolistic state-owned Russian incumbent. More often, investors cite general problems with corruption, rule of law, frequently changing legislation, and uneven law enforcement. Transparency International’s (TI) Corruption Perception Index for 2018 ranked Bulgaria 77th out of 180 surveyed countries, down six places from last year’s 71st, and scoring 42 on a 100-point scale, well below the EU average of 66. The Invest Bulgaria Agency (IBA), the government’s investment promotion body, provides information, administrative services, and incentive assessments to prospective foreign investors. Its website http://www.investbg.government.bg/en contains general information for foreign investors.
Limits on Foreign Control and Right to Private Ownership and Establishment
With a few exceptions, there are no 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 companies registered in offshore jurisdictions, with more than 10 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 treaty for the avoidance of double taxation (including the United States). Despite the EU creation of a national security investment review framework, Bulgaria currently has no specific law or established mechanism in place for screening individual foreign investments for potential national security risks. Nonetheless, investments can be scrutinized on an ad hoc basis or through the Law on the Measures against Money Laundering.
Other Investment Policy Reviews
Reviews of Bulgaria’s investment climate by the Organization for Economic Cooperation and Development (OECD) can be found at this website: https://www.oecd.org/development/bulgaria-strengthens-its-co-operation-with-the-oecd-via-an-action-plan.htm
The United Nations Conference on Trade and Development (UNCTAD) has this report: https://unctadstat.unctad.org/CountryProfile/GeneralProfile/en-GB/100/index.html
Bulgaria typically supports small and medium business creation and development in conjunction with EU-funded innovation and competitiveness programs and with a special emphasis on export promotion and small- and medium-sized enterprise (SME) development. 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: https://public.brra.bg/Internal/Registration.ra?0 . Women receive equitable treatment to men, and the Bulgarian law protects minorities from discrimination.
Bulgaria ranked overall 59th (out of 190 surveyed economies worldwide) in the World Bank’s 2019 Doing Business report; 99th in Starting a New Business, and 147th place in the ‘Getting Electricity’ category.
There is no government agency for outward investment promotion; no restrictions exist for any local business to invest abroad.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
|Host Country Statistical Source*||USG or International Statistical Source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|Host Country Gross Domestic Product (GDP) ($M USD)||2017||$58,221||2016||$53,241||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical Source*||USG or International Statistical Source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|U.S. FDI in partner country ($M USD, stock positions)||2017||$848||2017||$848||BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data|
|Host country’s FDI in the United States ($M USD, stock positions)||2017||$29||N/A||N/A||BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data|
|Total inbound stock of FDI as % host GDP||2017||91.5%||2016||79.4%||UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx|
* Source for Host Country Data: Bulgarian National Bank (BNB). For comparative purposes, data inside the table draws from the U.S./international source provided in the last column.
Table 3: Sources and Destination of FDI
The official FDI data in 2018 is broadly consistent with the IMF dollar-adjusted data. The data for the Netherlands are heavily influenced by investment by non-Dutch companies (particularly Russian) incorporated in the country. Distortions such as this substantially overstate the actual role of some countries as sources of FDI and understate that of the United States. A recent study, based on beneficial owner analysis, placed the United States as historically the sixth-largest source country for FDI in Bulgaria, significantly above its nominal ranking at #13. According to the same analysis, the United States is historically the largest non-EU source of FDI in Bulgaria.
|Direct Investment From/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|“0” reflects amounts rounded to +/- USD 500,000.|
Table 4: Sources of Portfolio Investment
Bulgarian companies’ tendency to seek tax advantages by using offshore entities impacts the data below, particularly in the case of Luxembourg
|Portfolio Investment Assets|
|Top Five Partners (Millions, US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||$8,858||100%||All Countries||$2,247||100%||All Countries||$6,611||100%|
|Czech Rep||$532||6.0%||France||$223||9.9%||Czech Rep||$459||6.9%|