1. Openness To, and Restrictions Upon, Foreign 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.
The Invest Bulgaria Agency (IBA), the government’s investment attraction body, provides information, administrative services, and incentive assessments to prospective foreign investors. Its website (www.investbg.government.bg/en) contains general information for foreign investors. IBA serves as a one-stop shop for foreign investors and certifies proposed investments for eligibility for administrative services.
There are no limits to foreign and domestic private entities establishing and owning businesses in Bulgaria. The Offshore Company Act lists 28 activities (including government procurement, natural resource exploitation, national park management, banking, insurance) in which companies registered in offshore jurisdictions with more than 10 percent foreign participation are banned from participating. 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 for the avoidance of double taxation (including the United States).
Bulgaria has no specific law or coordinated 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 each ministry is responsible for screening investments within its purview, interagency coordination is lacking, and there are no common standards. As of April 2022, Bulgaria has not publicly reported any initiative on the introduction of a national investment screening mechanism.
There have been no recent Investment Policy Reviews of Bulgaria by multilateral economic organizations. An Investment Policy Review by the Organization for Economic Cooperation and Development (OECD) is planned for 2022. In January 2022 the OECD decided to open accession discussions with Bulgaria. A key milestone toward Bulgaria’s overarching OECD Action Plan was its having joined the Nuclear Energy Agency (NEA) in January 2021. In 2019, the OECD published reviews of Bulgaria’s healthcare sector and state-owned enterprises, and in January 2021 the OECD published an Economic Assessment in which it acknowledged the successful integration of Bulgarian manufacturing firms into global production chains and sound macroeconomic policies prior to the pandemic. At the same time the report highlighted as key policy challenges Bulgaria’s high income inequality, relative poverty, and an ageing and rapidly shrinking population. In February 2021 the OECD published a study of Bulgarian municipalities that acknowledged solid progress in local governance standards but also noted insufficient progress in bridging regional disparities.
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 capacity. The state-owned Bulgarian Development Bank has committed to supporting small- and medium-sized businesses in Bulgaria, including through the post-COVID-19 recovery period. 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:// portal.registryagency.bg/commercial-register . Women receive equitable treatment to men, and the Bulgarian law does not discriminate against minorities doing business.
There is no government agency for outward investment promotion, and no restrictions exist for local businesses to invest abroad.
6. Financial Sector
The Bulgarian Stock Exchange (BSE), the only securities-trading venue in Bulgaria, operates under license from the Financial Supervision Commission and is majority owned by the Ministry of Finance. The 1999 Law on Public Offering of Securities regulates the issuance of securities, securities transactions, stock exchanges, and investment intermediaries. The law is aimed at providing investor protection and at developing a transparent local capital market. In 2004 BSE performed its first IPO transaction. In 2018 BSE acquired 100 percent of the Independent Bulgarian Energy Exchange (IBEX), Bulgaria’s first independent electricity platform trader.
Since its 2007 entry into the EU, Bulgaria has aligned its regulation of securities markets with EU standards under the Markets in Financial Instruments Directive (MiFID). The BSE is a full member of the Federation of European Stock Exchanges (FESE) and operates under the Deutsche Boerse’s trading platform Xetra. The BSE’s total market capitalization comprised 23 percent of Bulgaria’s GDP in 2021, down slightly from 2020.
Bulgarian companies strongly prefer to obtain financing from local banks instead of drawing from the local financial markets. At the end of 2018, the Financial Supervision Commission approved the ‘SME beam market,’ a special market that provides small and medium-sized businesses the opportunity to raise new capital more easily.
Bulgaria’s first “unicorn” company Payhawk, a technological start-up, raised USD 1 billion of capital in 2022.
Foreign investors can access credit on the local market.
The Bulgarian bank system is well capitalized and liquid. As of the end of September 2021, the total capital adequacy ratio was 22.4 percent, above the EU average and adequately shielding domestic banks against potential macroeconomic risks. In 2020 the Bulgarian National Bank imposed a temporary payment deferral of existing loans as an anti-COVID-19 measure. As of September 2021, there were 25 banks (including 7 branches), with total assets of BGN 132.7 billion (USD 76 billion), equivalent to 100 percent of GDP. The market share of the five significant banks (directly supervised by the ECB) was 66.1 percent, the share of less significant banks was 30.6 percent, and the share of foreign bank branches was 3.3 percent. Non-performing loans were equal to 5.01 percent of the total loan portfolio of the banking system.
The Bulgarian government has raised funds by issuing both Euro-denominated and Leva- denominated bonds. Commercial banks and private pension funds and insurance companies are the primary purchasers of these instruments. EU-based banks are eligible to be primary dealers of Bulgarian government bonds.
Bulgaria does not have a sovereign wealth fund. The government maintains a multiannual fiscal savings reserve, a farmer subsidy fund, and an electricity price premium fund. Their annual budgeting is compliant with the government’s budget plans.
11. Labor Policies and Practices
The Bulgarian Constitution recognizes workers’ rights to join trade unions and to organize. The National Council for Tripartite Cooperation (NCTC) provides a forum for dialogue among the government, employer organizations, and trade unions on issues such as cost-of-living adjustments and social security contributions. Currently, there are five nationally recognized employer organizations, based on membership thresholds. Bulgaria has two large trade union confederations represented at the national level, the Confederation of Independent Trade Unions of Bulgaria (CITUB) and the Confederation of Labor Podkrepa (Support). CITUB, the larger of the two, has an estimated membership of about 300,000. Podkrepa has a large share of unionized labor in education.
There are very few restrictions on trade union activity, but employees in smaller private firms are often not represented. Unionized labor is most commonly seen in the highly subsidized railway and postal sectors. Under the Bulgarian Labor Code, employer-employee relations are regulated by employment contracts. Collective labor contracts can be concluded at the sectoral level, enterprise level, regional, and municipal levels. The Labor Code addresses worker occupational safety and health issues and mandates a minimum wage (set by the Council of Ministers). The minimum wage in 2022 is BGN 710 (USD 405) per month. The Bulgarian Labor Code provides for benefits for departing employees depending on the reason for termination of the employment contract and on whose initiative the termination was enacted. In cases of forcible termination, the employee is normally entitled to compensation from the employer, generally up to one month of gross salary.
Disputes between labor and management can be referred to the courts, but resolution is often slow. The National Institute for Conciliation and Arbitration (NICA) has developed a framework for collective labor dispute mediation and arbitration. However, NICA-sponsored collective labor dispute resolutions remain few.
The Bulgarian labor market continues to be rigid in classifying different forms of employment (part-time, per-hour, etc.). Driven by business disruption due to the COVID-19 pandemic, in 2020 the Bulgarian Labor Code was amended to allow businesses to reclassify full-time workers as part-time while the state of emergency is in force. The Bulgarian Labor Code limits overtime work to 300 hours per calendar year. Undeclared work is the most common informal labor market practice. The share of the informal economy has decreased from 36.7 percent in 2010 to 22.5 percent in 2020.
An EU “Blue Card” work permit can be obtained by high-skilled foreigners who have a visa or a long-term residence permit in Bulgaria. The long-term residence permit and the “Blue Card” are issued for a period of up to four years. As of March 2022, Ukrainians and members of their families with the right to temporary protection under Art. 1a, para. 3 of the Asylum and Refugees Act have the right to work in Bulgaria without a labor permit. Persons with temporary protection status can register as jobseekers with the Labor Office Directorate at their permanent or current address. Additional information about the procedure for obtaining temporary protection can be found here: (www.aref.government.bg/bg/node/499) . Ukrainian citizens have the right to seasonal work of up to 90 days in agriculture, forestry and fisheries, hotels and restaurants in Bulgaria without interruption for 12 months. For this purpose, registration with the Employment Agency is required based on a declaration submitted by the employer. As of March 2022, Bulgarian business have estimated they have the capacity to employ up to 200,000 new workers, including for eligible Ukrainians, mostly in the IT, textile, and construction sectors.
Bulgarians’ literacy rate (aged 15 and older) is 98.4 percent, have an average 14.4 years of schooling, and have strong backgrounds in engineering, medicine, economics, and the sciences, but there is a shortage of professionals with management skills as well as of skilled workers. Foreign and local investors have also complained of a mismatch between the educational system and the labor market’s demands. Employers have also been slow to offer training. Emigration, particularly among young skilled professionals, has exacerbated the shortages. Bulgaria slipped two places to 56th in the UN Human Development Index for 2020, the lowest score among EU countries.
The Roma community makes up an estimated 10 percent of the total population and a higher percentage of the labor force. These numbers are increasing as a result of demographic trends. The Roma community is subject to discrimination and is socially marginalized, with lower levels of educational attainment. Consequently, Roma are overrepresented among unskilled workers and in the grey economy. Large numbers of Roma also seek unskilled, seasonal employment in other EU member states.