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I am thinking of buying a property in Bulgaria, what taxes will I have to pay on purchasing the property?  Will I have to have to pay tax on rent received, what about the capital gains tax if I sell it?

On the purchase of a property you will have to pay transfer tax in general the rate is 2%, but may be 0.7% or 5% for certain inheritances.  The standard rate of VAT is 20% and non-residential property incurs an annual charge of .15%.

As a foreign individual or legal entity, with the exception of Bulgarian registered companies, you may own buildings and lease property but you may not acquire ownership of land. This restriction

Will be lifted when Bulgaria joins the EU on 1 January 2007.

Because of the restriction on foreign ownership of land, most investors in Bulgaria acquire property by means of a Bulgarian company. The corporate tax rate applies to the company’s accounting profit, adjusted for tax purposes. The 2006 corporate tax rate is 15%. Interest expense is deductible (it is not in the case of individuals), and buildings may be depreciated at 4% per annum.

In Bulgaria, capital gains are taxed as normal income, i.e., at 24% if you are an individual, and 15% if you are a company. The

sale of a primary residence is exempt. Gains derived from shares listed on the Bulgaria stock exchange are exempt. The

purchaser must withhold 15% tax and pay the tax within 30 days of receipt. If the purchaser is non-resident you must self-

account for the withholding tax.

Property passing to your spouse or descendant is exempt. Tax is charged at 0.7% on property passing to your siblings and their

children if the property value exceeds BGN 250,000. Tax is charged at 5% on property passing to other persons if the property

value exceeds BGN 250,000.

If you are Irish resident and buy an apartment for €100,000, transfer tax 2% €2,000.  Rental income after deducting interested and depreciation of €4,000 will be tax at 15%.  If the company pays a dividend to its Irish shareholders, the dividend is subject to 15% withholding tax, and the dividend is taxed in Ireland at up to 47%, with credit for the Bulgarian withholding tax.  If the investment qualifies as a “material interest in an offshore fund”, the tax rate on the income is 23%, with credit for the Bulgarian withholding tax.

If you sell the entire company, the sale of the shares is subject to Irish CGT at 20%. Alternatively if you own less than 50% of the company, and your investment qualifies as “a material interest in an

offshore fund”, it could be taxed 23% plus 2% levy. If the company sells the property, the gain is taxed in the company at 15%.

If you gift the company shares to a child it is exempt from Irish gift tax as it is below the Irish €478,155 threshold (assuming the child has not taken any previous gifts from either parent).  There is no Bulgarian tax.

Louise Carey is an Accountant/Tax Consultant based at 32 The Square, Listowel, tel: 068 21109, email:lc@taxconsultant.ie, www.taxconsultant.ie