Revival or standstill of tourism in the upcoming winter season

Investment Climate in Bulgaria - 2017

Bulgaria is a country located in Southeast Europe, in the northeast part of the Balkan Peninsula. Bulgaria is having a favorable foreign investment regime which includes government incentives for new investment and low or flat corporate and income taxes. The Bulgarian investment legislation introduces the principle of equality between the Bulgarian and foreign citizens and entities. There are no legal limits on foreign ownership or control of firms. A legislative package promote foreign investment into local economy through administrative and fiscal incentives. Bulgaria’s workforce is generally well-educated and the cost of labor is the lowest in the EU.

The economic performance and the political stability have enabled Bulgaria to attract leading foreign investors. Gradual convergence with the EU common market, fiscal prudence, and a national currency pegged to the Euro has provided stability and incentives for increased trade and investment. The economy recovered to 3,4 % year-on-year growth in 2016; Foreign direct investment ascend to € 2 377 000 000 in 2016.

As a member of the EU, Bulgaria has access to significant EU funds, which support numerous projects and contribute to the growth of the economy. The EU funds, which will amount to € 11 300 000 000 over the next seven-year period (2014-2020), are a key source of funding for important projects to develop Bulgaria’s environment and water sectors, energy, technical and social infrastructure, public services, and agriculture.

Economy Overview

In 2016, the Bulgarian economy continued its recovery from the Global economic and financial crisis at a faster rate than expected, with an estimated real gross domestic product (GDP) growth of 3.4% compared to 1.6% in 2014 as estimated by the National Statistical Institute. The faster GDP growth is based on real estate, energy, BPO & IT sectors. The Economist Intelligence Unit forecasts an average real GDP growth of 3.2% between 2017 and 2020. The IMF and the World Bank have re-assumed their economy prognosis on the Bulgarian economy, and predict 2.8 % and 2, 7% GDP growth in 2017.

The Currency Board has a key role in sustaining the macroeconomic stability in the country. The Bulgarian lev is pledged to the euro with fixed rate 1.95583 BGN for €1. As a result of prudent government policy in recent years, the gross foreign currency reserves of the Bulgarian National Bank grew by € 3 730 000 000 million in 2016 on top of € 16 534 000 000 million a year earlier.

According to the Bulgarian National Bank, FDI in 2016 amounted to € 2 377 300 000 (3.7% of GDP). The total value of FDI for 2014 was € 1 285 000 000 (2.8% of GDP), whereas FDI for 2013 was € 1 275 000 000 (2.8% of GDP). The estimated top six FDI contributing countries ranked by the total FDI inflow for 2016 were the Netherlands, Germany, Switzerland, Norway, Cyprus and Russia. Outsourcing of business services and IT sectors attracted the larger part of the new investments, while traditionally strong investment in the real estate sector remain stable.

Why Invest in Bulgaria

Bulgarian is a member of the EU since 2007. EU funds are available for businesses established and operating in Bulgaria. The funds, including agricultural subsidies, amount to € 11 300 000 000 over the current seven year period (2014-2020) and are a key source of capital for numerous projects to develop Bulgaria’s environment and water sectors, energy, technical and social infrastructure, public services, and agricultural infrastructure. Access to EU support is granted by means of implementation of national eleven Operational Programs (OP) funded jointly by the national budget and EU funds.

The Bulgarian Government provides a system of legal, administrative and financial incentives to supports a large scale investments to the local economy. Certified projects favor:

• shorter terms for administrative services;
• individual administrative services;
• options for acquisition of title or limited rights over real estates on properties at preferential terms;
• financial aid for construction of technical  infrastructure elements;financial aid for staff training for acquiring professional qualifications of persons occupying the new jobs created by the investments.

Investors in Bulgaria favor the most preferable tax system in the EU.

VAT exempt for import of equipment for investment projects implemented within a period of two years:

• amount of the investment - over 5 million BGN for a period not longer than two years
• 20 new jobs created
• ability of the entity to finance the project

10% personal income tax rate (flat rate)

10% corporate tax (flat rate)

0% corporate tax in areas with high unemployment – 25% higher than the country average.

Possibility for R&D expenditure write-off.

Accelerated depreciation of 2 years for computers and new manufacturing equipment.

5% withholding tax on dividends and liquidation quotas (0% for EU tax residents).

No restrictions concerning capital repatriation

Labor force

Approximately 3 276 000 individuals or around 50, 1% of the population aged 15 and over comprised the country’s labor force, as per the latest National Statistical Institute data. While the Bulgarian labor force is generally highly skilled and well educated, wage levels in the country are significantly lower than those in Western Europe, creating significant upside potential for labor-intensive investments. As per data provided by the Bulgarian National Bank, the average gross monthly salary for the fourth quarter of 2016 was € 490, compared to € 433 for 2014. Bulgaria is the EU member-state with the lowest gross hourly earnings – € 1, 7 per hour.

After a period of four consecutive years of increase in the unemployment rate in the country, in 2014 the rate decreased from 11.8% in 2013 to 7, 6 % at the end of 2016.

Where to invest

Promising sectors for foreign investors include: construction (public infrastructure and real estate), energy and water supply (renewable energy infrastructure, supply network, waste water infrastructure); tourism (hotels and facilities); agriculture (including aquaculture); IT technology and services. 

The construction sector is a key contributor to the national GDP. Although, in 2016 the sector scored a small decline (-5, 6 %) in comparison to 2015, it is stable and progressive. The decline is due to delayed public infrastructure projects, which are expected to happen in 2017 and 2018. The construction by private companies is flourishing. The issued permissions for residential buildings are increased by 6, 3% and the building under construction in the first months of 2017 are by 50 % more in comparison to the beginning of 2016. Under construction are over 10 000 000 sq. m. of industrial properties, including hotels offices, industrial and retail stocks. The boost of the construction sector is due to the In 2016 the properties deals add 10% to the national GDP.

The Bulgarian real estate market is under growing track, driven by increased property demand, local and foreign investors’ appetite for fast and secure return of investment, growing investors’ confidence and low interest rates on deposits. In 2016 the properties deals are increased by 25% in comparison to 2015. The private and corporate investors’ confidence to all segments of the market is a core factor for its breakthrough. Banks has visibly increased their lending to private and corporate investors.

The investment climate along with economy growth, political stability and policy adequacy make Bulgaria an attractive investment destination for foreign capital.