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.
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 http://www.investbg.government.bg/ 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.
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: https://public.brra.bg/Internal/Registration.ra?0.
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.
There is no government agency promoting outward investment promotion, and no restrictions exist for any local business to invest abroad.
Bulgaria has a Bilateral Investment Treaty (BIT) with the United States, which obligates the parties to uphold national treatment and includes provisions for investor-State dispute settlement through international arbitral bodies. The BIT also includes an annex on protections for intellectual property rights. Upon Bulgaria’s accession to the EU, Bulgaria and the United States exchanged notes in 2003 to make Bulgaria’s obligations under the BIT compatible with its EU obligations.
As of 2019, Bulgaria also has bilateral investment treaties signed with the following countries: Albania, Algeria, Argentina, Armenia, Austria, Azerbaijan (not in force), Bahrain (not in force), Belarus, Belgium, China, Croatia, Cuba, Cyprus, Czech Republic, Denmark, Egypt, Finland, France, Georgia, Germany, Ghana (not in force), Greece, Hungary, India (terminated), Indonesia (terminated), Iran, Israel, Italy (terminated), Jordan, Kazakhstan, Kuwait, Latvia, Lebanon, Libya, Lithuania, Luxembourg, Northern Macedonia, Malta, Moldova, Mongolia (not in force), Montenegro, Morocco, Nigeria (not in force), North Korea (not in force), Oman, Pakistan (not in force), Poland, Portugal, Romania, Russia, San Marino, Serbia, Singapore, Slovakia, Slovenia, South Korea, Spain, Sudan (not in force), Sweden, Switzerland, Syria, Thailand, The Netherlands, Tunisia, Turkey, Ukraine, United Kingdom and Northern Ireland, Uzbekistan, Vietnam, and Yemen.
Bulgaria has a bilateral tax treaty with the United States. As of 2019, Bulgaria has signed bilateral double taxation treaties with the United States and the following countries: Albania, Algeria, Armenia, Austria, Azerbaijan, Bahrain Belarus, Belgium, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Kuwait, Latvia, Lebanon, Lithuania, Luxembourg, Northern Macedonia, Malta, Moldova, Mongolia, Montenegro, Morocco, North Korea, Norway, Poland, Portugal, Qatar, Romania, Russia, Serbia, Singapore, Slovakia, Slovenia, South Africa, South Korea, Spain, Sweden, Switzerland, Syria, Thailand, The Netherlands Turkey, Ukraine, United Arab Emirates, United Kingdom and Northern Ireland, Uzbekistan, Vietnam, and Zimbabwe.
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 www.strategy.bg, on which it posts draft legislation. Additionally, the GOB posts all its decision on pris.government.bg.
Following the outbreak of COVID-19, the government made its related decisions, measures and data available on coronavirus.bg. 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.
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.
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”.
The 2004 Investment Promotion Act (revised in 2018) stipulates equal treatment of foreign and domestic investors. The law encourages investment in manufacturing, services, and high technology, education, and human resource development via a range of incentives, which include: helping investors purchase municipal or state-owned land without tender, providing state financing for basic infrastructure and for training new staff, and reimbursing the employer’s portion of social security payments. The law also provides tax incentives and fast-track administrative procedures for public-private partnerships. The government policy for investment promotion excludes a number of sectors classified as strategic.
Investment projects, which are deemed particularly important for the economy and meet the legal requirement for a minimum investment commitment of EUR 10 to 50 million and for creating 50 to 150 new jobs, are classified as priority projects. The exact amount of the required investment depends on the level of economic activity expected to be generated. Priority investors may receive incentives such as below-market prices when acquiring property rights (full or limited) on from the central or municipal government property, government grants for research and development (R&D) and education projects, and institutional support for establishing PPPs.
Additional incentives include a two-year valued-added tax (VAT) exemption on equipment imports for investment projects over EUR 2.5 million, provided the project will be implemented within a two-year period and create at least 20 new jobs. Corporate income tax exemption can also be granted for manufacturing projects, with no minimum investment requirement, that are implemented in high unemployment areas and create at least 10 jobs.
The government does not have a practice of issuing guarantees or jointly financing foreign direct investment projects.
Foreign Trade Zones/Free Ports/Trade Facilitation
The role of Free Trade Zones vastly diminished following Bulgaria’s full integration into the EU single market in 2007. At the same time, EU integration encouraged local authorities to seek partnerships with the private sector and provide resources (i.e., land, infrastructure, etc.) for the development of industrial zones and technological parks. Industrial zones or technology parks with the necessary technical infrastructure to attract new investment can be designated as nationally significant projects by a Council of Ministers decision on a proposal made by the Minister of Economy. Located favorably on one of the main highways, the Trakia Economic Zone just outside of Plovdiv, the largest in Bulgaria, consists of two industrial parks, two industrial zones, one high- tech park and one agribusiness park. In addition, the state-owned National Industrial Zones Company currently operates fully functioning industrial zones in Sofia, Burgas, Vidin, Ruse, Svilengrad and Varna. It assists investors in these economic zones with established infrastructure, location and transport logistics. The common thread among all these economic zones is that they are either located in regions with plenty of available labor, in poor regions where the government provides special investment incentives, or are at important cross- border points. The high-technology Sofia Tech Park has joined efforts with the Bulgarian Academy of Sciences, several local universities, and several clusters in what is expected to become the largest R&D center and high-tech incubator in Bulgaria.
Performance and Data Localization Requirements
Bulgaria does not impose export performance or local content requirements as a condition for establishing, maintaining, or expanding an investment. Employment visas and work permits are required for most expatriate personnel from non-EU countries. Many U.S. companies have experienced difficulties in the past obtaining work permits for their non-Bulgarian, non-EU employees. Non-EU workers cannot exceed 35 percent of the total workforce in Bulgarian small- and medium-sized Bulgarian companies or 20 percent in firms classified as large. In 2017 the government simplified procedures and reduced issuance time for work visas for non-EU workers.
There are no requirements for foreign IT providers to turn over source code or provide access to surveillance, nor are there mechanisms used to enforce any rules on maintaining a certain amount of data storage within Bulgaria.
Bulgaria assigned the rights of land use back to its original owners in early 1990s. Restrictions still exist on ownership of agricultural land by non-EU citizens. Companies whose shareholders are registered offshore are banned from acquiring or owning Bulgarian agricultural land.
Mortgages are recorded centrally with the Bulgarian Registry Agency.
In the World Bank’s 2020 Doing Business Index, Bulgaria placed 67th out of 190 countries in the category of registering property. http://www.doingbusiness.org/rankings
Intellectual Property Rights
Bulgarian patent law has been harmonized with EU law for patents and utility model patent protection. However, in patent procedures, there have been reports of conflicts of interest and delays. These issues, coupled with a lack of accountability of the Bulgarian Patent Office, have weakened patent protections in Bulgaria.
Bulgaria is a member of the European Patent Convention and a contracting state of the European Patent Office (EPO). Bulgaria has also signed the London Agreement for facilitating the validation process but has yet to amend its own law accordingly. Bulgaria is a member of the World Intellectual Property Organization (WIPO) and party to many of its treaties, including the Berne Convention, the Paris Convention, the Patent Cooperation Treaty, the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty. Bulgaria grants the right to exclusive use of inventions for 20 years from the date of patent application, subject to payment of annual fees, which range from BGN 50 (USD 29) to BGN 1,700 (USD 987) depending on the time remaining before the patent expires, and supplementary protection certificates (SPCs) are available. Innovations can also be protected as utility models (small inventions), which are registered without examination for novelty. The term of validity of a utility model registration is four years from the date of filing with the Patent Office and may be extended for two consecutive three-year periods, but the total term of validity may not exceed 10 years. There is no accessible database for registered and valid patent and utility models in Bulgaria.
Under Bulgarian law, new and original industrial designs can be granted certificates from the Patent Office and entered into the state register, which does not require examination by the Patent Office for novelty and originality. The term of protection is 10 years, renewable for up to 25 years. Bulgaria is a contracting state of the Hague Agreement Concerning the International Deposit of Industrial Designs.
Compulsory licensing (allowing competitors to enter the market despite a valid patent) may be ordered under certain conditions, including failure to use. Disputes arising from the creation, protection, or use of inventions and utility models can be settled under administrative, civil, or arbitration procedures.
Pursuant to the 1996 Protection of New Plant Varieties and Animal Breeds Act, the Patent Office can issue a certificate protecting new plant varieties and animal breeds for between 25 and 30 years. Responding to long-standing industry concerns, the Bulgarian government included in its Drug Law a provision on data exclusivity (i.e., protection of confidential data submitted to the government to obtain approval to market pharmaceutical products).
Bulgaria is a member of the Lisbon Agreement for the Protection of Appellations of Origin and their International Registration. Bulgaria enforces EU legislation for protecting geographical indications (GIs) and Traditional Specialities Guaranteed (TSG). A new Law on Marks and Geographical Indications took effect in December 2019, altering selected procedures for trademark registration. Trademarks, service marks, and GIs are protected pursuant to registration with the Bulgarian Patent Office or an international registration (under the Madrid Agreement and the Madrid protocol) designating Bulgaria; protection does not arise merely from use in commerce. A trademark is typically granted within ten months of filing a complete application. Refusals can be appealed to the Disputes Department of the Patent Office, and these decisions can be appealed to the Sofia Administrative Court within three months. The right of exclusive use of a trademark is granted for ten years from the date of submitting the application. Extension requests must be filed during the final year of validity and can be renewed up to six months after expiration. Protection may be terminated upon request of a third party if a trademark is not used for a five-year period. Trademark infringement is a significant problem in Bulgaria for U.S. cigarette and apparel producers, and smaller-scale infringement affects other U.S. products. Bulgarian legislation provides for criminal, civil, and administrative remedies against trademark violations. Bulgaria has implemented simplified border control procedures for the destruction of seized counterfeit goods without civil or criminal trials. In addition to civil penalties prescribed by the Trademarks and Geographical Indications Act (TGIA), the Criminal Code prohibits use of a third person’s trademark without the proprietor’s consent. In practice, criminal convictions for trademark and copyright infringement are rare and sentencing tends to be lenient. Legal entities cannot be held liable under the Criminal Code.
The 1993 Copyright Act defines copyrightable work as any work of literature, art, or science that is the result of creative activity, including: literary works, publications and computer programs; musical works; stage productions; films and other audiovisual works; fine arts, including applied art, design and folk artistic crafts; architectural works and spatial development plans; photographic works; and works created in a manner similar to photographic works. Under Bulgarian law, translations and reprocessing of existing works are also eligible for copyright protection, including folklore works, periodicals, encyclopedias, collections, anthologies, bibliographies, and databases that include two or more works or materials. The law allows rights holders to form organizations for collective management of rights. A copyright not registered in Bulgaria it is deemed to exist from the time of the creation of the work.
In April 2019 a new law on trade secret protection was adopted. The law allows for civil action in cases of trade secret infringement.
In 2018, Bulgaria was removed from USTR’s Special 301 Watch List after demonstrating improvement in its enforcement of IPR .
The 2019 Notorious Markets List includes an online provider of pirated content reportedly hosted in Bulgaria.
For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.
The Bulgarian Stock Exchange (BSE), the only securities-trading venue in Bulgaria, operates under a 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.
Since its 2007 entry in 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. Overall, however, Bulgarian companies strongly prefer obtaining financing from local banks to going to the local financial markets. Money and Banking System
As of February 2020, there were 24 commercial banks (19 subsidiaries and 5 branches), with total assets of BGN 105111.5.6 billion (USD 6164.8 billion), equivalent to 94 percent of the full 2019 GDP. Approximately 73 percent of the banking system is owned by foreign banking groups, mostly EU-based. The top five banks’ weight in the banking system was 59.460 percent. In 2018, there was a visible trend toward consolidation. As of late September 2019, non-performing loans stood at 7.4 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.
Repatriation of profits is possible after presenting documentation that taxes have been paid.
In 2014, United States and Bulgaria signed an intergovernmental agreement that implements provisions of the Foreign Account Tax Compliant Act (FATCA), which targets tax non-compliance by U.S. persons who do business with Bulgarian financial institutions. The Parliament ratified the agreement in 2015.
Foreign Exchange and Remittances
Bulgaria operates a Currency Board Arrangement (CBA) whereby the lev (BGN) is fixed to Euro, exchanging EUR 1 for BGN 1.95583. Foreign exchange is freely accessible. The Foreign Currency Act stipulates that anyone may import or export up to EUR 10,000 or its foreign exchange equivalent without filling out a customs declaration. The import or export of over EUR 10,000 or its equivalent in Bulgarian leva or another currency across the border to or from a non-EU country must be declared to the customs authorities; in the case of an EU country, it must be declared if requested by the customs authorities. Exporting over BGN 30,000 (USD 17,340) in cash requires a declaration about the source of the funds, supported by documents certifying that the exporter does not owe taxes (unless the funds were earlier imported and declared).
As of April 2020, Bulgaria is preparing to formally apply for membership in the Eurozone’s precursor mechanism ERM II and the EU Banking Union.
There is no official policy regarding remittances. Remittances are an increasingly important source of funding for Bulgarian families with relatives overseas; in recent years, remittances have exceeded FDI flows.
Upon EU accession, Bulgaria was recognized as a market economy, in which the majority of the companies are private. Significant state-owned enterprises (SOEs) remain, however, such as railways and the postal service. SOEs also predominate in the healthcare, infrastructure, and energy sectors; many of these are collectively managed by the same holding company (also an SOE). Bulgaria’s roughly 220 SOEs account for about five percent of employment in the country, and their revenues amount to about 13.5 percent of the GDP. In 2019 Parliament approved the State Enterprise Act, introducing updated corporate standards and management practices. A list of all SOEs can be found on: http://www.minfin.bg/bg/page/948.
Some of the SOEs receive annual government subsidies for current and capital expenditures, regardless of their actual performance. SOEs’ budgets and audit reports are posted on the Ministry of Finance website. The law treats equally public and private sector companies vis-à-vis bidding on concessions, taxation, or other government-controlled processes. Bulgaria became party to the WTO’s Government Procurement Agreement (GPA) upon its entry into the EU in 2007.
No major privatizations are currently planned. All majority or minority state-owned properties are eligible for privatization, with the exception of those included in a specific list of companies, including water management companies, state hospitals, and state sports facilities. State-owned military manufacturers can be privatized with Parliamentary approval.
Municipally-owned property can be privatized upon decision by a municipal council, or authorized body and upon publication of the municipal privatization list in the national gazette. Foreign companies may participate. The 2010 Privatization and Post-Privatization Act created a single Privatization and Post-Privatization Agency (http://www.priv.government.bg) responsible for privatization oversight. The new State Enterprise Act in 2019 reshuffled and renamed the agency into Agency for Public Enterprises and Control.
In 2007 the government adopted a National Corporate Governance Code to encourage companies to adhere to the principles of responsible business conduct (RBC). The non-governmental Bulgarian Network for Social and Corporate Responsibility (CSR) (https://csr.bg/), promotes CSR among Bulgarian companies and reports good business practices. Bulgaria does not adhere to either the OECD Guidelines for Multinational Enterprises or the Extractive Industries Transparency Initiative.
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 email@example.com
Mr. Ognyan Minchev, Board President
The official adult literacy rate in Bulgaria is 98.4 percent (15 years and older), according to the most recent data from the UN’s Human Development Report, but illiteracy is significantly higher among some minorities. Many Bulgarians 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. The share of Bulgarian employees who have participated in some of on- the- job training in the last twelve months is the second- lowest in Bulgaria of amongl EU countries. Emigration, particularly among young skilled professionals, has exacerbated the shortages. Overall, the labor market has grown tighter, with unemployment falling to 4.1 percent in the last quarter of 2019, prior to spiking amid the COVID-19 outbreak.
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. 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.
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 2019 2020 is BGN 560 610 (USD 325342.57) 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 for up to one month of the 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 in number.
In 1991, the Overseas Private Investment Corporation (OPIC) and the Bulgarian government signed an Investment Incentive Agreement, which governs OPIC’s operations in Bulgaria. Bulgaria is a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA). Since 2011, OPIC has funded three projects in Bulgaria: for solar energy, for small business development, and for education.
* Source for Host Country Data: Bulgarian National Bank
Table 3: Sources and Destination of FDI
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.
The data are consistent. The data for outward investment is not available. Note: For inward investment, the Netherlands holds the top place largely because various companies, most notably Russia’s Lukoil, channel their investments to Bulgaria through Dutch subsidiaries. While official data routinely lists the United States as the 13th-largest source of FDI into Bulgaria, a recent study, which accounts for investment flows via European subsidiaries of U.S. companies, puts the United States into the sixth place.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Debt Securities
Luxembourg is known to be a common place for incorporating companies whose actual ownership is Bulgarian.