Bulgaria has a unique and rich cultural heritage and a growing tech industry. The country is known for its vibrant folklore traditions and the rapid development of its IT sector. Many entrepreneurs are attracted to Bulgaria and consider it a prime location for starting a business.
However, there are specific factors to consider, such as the current economic state, legal and regulatory requirements, applicable taxation, and labour laws. Understanding these aspects is crucial for anyone looking to establish a successful venture in Bulgaria.
Entrepreneurs can benefit from the country’s favourable conditions, but must navigate these elements carefully to ensure compliance and optimise their business operations.
Economic Overview
Bulgaria’s economic growth has faced challenges after a strong post-pandemic recovery. Despite having a lower dependency on Russian gas compared to its neighbours, the global energy crisis and the conflict in Ukraine have dampened its momentum.
In 2023, GDP growth was a modest 1.8%, a notable decline from previous years according to the World Bank. Inflation has also been a concern, reaching a 15-year high of 9.5% in 2023, though there has been some recent easing.
Private consumption has remained positive and supports the economy amid these challenges. The labour market also shows promise, with average wage growth outpacing productivity increases. However, this could potentially weaken Bulgaria’s competitiveness over time.
Looking ahead, forecasts for 2024 and 2025 suggest a gradual return to growth, with estimates of 1.9% and 2.9% respectively, the European Commission reports. Exports are expected to improve as external demand recovers, and domestic consumption is likely to continue driving the economy.
Legal and Regulatory Framework
Bulgaria has emerged as a favoured destination for entrepreneurs due to its straightforward business registration process and attractive tax environment. The country offers a business-friendly flat corporate tax rate of 10%, making it appealing for international investment. According to the World Bank, Bulgaria ranks 48th globally in ease of doing business.
Setting up a business in Bulgaria typically involves four steps: selecting a company name and structure, opening a local bank account, registering with the government, and obtaining a company stamp. The minimum share capital requirement for a Limited Liability Company (OOD), the most common business structure, is just 2 Bulgarian leva (approximately €1).
The government registration process requires documents such as the company charter, proof of address, and a deposit of the share capital. Registration can be completed either online or in person through the Commercial Register. Depending on the nature of the business, additional permits or licenses might be necessary.
Taxation and Financial Management
Bulgaria has a flat corporate tax rate of 10%, among the lowest in the European Union. This rate applies to a company’s taxable profit, simplifying the calculation process. However, it’s good to note that most expenses are not deductible, which may require different tax planning strategies compared to other countries.
Bulgaria follows the standard EU VAT system, with a standard rate of 20%. Reduced rates of 9% and 0% are applicable to certain goods and services, including essential foodstuffs and books.
Businesses in Bulgaria may also face a dividend tax of 5%, withholding tax on specific payments such as royalties, and property tax on owned real estate.
Bulgaria’s tax regime is simple and competitive, characterised by a low corporate tax rate and a streamlined system. This makes it an appealing option for businesses that want to minimise their tax burden while operating in Europe.
Hiring and Managing Employees
All employment relationships, whether temporary or permanent, must be formalised with a written contract. These contracts should detail job duties, compensation, benefits, working hours, and termination terms, ensuring clarity and compliance.
Bulgaria mandates a standard 40-hour workweek, with specific regulations for overtime pay. Employees are entitled to a minimum of 20 working days of paid annual leave, with additional days accruing based on their length of service. Employers are also required to contribute to a social security system that includes pensions, healthcare, and unemployment benefits.
To hire employees directly, foreign businesses typically need to set up a legal entity in Bulgaria. Alternatively, Employer of Record (EOR) services can be utilised. Additionally, navigating work permit processes for foreign employees might be necessary for certain positions.
