Legal Guide 2011

InvestBulgaria Agency
INTRODUCTORY NOTES I. INVESTMENT LEGISLATION II. ENTRY, STAY AND WORK OF FOREIGN NATIONALS IN BULGARIA III. SET UP OF COMPANIES IV. RESIDENCE AND CITIZENSHIP THROUGH INVESTMENT IN BULGARIA V. OWNERSHIP OF REAL ESTATE VI. CONSTRUCTION VII. BULGARIAN LABOUR AND SOCIAL SECURITY LAW VIII. TAXATION IX. CUSTOMS REGIME X. EU STRUCTURAL FUNDS IN BULGARIA XI. CURRENCY REGIME XII. CONCESSIONS REGIME XIII. COMPETITION LAW REGIME IN BULGARIA XIV. PERMITS AND LICENSESACCORDING TO SPECIAL LEGISLATION XV. INDUSTRIAL & INTELLECTUAL PROPERTY XVI. PUBLIC PROCUREMENT XVII. SECURITIES AND BANKS XVIII. INVESTMENT DISPUTES AND DISPUTES RESOLUTION IN BULGARIA XIX. TELECOMMUNICATION XX. PERSONAL DATA PROTECTION NEW DEVELOPMENTS XXI. AUDIO-VISUAL SECTOR XXII. ENERGY SECTOR XXIII. CONSUMER LAW XXIV. ENFORCING IN BULGARIAN COURTS XXV. MERGERS AND DE-MERGERS 3 4 11 17 21 23 30 38 50 69 73 81 85 90 96 103 110 114 123 128 132 134 140 153 158 164
WWW.INVESTBG.GOVERNMENT.BG
I NTRODUCTORY NOTES
In the last few years Bulgaria has been in the focus of the investors interest. The political stability and predictability due to the NATO membership and to the EU accession, the stable economic perspective and the growing credit rating of the country and its institutions were only some of the elements attracting the investors interest. External investors have been attracted by rapidly developing national industry, highly skilled workforce and signicant new market. Now, in the present situation, with the world nancial and economic crises, the macroeconomic framework of Bulgaria remains favorable for entry of investments. The Bulgarian government has taken considerable steps and has elaborated measures to meet the challenges of the global economic crises to maintain Bulgarias nancial and macroeconomic stability and to improve the business climate. A good understanding of the legal system is a key to optimize new and existing opportunities for doing business in Bulgaria. The current Bulgarian legal system is dynamic, constantly improving, adopting the modern patterns which reect the economic progress, the globalization and the directions of the political development. The process of harmonization of our legal system with the acquis communitaire has nished successfully. In Bulgaria investors will nd out that many legal provisions are similar to those regulating other markets on which they are used to do business. In many areas investors will be nicely surprised to nd the tendency to speed up and make more effective as well as to reduce the number of the bureaucratic and administrative regimes. They may as well benet from the establishment of special measures fostering the investment projects with more signicant amount. The equal treatment of local and foreign investors is a principle legally determined and the provisions differing from it, such as the property on land, are in a process of overcoming. The development of the banking sector, the legal regime of securities and the privatization policies are areas no longer threatening with uncertainty and crises. The efcient protection of t he intellectual and industrial property in Bulgaria is often one of the preconditions for the start of investments in the country. And what determines the good investment climate in this respect is not only the accordance of local laws with the achievements of the international instruments but it is again the existence of the respective institutions and the organization of their activity for the implementation of the legal provisions and for the prevention of infringements of rights. The answers of these and of many other questions which investors pose could be found in the present Legal Guide. InvestBulgaria Agency.
CHAPTER ONE: INVESTMENT LEGISLATION
INVESTMENT LEGISLATION
I.1. Legal Framework I.1.1. Laws and Regulations

Investment Promotion Act (State Gazette(SG), issue 18 of 2010); Regulations for Application of the Investment Promotion Act (SG issue 62/10.08.2010);
linked thereto, according to Commission Regulation (EC) No. 800/2008 on the application of Articles 87 and 88 of the Treaty to national regional investment aid, and will be applied as a multi-sector regional aid scheme and training aid scheme. The main target of the Investment promotion act is to enhance the competitiveness of the Bulgarian economy through increase of investments in scientic research, innovations and technological development in production and services adding high value while observing the principles of sustainable development. Companies, fullling the set of criteria outlined in IPA are eligible for receiving the status Certied Investor, which caries with itself the rights to apply the incentives measures under IPA. For attainment of Certicate for class Investment (Priority investment project) the following requirements must be fullled: the investments must be related to the setting-up of a new enterprise, to the extension of an existing enterprise or activity, to diversication of the output of an enterprise or activity into new additional products or to a fundamental change in the overall production process of an existing enterprise or activity;
I.1.2. International Treaties (Bilateral and Multilateral)

Convention for the establishment of Multilateral Investment Guarantee Agency; Convention for the establishment of International Center for Settlement of Investment Disputes; Convention for the establishment of the World trade organization; Bilateral investment promotion and protection treaties; Double tax treaties.
I.2. Foreign Investors

Under the Investment Promotion Act, foreign investors are: legal entities which are not registered in Bulgaria; partnerships which are not legal entities and are registered abroad; physical persons - foreigners with permanent residence abroad.
They must be implemented in the following economic activities: of the industrial sector: manufacturing industry; of the services sector: high technology activities in the eld of information technologies and services; scientic research and development and professional activities of head ofces education human health care warehousing and support activities for transportation sector at least 80 per cent of the future income must be from the products produced by
I.3. Certication measures and procedures

The Investment Promotion Act (IPA), developed in 2004, supports prospective investors to Bulgaria by introducing a system of incentives for initial investments in tangible and intangible xed assets and new employment
INVEST BULGARIA AGENCY
the economic activities listed above; at least 40 per cent of the eligible costs of the investment must be nanced by the investors own or borrowed resources; the investment must be maintained for at least ve years for large enterprises and three years for SMEs, reckoned from the date of implementation of the investment; the investment project must lead to a net increase in the number of employees in the establishment/organization concerned, compared with the average number of employees over the previous 12 months; employment must be created and maintained for at least three years for SMEs and ve years for large enterprises; the period of implementation must not exceed three years, reckoned from the date of award of an investment class certicate;
of agricultural products listed in Annex I to the Treaty establishing the European Community, according to Commission Regulation (EC) No 800/2008 on the application of Articles 87 and 88 of the Treaty to national regional investment aid. Depending on their value, investments are divided into classes A, B and Priority investment projects. Their threshold amount, xed in the Regulations for Application of the Investment Promotion Act for Class A and B is as follows (in BGN leva): General case (for the entire country): Class A: BGN 20 million; Class B: BGN 10 million. Where the initial investment is implemented entirely within the administrative boundaries of municipalities where the rate of unemployment for the year last preceding the current year is equal or higher than the national average, the threshold amount of investments within a single establishment is: Class A: BGN 7million; Class B: BGN 4 million. The threshold amount of investments within a single establishment in the high technology activities of the industrial sector of the economy is: Class A: BGN 7 million; Class B: BGN 4 million. The threshold amount of investments within a single establishment in the high technology activities of the services sector is: Class A: BGN 4 million; Class B: BGN 2 million. For priority investment projects: The threshold amount of investments within a single establishment and the minimum average annual number of people employed, as from the
The tangible and intangible xed assets acquired must be new and purchased at market conditions from third parties independent from the investor. Priority investment projects shall be investment projects which are related to all sectors of the economy in accordance with the requirements of Regulation (EC) No 800/2008 and are particularly important for the economic development of the Republic of Bulgaria or for the regions in Bulgaria. Promotion according to the procedure established by the Investment Promotion Act is not extended to enterprises in difculty, for implementation of privatization contracts or concession contracts under the Privatization and Post-privatization Control Act, respectively, under the Transformation and Privatization of State-Owned and Municipal-Owned Enterprises Act as superseded and the Concessions Act, and in implementation of compensatory (offset) arrangements, as well as investments for production of products in the coal and steel industry, the shipbuilding and synthetic bers sectors, sheries and aquaculture, as well as in activities linked to the primary production
date of the completion of the investment are as follows: General case (for the entire country): BGN 100 million and 200 employees;
the Investment Promotion Act, investments are promoted through: 1. Shorter term for administrative services: Class A and B; 2. Personalized administrative services for implementation of the investment project: Class A; 3. Sale or establishing, against a consideration of limited real rights of private state or private municipal property, without a tender procedure or competitive bidding: Class A and B; 4. Sale, exchange of property or establishing, against a consideration, of limited real rights over immovables of Sole proprietor companies with state or municipal participation, as well as commercial companies, whose capital is owned by sole proprietor companies with state participation without a tender procedure or competitive bidding, at market or lower price Class A and B; 5. Financial aid for construction of physical infrastructure elements needed for the implementation of one or more investment projects: Class A (or two projects class B in an Industrial zone); 6. Financial aid for vocational training for attainment of professional qualication by the hired staff, including interns from the higher schools in Bulgaria, who have occupied the new jobs created upon implementation of the investment project (only for investments in municipalities with high unemployment rate or in the eld of Hi tech activities): Class A and B. PRIORITY INVESTMENT PROJECTS all the measures that apply for class A and B plus the following: 1. Sale or establishing, against a consideration, of limited real rights over immovables - private state or private municipal property without a tender procedure or competitive bidding, at market or lower price but not lower than the tax assessment of the property and no state fees shall be paid in the event of changing the land use for the purposes of implementation of the project; 2. Sale, exchange of property or establishing, against a consideration, of limited real rights
For the development of an industrial zone and its development into an industrial park through attracting of investments: BGN 70 million and 100 employees;
In the eld of high technology of the industrial sector and iwithin the administrative boundaries of municipalities with high unemployment rate: BGN 50 million and 100 employees;
For the development of high-tech parks: BGN 30 million and 50 employees;
In the eld of high technology and knowledgeintensive services education, R&D, human healthcare etc. BGN 20 million and 50 employees;
The threshold amounts for the investments can be decreased as much as 2 times with the increasing of the employed personnel with the following parameters: When hiring one hundred employees more, the threshold is decreasing with 10% in the general case, in the municipalities with high unemployment rate, in investments in the eld of hitech of the industrial sector and for the development of industrial zones For fty employees more, the threshold is decreasing with 10% for hi-tech services and hi-tech parks.
The certicate determines the investment class and the rights of the investor under the law. According to the measures established by
over immovables of Sole proprietor companies with state or municipal participation, as well as commercial companies, whose capital is owned by sole proprietor companies with state participation without a tender procedure or competitive bidding, at market or lower price, but not lower than the tax assessment of the property; 3. Possibility for other forms of state aid, institutional support, public-private partnership of establishing of joint companies; 4. Different types of transactions closed between the investor and a commercial company established for the purpose of construction and development of industrial zones. 5. Providing grant in the following cases and under the following conditions: up to 50 percent maximum aid intensity for investments in education and research (Codes P 85 and M 72 according to CEA 2008), where at least 25 percent of the threshold amount of the investment implemented up to the third year from the start of the works / activities under the investment project; up to 10 percent maximum aid intensity for investments in the manufacturing industry where at least 50 percent of the threshold amount of the investment is implemented up to the third year from the start of the works / activities under the investment project;
class certicate has to submit an application to the Executive Director of the Invest Bulgaria Agency prior to commencing any work related to the investment project. Required documents to be submitted with the application: 1. investment project (plus appendix 1 in a standard form); 2. if the company has not been entered into the Commercial Register a court certicate of current status (original or a notarized copy), issued within three months before submission of the application 3. documents certifying the nancial state of the person (legal entity) in case the entity has not been registered into the Commercial Register; (a) an analysis of the nancial state, conrmed by a registered auditor or a specialized auditing entity within the meaning given by the Independent Financial Audit Act, for the current year and for the last three consecutive years or, respectively, for less than three years, if the person commenced the activity thereof during the last three years; (b) the full annual nancial statements or, respectively, an interim nancial statement, where the person has carried out activity for less than a year, must be attached to the analysis referred to in letter (a); 4. documents certifying previously implemented investment projects commensurate to the project presented, if any; 5. documents certifying the capacities to nance the investment project and the sources of nancing of the investment project: (a) own resources; (b) loan contracts; (c) bank guarantees and other guarantees; (d) nancial lease contracts; (e) letters of commitment whereby the owners of the capital undertake to nance the project; (f) other documents on nancing or on furnishing security; 6. a declaration in a standard form (under article 5, (1) Item 7 of the origin of the nancial resources, completed in a standard format
Award of investment class certicate The promotion measures under the Investment Promotion Act (IPA) apply only in respect of investors who have been awarded an investment class certicate /priority investment project. The certication procedure and the requirements of the plan for implementation of the investment project are provided for in the Regulations for Application of the Investment Promotion Act (RAIPA) and IPA. The Investor wishing to obtain an investment
endorsed by the Executive Director of the Agency; 7. declaration in a standard form under article 34 IPA for the state aid acquired by the company (if any); 8. a conviction status certicate; 9. a declaration in a standard form (under article 5, (1) Item 10 whereby the person undertakes to notify the Minister of Economy, Energy and Tourism and the Executive Director of the Agency forthwith of the occurrence of any of the circumstances covered under Article 13 or 13a of the Investment Promotion Act, as well as of any change in the circumstances covered under Article 12 of the Investment Promotion Act; 10. a document certifying the rights of the investor in respect of the built-up or vacant site wherein the investment is to be implemented, if there is such a site. 11. declaration in a standard form (under article 5, (1) Item 3, that the person/entity has not entered into any out-of-court agreements with its creditors in the meaning of Article 740 of the Commerce Act 12. declaration in a standard form (under article 5, (1) Item 4 about the category of the undertaking - dened as a small and mediumsized enterprise or a large enterprise based on the information about the nancial year preceding the year of ling the application 13. a declaration in a standard form (under article 5, (1) Item 11 that the person has submitted the application before the starting of the work on the investment project 14. a declaration in a standard form (under article 5, (1) Item 12 , by the virtue of which the person undertakes to submit to the Agency, on an annual basis, information in connection with the status of the implementation of the certied project. 15. a declaration in a standard form (under article 5, (1) Item 13 that the investment project submitted is not being implemented in connection with privatization or concession contracts or compensatory (offset) agreements. 16. a declaration in a standard form(under article 6a) that in the event the applicant is a natural person or a combination of natural and/
or legal persons, the investment project must mandatorily provide for incorporation of a legal person within the meaning given by Article 17 of the Investment Promotion Act, with the newly incorporated legal person being bound by the application and the investment project as submitted by the natural person or by the combination; Any documents covered herein, which are written in any language other than Bulgarian, must be presented with a translation into the Bulgarian language. The investment project must contain the following essential elements: 1. title of the project and designation of the applicant; 2. presentation of the investor as a legal entity and economic operator, with the following essential elements: legal status of the investor: (a) business name, registered ofce, identication numbers and particulars identifying the investor and the representative authority of the person who represents the investor, where the investor is a resident legal person or sole trader; (b) particulars identifying the investor under the national legislation thereof, where the investor is a non-resident legal person, and identication numbers of the subsidiary and of the non-resident person, where the investor is a subsidiary wholly owned by a non-resident person; (c) personal data, where the applicant is a natural person; presentation of the persons holding more than 10 per cent of the registered capital of the investor company; legal entity for implementation of the investment project and benet of the promotion measures; 3. detailed characteristics and plan for implementation of the investment project. Progress of the procedure Upon receipt of an application for certication, the Executive Director of the Agency or an
ofcial empowered by him/her designates ofcers of the Invest Bulgaria Agency to verify the plan for implementation of the investment project and the documents attached. On the basis of the assessment performed, the empowered person prepares an opinion on the award of an investment class certicate conforming to the terms established by the Investment Promotion Act and the Regulations for Application of the Investment Promotion Act. On the basis of the opinion so prepared, the Executive Director provides the Minister of Economy, Energy and Tourism with a reasoned proposal to award or to refuse to award a certicate within thirty days after receipt of the application. The Minister of Economy, Energy and Tourism or an ofcial empowered by him/her examines the proposal and awards or refuses to award a certicate, or returns the proposal and the documents attached thereto for re-assessment in the cases of non-conformity with any of the requirements of the Investment Promotion Act and the Regulations for Application of the Investment Promotion Act. The relevant investment class certicate is awarded by the Minister of Economy, Energy and Tourism or by an ofcial empowered by him/her. The procedure for awarding of Priority investment project is identical to the procedure for Investment class certicate up to the point where the empowered ofcial from the agency has prepared the positive opinion on the conformity of the project with the requirements of IPA and RAIPA for Priority investment project. After that The Minister of Economy, Energy and Tourism puts forward before the Council of Ministers a proposal for approval of a memorandum or agreement of understanding between the government of the Republic of Bulgaria and the investor applying for the implementation of a priority investment project with the proposed package of measures under IPA. On the basis of the memorandum or agreement approved by a Council of Ministers Decision a certicate for a priority investment project is issued by the Minister of Economy, Energy and Tourism or another/other authorized
person/s, including a Regional Governor or a Mayor, a representative of an organization from the academic community for technological parks, pursuant to the Council of Ministers Decision. Infrastructure subsidy Financial support for the construction of elements of the physical infrastructure from the nearest constructed element of infrastructure to the property boundary is provided to an investor who has been awarded a Class A investment certicate or for implementation of two or more certied investment projects implemented within the territory of an industrial zone. The investor submits a written request at the Ministry of Economy, Energy and Tourism presents an approved design (conceptual, schematic or working) with a fully itemized cost estimate for the construction of the elements of the physical infrastructure, which may serve for the issuing of a building permit and for the award of a construction contract under the Public Procurement Act. A competitive procedure for the assessment and selection of investment projects is held in four sessions during a calendar year at the beginning of each quarter of the year until the funds under the IPA, envisaged in the State Budget of the Republic of Bulgaria Act for the corresponding year, are spent The Minister of Economy, Energy and Tourism lays before the Council of Ministers a motion for promotion of the investment projects observing the order of the ranking. The Council of Ministers adopts a decree on allocation of resources under the project for construction of physical-infrastructure elements and authorizes the Minister of Economy, Energy and Tourism to conclude the requisite contracts. Training subsidy On a motion by the Minister of Economy, Energy and Tourism, the Council of Ministers may allocate resources for nancial support for training for attainment of professional qualication by the hired staff, including interns
from the higher schools in Bulgaria, who have occupied the new jobs created upon implementation of a Class A, Class B investment or Priority Investments projects, where: 1. the investment is implemented in high technology activities or entirely within the administrative boundaries of economically disadvantaged regions; 2. the new employment, created upon implementation of the investment is maintained for at least three years for SMEs and ve years for large enterprises after the date of implementation of the investment; 3. the annual labour remuneration of the persons hired under an employment relationship at the enterprise is higher than the national average for the relevant economic activity in which the investment project is implemented, according to data of the National Statistical Institute. 4. the investor has presented a training project for minimum of 50 people; 5. the investor has presented a brief information about the incentive effect of the measure. The employing investor may deliver training for the attainment of professional qualication through a training organization or independently within the limits of the projected resources. The relationships in connection with the training for attainment of professional qualication are regulated according to Commission Regulation (EC) No 68/2001, as amended by Commission Regulation (EC) No 363/2004, on the application of Articles 87 and 88 of the EC Treaty to training aid, and according to a procedure established by the Regulations for Application of the Investment Promotion Act. A competitive procedure for assessment and selection of investment projects is held in four sessions during a calendar year at the beginning of each quarter of the year until the funds are spent The Minister of Economy, Energy and Tourism lays before the Council of Ministers a motion for promotion of the investment projects observing the order of the ranking. The Council of Ministers adopts a decree on allocation of
resources under the personnel training project and authorizes the Minister of Economy, Energy and Tourism to conclude the requisite contracts. The competitive procedures shall be held on the basis of a methodology for performance of the assessment, endorsed by the Minister of Economy, Energy and Tourism and published on the Internet site of the Ministry of Economy, Energy and Tourism.
I.4. Invest Bulgaria Agency

The Investment Promotion Act transformed the Bulgarian Foreign Investment Agency into Invest Bulgaria Agency - executive agency under the power of the Ministry of Economy, Energy and Tourism. The basic function of the Agency after the transformation is to support the Minister of the Economy, Energy and Tourism in the implementation of the investment encouragement state policy. In this connection the Agency shall: provide information to prospective Investors provide individual administrative services to the investors after the issuance of a certicate for investment category; carry out marketing and other studies on the account of the investors; carry out investment marketing by presenting and advertising abroad the investment opportunities in the country; prepare an annual report on the investments in the country and on the conditions for their encouragement, which report shall be submitted to the Council of Ministers via the Minister of Economy, Energy and Tourism. A key function of the Agency is to assist companies in the investment process. It provides to prospective investors up-dated information on the investment process in the country, legal advice, searching for suitable Bulgarian partners and co-ordination of the investment policy with other institutions.
10
CHAPTER TWO: ENTRY, STAY AND WORK OF FOREIGN NATIONALS IN BULGARIA
II
ENTRY, STAY AND WORK OF FOREIGN NATIONALS IN BULGARIA
II.1. General Principles

The The legal status of foreign nationals in Bulgaria is governed by the Constitution of the Republic of Bulgaria, the Foreign Nationals Act (1998), the Regulation on the Application of the Foreign Nationals Act, the Ordinance on the Terms and Procedure for Issuing Visas and Determination of the Visa Regime (2008), Law on Entry, Residence and Departure of European Union Citizens and Members of Their Families from the Republic of Bulgaria (2007) and the Ordinance on the Terms and Procedure for Issuing of Work Permits to Foreign Nationals in Bulgaria (2002). Generally, the Bulgarian legislation concerning foreign citizens is in compliance with the EU aquis communautaire related to immigration policy. The Foreign Nationals Act applies to the foreigners who are not citizens of any of the Member States of the European Union, the States which are parties to the European Economic Area Agreement and the Swiss Confederation (hereinafter Foreigners). The legal status of the citizens of any of the Member States of the European Union, the States which are parties to the European Economic Area Agreement and the Swiss Confederation (hereinafter European citizens) in Bulgaria is governed by the Law on Entry, Residence and Departure of European Union Citizens and Members of Their Families from the Republic of Bulgaria, as well as by the applicable Acts of the EU legislation. European citizens who wish to enter and stay in Bulgaria do not need a visa. Foreigners are divided into two categories such who must be in possession of visa when crossing the borders of the Republic of Bulgaria and such who are exempt from that requirement. Visa requirements and the exemption of such requirements for Foreigners are governed by the EU legislation, agreements
of the European Union with third countries for visa regime and the effective Bulgarian legislation. Foreigners who wish to reside in Bulgaria on a long term basis (in any case more than three months within each six-month period) shall be issued residence permit. European citizens who intend to stay in Bulgaria longer than three months are issued residence certicates instead of residence permits. Foreigners may work in Bulgaria only after obtaining a work permit, unless otherwise stipulated by the law.
II.2. Visas
According to the effective Bulgarian legislation, Foreigners who are citizens of certain counties must obtain a visa before entering the territory of the Republic of Bulgaria. The visa is a clearance, issued to the Foreigners, for entry and stay on the territory of the Republic of Bulgaria for a certain period of time. Countries whose nationals must be in possession of visa when crossing the borders of the Republic of Bulgaria and those whose nationals are exempt from that requirement are determined in the Ordinance on the Terms and Procedure for Issuing Visas and Determination of the Visa Regime and the Council Regulation 539/2001 of 15 March 2001/L81/2001. In addition, there are certain countries whose nationals are exempt from the requirement of possession of visa when crossing the borders of the Republic of Bulgarian by virtue of agreements concluded between the European Union and the said countries for granting exemption from the visa requirement. For foreign nationals of certain countries the exemption from the requirement of possession of a visa when crossing the borders of the Republic of Bulgaria depends on the holding of a special type of a passport (e.g. a biometric passport). Foreigners who are exempt from the requirement for obtaining a visa can enter and stay in the Republic of Bulgaria without
KPMG BULGARIA
11
visa for up to 90 days within a period of six months, starting from the date of the rst entrance. A valid visa is not a guarantee of entry into Bulgaria. The border control ofcers are entitled to determine whether the Foreigner meets the requirements for admission. If the border control ofcers establish that the Foreigner does not meet the requirements of the law,, then the Foreigner may be refused entry in the Republic of Bulgaria. The Foreign Nationals Act provides for the following main visa categories: air transit visa, short-stay visa and long-stay visa. Air transit visa is issued to a Foreigner who travels by aircraft from a certain country and stays in the international transit zone of an airport on the territory of the Republic of Bulgaria with the aim of continuing his/her travel with the rst next ight to a different country. Air transit visa allows the Foreigner one, two or, as an exception, multiple entries in the territory of Bulgaria. Air transit visa can be with a term of validity of up to three months from date of issuance. A short-stay visa is issued to a Foreigner for the purposes of transit or planned stay on the territory of the Republic of Bulgaria. The short-stay visa can be issued as one-entry, two-entry or multiple-entry visa. The term of validity of the short-stay visa and the allowed period of stay are determined on the basis of examination of the conditions of entry and risk assessment during the examination of the visa application. The term of validity of the shortstay visa cannot exceed ve years. A short-stay visa for transit allows the Foreigner who is on his/her way from one country to another to enter and stay on the territory of the Republic of Bulgaria for a period of up to two days, unless otherwise provided in an international agreement. The total length of stay of a holder of a short-stay visa for transit may not exceed three months within every six-month period, counting from the date of the rst entry on the territory of the Republic of Bulgaria. A short-stay visa for planned stay allows a Foreigner single or multiple entries into
Bulgaria for up to 90 days within a period of six months, counting from the date of the rst entry on the territory of the Republic of Bulgaria. A long-stay visa allows a Foreigner to enter Bulgaria and thereafter to apply for a residence permit in order to stay in the country. The validity of the long-stay visa is 6 (six) months and it allows its holder of stay up to 180 days. For certain categories of foreigners the validity of the long-stay visa is up to 1 (one) year and it allows its holder of stay up to 360 days (e.g. foreigners conducting scientic research, foreigners on business trips on behalf of a foreign employer for performing specic tasks related to control and coordination of the implementation of a tourist services contract, foreigners on business trips on behalf of a foreign employer for effecting investments certied under the procedure of the Investment Promotion Act, etc.). The long-stay visa allows its holder multiple entries to the territory of the Republic of Bulgaria within its validity term. All visa applications should be submitted to the respective Bulgarian diplomatic missions and consular departments around the world. In case there is no diplomatic mission or consular department in a certain country, visa applications can be submitted to such authorities of a Member State of the European Union, with which Bulgaria has an agreement for representation in acceptance of visa applications and issuance of visas. In exceptional cases (e.g. the states interest or extraordinary circumstances) border control ofcers can issue single short-stay visas for transit with an allowed period of stay not exceeding two days, unless an international agreement provides otherwise, and single short-stay visas for planned stay with an allowed period of stay of up to 15 days. The State Agency National Security shall be immediately notied of the issuance of such visas. An important condition for obtaining visa is the passport of the applicant to have a validity term, which exceeds the term of the
12
KPMG BULGARIA
requested term of the visa with not less than three months. This rule does not apply in the exceptional cases where a visa is issued by the border control ofcers due to humanitarian reasons. European citizens who wish to enter and stay in Bulgaria do not need a visa. They enter and leave the country with a valid identity card or passport. They can stay and reside in Bulgaria for a period up to three months starting from the date of their rst entry without need to obtain any permits or certicates. Members of the family of European citizens, who are not citizens of any of the Member States of the European Union, the European Economic Area or the Swiss Confederation, enter and leave the territory of the Republic of Bulgaria with a valid passport and a visa, if such is required. Family members of a European citizen, who are not European citizens themselves, are exempt from the requirement of a visa only if they are in possession of a residence card, issued by a Member State of the European Union.
Directorate at the Ministry of Internal Affairs.
II.3.1. Residence permits

The Foreign Nationals Act provides for three types of residence permits: A. Extended residence permit with a term of validity of up to one year B. Long-term EU residence permit for initial period of ve years and option for renewal, and C. Permanent residence permit for an indenite period of time. In order to apply for a residence permit the Foreigner should initially obtain a long-stay visa. The most common grounds for issuance of extended residence permits are: The Foreigner is a member of the management or supervisory bodies of a Bulgarian company, provided that such company has employed at least 10 Bulgarian nationals The Foreigner is a trade representative of a foreign company registered with the Bulgarian Chamber of Commerce and Industry, and The Foreigner has been issued a work permit by the Bulgarian Employment Agency. The documents required for issuance of an extended residence permit are as follows: (i) the valid international passport of the applicant with a validity term, which exceeds the term of the requested residence permit with not less than six months; (ii) document evidencing that the applicant has been provided with a place to live during his/her stay in Bulgaria (e.g. rental contract); (iii) a standard application form; (iv) document evidencing of payment of the relevant state fees, and (v) document evidencing that the applicant has sufcient nancial means to meet the costs of his/her stay in Bulgaria. Upon submission of their rst application for an extended residence permit, Foreigners over the age of 18 submit also a non-
II.3. Residence permits, residence certicates and residence cards

Foreigners who wish to reside in Bulgaria on a long term basis (in any case more than three months within each six-month period) should apply for and obtain a residence permit. European citizens who intend to stay in Bulgaria longer than three months are issued residence certicates. Family members of European citizens, who are not European citizens themselves, who wish to reside in Bulgaria for a period longer than three months, should be granted residence permits and should obtain residence cards. The residence permits for Foreigners, the certicates for European citizens and the residence cards for European citizens family members, who are not European citizens themselves, are issued by the Migration
KPMG BULGARIA
13
conviction certicate issued by the state whose citizens they are or by the state of their habitual residence. Additional documents are required depending on the specic ground for issuance of the permit. The application for obtaining an extended residence permit must be led before the Migration Directorate not later than 7 days prior to the expiration of the term of the longstay visa. Applications are considered and reviewed within 14 days of their submission. If the case is complicated from legal or factual perspective and if additional documents need to be presented by the applicant, this term can be extended with one month. The extended residence permit can be renewed, if the grounds for its issuance still exist at the time of the renewal. It should be noted that a renewal of the extended residence permit can be refused if it is established that the Foreigner has stayed outside the territory of the Republic of Bulgaria and outside the territory of the European Union for more than 12 consecutive months. Once the Foreigner is granted an extended residence permit, he/she may live, reside and travel in the Republic of Bulgaria while the permit is valid. The Foreigner may freely choose and change his/her place of residence, or leave the country and enter it again. Foreigners who have obtained an extended residence permit have all the rights and obligations granted to or imposed on the Bulgarian citizens, with the exception of such rights and obligations for which Bulgarian citizenship is required. For example, they can be employed by Bulgarian employers, receive social security compensations, health care insurance, etc. Foreigners who have been granted status of a long-term resident in the Republic of Bulgaria can obtain long-term EU residence permits. Long-term resident status can be granted to Foreigners who have resided legally and continuously (i.e. uninterruptedly) on the territory of the Republic of Bulgaria for ve years prior to the submission of the
application for obtaining a long-term residence status. The expiration of the validity term of a long term EU residence permit does not result in losing the long-term resident status. Permanent residence permits are issued to Foreigners: (i) of Bulgarian descent, (ii) who have been married for more than ve years to a Foreigner with a permanent residence status in Bulgaria and have resided legally and continuously on the territory of Bulgaria for a period of ve years, (iii)minor or underage children of a Foreigner with permanent residence status in Bulgaria, who are not married, (iv) members of the family of a Bulgarian citizen if they have resided continuously on the territory of the Republic of Bulgaria in the last ve years, etc. Permanent residence permits are issued also to Foreigners who have made certain investments in Bulgaria, such being Foreigners (i) who have invested in Bulgaria over BGN 1,000,000 (one million Bulgarian Leva) or have increased their investment with such amount, through acquisition of shares in Bulgarian companies which are traded on the Bulgarian stock exchange, through acquisition of rights under concession agreements on the territory of the Republic of Bulgaria, or through acquisition of other securities or rights explicitly provided by the law, or (ii) who have invested in Bulgaria over BGN 6,000,000 (six million Bulgarian Leva) in the capital of a Bulgarian company whose shares are not traded on the Bulgarian stock exchange. The extended, long-term or permanent residence status of a Foreigner is evidenced by the issuance of a Bulgarian residence document evidencing the right of residence in the Republic of Bulgaria, which can be in the form of a residence permit or a residence card. EU Blue Card residence permit With the last amendments to the Bulgarian Foreign Nationals Act, effective from January 2011, in addition to the extended, long-term and permanent residence permits, the law provides for another type of residence permit which can be granted to Foreigners who wish to reside on the territory of the Republic
14
KPMG BULGARIA
of Bulgaria for a period longer than three months. This type of residence permit, called EU Blue Card, is granted to Foreigners who wish to reside on the territory of an EU Member State for the purposes of highly qualied employment. The permit is issued by the Ministry of Labour and Social Policy for a period of one year and can be renewed for further one-year periods. According to the the law, the family members of a Foreigner, who has been granted an EU Blue Card, are entitled to obtain extended residence permits in the Republic of Bulgaria for a period equal to the term of residence permitted to the holder of the EU Blue Card, if certain conditions of the law are met. The said amendments to the Bulgarian Foreign Nationals Act are in accordance with the Council Directive 2009/50/EC of 25 May 2009 on the conditions of entry and residence of third-country nationals for the purposes of highly qualied employment and represent partial transposition of the Directive. With regard to the transposition of all requirements of the Directive, as well as with regard to regulation of the terms and procedure for issuance of residence permit type EU Blue Card to Foreigners who wish to reside on the territory of Bulgaria for the purposes of highly qualied employment, the Bulgarian legislation will be subject to additional amendments.
his/her residence and that of the family members without being a burden to the Bulgarian social security system, and The European citizen has enrolled in a school/college/university in Bulgaria for study, including professional training, and has medical insurance and sufcient nancial resources to cover his/her expenses and that of the family members without being a burden to the Bulgarian social security system.
II.3.2. Residence certicates

European citizens are issued two types of residence certicates: A. Long-term residence certicate with a term of validity of up to ve years, and B. Permanent residence certicate for an indenite period of time. The grounds for issuance of long-term residence certicates are: The European citizen is employed or selfemployed in the Republic of Bulgaria The European citizen has medical insurance and sufcient nancial resources to cover the expenses for
In order to apply for a residence certicate, the European citizen should submit an application to the Migration Directorate at the Ministry of Internal Affairs within three months after his/her rst entry in the Republic of Bulgaria. The documents which should be attached to the application are as follows: (i) a valid identity card or a passport of the applicant; (ii) documents evidencing the existence of the ground on which the European citizen applies for his/her residence certicate (e.g. labour contract, valid medical insurance, documents proving the current education, etc.); (iii) documents evidencing the payment of the relevant state fee, and (iv) evidence that the applicant has sufcient nancial means to meet the costs of his/her stay in Bulgaria (if required). Additional documents may be required depending on the specic ground for issuance of the certicate. Applications are considered and reviewed and the certicate should be issued on the day of submitting the application. The certicate contains the full name of the person and the registration date. In case some of the necessary documents are missing or not valid, the European citizen shall be granted a seven-day term to correct them. If the person fails to correct the omissions within this term the competent authority shall deny the issuance of a longterm residence certicate. The right of entry and the right of residence in the Republic of Bulgaria of a European citizen may be restricted in exceptional cases and on grounds related to national security,
KPMG BULGARIA
15
public order or public health. Permanent residence certicates are issued to European citizens who have resided continuously in the Republic of Bulgaria for a period of ve years or who meet other special requirements set forth in the law.
II.3.3. Residence cards

Members of the family of European citizens, who are not European citizens themselves, are entitled to obtain an extended or permanent residence permit in the Republic of Bulgaria, on the basis of the their relation with the European citizen. Foreigner, who has obtained a residence permit in Bulgaria on that ground, is issued a Bulgarian residence document evidencing his/her right of residence in the Republic of Bulgaria. The residence document is in the form of a residence card.
Outlined below is a list of the main categories of foreigners who may work in Bulgaria without a work permit: Managers of companies or branches of foreign legal entities Members of the Managing Board or Board of Directors of local companies, who are not employed on a labour contract Trade representatives of foreign companies registered at the Bulgarian Chamber of Commerce and Industry, and Foreigners who have obtained long-term or permanent residence status in Bulgaria Family members of a European citizen or of a Foreigners who have been granted long-term residence status in Bulgaria.
II.4.3. Foreigners who may work on short-term assignments without a work permit
Foreigners may also be engaged to perform short-term assignments without a work permit under the following conditions: They are sent on a business trip to Bulgaria by their foreign employer The assignment in Bulgaria is no longer than 3 months within a period of one year The assignment encompasses any of the following: (i) the installation or the warranty repair of imported machinery and equipment; (ii) training in the operating of equipment or the delivery of ordered equipment, machines or other items; (iii) training as part of an export contract for the supply of goods under a license agreement. For this purpose an one-off registration of the Foreigner should be performed at the Bulgarian Employment Agency before commencement of the assignment. Bulgarian employers must register Foreigners and European citizens employed under labour contracts at the National Revenue Agency within 3 days from signing of their labour contracts.
II.4. Work permits II.4.1. General rules

Foreigners may work in Bulgaria only after obtaining a work permit, unless otherwise stipulated by the law. The bases for obtaining a work permit are an employment contract, or a business trip to undertake certain activities. European citizens may be employed, selfemployed or commissioned to a business trip and may work in Bulgaria without restrictions and without the need of work permits. Work permits required for Foreigners must be requested by the local employer and are issued by the Bulgarian Employment Agency. A number of legal terms and conditions must be met for the permit to be issued. Work permits are issued for a maximum duration of 1 year. Generally, if the terms and conditions for its issuance are still valid, the work permit may be renewed for an additional one-year term.
II.4.2. Foreigners who generally do not require a work permit in Bulgaria

16
KPMG BULGARIA
CHAPTER THREE: SET UP OF COMPANIES
III
SET UP OF COMPANIES
III.1. Legal Framework

The primary piece of legislation governing the types, corporate structure and governance, as well as the requirements for the establishment of commercial companies in Bulgaria is the Commerce Act 1991 (the Commerce Act). The Commercial Register Act 2008 regulates the requirements and procedure for registration in a centralised electronic-based register of commercial legal entities operating under Bulgarian law and of changes in the corporate status of such entities (the Commercial Register). Other relevant primary legislation governing specic corporate matters includes the Corporate Income Tax Act 2006, the VAT Act 2006, the Investments Promotion Act 1997, the BULSTAT Register Act 2005, the Social Security Code 1999, the Tax and Social Security Procedure Code 2005, the Personal Data Protection Act 2002, etc.
framework of public companies. In addition to the ve types of commercial companies mentioned above, business may also be conducted in one of the following organisational forms: (i) sole trader; (ii) holding; (iii) branch; (iv) trade representative ofce (TRO); and (v) cooperative. Under Bulgarian law, sole traders, partners in general partnerships and unlimited partners in limited partnerships and in companies limited by shares have unlimited personal liability to the companys creditors. On the other hand, the shareholders exposure in limited liability companies and joint stock companies, as well as the liability of limited partners in limited partnerships and in companies limited by shares is capped at the amount of their shareholding in the companys capital.
III.3. Establishment of a Company

The procedure for incorporation of a company in Bulgaria does not differ when local or foreign persons participate in its establishment. Under Bulgarian law there are no restrictions as to the size of the foreign participation in the capital of a Bulgarian company and, therefore, up to 100% of the registered capital of a local company can be held by foreign persons. As of 01 January 2008 all types of commercial companies and all branches of foreign commercial companies are incorporated by way of registration in the Commercial Register administered by the Registry Agency with the Ministry of Justice. This is a one-stop shop registration upon which the registered company obtains a unied identication code (UIC) which serves for all commercial, tax, social security, statistics and other public purposes. The company is identied by the UIC throughout its entire existence. No other secondary registration is required from newly incorporated companies and branches to start effectively performing their business activity. The requirements for the registration of each particular type of commercial company or branch are set forth in the Commerce Act. The registration procedure itself and the documents required for such registration are set forth in the Commercial Register Act and the secondary legislation in
III.2. General Review

Bulgarian law recognizes the following types of commercial companies exhaustively listed in the Commerce Act: (i) general partnership; (ii) limited partnership; (iii) limited liability company (LLC) or one-person-owned limited liability company; (iv) joint stock company (JSC) or one-person-owned joint stock company; and (v) company limited by shares. All of the above organisations are recognized as separate legal entities. Regardless of the nationality of its founder(s), each company registered in Bulgaria is considered as a Bulgarian legal entity and should be governed in compliance with the effective Bulgarian laws and regulations. A joint stock company can be publicly listed or private. Under Bulgarian law, a joint stock company is the only type of company that may become listed, provided that it has conducted an initial public offering or has a registered share emission for the purposes of trading on a regulated securities market. As a public company further qualies any joint stock company with more than ten thousand shareholders as of the last day of two consecutive calendar years. The Public Offering of Securities Act 1999 sets forth the general legal
DJINGOV , GOUGINSKI, KYUTCHUKOV & VELICHKOV
17
implementation thereof. The registration procedure varies depending on the type of company that is to be registered, whereas for example, currently registration of a joint stock company takes approximately up to ve business days as of ling the relevant documents, registration of a limited liability company takes approximately two weeks, registration of a branch of a foreign company takes more than 1 month, etc. The incorporated company or branch becomes a capable legal entity as of the date of its entry in the Commercial Register. Further to the above, in order to bring their activity in conformity with the Commercial Register Act, all types of commercial companies, sole traders and branches of foreign commercial companies that are currently registered in the commercial registers kept by the district courts shall re-register with the Commercial Register not later than 31 December 2011. Any changes in the legal status of such entities may be effected only after (or simultaneously with) their re-registration. Upon the re-registration the traders BULSTAT number is transformed into an UIC and the trader identies itself by such UIC thereafter. The above procedure is free of any fees and charges. In case a trader fails to re-register with the Commercial Register on time such trader will be deregistered from the Commercial Register and winded-up ex ofcio by the Registry Agency. Unlike commercial companies and branches of foreign commercial companies, a TRO of a foreign company is established by means of registration in the Commercial Register with the Bulgarian Chamber of Commerce and Industry (the BCCI) and is subject to secondary registration in the BUSLTAT Register, a united national administrative register also held by the Registry Agency under the BULSTAT Register Act 2005. This secondary registration serves as tax, social security and statistics registration for the TRO. Although a local company or a branch should register its scope of activities, it is free to conduct any type of activities not prohibited by law, even if the respective activity is not expressly included in its registered scope of activities (i.e. Bulgarian commercial law does not recognize the ultra vires doctrine). Where a license or permit is required by virtue of special laws for the performance of a specic activity, such activity may be performed
after obtaining the respective license or permit. By way of example, activities subject to a licensing/ permit regime include banking, insurance, gambling, trade in medicines, trade in tobacco, etc.
III.4. Most Commonly Used Forms of Business Organisations

The types of business organisations most commonly used for establishment of foreign presence in Bulgaria are the LLC, the JSC, the branch and the TRO.
III.4.1. Limited Liability Company

The limited liability company is the type of business organization most widely used among investors because of the minimum capital requirements and the simplicity of its corporate governance structure. An LLC can be established by one or more persons, individuals and/or legal entities. As a type of LLC, the solely owned LLC is subject to the same regulation as the LLC, with certain exceptions relating to its specic structure of shareholding. Shareholders in an LLC may be Bulgarian and/or foreign individuals and/or legal entities. The minimum share capital required by the Commerce Act for incorporation of an LLC is BGN 2 (two Bulgarian Leva), which equals to approximately EUR 1 (one Euro), distributed in shares with value of not less than BGN 1 (one Bulgarian Lev) each. The shareholders can make both cash and in-kind contributions. The in-kind contribution is subject to mandatory evaluation by three independent experts, appointed by the Bulgarian Registry Agency. The shares in an LLC are not tradable instruments. They may be transferred by a notarised share transfer agreement. The transfer of shares between shareholders does not require a resolution of the general meeting, while a transfer of shares to a third party requires such a resolution, as well as an approval for the admission of the new shareholder(s). The corporate governance structure of an LLC consists of (i) a general meeting of the shareholders; and (ii) one or more managers who
18
manage the company and represent it vis--vis third parties. Under Bulgarian law only an individual may be appointed as manager of the LLC. The manager can be a partner, as well as a third person and there are no restrictions for a foreign person to be appointed as manager of an LLC. However, there is a restriction for a person (a) that has been declared in bankruptcy or (b) that has been a member of a managing or controlling body of a company, dissolved because of bankruptcy, during the period of the last two years preceding the date of the resolution declaring the bankruptcy, provided that there are creditors claims against the company that have remained unsatised or otherwise unsettled, to be appointed as a manager. The general meeting of the shareholders of the LLC consists of all shareholders in the company and has the exclusive power, among other powers, to: (i) amend and supplement the articles of association; (ii) approve new shareholders and dismiss shareholders, and give consent for the transfer of shares to a new shareholder; (iii) resolve on the increase or decrease of the registered capital, etc. If the LLC is a wholly owned subsidiary, the sole owner of the capital resolves on all matters within the competence of the general meeting of the shareholders. However, qualied majority is required by law for transfer of shares to a third party, admission of new shareholders and accordingly, unanimity - for capital increase or decrease. These rules may to some extent decrease the exibility of the companys operations. An LLC is usually recommended for a small number of shareholders and for long-term business relationships.
III.4.2. Joint Stock Company

The joint stock company is another widely used type of business organisation. It is preferred because of the lack of statutory restrictions on the transfer of shares and the absence of personal engagement of the shareholders in the operation of the company. However, the corporate governance structure is more complex compared to the one of the LLC and the Commerce Act sets forth mandatory rules governing the formation of a reserve fund, distribution of prot and minority shareholders rights. A JSC may be established by
one or more Bulgarian and/or foreign individuals and/or legal entities. As a type of a JSC, the solely owned JSC is subject to the same regulation as the JSC, with certain exceptions relating to its specic structure of shareholding. The minimum registered capital required for establishment and operation of a JSC is BGN 50,000 (fty thousand Bulgarian Lev), which equals to approximately EUR 26,000 (twenty six thousand Euros). However, special legislation may require higher minimum share capital for carrying out certain types of activities, for example banking or insurance activity. The share capital of a JSC must be distributed in shares with a nominal value of not less than BGN 1 (one Bulgarian Lev) each. At the time of incorporation of the company and as a condition precedent for such incorporation, at least 25% of the nominal value (or issuance value determined in the by-laws) of each share must be paid in and the rest of total amount of the capital shall be paid in within two years. Similarly to the LLC, the shareholders of a JSC can also make both cash and in-kind contributions. A JSC is usually preferred for a lower extent of publicity of its shareholders. The general rule is that the shareholders in a JSC are not registered in the Commercial Register. Notwithstanding this, they can become known to the public: (i) upon the initial registration through the corporate documents which are led into the Commercial Register, or (ii) upon mandatory registration with the Commercial Register of resolutions of the General Meeting of Shareholders. The corporate governance structure of a JSC consists of: (i) a general meeting of the shareholders, and (ii) a board of directors (in the case of a one-tier governance system), or a supervisory board and a managing board (in the case of a two-tier governance system). The powers vested by law in the general meeting of the shareholders of a JSC are similar to those of the general meeting of an LLC. These powers include, among others: (a) amendment and supplement of the by-laws of the company; (b) increase and decrease of the registered capital; (c) appointment and dismissal from ofce of the members of the board of directors, or of the supervisory board, respectively, etc. If the JSC is a wholly owned subsidiary, the sole owner of the capital resolves
19
on all matters within the competence of the general meeting of the shareholders. The members of the board of directors, or the managing board, respectively, represent the company jointly, unless the by-laws provide otherwise. The board of directors (in the case of the one-tier governance system), or the managing board subject to the approval of the supervisory board (in the case of the two-tier governance system), may authorise one or more persons to serve as executive director(s) of the JSC and to represent the company vis-a-vis third parties. The law does not impose any restrictions for appointing foreign persons as executive directors of a JSC. Due to the more complicated management system in the JSC, the one-tier system, i.e. with a board of directors, is considered as more exible system from operational point of view, compared to the two-tier system. The shares of a JSC are tradable instruments. The shares of a JSC may be: (i) registered or bearer shares; (ii) common or privileged shares, (iii) materialised or book-entry form shares. The bylaws of a JSC may provide that privileged shares grant to the respective shareholder additional voting rights, a guaranteed or additional dividend or liquidation quota, or special management rights, such as veto rights. Shares granting equal rights form a separate class of shares, as the rights of different shareholders from one and the same class may not be restricted. Registered shares are transferred by endorsement, whereas bearer shares are transferred by mere delivery. The transfer of shares in the JSC is not subject to registration in the Commercial Register. The transfer of registered shares must be entered into the book of shareholders of the JSC to have effect against the company. In most cases new shareholders may easily enter the JSC. Nevertheless, restrictions on the transfer of shares may be provided for in the by-laws of the company, and such restrictions shall be binding on the company and on the shareholders. Restrictions on transfer may relate to any type of shares.
alternatives to the establishment of business operations of a foreign company in Bulgaria. Foreign companies registered abroad, as well as foreign individuals or persons that do not qualify as legal entities can register a branch in Bulgaria, provided that they are properly incorporated and/or entitled to conduct business under the national law of their home country. A branch of a foreign company is established by means of registration into the Commercial Register. After its proper registration according to Bulgarian law, the branch of a foreign company, although not a separate legal entity, has a certain degree of independence from the parent company. Thus, it is required to keep commercial books as a separate business establishment and prepare a separate balance sheet. However, as the branch is not a separate legal entity, its assets and liabilities are deemed to be assets and liabilities of the parent company. Therefore, the branch is not required to comply with capital registration requirements or to have separate by-laws or a distinct management structure, except for a manager. From tax point of view a branch of a foreign company is considered a permanent establishment and it triggers corporate income tax liability in Bulgaria for the foreign parent company.
III.4.4. Trade Representative Ofce

A foreign person/ entity can register a trade representative ofce in Bulgaria, provided that it is entitled to conduct business under the national law of its home country. As mentioned above, a TRO is established by means of registration with the BCCI. A TRO is not a separate legal entity and it may not carry out business activities. Thus, a TRO is meant to carry out non-proprietary activities, such as organising promotions, exhibitions or demonstrations, training or advertising of products or services, etc. Consequently, in general a TRO does not generate income and is not subject to corporate income taxation in Bulgaria. However, should a TRO engage in business activities in the country, it would qualify as a permanent establishment for tax purposes and the foreign parent company will be liable in Bulgaria for corporate income tax on the prot made as a result of the business activity of the TRO.
III.4.3. Branch
The incorporation of a branch is one of the
20
CHAPTER FOUR: RESIDENCE AND CITIZENSHIP THROUGH INVESTMENT IN BULGARIA
IV
RESIDENCE AND CITIZENSHIP THROUGH INVESTMENT IN BULGARIA
IV.3.1. Legal Framework

A decisive amendment in the Bulgarian legislation as of May 2009 is one of the signicant government measures for encouragement of foreign direct investments providing considerable advantages for foreign individuals in Bulgaria. Under this legal framework, foreigners and their qualifying family members can receive Permanent Residence Permit and have the unique benet to be exempted from physical residency as per Art. 40, para 1, sub para 6 of the Foreigners in the Republic of Bulgaria Act (FRBA). This law provision is tailored especially to foreign investors who have made a signicant investment in the local economy and allows them to reside freely in Bulgaria for an indenite term. To that effect they obtain Permanent Residence Permit, issued by the Ministry of Interior on the grounds of a certicate of the Ministry of Finance proving the amount and type of investment made. The strict statutory procedures to be followed are provided into the Foreigners in the Republic of Bulgaria Act, the Regulations for its implementation and in the Ordinance for the Conditions and Procedure for Issuance of Visas as well. These three legislative acts give legal denitions of foreign investor and qualied forms of investment, as well as the legal framework of entering, residing and exiting the Republic of Bulgaria by citizens of non-EU countries.
Certicate for Investment in Bulgaria issued by the Ministry of Finance. To obtain such Certicate, the foreign person must invest at least 1,000,000 BGN (511,292) in qualied governmental bond portfolio or under trust management agreement with chartered local credit institution for a period of ve years. The required documents by the Ministry of Finance in order to issue such Certicate include but are not limited to: Investment Agreement, Proof of Incoming Foreign Funds (SWIFT), Bank Investment Conrmation, Declaration for Source of Funds, Power of Attorney, etc. The obtaining of Investment Certicate is a condition for the application for long-term visa (Visa D). In order to apply for it the investor must present the following documents in the Bulgarian consulate or embassy in the respective country of residence: Application form Passport with validity of no less then 12 months Two recent photographs of the applicant Investment certicate issued by the Bulgarian Ministry of Finance Lease agreement for residence in Bulgaria Proof of the non-criminal record in the country of residence Proof of possession of sufcient funds to cover the accommodation costs, to the minimum amount of EUR 50 for each day of the stay as requested by the visa application or the equivalent of this amount in another freely convertible currency. An insurance policy issued by an insurance company licensed to conduct insurance business within the territory of the European Union, with a minimum cover of 30,000
IV.3.2. Requirements
Permanent Residence Permit may be provided to a foreign investor who has a
The statutory term for issuance of a Visa D is 45 days after submission of all required documents.
ARTON CAPITAL
21
CHAPTER FOUR: RESIDENCE AND CITIZENSHIP THROUGH INVESTMENT IN BULGARIA
IV.3.3. Permanent Residence

The Migration Directorate of the Ministry of Interior issues Permanent Residence Permit. This document entitles its holder to enter and exit Bulgaria freely and to reside in the country for an indenite period of time. The Permanent Resident can then apply for Bulgarian personal identity number and afterwards for a Bulgarian permanent residence card. Permanent Residence Permit, which takes 60 to 90 days to be processed, may be provided to a foreign investor who has a valid passport with Bulgarian long-term visa (type D), original clear criminal record, Certicate for Investment in Bulgaria, lease agreement, and others.
of Justice after the completion of a statutory procedure provided for in the Bulgarian Citizenship Act.
IV.3.4. Citizenship
According to the Bulgarian Citizenship Act (BCA), a foreign investor may apply for Bulgarian citizenship at least ve years after acquiring of Permanent Residence Permit provided that it has not been interrupted. To that effect the foreign person must, as of the date of ling the application for naturalization and as per Art. 12 of BCA: have reached the age of majority (18 years); maintain a current valid status of Permanent Resident, have never been sentenced by a Bulgarian court for criminal offence nor accused of committing such a crime in criminal proceedings, unless he has been rehabilitated. A foreign citizen may acquire Bulgarian citizenship regardless of the provisions of Art. 12 of BCA if the Republic of Bulgaria has demonstrated distinct interest in his/her naturalization or if the concerned person has made a special contribution to the Republic of Bulgaria in socio-economic spheres, as well as in the elds of science, technology, culture and sports. Bulgarian citizenship is granted by the President of the Republic by virtue of a President Decree issued on the grounds of a special well-founded proposal by the Minister
22
ARTON CAPITAL
CHAPTER FIVE: OWNERSHIP OF REAL ESTATE
OWNERSHIP OF REAL ESTATE
V.1. Legislative Framework and General Rules V.1.1. Legislative framework

The major legislative acts governing the real estate and real estate transactions in Bulgaria are the Bulgarian Constitution, Property Act, State Property Act, Municipal Property Act, Agricultural Land Ownership and Use Act, Forestry Act, Civil Procedures Code, Encouragement of Investments Act, Territorial Development Act, Contracts and Obligations Act and Condominium Ownership Management Act.
V.1.2. Direct acquisition of real estate in Bulgaria by foreigners and foreign companies
In Bulgaria foreign citizens and foreign companies can directly acquire buildings, premises within a building and limited property rights (e.g. construction right, right of use). The foreign acquirer has to be registered in a special Register. On 20 March 2007 changes to the Bulgarian Ownership Act, Forestry Act (implemented also in the new Forestry Act in force as of 9 April 2011), Protected Areas Act and Agricultural Land Ownership and Use Act were promulgated in the State Gazette. The changes reect the provisions of the Accession Act of Bulgaria to the European Union (EU) into the national legislation. After the changes citizens (resident citizens) and entities of the member states of the EU and the European Economic Area (EEA) may acquire ownership title over land in Bulgaria in compliance with the provisions of the Accession Act of Bulgaria to the EU. The latter provides that Bulgaria, upon its discretion, can keep the restrictions for acquisition of land by citizens and entities from the member states: (i) for ve years starting from 1 January 2007 for the land
provided for second residence, and (ii) for seven years starting from 1 January 2007 for agricultural land, forests and forest land. The above restrictions are not applicable to the resident citizens, who are individually occupied farmers who wish to settle and reside permanently in the Republic of Bulgaria and who are registered in that capacity in Register BULSTAT with the Bulgarian Registry Agency. They may acquire ownership title over agricultural and forestry lands for agricultural purposes as from 1st January 2007 - the date of the entry into force of the Accession Act of Bulgaria to the EU. Citizens (non resident citizens) and entities of countries not members of the EU and the EEA, may acquire ownership title over land under the terms of an international agreement, ratied under the terms provided for in the Constitution of the Republic of Bulgaria, which agreement has been promulgated and entered into force. Foreigners (non-resident or resident citizens) may acquire ownership title over land in case of legal succession. In case of inheritance through legal succession of agricultural land, forests or forest land, if the foreigners do not fulll the conditions provided for in the Accession Act of Bulgaria to the EU, or when something else is not provided for in an international agreement, they shall be obliged, within three years following the revealing of the inheritance, to transfer the ownership to persons who have the right to acquire such estates.
V.1.3. Indirect acquisition of real estate in Bulgaria by foreign companies or foreigners

Indirectly, foreign companies and foreign citizens can acquire any type of real estate, including land, by registering a Bulgarian company to act as acquirer. It is possible for such a company to be 100% owned by the foreign investor. Another possibility for indirect acquisition of
KPMG BULGARIA
23
a real estate in Bulgaria for a foreign company or a foreign citizen is to buy the shares in the capital of an already existing Bulgarian company, which then may act as acquirer. Foreign companies and foreign citizens, furthermore, can acquire the shares in the capital of a Bulgarian company, which already owns a real estate in Bulgaria.
lower than BGN 15,000, but represents part of the purchase price, the total value of which is equal to or exceeding BGN 15,000.
V.1.5. Legitimacy of the buyer

V.1.5.1. Direct acquisition by foreign companies or foreigners
V.1.4. The transaction

The general rule under Bulgarian law is that transactions involving real estate (e.g. a purchase, exchange, etc.) should be executed with a notary deed before a registered notary in the region where the real estate is located. The form of notary deed is mandatory not only for transactions for transfer of ownership title over real estate properties, but also regarding establishment of limited property rights over real estate properties (e.g. construction right, right of use, etc.). After execution of the deed, the notary is obliged, by law, to register the transaction into the Property Registry in order to make the title of the acquirer defendable against third parties. A notary deed is not required for disposal of state or municipal property or in privatization transactions where the simple written form is sufcient for a valid title transfer. There are also special rules and procedures governing the acquisition of real estate arising from enforcement, insolvency and similar procedures, and for in-kind contributions of real estate. The deed for sale purchase of real estate should specify the purchase price of the estate payable by the buyer. According to the new Limitation of Cash Payments Act (LCPA), in force as of 25 February 2011, all payments in Bulgaria (including with regard to real estate transactions) of an amount equal to or exceeding BGN 15,000 (approximately EUR 7,600) should be executed only via a bank transfer or deposit to a payment account. The same rule shall be applied to cases where the payment is of an amount Where foreign companies or foreign citizens acquire directly buildings, premises or limited property rights they should ensure that at least the following documents are presented: Resolution of the competent corporate body approving the acquisition of the targeted real estate (applicable only in case of acquirer - company). The resolution has to be translated in Bulgaria by a certied translator Certicate for Good Standing of the foreign company (applicable only in case of acquirer - company) apostilled/ legalized in the respective country and translated in Bulgaria by a certied translator and legalized in Bulgaria Declaration for citizenship and civil status signed before a notary and apostilled/ legalized in the respective country of signing and translated in Bulgaria by a certied translator and legalized in Bulgaria (if the foreign acquirer is an individual), and Power-of-attorney, signed before a notary and apostilled/legalized in the respective country of signing and translated in Bulgaria by a certied translator and legalized in Bulgaria, for the person who will represent the foreign acquirer before the Bulgarian notary (if the acquirer is not represented in person or by its legal representative).
IV.1.5.2. Indirect acquisition by foreign companies or foreigners Where foreign companies or foreign citizens
24
KPMG BULGARIA
indirectly acquire real estate in Bulgaria through a Bulgarian subsidiary company, they should ensure that at least the following documents are presented: Resolution of the competent corporate body of the Bulgarian subsidiary approving the acquisition of the targeted real estate, and Certicate for Good Standing of the Bulgarian subsidiary original or a certied copy (for companies that are not re-registered at the Bulgarian Commercial Register) Power-of-attorney signed by the legal representative(s) of the Bulgarian subsidiary before a notary for the person (if this is not the person referred to in the Certicate for Good Standing as the person representing and binding the Bulgarian subsidiary) who will represent the Bulgarian subsidiary before the Bulgarian notary executing the transaction. If the power of attorney is signed before a foreign notary, it should be apostilled/legalized in the respective country of signing and translated in Bulgaria by a certied translator and legalized in Bulgaria
tax ofce prior to the transaction. The fee may be shared between the parties or be borne by just one of them, and Notary fee according to the statutory Notary Tariff, but not more than BGN 6,000 (approx. Euro 3,100) per transaction. The fee may be shared between the parties or be borne by just one of them.
V.2. Verication of title V.2.1. Notary verication

According to Bulgarian legislation, prior to the execution of the notary deed, the notary public is obliged to verify the title rights of the current owner (e.g. the seller), to review the corporate resolutions of the parties under the transactions, powers of attorney, etc. Following such verication, the notary public is entitled to execute the notary deed. When the real estate transaction is related to an in-kind contribution and sale of the commercial enterprise containing real estate properties, the verication is executed by the Land Registry.
V.1.6. Statutory costs and expenses for execution of a notary deed

Transfer tax specied by the Municipal Council of the respective municipality, where the real estate is located, which transfer tax may vary between 0,1% and 3% over the higher of the purchase price agreed between the parties and the tax valuation made by the tax ofce prior to the transaction. According to the law the transfer tax is due by the acquirer. The parties may agree that the tax is split between the parties or be paid by the seller Fee for registration in the Property Registry 0.1% over the higher of the purchase price agreed between the parties and the tax valuation made by the
V.2.2. Title review (Real estate legal due diligence)

The notary public is not obliged to review the ownership title history, i.e. to review the title rights of the predecessors of the current owner. As a general legal rule, the ownership title of the current owner depends on the rights of his predecessor while the rights of the predecessor, in turn, depend on the ownership title of the predecessor of the predecessor. Thus, if one of the previous owners did not have a clean and indisputable ownership title, this will reect on the current owners, i.e. a third rightful party can claim the property right against the current owner.
KPMG BULGARIA
25
The possibility of third party property claims is precluded by the so called prescription period of possession. According to the effective legislation, after the expiration of the prescription period of possession, the current owner of the property is considered the rightful owner, regardless of the rights of their predecessors. The absolute (maximum) prescription period is 10 years. With this regard, it is recommended before purchasing real estate, the buyer to undertake title review of the targeted real estate, including the titles history. The purpose of such a review is to verify that there is/are: a clean, valid and marketable ownership title held by the seller. The seller has to be, and his predecessors should have been the valid owner of the targeted real estate in order to avoid any risk of termination or annulment of the transaction. Usually, this title review covers the last 10 years since the maximum acquisitive prescription term in Bulgaria is 10 years no liens or encumbrances over the property. The buyer should be fully aware as to whether there are any registered liens and/or encumbrances over the targeted real estate, e.g. mortgages, interlocutory injunctions, goingconcern pledges, limited property rights established in favor of third parties. A general principle in Bulgarian law is that liens and encumbrances follow the property, i.e. the registered liens and encumbrances can be enforced against the new owner no other registered rights in favor of third parties if there are registered rental or lease agreements over the targeted real estate then the buyer shall be bound by them until the expiration of their term no court or restitution claims, and no public debts of the seller, which could lead to a forcible sale of the real estate by the state authorities.
V.3. Special cases V.3.1. Acquisition of ownership title and limited property rights over marketable state owned real estate properties
The ownership title or limited property rights (e.g. construction right, right of use, etc.) over marketable state owned real estate can be acquired through: a sale purchase transaction exchange with other real estate owned by the foreign investor or its Bulgarian subsidiary only in the cases explicitly provided in the law, or an in-kind contribution into the capital of a Bulgarian company. As per amendments in the State Property Act as of 5 November 2010 the sale of marketable state owned real estate with tax valuation over BGN 10,000 (approx. Euro 5,200), shall be performed by the Privatization Agency under the rules of the Privatization and Post-privatization Control Act (PPCA). According to amendments to the PPCA as of 12 November 2010, in case of sale of marketable state owned real estate with tax valuation over BGN 10,000 to Bulgarian individuals, to Bulgarian legal entities with up to 50% state and/or municipal owned share in the capital or to foreign persons, the procedures under the PPCA shall apply, except for explicitly specied cases (e.g. in case of sale of state owned residential real estates, sale to investors with class certication, etc.). As per the PPCA the Privatization Agency shall adopt a decision for sale of state owned marketable real estate with tax valuation over BGN 10,000 upon proposal by the competent director of the state administration, to which the management of the real estate was granted, or by the respective Regional Governor (in case the management of the real estate was not granted) , after conrmation procedure with the Minister of Regional Development and the Minister of
26
KPMG BULGARIA
Finance. The method of sale (i.e. public tender or auction) should be determined by the Privatization Agency in a resolution, which is promulgated in the State Gazette, and the sale shall be performed according to the rules provided in the Tenders and Auctions Ordinance. In case of sale of state owned real estate with tax valuation over BGN 500,000 (approx. Euro 256,000), instead of conrmation procedure, a decision of the Council of Ministers is required, determining the privatization method and conditions, based on which the Privatization Agency shall perform the privatization procedure. The rights over the sold real estate are transferred by virtue of a written sale agreement (i.e. notary deed is not required) and no fees are due for the registration of the agreement with the Property Registry. Regarding the sale of marketable state owned real estate with tax valuation up to BGN 10,000 and of state owned residential properties, garages, studios, etc., the State Property Act shall apply. In general, in this case the competent authority is the respective Regional Governor, who shall perform the tender procedure and conclude the salepurchase contract. The contract has to be registered in the Property Registry in order to make the ownership title (or the limited property right) of the acquirer defendable against third parties. Special rules are provided for power plants, allowing construction right for their development to be established against remuneration, without performing a tender or an auction. Another exception from the tender rule enables the legitimate acquirer of lawfully constructed building on the said real estate to acquire ownership title over the land without performance of a tender. General principle provided for in the State Property Act is that an exchange of marketable state owned real estate or of the construction right over such real estate with other real estate owned by individuals or legal entities may not be performed, except for explicitly dened in the law cases (e.g.
termination of co-ownership, fulllment of international treaty, etc.). An in-kind contribution of marketable state owned real estate is executed on the ground of proposal of the Minister with relevant sector competence and a decision of the Council of Ministers. As a general rule, the State Property Act provides that, in case of establishment of construction right or right of use up to 10 years over marketable state owned real estate, the respective Regional Governor shall issue the order, perform the tender procedure and conclude the contract. In case of establishment of limited property rights over marketable state owned real estate with tax valuation over BGN 500,000 (approx. Euro 256,000), a decision of the Council of Ministers is required, based on which the Minister of Regional Development shall perform the tender procedure and conclude the sale-purchase contract Specic rules are provided in the Agricultural Land Ownership and Use Act for the conditions, and procedure for disposal with state owned agricultural lands. Regarding the disposal with state owned forestry territories (e.g. forestry lands and forests), there are special rules provided in the new Forestry Act, entering into force as of 9 April 2011.
V.3.2. Acquisition of ownership title and limited property rights over marketable municipality owned real estate properties
As per amendments in the PPCA as of 5 March 2010, the PPCA shall apply in case of sale to Bulgarian individuals, to Bulgarian legal entities with up to 50% state and/ or municipality owned share in the capital or to foreign persons, of the following marketable municipality owned real estates: (i) non-residential properties used for business purposes (e.g. shops, warehouses, workshops, etc.), which are not included in the patrimonium of municipality owned legal
KPMG BULGARIA
27
entities, and (ii) real estate projects under construction, which are not included in the patrimonium of municipality owned legal entities. In this case the sale of municipality owned real estates shall be performed by the respective Municipal Council through a tender/ auction according to the procedures provided in the Tenders and Auctions Ordinance. Regarding transactions with marketable municipality owned real estates outside the scope of the PPCA (e.g. residential properties, properties with non-business purpose, etc.) the Municipal Property Act shall apply. In this case the Municipal Council of the respective municipality should pass a resolution for performance of a tender/auction procedure, on which basis the Mayor concludes the sale-purchase contract. The contract has to be registered in the Property Registry in order to make the ownership title (or the limited property right) of the acquirer defendable against third parties. The ownership title or limited property rights over marketable municipal real estate may be transferred without tender by the Mayor in the cases explicitly specied by the effective legislation within a procedure determined by an ordinance adopted by the Municipal Council where the property is located. The establishment of construction right over marketable municipal owned real estate for development of power plants (like the case of state properties) is executed without performing a tender or an auction. General principle provided for in the Municipal Property Act is that an exchange of marketable real estate owned by a municipality or of the construction right over such real estate with other real estate or of the construction right thereof owned by individuals or legal entities may not be performed, except for explicitly dened in the law cases (e.g. termination of co-ownership, fulllment of international treaty, etc.). Specic rules are provided in the Agricultural Land Ownership and Use Act for the conditions and procedure for disposal with municipal owned agricultural lands, e.g. there are certain additional requirements
related to disposal of municipal pastures and grasslands. The disposal with municipal owned forestry territories (e.g. forests and forestry lands) is regulated by the Municipal Property Act, in compliance with the new Forestry Act, in force as of 9 April 2011.
V.3.3. Sale of real estate properties without tender/auction under the Encouragement of Investments Act
The Encouragement of Investments Act (EIA) envisages different incentive measures and privileges for local and foreign investors that undertake signicant investments in certain economic activities within the territory of Bulgaria. The aim of these measures, nanced by the state, is to promote large investments and improve the business environment in the country. Investors with certicate for class A or class B investment issued by the Minister of Economy, Energy and Tourism, are entitled without tender/auction to: purchase marketable real estate owned by the state or municipality, or acquire, against remuneration, limited property rights over real estate owned by the state or municipality Rights over the above real estate properties may be transferred or established at prices lower than the market ones, where the price cannot be lower than the tax evaluation of the real estate property, for priority investment projects, provided that all conditions for implementing the regional investment aid scheme under Regulation (EC) No 800/2008 have been fullled. There are special rules for priority investment projects and for real estates managed by the Ministry of Defense. The contracts must be registered in the Property Registry in order to make the ownership title (or the limited property right) of the investor defendable against third parties. Non-implementation of the investment project of the above investor within the implementation term and regarding the
28
KPMG BULGARIA
amount of the investment is included in the relevant contract as termination grounds. The contract shall be terminated also in case the work on the implementation of the investment project has not started within two years as of date of signing the respective contract. The investor may not dispose of the real estate property (or of the limited property rights), acquired according the procedures under the EIA, prior to the expiry of a veyear term as from the date of implementation of the respective investment project, and in case of medium- and small-sized enterprises - within three-year term as from the date of implementation of the respective investment project.
V.4. Condominium Ownership Management

The Condominium Ownership Management Act (COMA), in force as of 1 May 2009, regulates the management of the common parts of the buildings, as well as the rights and obligations of the owners of and the residents in separated objects or parts thereof of the said buildings. The COMA applies to the management of common parts of buildings under condominium ownership, i.e. in case oors or separate units (apartments, shops, restaurants, etc.) from buildings are owned by different owners. There are two exceptions, in which the COMA shall not apply, namely: (i) in case of buildings under condominium ownership with up to three individual units, belonging to more than one owner, the general rules of the Property Act shall apply; and (ii) in case of buildings under condominium ownership in closed-type residential complexes as specied by COMA, the management of the common areas shall be agreed by written contract with notarised signatures, concluded between the investor and the owners of the individual units. The COMA provides that the management of the common parts of the building may be performed either by the general assembly of
the owners of separate units in the building or through an association of the owners. Unlike the general assembly of owners, the association of owners is a legal entity, which shall be established in accordance with the procedures set out in the COMA. The general assembly of owners or the association of owners may decide to transfer by means of a contract the maintenance of the building to a third party individual or legal entity. For the purposes of maintenance of the common parts of a building a special Repairs and Renewal Fund should be created. The general assembly of owners/the association of owners adopts a plan for performance of repair works, reconstructions, reorganizations and others in the building. In case the competent authorities give instructions, related to such activities, the repair works, reconstructions, reorganizations or others should be complied with them. By virtue of the COMA the municipal administrations shall create and maintain public registers of buildings or separate entrances under condominium ownership arrangements located on their territory. As per the COMA the term for convocation of general assembly of owners/the association of owners and for registration in the registers of owners and in the municipal public registers, expired on 30 June 2010.
KPMG BULGARIA
29
CHAPTER SIX: CONSTRUCTION
VI
CONSTRUCTION
VI.1. Legislative and Administrative Framework. Categories of Construction Works VI.1.1. Legislative framework
The major legislative acts governing the construction process in Bulgaria are the Territorial Development Act (TDA), the Chamber of Constructors Act, the Chambers of Architects and Engineers in the Project Design Act, the Development of Black Sea Cost Act and the various Ordinances, such as: Ordinance No. 1 on the categorization of construction works; Ordinance No. 2 on putting into operation of completed construction works and the minimum warranty periods for them; Ordinance No. 3 on the acts and protocols executed in the course of construction works; Ordinance No. 4 on the scope and contents of project designs; Ordinance No. 7 on the rules and norms for development of the different types of territories and development zones, etc. Provisions concerning separate aspects of the design and construction process are contained in a number of other acts not directly related to construction, as well as in the ordinances issued by each municipality with respect to works executed on their territory.
governor, or by the Minister of Regional Development and Public Works, respectively. The Minister of Defense, or the Minister of the Interior, respectively issue the same documents with respect to special projects related to national defense and security. Administrative control for observing and applying the relevant laws and regulations is exercised by the National Construction Supervision Directorate (NCSD), as well as by the municipal authorities. The municipal authorities have powers that cover all phases of the construction process, including inspection of sites and all construction documents, issuance of mandatory instructions to all project participants, suspension of works, imposition of penalties, prohibition of access, etc. NCSD has the same powers and it is in addition entitled to review appeals against construction permits issued, ban the use of materials, restrict the operation of construction projects, which are not properly put into operation, and to order the demolition of illegal construction works.
VI.1.3. Categories of construction works

Construction projects are divided by TDA into 6 categories depending on their characteristics, signicance, complexity and operational risks: I - big infrastructure projects of national signicance such as highways; class I and II roads; railways; public ports and airports; electric power plants and heating plants with a capacity of over 100 MW; industrial plants with over 500 working places; metallurgical and chemical plants, mines, quarries, cultural monuments of national or international signicance, etc.; II - smaller projects of national or regional signicance such as roads of class III; facilities and installations for treatment of waste; public service buildings and facilities for over 1000 visitors; industrial plants with 200500 working places; 25100 MW electric power plants and heating plants, cultural
VI.1.2. Administrative bodies

The issuance of the principal documents in the construction process visas, approvals of project designs and construction permits (with a few exceptions) typically falls within the competence of the chief architect of the respective municipality, against payment of a fee that is determined by each municipality on the basis of the type and size of the works. Where projects concern more than one municipality, or more than one district, these documents are issued by the relevant district
30
KPMG BULGARIA
monuments of local signicance, etc.; III - projects of local signicance such as municipal roads and streets; tall residential and multi-purpose buildings; public service buildings and facilities of more than 5000 m2 or for 2001000 visitors; industrial buildings with 100200 working places; up to 25 MW electric power plants and heating plants; parks and gardens of over 1 ha, etc.; IV - private roads; medium-height residential and multi-purpose buildings; public service buildings and facilities of 10005000 m2 or for 100200 visitors; industrial buildings with 50100 working places; parks and gardens of up to 1 ha, etc.; V - low-height residential and multi-purpose buildings; villas; public service buildings and facilities of less than 1000 m2 or for less than 100 visitors; industrial buildings with less than 50 working places, etc.; VI - temporary structures erected for the purpose of construction and other minor works for which no approval of the design is required and a construction permit only is issued. It is important to categorize the project properly, as the requirements for its implementation vary depending on the category.
land plot on which construction works are to be carried out.
VI.2.2. Designer
The designer of the construction works can be an individual who has a degree in his area of specialization, as well as designer capacity, or an entity employing such individuals. Designers are responsible for the preparation of the project design and, if explicitly assigned by the investor, for carrying out preliminary research and investigation. They also exercise authors supervision for compliance of the construction works with the design, and are authorized to issue instructions in that respect, which are mandatory for other participants in the process. In all categories of projects except VI, the authors supervision is mandatory for the structural part of the works. According to the Chambers of Architects and Engineers in Project Development Design Act, foreigners and nationals of EU Member States, the other states of the European Economic Area and Switzerland, whose professional qualication has been recognized according to the Recognition of Professional Qualications Act, have the right to practice as architects, landscape architects, urban planners or engineers in the eld of urban planning and development design in the Republic of Bulgaria.
VI.2. Participants in the construction process. Insurance

The persons recognized by the law as participants in the construction process with their specic obligations are: the investor, the designer, the contractor, the consultant, the structural engineer, the technical controller and the supplier of plant and equipment. The relations between the project participants must be settled by written contracts.
VI.2.3. Contractor
The contractor is a registered trader that executes the construction works under a contract with the investor. The contractor can be local trader registered under the Bulgarian Commercial Act or a foreign trader registered under its national legislation. As from 3 January 2008 a precondition for execution of construction works by the contractors is the registration at the Central Constructors Register, administrated by the Chamber of Constructors.
VI.2.1. Investor
Generally, the investor is the person, individual or legal entity, that has ownership title, construction right or easement over the
KPMG BULGARIA
31
As per amendments to the Constructors Chamber Act, effective from 23 February 2010, the registration of a contractor in a relevant register in a Member State or in a State part of the European Economic Area, shall be treated as a registration in the Bulgarian Central Professional Constructors Register. Exempted from registration are the contractors executing villas, residential and commercial-residential buildings with 10 meter height, executing VI category construction works, and performing repair or reconstruction of V category construction works. The contractor is responsible for execution of the works in compliance with the approved design and permits, and the legal requirements concerning construction works, methods, materials and products, as well as for preparing the as-built documentation for the works, if this role is explicitly assigned to him under the construction contract.
VI.2.4. Consultant
The consultant is a trader that has been licensed by the Minister of Regional Development and Public Works for carrying out compliance evaluations of project designs and for exercising independent supervision over construction works. According to amendments of the TDA, effective from 23 February 2010, a license issued by the Minister of Regional Development and Public Works is not required for persons that have submitted a copy of document, issued by respective competent authority in a Member State or in a State part of the European Economic Area, certifying the right to render consultants activity. Apart from the above two activities requiring licensing, a consultant may be appointed by the investor also to carry out preliminary research and investigation, procurement of the design process and/or management of the construction process until the completed works are put into operation.
TDA mandates that a consultant be appointed by the investor for supervising the construction works categories I to IV. The supervision of category V works can be exercised by the technical controller. Category VI construction works are not subject to supervision. The supervisor (consultant or technical controller): is responsible for the lawful commencement and execution of the construction works, the completeness and correctness of all acts and protocols executed during the construction, the tness of the completed works for putting into operation, the assessment of their energy efciency and their accessibility to disabled persons; is obliged to inform the regional branch of NCSD of any breach of the technical norms and regulations it has identied in the course of the construction works; is authorized by law to certify the order book for the construction works and to issue mandatory instructions and orders to the contractor, that can be appealed within 3 days before NCSD; must sign almost all of the acts and protocols executed in the course of the construction works and issue a nal report to the investor upon their completion; is jointly liable with the contractor for any damage resulting from breach of the technical norms and regulations, or deviation from the approved designs. When appointing a consultant, investors should bear in mind that a consultant cannot act as a supervisor or carry out the compliance evaluation of designs for projects in which it or its employees or related parties are involved as designers, contractors or suppliers.
VI.2.5. Structural engineer

The structural engineer is an individual possessing the special capacity for exercising technical control over the structural part
32
KPMG BULGARIA
of detailed project designs (technical and execution designs). He must also countersign the as-built documentation. The structural engineer should be included in a promulgated in the State Gazette list, prepared and updated annually by the Chamber of Development Design Engineers. According to amendments of the TDA, effective from 23 February 2010, the activities of the structural engineer can be performed by individuals entered in a relevant list or register kept by respective competent authority in a Member State or in a State part of the European Economic Area.
project. Extended insurance coverage (e.g. contractors-all-risks,), if required by the investor, has to be agreed contractually, as it is not mandatory under the law.
VI.3. Preliminary research and investigation. Visa VI.3.1. Preliminary research and investigation
Prior to commencing any works, the investor may require that preliminary research and investigation be made in order to determine the most appropriate location and to estimate the legal admissibility and expedition of the project. Though not a mandatory phase of the process, it is often necessary and useful for the investor to obtain in advance data on the site specics (e.g. geological, seismic, hydrological, climatic and other conditions, existing structures and networks in and around the site). The scope of such preliminary research and the person(s) to which it is assigned will vary depending on the type of project and the investors requirements.
VI.2.6. Technical controller

The technical controller is an individual with technical education (secondary professional diploma or university degree) managing the execution of the construction works on behalf of the contractor. If the works are executed by the investor himself, he is obliged to appoint a technical controller. Technical controllers are also responsible for the supervision of works in category V, where no consultant has been appointed by the investor.
VI.2.7. Insurance
Designers, consultants, contractors, structural engineers and supervisors are obliged to insure for professional liability for damage caused as a result of unlawful acts or omissions in the course of the fulllment of their obligations. A special Ordinance determines the minimum liability limits under the insurance policies for different project participants and for different categories of works. As the mandatory insurance covers the minimum liability of the insured under any project in which it participates during its term of validity, the investor may, in its contracts with the respective project participants, require that they undertake additional insurance especially for their own
VI.3.2. Visa
In specic cases listed in TDA the investor must, before commencing the design of the project, obtain permission for drafting the project design entered on an excerpt from the detailed development plan covering the plot and the surrounding properties (a visa). As per TDA, the visa should be issued by the chief architect of the municipality within 14 days after being requested.
VI.4. Project design VI.4.1. Execution. Compliance valuation

Execution and approval of the projects
KPMG BULGARIA
33
design is a precondition for commencing the construction works for all construction projects with the exception of category VI projects. The designs scope depends on the specic project and it should be stipulated in a written contract, signed between the investor and the designer. Project designs must be subjected to a valuation of their compliance with the detailed development plan, the territorial development norms and regulations, the legal requirements concerning construction works, the requirement for coordination between the separate parts of the design and for completeness, and the structural integrity of the engineering calculations. Compliance valuation for projects in category I or II must be made by a consultant (different from the designer), who issues a report on its ndings. In addition, the structural part of the project design must be evaluated by a structural engineer and the compliance of the requirements for energy efciency must be executed by traders entered into public register maintained by the Energy Efciency Agency. In lower construction categories the consultants activities can be performed by the municipal Expert Council. In practice, this option is not utilized frequently.
authorities), if such are necessary. Environmental impact assessments are required for real estate projects in two cases: for projects which are presumed to impact the environment, such as chemistry factories, oil renery, thermal power plant, etc., and for projects impacting existing protected areas (reserves, national parks, etc.) or existing and potential protected zones (Natura 2000). Protected areas are designated to conserve biological diversity in ecosystems and natural processes occurring in them, as well as typical or unusual non-living natural features and landscapes. Protected areas represent national parks, nature reserves, natural monuments, natural parks and protected sites. Natura 2000 is an ecological system of protected zones in the European Union, namely zones for the conservation of wild birds and zones for the conservation of natural habitats. As an EU Member State, Bulgaria must comply with all relevant EU legislation and directives, including EU Directive 92/43 on the conservation of natural habitats and of wild fauna and ora and EU Directive 79/409 on the conservation of wild birds. The requirements of both directives are included in the Bulgarian Biodiversity Act adopted in 2002. The criteria for including the separate land properties in the protected zones relate to the ecological characteristics of the region and are based on the scientic analyses, research and prognoses. The chief architect of the municipality where the real estate is located approves the design or refuses the approval within 7 days after submission of all required documents, or 1 month in the event that the compliance valuation was not made by a consultant. The approved project design serves as grounds for the issuance of a construction permit. The investor may apply simultaneously for this with the submission of the design for approval. The approval of the design loses its validity if within 1 year the investor has not
VI.4.2. Approval of the project design. Validity

Project designs must be approved by the respective administrative bodies before commencement of the construction works. In general case the competent body is the chief architect where the real estate is located. For the purpose of getting an approval, the investor must present to the competent authorities the design itself, the compliance valuation report, preliminary agreements with the utility companies for connection to their technical infrastructure networks, as well as approvals/assessments from the controlling authorities (e.g. re safety department, sanitary inspection agency, environmental
34
KPMG BULGARIA
applied for a construction permit. The refusal to approve project designs can be appealed by the investor before NCSD within 14 days after the refusal.
VI.5. Construction permit VI.5.1. Required documents. Procedure. Validity

An issued construction permit is the second precondition for commencing the construction works. For issuance of a construction permit the investor must submit an application to the respective authority, supported with the ownership title/construction right documents, the visa (if applicable), preliminary agreements with the utility companies, three copies of the valuated project design, the environmental assessment (if necessary), along with the approvals of the controlling authorities (if applicable). As per TDA, the permit should be issued within 7 days after the request. The approved project design is an integral part of the construction permit. The permit expires if construction works have not commenced within 3 years or if the core-and-shell construction has not been completed within 5 years of its issuance, but it can be revalidated within 1 year after it being expired against payment of 50 % of the fee due for a newly issued permit.
the owners of the neighbouring land plots. The regional branch of NCSD is entitled also to execute an ex ofcio inspection on the issued construction permit within 7 days after its announcement. Construction permits that have entered into force cannot be repealed.
V.5.3. Changes in the project design after the issuance of the construction permit
Such changes are allowed only if they are not substantial, and are reected in the asbuilt documentation. Substantial changes such as changes in: the type of structure; structural elements and/or loads; in the purpose of separate units in the buildings; the type and location of common installations in buildings; or the type, level or location of technical infrastructure or transportation networks, can be made only after a design thereof has been approved and the substantial change is entered in the already issued construction permit.
VI.6. Commencement and execution of construction works VI.6.1. Acts and protocols executed during construction works
The date of commencement of the construction works is deemed to be the date on which the protocol of opening of the construction site and of determining the construction line and level (Protocol 2) is signed by the supervisor. A precondition for signing of Protocol 2 is signing of a construction contract with a contractor entitled to execute construction works. Within 3 days of signing of Protocol 2, the supervisor certies the order book for the works and informs the municipality, NCSD and the utility companies of certication. The book will contain all orders and instructions of the competent persons and authorities concerning the works.
VI.5.2. Appeals
The issuance of, or the refusal to issue, a construction permit by the chief architect of the municipality can be appealed by the interested parties before the regional branch of NCSD, within 14 days of them being notied thereof. Determination of who are the interested parties depends on the scope of the construction project. Such parties could be, for example, the owners of the land plot where the construction project is located or
KPMG BULGARIA
35
In addition to the above protocol and an order book, a number of other standard-form acts and protocols have to be compiled during the construction process, such as acceptance of the executed works before covering, interim and nal acts of acceptance of the various stages of works, etc. Ordinance No. 3 determines in detail the 17 standard types of acts and protocols, their contents, and the persons who compile and sign them. The acts and protocols serve as evidence for the circumstances recorded therein and concerning the commencement, execution and completion of the works. The participants in the development process who sign these acts and protocols are jointly responsible for the authenticity of the facts written in them.
must prepare the as-built documentation which contains a full set of drawings of the works as they were actually executed. The as-built documentation is countersigned by the investor, the contractor, the supervisor, the designer that has executed authors supervision and the structural engineer, and is submitted to the administrative body that has issued the construction permit (municipality in the general case), which must stamp each page.
VI.7.2. Acceptance of the completed works by the investor and the supervisor
The completion of construction is certied by execution of a protocol (the so called Act 15) which is signed by the investor, the designer, the contractor and the supervisor. Act 15 is the document evidencing the delivery and acceptance of the completed works between the contractor and the investor. With it, they certify that the works have been executed in compliance with the approved design, the as-built drawings, the legal requirements for the construction works and the terms of the construction contract. Based on Act 15, the supervisor prepares a nal report on the execution of the works. V.7.3. Technical passport After completion of the construction works a technical passport of the construction works shall be prepared by the supervisor (consultant) or technical controller (for category VI construction works). The technical passport contains terms for execution of repairs and data for all certicates issued for the construction project.
VI.6.2. Legal requirements concerning construction works

Construction works must be executed in compliance with the legal requirements contained in various laws and regulations concerning: bearing capacity, the stability and durability of structures and the foundation base under operational and seismic loads; re safety; protection of peoples lives, health and property; safety of operation; preservation of the environment during the time of construction and of use of the completed works; economy of heat energy and heat insulation; accessibility, etc. The responsibility for compliance with these requirements is borne jointly by the contractor and the supervisor. In case where construction works do not comply with the legislative requirements, they can be postponed, the access to the project site can be restricted and to the investor can be imposed a monetary sanction.
VI.7. Completion VI.7.1. As-built documentation

Upon completing the works the contractor (or another person appointed by the investor)
VI.8. Permitting the use of completed works. Warranty periods

Completed works or parts thereof can only be used after having been put into operation in the manner prescribed by the TDA. Works of categories I to III are put into
36
KPMG BULGARIA
operation on the basis of a permit for operation issued by NCSD following the procedure established in Ordinance No. 2. For the purpose of its issuance, a special committee is appointed by the Director of NCSD upon request of the investor, supplemented with: (i) the nal report of the supervisor; (ii) the major acts and protocols signed during the construction; (iii) certicate of registration of the works in the Cadastral Agency; (iv) signed contracts with the utility companies for connecting the completed works to the technical infrastructure networks. All costs related to the committees work are borne by the investor. The committee includes the investor, the supervisor, representatives of NCSD and the special supervisory authorities. The chairman of the committee is entitled to appoint other persons involved in the construction process. Upon inspection of the completed works and the relevant documents, the committee issues Protocol 16 for accepting or rejecting the works (the so called Act 16). Based on it, the Director of NCSD issues the permit for operation and/or occupancy. The legislative term for completing the procedure, is about 40 business days. The procedure for works in categories IV and V is simplied and involves just a desktop review of the documents for the construction and their registration for commencement of operation. It is performed by the chief architect of the municipality, and ends with the issuance of a certicate that permits operation and/or occupancy, which as per TDA should be done within 7 days after all necessary documents have been submitted by the investor. Works of VI category can be used without issuance of permit for operation, respectively certicate for operation. The contractor remains responsible for the works executed by him for a specied period after putting into operation. The minimum warranty periods are prescribed by the law and vary from 3 to 10 years, depending on the type of work. The warranty period for street repair works is usually 1 year. Longer periods can be determined contractually.
VI.9. Limitation of Liability

Our advice in this document is limited to the conclusions specically set forth herein and is based on the completeness and accuracy of the above-stated facts, assumptions and representations. If any of the foregoing facts, assumptions or representations is not entirely complete or accurate, it is imperative that we be informed immediately, as the inaccuracy or incompleteness could have a material effect on our conclusions. In rendering our advice, we are relying upon the relevant provisions of the current legislation in Bulgaria, the regulations thereunder, and the judicial and administrative interpretations thereof. These authorities are subject to change, retroactively and/or prospectively, and any such changes could affect the validity of our conclusions. We will not update our advice for subsequent changes or modications to the law and regulations or to the judicial and administrative interpretations thereof.
KPMG BULGARIA
37
CHAPTER SEVEN: BULGARIAN LABOUR AND SOCIAL SECURITY LAW
VII
BULGARIAN LABOUR AND SOCIAL SECURITY LAW*
VII.1. Bulgarian Labour Law VII.1.1. Legal Framework

The Bulgarian labour legislation is characterized by codied and detailed provisions established in the Constitution of the Republic of Bulgaria, the Labour Code and numerous sub-legislative legal acts, regulations and rules. The Labour Code is the basic source of labour legislation. It determines the main institutes of the labour law: territorial scope of the Bulgarian labour law; scope of the persons who it is applied to; tripartite partnership; collective labour contract; employees and employers organizations; basic labour rights and obligations; types and content of labour contracts; general contents and amendment of the employment relationship; preservation of employment relationships in case of change of employer; working hours, rests and leaves; labour remuneration; termination of employment relationships and explicitly listed grounds for it; compensations related to employment relationships; safe and healthy working conditions; special protection of certain categories of employees; labour disputes, control for protection of the labour law and administrative liability for its breach. The acts containing provisions for employment
relationships may be divided into two basic groups: general acts which provide for further development of the institutes of the Labour Code and special acts regulating employment relationships of special types of employees. There are numerous acts in both groups which makes their exhaustive enumeration impossible for the format of the current overview. Within the rst group fall: Protection Against Discrimination Act, Safe and Healthy Working Conditions Act, Encouragement of Employment Act, Settling Collective Labour Disputes Act, Employees Secured Claims in Case of Employers Insolvency Act, etc. The second group includes: Higher Education Act, State Employee Act, Ministry of Internal Affairs Act, Defence and Armed Forces Act, Judicial System Act, Civil Aviation Act, etc. The most important sub-legislative normative acts that fall within the eld of labour law are: Regulation on Working Hours, Rests And Leaves, Regulation on the structure and the organization of the labour remuneration, Regulation of Business Trips and Specialization Abroad and Regulation of Business Trips in the Country, Regulation on the minimum requirements for healthy and safe working conditions in the place of work and in case of the use of working equipment, etc. Of course, along with the national legislation, the Republic of Bulgaria has ratied a number of Conventions in the eld of employment relationships, such as: the Convention on working hours, the Convention on
The present material reects the applicable Bulgarian legislation as of April 10, 2011. Belokonski Gospodinov and Partners in cooperation with Karasek Wietrzyk Rechtsanwlte is a full service Bulgarian law rm with major international clientele. This material aims to inform the recipients about the latest legal developments in the Bulgarian labour law sector. It does not constitute legal advice or a legal opinion on any specic facts or circumstances and the content is intended as general information only. The advice of legal counsel should be obtained for specic questions and concerns. For further information, please contact us at Belokonski Gospodinov and Partners, Attorneys at Law, in cooperation with Karasek Wietrzyk Rechtsanwlte, Alexander Zendov str. 1, 6th oor, Nr. 38, 1113 Soa, BULGARIA, Tel: +359 (2) 971 55 33; Fax: +359 (2) 971 55 31, www.kwrbg.eu; e-mail: ofce@kwrbg.eu. Copyright 2011 by Belokonski Gospodinov and Partners, Attorneys at Law.
1 2
38
BELOKONSKI GOSPODINOV & PARTNERS IN COOPERATION WITH KARASEK WIETRZYK RECHTSANWLTE2
unemployment, the Convention on employees representatives, the Convention on annual paid leaves and the Convention on discrimination in the labour sphere and professions, etc. These conventions re integral part of the Bulgarian legislation and supersede any national law in case of controversy. Integral parts of the Bulgarian legislation (subject to certain specic procedures) are also all labour related legal acts of the European Union. In case of controversy between any internal law and the EU law, Bulgarian courts are obliged to apply directly the provisions of the latter.
labour, social dialogue between the state and employees and employers organizations regarding the regulation of employment relationships, a ban on discrimination, equal pay between men and women, guaranteed labour remuneration, xed working hours, limitation on overtime work, guaranteed rests and leaves, preservation of the labour relation in case of change of the employer, collective arrangements and freedom of association of employers and employees. According to the Labour Code, the Bulgarian labour legislation is applicable to all labour relationships between Bulgarian citizens, citizens of the European Union, citizens of the states which are parties to the Agreement of the European Economic Area or of the Confederation of Switzerland, and employers in the Republic of Bulgaria, as well as Bulgarian employers abroad, insofar as not provided otherwise in a law or a treaty to which the Republic of Bulgaria is a party. The employment relationships of Bulgarian citizens sent to work abroad in foreign enterprises or joint ventures, as well as of foreign nationals working on the territory of the Republic of Bulgaria shall also be regulated by the Labour Code, insofar as not provided otherwise in a law or a treaty to which the Republic of Bulgaria is a party. Tripartite partnership and collective labour agreements Tripartite partnership and collective labour agreements, being achievements of the contemporary labour law, ensure the protection of the employees and workers rights and the consideration of the interests of all agents, involved in the production process employees, business, state. The State can legislate in the led of labour relations, social insurance and the living standard issues only after consulting the employers and employees organisations. Despite the obligatory nature of the tripartite partnership, the statements of its bodies have only advisory functions and are not binding on
VII.1.2. Legal Denitions

The labour legislation provides for legal denitions of the basic labour terms as follows: Employer - is any natural person, legal entity or its division, as well as any other organizational and economically separate formation (enterprise, establishment, organization, cooperation, institution, household, company, etc.) which independently employs people in an employment relationship; Enterprise is any place - enterprise, establishment, organization, cooperation, establishment, site, etc where wage labour is carried out; Place of Work is any premises, workshop, room, location of machinery, equipment or any other similar territorially dened place within the enterprise where the employee on assignment from the employer works in performance of his duties under an employment relationship; Working time - is any period during which the worker or employee is obligated to execute the work on which the said worker has agreed to.
VII.1.3. General Review of the Labour Law

The Bulgarian labour law is based on principles generally applicable to the European Union labour law: freedom and protection of
BELOKONSKI GOSPODINOV & PARTNERS IN COOPERATION WITH KARASEK WIETRZYK RECHTSANWLTE
39
the competent state authority. The bodies of the tripartite partnership are established at national, district, branch, industry sector and municipality level. Collective labour bargaining also exists at levels: enterprise, branch, industry eld and municipality. The Collective labour bargaining regulates issues of the labour and social security relations of employees, which are not regulated by mandatory legal provisions. A collective labour agreement shall not contain clauses which are more unfavourable to the employees than the legal provisions or provisions of a higher grade of Collective Labour Agreement (CLA), which is binding upon the employer. A CLA shall be registered, depending on their level, in a special register of the local or Central Labour Inspectorate. The term of validity of the CLA-s can not exceed 2 years. CLA-s are applicable only to the employees that are members of syndicalist organization - party to the contract. Where the employees are not members of such an organization, they may choose to be bound by the CLA, concluded by their employer, upon written declaration to the employer or to the syndicalist organization party to the contract. Formation of the labour relationship The labour relationship can be established through individual labour contract, election or competitive examination. The procedure of elections is applicable only to ofces, specied by law, an act of the Council of Ministers or by-laws. A competitive examination may be held for any position with the exception of a position which shall be lled on the basis of election. However, the labour contract is the most widespread grounds for formation of a labour relationship. Individual labour contract The individual labour contract is concluded in writing between the employee and the employer
before the commencement of the job. Individual labour contracts are subject to registration within three days as of their signing with the respective division of the National Revenue Agency. Upon conclusion of the labour contract the employer shall introduce to the employee the labour obligations ensuing from the position or the nature of the work. The employer has to provide the employees with a copy of the description of their activities and responsibilities before the conclusion of the contract. The obligatory contents of the individual labour contract must include the workplace, position and nature of work, duration of the labour contract, date of conclusion of the contract and commencement of performance, amount of basic and extended annual paid leave and additional annual paid leaves, term of advance notices for termination of the labour contract, which is the same for both parties, basic and additional labour remunerations of constant nature as well as the periodic terms for their payment and the duration of the working day or week. The employment contract may be concluded: for an indenite period; or for a xed term. In order to protect the employee/worker, the legislator limits the possibilities for conclusion of xed term employment contracts by listing them explicitly. Fixed term contracts can be concluded for a denite period which shall not be longer than 3 years, insofar as a law or an act of the Council of Ministers does not provide otherwise; until completion of some specied work; for substitution of an employee who is absent from work; for work at a position which is to be occupied through a competitive examination until its occupation; for a certain mandate, where such has been specied by the respective body or an employment contract for a trial period. A xed-term employment contract shall be concluded for execution of casual, seasonal or short-term work and activities, as well as
40
for hiring workers or employees in enterprises that have been adjudicated bankrupt or put into liquidation. As an exception, a xed-term employment contract may be concluded for a period of not less than one year and for work and activities that are not of a casual, seasonal or short-term nature. Such an employment contract may also be concluded for a shorter period upon request in writing by the worker or employee. Any employment contract, concluded in violation of these principles shall be considered as a contact of an indenite duration. Working hours The normal duration of the working day, according to Labour Code, is eight hours. The working week consists of ve days, with normal duration of 40 hours. Along with the normal working hours, the Labour Code denes extended and shortened working time, ex time, shift work, night work, etc. The length of the working time is codied by law and it can be extended or shortened only upon reasons stipulated by law and under a specic procedure. The working time can be extended by written order of the employer only for industrial reasons upon preliminary consultations with the representatives of the trade union organizations and the representatives of the workers and employees. However, the additional working time shall be compensated for respective reduction in the working time in future. The duration of the working day in this case can not exceed 10 hours and these working conditions can not be imposed for a period longer than 60 working days. The Labour Code provides for an opportunity for the Employers to reduce the number of working hours for the full-time Employees in case of reduction of the volume of work in the enterprise. This measure could be realized only upon prior coordination with the representatives of the syndicates and with the representatives of
the employees and for the maximal period of 3 months in a calendar year. The work performed between 10.00 p.m. and 6.00 a.m., and for underage workers and employees - from 8 p.m. to 6 a.m., is considered night work. The duration of the night working hours is 7 hours, with 35 hours night working week. The night work can not be performed by underage workers; pregnant female employees; workers/employees at advanced stage of treatment in vitro; mothers of children up to 6 years of age, as well as mothers raising disabled children regardless of their age, except with their own consent. The work done out of the agreed working time is considered overtime. A general prohibition is put on the over time work and it can be permitted as an exception only in explicitly listed by law cases: for prevention, control and overcoming of the consequences of disasters; for the performance of work of urgent public necessity; for the completion of work that can not be completed in the regular working hours, etc. Rests There should be one or several rests during the day. The lunch break should not last less than 30 minutes. Leaves The leaves codied in the Labour Code can be divided on the grounds of their aim into, inter alia: paid annual leave and unpaid leave, leave for studies, leave in case of temporary disability, maternity leave, etc. Each worker or employee is entitled to a paid annual leave. In case of beginning work for the rst time, the worker or employee may use his/her paid annual leave after eight months employment. The amount of the basic paid annual leave is not less than 20 working days. Certain categories of workers or employees, depending on the special nature of work, are entitled to an extended paid annual leave. The
41
categories of such workers or employees and the minimal amount of the leave are determined by the Council of Ministers. However, annual leave can be extended by a collective labour agreement or agreement between the employer and the employee. Upon request of the employee the employer may permit unpaid leave up to 30 days per one calendar year. The use of this type of leave does not depend on a stipulated by law reasons, but rather on the employers permission. Currently the Bulgarian labour law provides for 410-day maternity leave, 45 days of which are used before the childbirth. In addition, the father has the right to use the rest of the maternity leave once the child is 6 months old, subject to the mothers consent. Moreover the father of a new-born child is entitled to use 15 days leave upon the birth of a child. The labour law imposes a prohibition on cash compensation for annual paid leave, except for the cases of termination of the labour relationship. Labour remuneration The Bulgarian labour legislation stipulates that the work performed in labour relationship shall be compensated. The amount of the labour remuneration is generally agreed on by the employer and the employee but it can not be lower than the minimum wage of the country. The amount of the latter is dened every year by a decree of the Council of Ministers. Where the employees perform their labour obligations in a rightful manner, the payment of 60 per cent of their remuneration, but not less than the minimum wage of the state, is guaranteed. For the rest of the remuneration the employer owes interest, which is levied until the date of the full payment. Preserving employment relationships in case of change of the employer Similarly to the legislation of the European Union, the Bulgarian labour legislation
envisages retention of the employment relationship in case of change of employer. The labour relationship shall not be terminated in the event of a change of employer as a result of: merger of enterprises; merger by acquisition of one enterprise by another; distribution of the operations of one enterprise among two or more enterprises; passing of a self-contained part of one enterprise to another; change of the legal form of business organization; change of the ownership or of a selfcontained part thereof; cession or transfer of activity from one enterprise to another, including transfer of tangible assets.
In these cases, the rights and obligations arising from labour relationships, which exist on the date of the change, shall be transferred to the new employer. The employment relationship is not terminated also in the event of change of employer as a result of renting, leasing or granting under concession of the enterprise or of an autonomous part thereof. In these cases the rights and obligations of the previous employer arising from employment relationships existing on the date of the change shall be transferred to the new employer. Upon expiry of the contract for rental, lease or concession, the employment relationships of the workers or employees shall not be terminated but shall revert to the previous employer thereof. The previous and the new employer shall be jointly liable for all obligations towards the workers or employees. Termination of the employment relationship Similarly to the conclusion of labour contracts, their termination is done only in writing. The termination procedures and grounds for termination of labour contracts are specied in detail in the Labour Code. The types of termination of labour contracts may be divided in several basic groups:
42
Procedures where termination requires consent of the other party or procedures where termination involves the will and actions only of the party entitled to initiate termination termination by mutual consent or unilateral termination of the contract. The unilateral termination of the labour contract supposes either breach of contract from the other party or impossibility to full their contractual obligations; Termination procedures via advance notice or termination procedures where no advance notice is required. The terms of the advance notice are specied in the Labour Code: 1 month for non-xed term contracts unless anything else is specied in the contract, but in any event not more than 3 months, and 3 months for xed term contracts, but not more than the remainder to the expiry of the contract; Termination procedures upon a motion of the employer and termination procedures upon a motion of the employee. However, while the employee may terminate the labour contract without stating any grounds, the employer cannot use such a procedure. Within seven days after the termination of the employment contract, the employer or a person authorized thereby is obligated to send a notication of this to the relevant territorial directorate of the National Revenue Agency.
month from the date of termination of the labour contract, the grounds for its termination shall be considered dropped. The Bulgarian law provides for special preliminary protection, which some categories of employees and workers are entitled to. They may be dismissed only upon preliminary permission by the Labour Inspectorate for each separate case of dismissal. The Bulgarian Labour Code enumerates categories of employees and workers entitled to preliminary protection: mothers of children younger than 3 years of age; employees who have been reassigned due to reasons of health; employees who have commenced a period of permitted leave; workers/employees, who are in advanced stage of treatment in vitro. The labour law provides for special stipulations for the protection of female workers/employees at advanced stage of treatment in vitro. This category of workers/employees was not included in the scope of special protection for women. Until now special protection was provided only for pregnant women and nursing women. Furthermore, there are several more provisions regulating special issues referring the women at an advanced stage of treatment in vitro, such as womens rooms, job reassignment, business trips, etc. Moreover, the protection policy pursued by the latest amendments reduces the opportunities for their discharge. The reasons on which they may be discharged are limited to the same which are in force for the pregnant women. Protection against wrongful dismissal As stated above, under the Bulgarian law a labour contract can be terminated by the employer only on listed by law grounds. However, where the termination of the employment relationship does not comply with the legal requirements, the employee/ worker can still protect their interests either through challenging the rightfulness of the dismissal before the employer, or before court. The employer is not obliged to consider the
The Labour Code provides for a special termination of the labour contract whereby the employer can propose, at his initiative, to the worker or employee termination of the employment contract against indemnication. If the worker or employee gives no answer in writing within 7 days the proposal shall be considered rejected. If the worker or employee accepts the proposal for termination against indemnication the employer shall owe him/her an indemnication amounting to not less than the quadruple size of the last received monthly gross remuneration, except if the parties have agreed upon a larger size of the indemnication. If such indemnication is not paid within one
43
complaint. However, he can voluntarily withdraw the dismissal until a lawsuit is led. The Labour Code provides for four claims, whereas some of them can be led together:
Claim for recognition of dismissal as wrongful and its repeal; Claim for reinstatement of the employee to her/his previous position; Claim for compensation for the period of unemployment due to dismissal; Claim for revision of the grounds for dismissal, entered in her/his service record or other documents.
There are no special Bulgarian courts for consideration of labour disputes as in other European countries, but the new Civil Procedure Code implements a special claim procedure the summary procedure, for cases concerning the rights of the workers or employees. Employees are released from paying court costs. The summary procedure provides for much shorter terms for the court actions in comparison with the general claim procedure. Compensations related to the labour relationship The Labour Code provides for certain compensations, as briey scheduled below: Compensation for failure to observe the termination notice - equal to the amount of the employees gross labour remuneration for the remainder of the notice period; Compensation for terminating the employment relationship without notice - to the extent of the gross pay for the notice period in case of a labour contract for an indenite period; and to the amount of the real damages (on the basis of the gross pay for the period during which the employee was unemployed but not more than the remainder of the employment relationship) in case of a labour contract for a xed term; Compensation for dismissal on other grounds:
Upon dismissal due to closing down the enterprise or part of it, staff reduction, reduction in the volume of work and work stoppage of more than 15 working days: 1 months pay (unless otherwise stipulated); Upon termination of the employment relationship due to an illness: 2 months pay (provided service of at least 5 years and during the last 5 years of service not received any compensation on the same grounds); Upon termination of the employment relationship after employee has acquired the right to a pension for insured service and age, irrespective of the grounds for the termination: 2 months pay; by service with the same employer for ten years: 6 months pay; Compensation for unused paid annual leave upon termination of the labour relationship.
VII.1.4. Incentives
Incentives in the sphere of labour law are aimed mainly at decreasing unemployment and enhancement of employment. Those are established in the Encouragement of Employment Act and the Rules on its application. The incentives are payment of funds from the Employment Agency to employers who open new job positions, preserve opened job positions in case of decrease of the working volume, hiring unemployed persons over the age of 50 years , engaging unemployed persons of decreased working ability, hiring unemployed women mothers or single parents, employing permanently unemployed persons, etc. An employer wishing to apply for nancial aid under an employment program should be registered pursuant to the existing legislation. Depending on the particular program, other requirements may also be specied. Further, the Bulgarian Corporate Income Tax Act stipulates some incentives and stimuli as follows: incentives for hiring unemployed persons
44
which nd expression in reduction of the accounting nancial result with the installments made by the employer in Personal Income Tax Fund and National Health Insurance Fund for a period of 12 months; the corporate tax totalling 100 per cent is assigned when manufacturing activity is performed in municipalities with unemployment higher than the average for the country, as this right is preserved for the following 5 years after the municipality is no longer on the list with municipalities with unemployment higher than the average for the country.
compensations for unemployment; Regulation on pensions and insurance practice; Regulation on social security funds and the Regulation on social security of self-secured persons and Bulgarian citizens working abroad. The Republic of Bulgaria is a party to a number of international agreements in the sphere of social security such as: Contracts for social security between the Republic of Bulgaria and Spain, Republic of Macedonia and the Ukraine; Agreements with the Slovak Republic, Czech Republic, Federal Republic of Germany, Hungary and Libya, etc. As of 01.01.2007 integral parts of the Bulgarian legislation are also all social security related legal acts of the European Union. In case of controversy between any internal law and any of EU regulations, Bulgarian courts are obliged to apply directly the provisions of the latter. Some of the more important Community legal instruments are as follows: Directive 86/378/EEC on the implementation of the principle of equal treatment for men and women in occupational social security schemes, Regulation (EEC) No 1408/71 of the Council on the application of social security schemes to employed persons and their families moving within the Community, Council Regulation (EEC) No 574/72 laying down the procedure for implementing Regulation (EEC) No 1408/71 on the application of social security schemes to employed persons, to self-employed persons and to members of their families moving within the Community.
In accordance with the principle that the granting of state aid should be in appliance with the common market regulations, the Bulgarian tax legislation, as well as the special State Aid Act stipulate for various restrictions for the granting of tax incentives, which are qualied as state aid, including the infrastructure development aids. The Bulgarian Corporate Income Tax Act provides for certain exceptions from the above restrictions within the framework of the minimal state aid (De minimis aid).
VII.2. Bulgarian Social Security Law VII.2.1. Legal Framework

The right to social security and social support is determined in the Constitution of the Republic of Bulgaria. Similarly to the labour legislation, the social security law is codied. The main institutes in the eld are laid down in the Social Security Code. The procedure provisions are settled in the Bulgarian Tax and Social Security Procedure Code. Another acts of general importance in the sphere are the Budget of the State Social Security Acts, which are adopted annually, sub-legislative acts as follows: the Regulation on the elements of remuneration and income for which social security installments are deposited; Regulation on granting and payment of nancial
VII.2.2. Legal Denitions

The basic legal denitions in the eld of social security law are as follows: Obligatory insured persons for all social risks (i.e. general disease and maternity, disability because of general disease, old age and death, accident at work and professional disease, unemployment) specied in article 4 of the Social Security
45
Code such as: the workers or employees hired to work for more than ve working days or 40 hours, within a calendar month, regardless of the nature of the work, the mode of pay, and the source of funding (with some exceptions); the civil servants; the judges, prosecutors, investigating magistrates, executive judges, recording magistrates, and judicial ofcers; members of cooperations, who perform work and receive remuneration from the cooperation; the persons who work under a second employment contract or under an additional employment contract; the contractors under contracts for management and control of commercial corporations, etc. Obligatory insured persons for limited social risks (disability due to a general disease, old age and death) are: persons registered as sole practitioners /as freelancers and/or exercising craftsmen activity; persons performing work as sole traders, owners or partners in commercial corporations; registered agricultural producers and tobacco producers; persons who perform work without entering into a labour relationship and who receive monthly remuneration equal to or exceeding one minimum wage after deduction of the operating expenses, unless insured on different grounds during the relevant month; persons who perform work without entering into an employment relationship and who are insured on different grounds during the relevant month, regardless of the amount of the remuneration received. Social Insurance Contributors according to article 5 of the Social Security Code this is any natural person, legal entity or non-personied entity, as well as any other organizations obligated by the law to make social security contributions for other natural persons. Self-insured person a natural person obligated to make his social insurance contributions entirely at its own expense. Actuarial equivalent of the old-age pension rights is the present value of all future
pension payments that the secured person would receive after his retirement which are relevant to the acquired length of service.
VII.2.3. General Review

The authorities governing the social insurance system are the Ministry of Labour and Social Policy and the National Social Security Institute. The Ministry develops, coordinates and implements state policy in the eld of public social insurance. The National Social Security Institute directly administers social insurance. As a structure, it consists of a Supervisory Board, Governor and Deputy Governor. The Supervisory Board comprises one representative of each representative organization of workers or employees and of employers and an equal number of governmental representatives designated by the Council of Ministers, one of whom is the Executive Director of the National Revenue Agency. The Governor and the Deputy Governor of the National Social Security Institute are elected by the National Assembly for a term of ofce of four years. The social insurance sector is usually described as a system of three pillars - state mandatory social security, supplementary (mandatory) social security and voluntary (pension) insurance. Each next pillar extends the volume of rights of the secured persons. That is why the following presentation reveals the issues in the same order.
State social security Social security relations in the Republic of Bulgaria may be divided into two general groups: relations regarding the state social security and relations regarding the supplementary social security. The state social security covers the risks of general disease, labour accident, professional illness, maternity, unemployment, old age and death. There
46
are respective funds collecting the resources allocated to each of them. The basic principles of the state social security are: equality of socially secured persons, compulsory compliance, universal coverage, solidarity of socially secured persons, and fund organization of the social insurance sources. This means that all members of the society contribute to the collection of resources in the social security funds, but the social security compensations are paid only to those for which the social risks occur. The income for which insurance payments are due shall include all the remunerations, including the accounted and non-paid or nonaccounted ones and other incomes from labour activity. The installments of non-accounted remuneration shall be calculated on the basis of the insurance income according to the economic activity and the qualication group of profession. In case such are not provided the installments shall be calculated on the basis of the minimum wage of the country (240 BGN, approx. 120 Euro). These measures aim at a more effective collection of the contributions and also represent sanctions against those who act in bad faith. The Budget of the State Social Security Act for the respective year determines the amount of social security installments collected by the funds for the respective social risks, as well as the minimum and maximum security income for the year. As of 2010 the amount of the minimal monthly insurance income for a self-insured person is 420 BGN (approx. 210 Euro). The maximum amount of the insurance income is 2000 BGN (approx. 1000 Euro). Pursuant to the Social Security Code for the year 2011 the amount of security installments regarding employees working at the third (basic) category of labour for the Pension Fund is 17,8 % of the gross labour remuneration (distributed differently for persons born before and after 31.12.1959); for General Disease and Maternity Fund 3,5%; for Unemployment Fund 1% and for Labour Accident and Professional Decease - from 0,4% up to 1,1%. In the common case the installments for Labour Accident and Professional Decease Fund shall
be at the expense of the insurers. The ratio between the insurer and the insured person for the Unemployment and Maternity and General Disease Funds is kept 60 to 40, whereby 60 % is paid by the insurer. Security installments for state social security which are on the account of social insurers are deposited simultaneously with the payment of remunerations. Social security installments on the account of socially secured persons are to be deducted and deposited upon payment of the remuneration. Security installments for selfsecured persons and persons employed under no employment relationships are deposited by the tenth day of the month following the month they refer to, i.e. they have to be paid in advance calculated on the basis of the insurance income chosen between the minimum and the maximum amount of monthly income, determined with the Budget of the State Public Insurance Act for the corresponding year.
Supplementary social insurance The principles of functioning of the supplementary social insurance differ considerably from those of the mandatory social insurance. The supplementary social security consists of: additional obligatory pension security in case of old age and death; additional voluntary pension security in case of old age, disability and death; additional voluntary security for unemployment and/or vocational training. A person can benet from supplementary social insurance by participation in universal and/or occupational pension funds, funds for supplementary voluntary pension insurance on occupational schemes and funds for supplementary voluntary insurance for unemployment or vocational training. The latter are managed by licensed pension insurance companies or insurance companies for unemployment and/or vocational training. Individual lots are opened for each insured person and the sums collected therein are paid provided that the respective social risk occurs. The insured person may withdraw the raised
47
sum, which indicates that the principles of mutual participation and solidarity do not apply to supplementary social insurance. The money in individual lots is calculated in leva and in units. The value of one unit depends not only on the contributions made, but on the protability of the investment of the money which is subject to imperative rules. Insured persons may transfer the money in their individual lot to another fund, or withdraw them under certain conditions. Supplementary mandatory and voluntary pension insurance Supplementary mandatory pension insurance is made in universal and occupational pension funds in keeping with the principle for mandatory nature of the insurance. Persons born after 31 December 1959 are insured for supplementary pension in case they are insured under the mandatory state social insurance, as well as persons working under the conditions of rst and second category of labour, regardless of their age. There are no changes to the social security contribution for persons insured in an universal pension fund since 1.1.2009, when it was xed at 5%. It is still distributed in the same proportion between the social insurer (2,8%) and the social insured person (2,2%), while for an occupational pension fund it is 12% for persons working under the conditions of rst category of labour and 7% for persons working under the conditions of second category of labour, and the contributions are entirely borne by the social insurer. Persons insured in an universal pension fund acquire entitlement to supplementary pension for old age for life, and those insured in an occupational pension fund occupational pension for early retirement for a certain period. Supplementary voluntary pension insurance is made in a supplementary voluntary pension insurance fund and supplementary voluntary pension insurance on occupational schemes in keeping with the principle for voluntary nature of the insurance. Insured persons can be 16 years of age and older. Social security contributions
for supplementary voluntary pension insurance have no xed amount. Insured persons acquire entitlement to personal pension for old age, personal pension for disability, and if certain prerequisites are met, their heirs are entitled to inheritance pension if the insured person dies. Supplementary voluntary insurance for unemployment and/or vocational training is made in funds for supplementary voluntary insurance for unemployment or vocational training. Insurance in such funds entitled the insured persons to benets in the event of unemployment and/or money for attendance of vocational trainings. The amendments to the Social Security Code, which entered into force in the beginning of 2010, implement the institute of transfer of pension rights to and out of the Community pension scheme. A new chapter from the Social Insurance Code regulates the national pension schemes, included in the transfer; the manner of calculation of the sums which will be transferred, the consequences of the transfer, etc. According to the new provisions the persons insured under the Bulgarian law who start a job as a civil servant of the Community institutions could transfer their (1) actuarial equivalent of the old-age pension rights from Pension Fund of the state social security and/or (2) the funds in their own individual account in a universal fund and/or in an occupational fund, and/or in a voluntary supplementary pension insurance of occupational schemes, to a Community pension scheme. Meanwhile, person whose labour relationship with the Community institutions is suspended has the right to choose to transfer his pension rights to the Bulgarian state social security funds, resp. the voluntary supplementary funds.
VII.2.4. Incentives
Incentives in the area of social security are directed mainly at tax reliefs: Income from investments of pension funds of the supplementary mandatory
48
and voluntary social security distributed to the individual lots of secured persons is not subject to taxation pursuant to the Taxation of Income of Natural Persons Act; Individual security installments for additional obligatory pension security are deducted from the income prior to taxation; Installments made by employers for supplementary mandatory pension security are acknowledged as costs related to their business activity.
for it, regardless of past employment or other similar requirements, which are typical of the Social Security. The only signicant requirement is to be unable to satisfy the basic livelihood needs. This fact needs to be considered for each separate case. Thus, the decision whether a candidate fullls the requirements or not shall be made by the ofcial bodies. The Regulations of Implementation of the Law on Social Support list the presence/ absence of some specic living conditions which indicate the actual living conditions of a candidate: family, single, orphan; whether the familys income is lower than the determined minimal income of the state, which is different for the different age categories; the property status and the size of home; the presence of health problems (old age, disability, diseases); the labour engagement; the opportunity for receiving alimony by third persons; other established circumstances. The social support could be in form of money grants and services. The grants may be monthly, for a certain purpose or paid only once. The services usually do not have pecuniary character, but are in the form of public utilities. They may be provided in the community or in specialized institutions. Social services in the specialized institutions shall be conceded after depleting of the opportunities for implementing of services in the community. The social services can be conceded for a short term and/ or for a long term. Regarding the bodies of social support, the Council of Ministers determines the state policy in the sector and the Minister of Labour and Social Policy develops, co-ordinates and conducts it. The Agency for social support is an executive agency secondary administrator with budget credits with the Minister of Labour and Social Policy. It is a corporate body with seat in Soa. The Agency for social support is the main body, which is represented and managed by executive director. There are territorial divisions of the Agency - regional directorates.
VII.2.5. Social Support

An important parallel has to be drawn between the principles and signicance of social security and social support. Notwithstanding that both terms sound similar, they represent two quite different systems of public services. Both of them aim at satisfaction of social necessities in moments of straitened circumstances - poverty, diseases, maternity, disability, unemployment, old age, death etc. But the social security system is a system based on contributions, socalled contributory system. In order to benet by it, it is necessary to make installments. The presence of such contributions is an absolute condition to obtain rights from the system in case a social risk occurs. This means that the contributions are compulsory precondition to benet by the system. Meanwhile, the social support is regulated by another legal act - the Law on Social Support and its main purpose is different. In the rst place, the social support is intended for those members of the society who cannot satisfy their basic livelihood needs without support. The purpose is also to encourage the entrepreneurship in the social sphere through conceding of social services by individuals and corporate bodies, as well as to support the social reintegration of the persons, who already receive social support. The opportunity to receive social support is not determined by the previous contribution and participation in the relevant system. Everyone is free to apply
49
CHAPTER EIGHT: TAXATION
VIII
TAXATION
VIII.1. Direct Taxation of Corporations

The taxation of corporate income and prots is governed by the Corporate Income Tax Act (CITA). In connection with the accession of Bulgaria to the European Union since January 1st 2007, a new CITA was adopted to meet the necessity of harmonization of Bulgarian taxation legislation with the requirements of the European directives concerning direct taxation. Another reason for passing a new act in the eld herein is to make perception and application of the corporate taxation easier for the taxable persons and for the revenue administration. Apart from the corporate income tax which is charged on the corporate prots, CITA also regulates certain other taxes, such as: A tax alternative to corporation tax shall be levied on: gambling businesses; the income accruing to public-nanced enterprises from commercial transactions, as well as from letting movable and immovable property; the vessels operation activity; Taxes on corporate expenses. Any expenses dened as compulsory by a statutory instrument shall be recognized for tax purposes and shall not attract a tax on expenses; Withholding tax on income accruing to any resident and non-resident legal persons.
Persons Act (when they perform activities liable to taxes alternative to corporation tax); the natural persons who are merchants within the meaning given by Article 1 (3) of the Commerce Act (persons who have established a business, which in accordance with its purposes and volume requires that its activities be conducted on a commercial basis) : in the cases specied in the Income Taxes on Natural Persons Act ; the employers and the commissioning entities under contracts for management and control: in respect of the tax on the expenses on fringe benets.
For the purposes of taxation of income from a source inside the Republic of Bulgaria, any non-resident organizationally and economically distinct formation (trust, fund and other such), which independently carries out economic activity or performs and manages investments, shall likewise be a taxable person where the owner of the income cannot be identied. A signicant amendment in corporate taxation is that legal entities are no longer liable to nal annual (license) tax whatever their activity is. Pursuant to the previous CITA legal entities that perform specic activities and have annual turnover less than 50000 lv were liable to the mentioned nal tax.
VIII.1.2. Corporate Income Tax

Corporate income tax in Bulgaria applies in a single rate of 10%.
VIII.1.1. Taxable Persons

Taxable persons are: the resident legal persons; the non-resident legal persons which carry out economic activity in the Republic of Bulgaria through a permanent establishment or from disposition of property of such permanent establishment, or which receive income from a source inside the Republic of Bulgaria; the sole traders: in respect of the taxes withheld at source and in the cases specied in the Income Taxes on Natural
VIII.1.3. Prots Subject to Tax

Bulgarian resident companies are subject to Bulgarian tax on their world-wide prots. Companies that are non-residents in Bulgaria are liable to taxes in respect of the prots gained through a permanent establishment in the Republic of Bulgaria and of the income specied in the CITA accruing from a source inside the Republic of Bulgaria. A company is resident in Bulgaria if it is
50
PENKOV MARKOV & PARTNERS
incorporated (registered) pursuant to Bulgarian legislation. Resident companies are also any companies incorporated under Council Regulation (EC) No 2157/2001, and any cooperative society incorporated under Council Regulation No 1435/2003, where the registered ofce thereof is situated in the country and they are entered into a Bulgarian register. Most of the taxation rules, including the major rules relating to tax incentives, apply equally to resident and non-resident corporations conducting activities through a Bulgarian permanent establishment.
VIII.1.4. Determination of Prots for Tax Purposes

Prots are determined in accordance with the generally accepted accounting principles (provided for in the respective accounting standards), subject to adjustments for tax purposes. Currently, the corporate taxpayers should mandatory apply the International Financial Reporting Standards (IFRS) adopted by the European Commission for accounting purposes and approved by the Bulgarian Council of Ministers. There is a statutory requirement for banks, insurance companies, other nancial institutions and public companies to apply IFRS as a primary accounting basis. Legal entities that qualify for small and medium size enterprises (SME) may choose whether to apply the IFRS or the Bulgarian Generally Accepted Accounting Principles (BGAAP). SMEs that are eligible to apply the BGAAP are enterprises with personnel less than 250 people and annual turnover up to BGN 15 million or with total value of the noncurrent tangible assets not exceeding BGN 8 million. Accounts are to be prepared in Bulgarian Leva (BGN), regardless of the functional currency of the respective company. Generally, the taxable prot (pursuant to the terminology in the CITA the taxable prot is called tax nancial result) is determined in accordance with the accounting nancial result adjusted for tax purposes for: the permanent tax differences; the temporary tax differences and specic
amounts provided in the CITA. The permanent tax differences are sums which affect the tax nancial result only once. They are accounting income or expenses which are not recognized for tax purposes and in this regard for the purposes of determination of the tax nancial result, where this CITA indicates that: - a cost (loss) is not recognized for tax purposes, the accounting nancial result shall be credited with any such cost (loss) in the year of accounting for the said cost (loss), and the accounting nancial results shall not be adjusted during the succeeding years; - an income (prot) is not recognized for tax purposes, the accounting nancial result shall be debited with any such income (prot) in the year of accounting for the said income (prot), and the accounting nancial results shall not be adjusted during the succeeding years. Thus, the expenses or income, not recognized for tax purposes, dened as a permanent tax difference, shall never be recognized, i.e. the taxable result shall be increased with the relevant expense in the year of its accounting and thus shall increase the taxable prot, and shall not affect the tax result any more. For example the following accounting expenses shall not be recognized for tax purposes: any non-business expenses; any expenses on nes charged, forfeitures and other sanctions imposed for violation of statutory instruments, any default interest charged for late payment of public state or municipal debts; expenses which are considered hidden distribution of dividends, expenses made without justifying documents, etc. The accounting expenses on donations to a total amount of up to 10 per cent of the positive accounting nancial result (accounting prot) shall be recognized for tax purposes where the expenses on donations are incurred in favor of specic institutions or enterprises and many others (such as medical facilities, social housing within the meaning of the Social Aid Act, kindergartens, schools, etc.). The following accounting income shall not be recognized
51
for tax purposes: any income resulting from distribution of dividends by resident legal persons; any income from interest payments on unduly remitted or collected public obligations, as well as on value added tax not refunded within the statutory time limits, charged by the centralgovernment or municipal authorities. For the rst time in Bulgarian corporate tax legislation the new CITA provides regulation regarding accounting expenses on incorporation of a legal entity. These expenses are not recognized for tax purposes at the incorporators. The unrecognized expenses shall be recognized for tax purposes upon determination of the tax nancial result of the newly established legal person in the year of commencement of the legal existence thereof. The tax law provides the hypothesis that the legal entity is not established despite all the efforts of the incorporators. In this case expenses referred to herein shall be recognized for tax purposes upon occurrence of circumstances determining that the legal existence of a new legal person will not commence. The said expenses shall be recognized in the year of occurrence of the said circumstances. Since 1 January 2008 a new type of expenses is included in the expenses which are not recognized for tax purposes and represent a permanent tax difference. These are the expenses which constitute hidden prot distribution. The denition of hidden prot distribution is also amended it shall be: any expenses, charged by a taxable person without being connected with the economic activity carried out thereby or exceeding the customary market levels, in the cases where made in favour of shareholders, members or any parties related thereto; any expenses on interest payments charged (unless the conditions of the loan are agreed in conformity with requirements provided for in a statutory instrument) where certain conditions are fullled. Till the end of 2007 only the income from such distribution was regulated and a penalty in the amount of 50 % of the expense was provided for entities, performing such distribution. Presently, these expenses are not recognized for tax purposes and the taxable prot shall be increased with them. In the same
time the amount of the penalty is decreased to 20 % of the expense. The temporary tax differences affect the tax nancial result for more than one accounting period. They are accounting income or expenses which are recognized for tax purposes in a tax period other than the year of accounting of the said income or expense, which is due to the specic of the respective transactions. The mechanism by which the temporary tax differences affect the tax result is similar to the one pointed out above concerning the permanent tax differences. In particular, where an expense is dened as a temporary tax difference, in the period of its accounting the taxable prot shall be increased thereby, but in a subsequent tax period upon occurrence of certain circumstances, determined by the law, these expenses shall be recognized for tax purposes and thus shall affect again the tax result by decreasing it. An example of temporary tax differences are interest costs. Interest costs are normally deductible on accrual basis, subject to the limitations provided in the Bulgarian thin capitalization rules. The latter apply to substantially all forms of nancing, except for: 1) any interest payments on nancial leases and bank loans, except where the parties to the transaction are related parties or the lease or the loan, as the case may be, is guaranteed or secured by or is extended on the order of a related party; 2) any penalty charges for late payments and damages; 3) any interest unrecognized for tax purposes on other grounds in CITA. Under the thin capitalization rules, if the debtequity ratio of the taxpayer does not exceed 3:1 as of the end of the respective calendar year the interest costs can be deducted for tax purposes in full. If the debt equity ratio is higher than 3:1, then the maximum tax deductible portion could not exceed the sum of the interest income of the taxpayer and 75% of the accounting nancial result before all expenses on interest payments and income from interest receivable. The portion that appears to be non-deductible in the current year can be carried forward and deducted in the following ve years, subject to the formula
52
described above. A general rule is that an accounting expense shall be recognized for tax purposes where it is supported by an accounting source document within the meaning given by the Accountancy Act. An accounting expense shall be recognized for tax purposes even where part of the information required under the Accountancy Act is missing in the accounting source document, provided that documents certifying any such missing information are available. There are some other exceptions, provided in the law. The law enumerates some amounts with which the tax nancial result is adjusted: Where the disposition of any shares and any negotiable rights attaching to shares in public companies, shares in and units of collective investment schemes, is effected on a regulated Bulgarian securities market, upon determination of the tax nancial result the accounting nancial result: - shall be debited with the prot determined as a positive difference between the selling price and the documented cost of acquisition of the said securities, and - shall be credited with the loss determined as a negative difference between the selling price and the documented cost of acquisition of the said securities. Tax treatment of debts. Upon determination of the tax nancial result, the accounting nancial result shall be credited with the amount of the debts of the taxable person, and the said crediting shall be effected in the year in which one of the following circumstances occurs: - the debts are extinguished by prescription, but not more than ve years after the time when the debt became exigible; - the bankruptcy proceedings against the taxable person have been closed by a conrmed plan for rehabilitation which provides for incomplete satisfaction of the creditors; the crediting shall be effected by the amount of the diminution in the debt; - an effective judgment of court has decreed that the debt or part thereof is undue; - the creditor has relinquished the claim thereof by a judicial procedure or has
redeemed the said claim; the crediting shall be effected by the amount redeemed; before the lapse of the prescription period, the debts have been extinguished by virtue of a law; the taxable person has submitted a motion for expungement.
VIII.1.5. Valuation of Depreciable Assets for Tax Purposes. Depreciation and Amortization
Tax depreciable assets are the tax tangible xed assets; the tax intangible xed assets; the investment properties, with the exception of land; the subsequent expenses associated with asset written off from the tax depreciation schedule Goodwill generated as a result of a business combination is not a tax depreciable asset. Any loss from impairment and upon write-off of goodwill shall not be recognized for tax purposes. Taxable persons who form a tax nancial result prepare and keep a tax depreciation schedule, posting therein all tax depreciable assets. The tax depreciation schedule is a tax ledger wherein the information, regarding the process of acquisition, subsequent keeping, depreciation and write-off of the tax depreciable assets, shall be posted. Depreciable assets are valued for tax purposes at historical acquisition cost. Additions and improvements to such assets are recognized as separate depreciable assets and are subject to depreciation in accordance to the tax rates applicable to the main asset. The depreciable assets are divided into several categories: Category I: solid buildings, including investment properties, plant, transmission facilities, electric power carriers, communication lines; Category II: machinery, process equipment, apparatus; Category III: means of transport excluding automobiles; surfacing of roads and of runways;
53
Category IV: computers, computer peripheral equipment, software, and right to use software, mobile phones; Category V: automobiles; Category VI: tax tangible and intangible xed assets whereof the period of use is restricted according to contractual relationships or a legal obligation; Category VII: all other depreciable assets. The annual rate of tax depreciation is determined on a single occasion for the year and may not exceed the following amounts: Asset category I II III IV V VI Annual rate of tax depreciation (%) 4 30 10 50 25 100/years of legal restriction The annual rate may not exceed 33 1/3 15
VIII
Der Tax depreciation rates can be freely chosen by taxpayer, within the above maximum rates, and are not linked to the accounting depreciation rates or the useful life of the asset. The choice of the applicable tax depreciation rates can be changed each calendar year and the change applies prospectively.
VIII.1.6. Utilization of Losses

The tax loss can be carried forward for ve consecutive years to offset the taxable prot reported in these years. Losses cannot be carried back. According to the new CITA (unlike the previous one) the taxable person is entitled to choose whether to carry forward losses or not. The taxable person can exercise the right thereof by
means of deduction of the tax loss during the rst year after incurrence of a tax loss, during which the said person has formed a positive tax nancial result before deduction of the tax loss. If the taxable person has not formed a positive tax nancial result before deduction of the tax loss until the date of tax control, the person shall be presumed to have exercised the right thereof to election which means that the term is preclusive. The company is not obliged to submit any returns, therefore it noties the revenue administration by its annual return. Another innovation is that the tax loss must be deducted upon determination of the tax nancial result within the total amount of the positive tax nancial result before deduction of the tax loss. Where the tax loss is less than the positive tax nancial result before deduction of the tax loss, the full amount of the said loss shall be deducted upon determination of the tax nancial result. The tax loss shall furthermore be deducted upon determination of the quarterly prepayments of corporation tax. Any tax loss, formed during the current year in a State wherewith the Republic of Bulgaria has concluded a convention for the avoidance of double taxation and the method of avoidance of double taxation with respect to prots is exemption with progression, shall not be deducted from the tax prots from a source inside the country or other States during the current or succeeding years. The tax loss referred to herein shall be deducted in compliance with the requirements of this Chapter successively solely from the tax prots from the source outside Bulgaria from which the said loss has been incurred during the next succeeding ve years. Where a taxable person has formed a tax loss and the said loss or a part thereof has its source outside Bulgaria in respect of which source the credit method for avoidance of double taxation is applied, the loss which is not deducted during the current year shall be deducted during the next succeeding ve years in compliance with the requirements of this Chapter successively solely from the tax prots from the source outside Bulgaria from which the said loss has been incurred.
54
VIII.1.7. Group Taxation. Transactions Between Related Parties

There is no group taxation in Bulgaria. Each entity is taxed as a separate taxpayer. Bulgaria has tax rules regulating the tax deductions and the taxable revenue from transactions between related parties (the transfer pricing rules). Transfer pricing rules apply to both domestic and international transactions between related parties. The Bulgarian transfer pricing rules are broadly similar to the generally accepted OECD standards that could be seen in the EU and OECD countries.
An annual balancing payment is made before the 31st day of March of the next succeeding year. It is calculated as a balance between the annual tax liabilities reported in the tax return and monthly provisional installments paid.
VII.1.9. Intra-community Dividends

With regard to the accession of the Republic of Bulgaria since January 1st 2007 a new chapter of the CITA was passed Intra-community dividends which implements Directive 90/435. Pursuant to these provisions the pressure of taxation and tax treatment is equal for transactions between Bulgarian legal entities and between companies seated in different member states.
VIII.1.8. Tax reporting and Tax Payments

In Bulgaria the tax year coincides with the calendar year. The taxable persons must submit an annual tax return in a standard form regarding the tax nancial result and the annual corporation tax due on or before the 31st day of March of the next succeeding year. Any taxable person, who fails to submit such a tax return or fails to submit it within the legal term or fails to state or misstates any particulars or circumstances leading to underassessment of the tax due or to undue reduction, retention of or exemption from tax, shall be liable to a pecuniary penalty of BGN 500 or exceeding this amount but not exceeding BGN 3,000. The corporate income tax is paid through making monthly/quarterly provisional tax payments. Monthly tax prepayments are made by taxable persons who have formed a tax prot for the last preceding year. Quarterly tax prepayments are made by taxable persons who are under no obligation to make monthly tax prepayments. The monthly prepayments are generally based on the tax prot for the preceding year, adjusted for economic indicators. Monthly tax prepayments are remitted on or before the 15th day of the month to which the said prepayments apply. Quarterly tax prepayments are remitted on or before the 15th day of the month next succeeding the quarter to which the said prepayments apply. No quarterly tax prepayments are made for the fourth quarter.
VIII.2. Corporation Tax Reduction, Retention and Exemption VIII.2.1. Corporation Tax Retention
Corporation tax retention is the right of a taxable person not to remit to the executive budget the amounts of corporation tax, which subsist in the patrimony of the taxable person and are spent for purposes prescribed by a law. CITA provides some specic requirements for the taxable persons in order to be entitled to take advantage of tax retention.
VIII.2.2. Corporation Tax Exemption

Collective investment schemes, which have been admitted to public offering in the Republic of Bulgaria, and licensed investment companies of the closed-end type under the Public Offering of Securities Act, are exempt from the levy of corporation tax. Special purpose investment companies under the Special Purpose Investment Companies Act are exempt from the levy of corporation tax, too.
VII.2.3. Corporation Tax Incentives

Corporation tax incentives are divided into General tax incentives and Regional incentives.
55
The General incentives on their part are: 1) tax incentives upon hiring of unemployed persons (such legal entities are entitled to debit the accounting nancial result by the amounts paid for labor remuneration and the contributions remitted for the account of the employer to the public social insurance funds and the National Health Insurance Fund during the rst twelve months after the hiring); 2) incentives for enterprises hiring people with disabilities (these taxable persons are allowed to retain 100 % of the corporation tax under certain conditions); 3) incentives for agricultural producers (they are allowed to retain 60 % of the corporation tax under specic conditions) etc. The regional tax incentives. Bulgarian Corporate Income Tax Act was recently (in force as of 01.01.2008) heavily amended in the area of state aid. The new provisions, basically arrange specic forms of tax retention, admissible under certain conditions, as dened by law. Tax relief, representing state aid for regional development it is allowed under the condition that the retained tax shall be invested in assets, necessary for the performance of initial investment. The law also requires the initial investment to be made within four years after the beginning of the year for which the tax was retained; the initial investment to be made in municipalities where the rate of unemployment for the year of retention is by 35 per cent or more higher than the national average for the same period etc. The taxable entity is required to perform all its manufacturing activity only in municipalities where the rate of unemployment for the year preceding the current year is by 35 per cent or more higher than the national average for the same period. In this case the taxable person is entitled to retain 100 % of the corporate tax. A positive opinion of the European Commission is required for providing of such state aid; Tax relief, representing minimum state aid it is limited within certain amounts of state aid, determined by law. The
retained tax must be invested in material or immaterial xed assets within four years after the beginning of the year for which the tax is retained. Again, a precondition for the availability of this aid is the taxable person to perform its manufacturing activity only in municipalities where the rate of unemployment for the year preceding the current year is by 35 per cent or more higher than the national average for the same period. In this case the taxable person is entitled to retain 100 % of the corporate tax. Tax Relief for Activity Carried Out in Agriculture, the Manufacturing Industry, Production, High Technologies and Infrastructure - Any taxable persons shall be allowed to retain 100 per cent of the corporate tax for a period of ve years in respect of the taxable prot accruing thereto from activity carried out in agriculture, the manufacturing industry, production, high technologies and infrastructure, where the certain conditions are fullled (such as for example: the contemplated investment to exceed BGN 10 million annually, the assets acquired as part of the investment referred to in above are new as fabricated and have not been exploited prior to the acquisition thereof, etc.)
The tax legislation provides for specic requirements for the different types of state aid.
VIII.3. Alternative Taxes VIII.3.1. Gambling businesses

The taxable amount for assessment of the tax on gambling activities of toto and lotto, betting on the outcome of a sports competition and uncertain events is the value of the bets taken for each game and the tax rate is 15 %. The taxable amount for assessment of the tax on gambling activities of lotteries, rafes and bingo and keno numbers lotteries is the nominal value of the bet as specied in coupons, cards, tickets or other tokens certifying participation and the tax rate is 15 %.
56
The taxable amount for assessment of the tax on gambling activity of games where the value of the bet consists in an increased charge for a telephone or another telecommunication link is the increase in the charge for the telephone or telecommunication link. The tax rate is 15 %
VIII.3.2. Tax on Public-nanced Enterprise Income

Any income accruing to public-nanced enterprise from commercial transactions covered under Article 1 of the Commerce Act, as well as from rent of movable and immovable property, shall attract a tax on income. The monthly taxable amount is the income accruing to the public-nanced enterprise during the relevant month. The annual taxable amount is the respective income accruing to the public-nanced enterprise during the relevant year. The tax rate is 3 %. The rate of tax on income accruing to the municipalities is 2 %.
board the vessels, with the exception of the cases where the number of apprentices exceeds one per fteen ofcer members of the ships complement; they man the vessel with Bulgarian citizens or with nationals of other Member States of the European Community or of the European Economic Area; vessels ying the Bulgarian ag or a ag of another Member State of the European Community or of the European Economic Area account for at least 60 per cent of the net tonnage of the vessels operated.
These persons may elect their activity to attract a tax on vessels operations activity. The tax shall be levied on the taxable persons who have elected to be liable for the said tax for a period not exceeding ve years. The tax rate is 10%.
VIII.4. Tax on Corporate Expenses

Bulgaria levies taxes on certain expenses. The taxes are charged monthly. The expense and the tax thereon shall be recognized for tax purposes in the year of charging and shall not form a temporary tax difference. In case the taxable person has over remitted any tax on expenses or any corporation tax, the said tax may be deducted from the tax on expenses due. The tax rate for taxes on all kinds of expenses is 10%. With regard to the fact that the tax on expenses is recognized for tax purposes, the effective tax rate is 9% The following expenses, supported by documents, are subject to tax on expenses:
VIII.3.3. Tax on Vessels Operation Activity

Taxable persons are the persons carrying out maritime merchant shipping which simultaneously fulll the following conditions: they are corporations registered under the Commerce Act, or permanent establishments of a corporation which is resident for tax purposes in another Member State of the European Community, or a Member State of the European Economic Area, according to the relevant tax legislation and by virtue of a convention for the avoidance of double taxation with a third State is not considered to be resident for tax purposes in another State outside the European Community or the European Economic Area; they operate their own vessels or chartered vessels, or manage vessels under a contract of management, as well as charter vessels; they do not refuse to train apprentices on
VIII.4.1. Business Entertainment Expenses

Taxable persons are the persons which are subject to levy of corporation tax. Therefore the expenses of legal entities, subject to alternative tax, are not levied with the tax herein. The tax is levied on the gross amount of business entertainment expenses for the respective month.
57
VIII.4.2. Benets to the Personnel (Social Expenses)

The taxable expenses are expenses on fringe benets provided in kind to factory and ofce workers and to persons hired under a management and control contracts (hired persons). These expenses furthermore include: the expenses on contributions (premiums) for voluntary retirement and health insurance and voluntary unemployment and/ or vocational-training insurance, and/or life assurance and life assurance linked to an investment fund; the expenses on food vouchers Expenses on fringe benets, which are not provided in kind and which constitute income of a natural person, are taxed under the terms and according to the procedure established by the Income Taxes on Natural Persons Act. Taxable persons are all employers or commissioning entities under management and control contracts. No tax shall be levied on expenses on fringe benets not exceeding the amount of BGN 60 per month per hired person, where the taxable persons do not incur any coercively enforceable public obligations at the time of incurrence of the expenses. No tax shall be levied on expenses not exceeding the amount of BGN 60 per month, provided in the form of food vouchers to each hired person if certain conditions are fullled. No tax shall be levied on any expenses on fringe benets incurred on transportation of factory and ofce workers and of persons hired under a management and control contract from the place of residence to the place of work and back. The latter does not apply if any such transportation is carried out by passenger car or by extra bus services. However the expenses herein shall not be levied with tax if the transportation of factory and ofce workers is carried out by passenger car to inaccessible and remote areas and the taxable person cannot ensure the implementation of the activity thereof without incurrence of the expense. The taxable amount for assessment of the tax on social expenses is the expenses on fringe
benets provided in kind debited with the income related to the said expenses for the relevant month. The taxable amount for assessment of the tax on expenses on contributions (premiums) for voluntary retirement and health insurance and voluntary unemployment and/or vocationaltraining insurance, and/or life assurance and life assurance linked to an investment fund is the excess of the said expenses over BGN 60 per month per hired person. The taxable amount for assessment of the tax on expenses on food vouchers is the excess of the said expenses over BGN 60 per month per hired person.
VIII.4.3. Expenses Relating to Use and Maintenance of Company Vehicles

The taxable amount for assessment of the tax on these expenses are the expenses on maintenance, repair and operation of means of transport, charged during the calendar month, debited with the income charged from insurance benets associated with the means of transport, up to the amount of the expenses on repair incurred whereto the benet applies. If means of transport are used concurrently to carry out activity as a regular business and to service management operations, upon determination of the taxable amount: the expenses on operation shall relate to the management operations on the basis of the total kilometers covered for the said operations during the current month; the expenses on maintenance and repair shall relate to the management operations on the basis of the kilometers covered for the said operations in relation to the total kilometers covered by the relevant means of transport during the last preceding twelve months, including the current month.
VIII.5. Withholding Tax Obligations

Subject to such a tax is only the income of resident and non-resident legal entities whereas the income of natural persons is regulated by Income Taxes on Natural Persons Act. Corporate taxpayers are subject to the following
58
main withholding obligations:
VIII.5.1. Repatriation of Prot/Dividend Withholding Tax

Bulgarian resident corporations which distribute dividends have to withhold dividend withholding tax from dividend distributions in favor of: non-resident legal persons, with the exception of the cases where the dividends accrue to a non-resident legal person through a permanent establishment in the country; resident legal persons which are not merchants, including any municipalities. No withholding tax is levied if the dividends are distributed in favor of resident legal person who participates in the capital of the company as a representative of the State, common fund or foreign legal person who is resident for tax purposes in a Member State of the European Union or in another State which is a Contracting Party to the Agreement on the European Economic Area. The taxable amount for assessment of the tax withheld at source on dividends is the gross amount of the dividends distributed. Since 1 January 2008 the tax rate of the withholding tax on dividends is decreased from 7% to 5%.
VIII.5.2. Withholding Obligations with Respect to Payments to Non-residents

Certain items of business and investment income of non-resident legal entities earned from sources in Bulgaria are subject to at nal income tax, which is normally levied by means of withholding. The domestic rate of tax is 10%. Where the recipient of the payments resides in a country with which Bulgaria has a Double Tax Treaty, the tax rate could be reduced or an exemption could be available subject to the provisions of the respective treaty. The following income of non-resident legal entities is subject to withholding tax: income from nancial assets issued by resident legal persons, the Bulgarian State
and the municipalities; income from transactions with such nancial assets; the following income, charged by resident legal persons, resident sole traders or non-resident legal persons and sole traders through a permanent established or a xed base in the country or paid by resident natural persons or by non-resident natural persons who have a xed base in the country: - interest payments, including interest within payments under a nancial lease contract; - income from rent or other provision for use of movable or immovable property; - copyright and license royalties; - technical assistance fees; - payments received under franchising agreements and factoring contracts; - compensations for management or control of a Bulgarian legal person. income from agriculture, forestry, hunting ground management and sheries within the territory of the country; income from immovable property or from transactions in immovable property, including an undivided interest or a limited right in rem to any immovable property situated in the country. The income pointed out above, shall be subject to levy of a tax withheld at source where not accruing through a permanent establishment. The tax shall be withheld by the resident legal persons, the sole traders or the permanent establishments in the country which charge the income to the non-resident legal persons, with the exception of the income referred to in Items 2 and 4 herein. Where the payer of the income is not a taxable person under the CITA and in respect of the income referred to Items 2 and 4 herein, the tax shall be withheld from the recipient of the income. Income from disposition of shares in public companies, negotiable rights attaching to shares in public companies, and shares in and units of collective investment schemes, shall not attract a tax withheld at source where the said disposition is effected on a regulated Bulgarian securities market.
59
VIII.6. Treaties for Avoidance of Double Taxation (Double Tax Treaties)

Bulgaria has concluded more than sixty double tax treaties which provide for a relief of tax or a reduced rate of tax.
VIII.7. Local Taxation

Local taxes are charged by the municipalities. According to the latest developments in the applicable law the Municipal Council determines the amount of the taxes within the range established by the law. Till the end of 2007 the rates and amounts of local taxes were provided for by the law. The main local taxes are:
VIII.6.1. Procedures for Claiming Relief Under a Double Tax Treaty

In order to benet from the reliefs in a double tax treaty a non-resident person must submit application in a standard form with the revenue authority proving that the said person: is a resident of the other State within the meaning given by the relevant treaty; is an owner of the income from a source inside the Republic of Bulgaria; does not own a permanent establishment or a xed base within the territory of the Republic of Bulgaria, whereto the income is effectively connected; fullls the special requirements for application of the treaty or separate provisions thereof in respect of persons specied in the treaty itself, where such special requirements are contained in the relevant treaty.
VIII.7.1. Real Estate Tax

Taxable properties are built up land and nonbuilt construction plots. No tax shall be levied on agricultural land tracts and forests, with the exception of developed land in respect of the actually developed surface area and the adjoining ground. Taxable persons are the owners or holders of limited real rights over the taxable property. The Municipal Council determines the amount of the tax within a range of 0.1 to 4.5 per mille of the assessed value of the property. A reduction of 50% of the tax is allowed if the property is a main residence.
VIII.7.2. Transfer Taxes

Tax shall be levied on any properties acquired by donation, as well as on any onerously acquired real estates, limited real rights thereto, and motor vehicles. The tax shall be paid by the transfee of the property of by the transferor in case the transfee is abroad. The tax rate is determined by the Municipal Council within 0,1 and 3 per cent of the assessed value of the transferred property. Donation and disposal without consideration of any property are subject to tax at the following rates: from 0.4 to 0.8 per cent: applicable to donations between siblings and the children of siblings; from 3,3 to 6,6 per cent: applicable to donations between any persons.
Written evidence regarding the type, the grounds for realization and the amount of the relevant income should be attached to the claim. The revenue authorities exercise control as to the application of convention and conduct an examination or an audit. Where an examination is conducted, an opinion on the existence or nonexistence of grounds for application of the tax convention shall be issued to the non-resident person within 60 days after submission of the request. Non-pronouncement within this time limit is presumed as an opinion on existence of grounds for application of the double tax treaty. The non-resident person is entitled to appeal the refusal of the revenue authorities to allow direct application of the tax treaty.
60
Exemption from transfer taxes is provided for privatization of assets, for in-kind contribution of assets to the share capital of a company as well as in some other cases provided in law.
VIII. 7.5. Tourist Tax

A new amendment in the Bulgarian tax legislation is introducing of a tourist tax for a nights lodging. This tax is applicable to the The tax rate is determined by the Municipal Council from 0, 20 to 3 BGN for each nights lodging in accordance to the city in the Municipality and the category of the premises for nights lodging.
VIII.7.3. Vehicle Tax and Road Charge

Vehicle tax is payable by the owners of road means of transport, ships and airplanes registered in Bulgaria. The rate of tax depends on the type and the characteristics of the respective mean of transport, e.g. the vehicle tax for cars is determined by the engine power. The tax is due on an annual basis. The owners of vehicles are subject to service charge for use of the public roads payable to the Ministry of Transport. Such tax is paid through purchase of certicates/stickers for the use on the roads for a specic period (calendar year, month or week). In addition to the above taxes, the municipalities also collect some service charges for performance or maintenance of public services such as waste collection charge, tourist charge, charges for various administrative services.
VIII.8. Capital Taxation. Ecological Levies VII.8.1. Taxes on Capital

Except as mentioned above, no specic taxes are charged on the capital of the businesses or their net worth or on their assets. In particular, no capital duties or material stamp duties are payable on the incorporation of a Bulgarian company or on its capital or on subsequent contributions to the capital.
VIII.8.2. Packing Charge

As of 2004 Bulgaria introduced a packing charge levied on the import of packed products or on the sale of locally manufactured packed products on the Bulgarian market. The charge is collected for the provision of the public services related to management of packing waste. The charge is not payable if the importer/ manufacturer put in place a proper system of management and recovery/recycling of the packing waste.
VIII.7.4. Final Annual (License) Tax

A signicant amendment in Bulgarian tax legislation is that this tax is charged by the municipalities as of 1 January 2008 and is not income to the central budget. The license tax is applicable to natural persons and sole traders only (not legal entities) and under the following conditions: performance of certain activities pointed out in the Income taxes on natural persons act; turnover of the person for the last preceding not exceeding BGN 50,000, and the person is not registered under the Value Added Tax Act, with the exception of registration for intra-Community acquisition.
VIII.9. Income Taxation of Individuals VIII.9.1. Taxable Persons

Taxable persons are resident and non-resident natural persons, who earn income from sources in Bulgaria and resident and non-resident persons, who are obligated to withhold and remit taxes.
61
Resident natural person, whatever the nationality, is any person: who has a permanent address in Bulgaria, or who is present within the territory of Bulgaria for a period exceeding 183 days in any twelve-month period, or who is sent abroad by the Bulgarian State, by bodies and/or organizations thereof, by Bulgarian enterprises, and the members of the family of any such person, or whose centre of vital interests is situated in Bulgaria. Any person, who has a permanent address in Bulgaria but whose centre of vital interests is not situated in the country, is not a resident natural person. Where a Double Tax Treaty applies, the residency status could be impacted by the provisions of the Treaty. Resident natural persons are liable to taxes in respect of any income acquired thereby from sources inside and outside the Republic of Bulgaria while non-resident natural persons are liable to taxes in respect of any income acquired thereby from sources inside the Republic of Bulgaria. Bulgarian law contains detailed rules on when an activity or investment is sufciently related to Bulgaria to give rise to Bulgarian taxation.
personal voluntary social insurance contributions made during the year to an aggregate amount not exceeding 10 per cent of the sum total of the annual taxable amounts, as well as with any personal voluntary health insurance contributions and premiums/payments paid during the year under contracts of life assurance to an aggregate amount not exceeding 10 per cent of the sum total of the annual taxable amounts; donations made during the year up to certain limits and under certain conditions etc.
VIII.9.3. Tax Rate

A signicant amendment in income taxation of individuals is that the progressive tax rate which depended on the amount of the annual taxable income and was within the range of 20 % to 24 % is replaced with a at rate of 10 % regardless of the amount of taxable income. Thus, in general the amount of tax on the aggregate annual taxable amount is determined by multiplying the aggregate annual taxable amount by a tax rate of 10 per cent. Certain items of income of residents or non-residents are not included in the taxable annual income and are subject to special rules of taxation with respect to the rates and the basis for tax. Some tax rates, applicable thereto, are decreased since 1 January 2008. Thus, dividends are subject to tax of 5 % instead of 7 %; income from supplementary voluntary social insurance, from voluntary health insurance and life assurances 7 % and income acquired by the person upon the sale or exchange of movable property under certain conditions is levied with tax of 10 % instead of 15 %
VIII.9.2. Taxable Income

The annual taxable income is dened as an aggregate of the total income received by the individual during the calendar year with the exception of the income which is non-taxable by virtue of a law and the income specically excluded from the annual income which is taxed separately under specic rules. The taxable income and the taxable amount shall be determined for each source of income separately under specic procedures, provided in the law. The aggregate annual taxable amount is the sum total of the annual taxable amounts determined for each type of income, depending on the sources, net of the tax relieves provided for by law. The sum total of the annual taxable amounts is debited with:
VIII.9.4. Exemptions
Taxability does not apply to: income acquired during the tax year from the sale or exchange of: (a) one residential immovable property if acquired more than 3 years before the sale;
62
(b) up to two immovable properties, as well as any number of agricultural and forest properties, provided that more than ve years have elapsed between the date of acquisition and the date of sale or exchange; income accruing from the sale or exchange of movable property, with the exception of: (a) means of transport by road, air and water, provided that the period from the date of acquisition to the date of sale or exchange is less than one year; (b) works of art, collectors items and antiques; (c) shares, interests, compensation instruments, investment vouchers and other nancial assets, as well as the income accruing from trade in foreign exchange; (d) movable property delivered to persons who have the right to carry out collection, transport, recovery or disposal of waste in accordance with the Waste Management Act; interest paid on accounts and deposits with any domestic commercial bank, branch of a foreign bank and with domestic mutual aid funds, established in the EU Member State; interest paid and discounts made on Bulgarian government, municipal and corporate bonds etc.
VIII.9.6. Final Taxes

Taxation of non-resident persons income. Certain items of income are not included in the annual taxable income but are taxed separately with a nal tax. This treatment applies to the following items of income: (a) compensations for lost prot and damages of such nature; (b) scholarships for study in Bulgaria and abroad; (c) interest payments, including interest within payments under a lease contract etc. The provisions determining the income which is not subject to tax do not apply to the items herein. However, no nal tax shall be levied on such items exempted from taxation under the mentioned provisions and charged/paid in favor of non-resident natural persons established for tax purposes in a Member State of the European Union, as well as in another Member State of the European Economic Area. The tax rate is 10%. Income of resident and non-resident natural persons. Unlike the tax legislation prior to January 1st 2007 the income deriving from dividends and from shares in liquidation surplus of resident and non-resident natural persons is not taxed with withholding tax which had to be withheld by the legal entity, distributing the dividend/ share of liquidation surplus. Pursuant to the present Income taxes on natural persons act the income from dividends and from shares in any liquidation surplus in favor of resident or non-resident natural person, where accruing thereto from a source inside Bulgaria and resident natural person, where accruing thereto from a source outside Bulgaria attract a nal tax. The tax rate is 5%. Under certain conditions a nal tax shall be levied on the gross amount of the taxable income from supplementary voluntary social insurance, from voluntary health insurance and life assurances.
VIII.9.5. Wage Withholding Taxes

Salaries and other payments due for employment are included in the annual taxable income and are subject to personal income tax. The employer is required to withhold provisional tax from the wages of the employees on a monthly basis. The law provides specic rules for determining the taxable amount for tax on income from labor relationships. The wage withholding tax is charged with the at tax rate of 10 %. When during the respective year the employee received only employment income, he/she is not liable to le a tax return. Where the wage withholding tax exceeds the annual tax liability (for reasons of being employed for part of the year, etc.), the refund is determined and provided through the employer.
63
The tax rate is 7%. A nal tax shall be levied on the gross amount of the income acquired by the person upon the sale or exchange of movable property. The tax rate is 10%.
VIII.9.7. Businesses of Individuals/Sole Traders

A specication in taxation with respect of sole traders is that the tax basis of the registered sole traders is the taxable prot in accordance with the tax rules applicable to corporations. The latter applies to the income from economic activity of a natural person who is a merchant within the meaning given by the Commerce Act but is not registered as a sole trader. The taxable income referred to herein excludes the accounting nancial result formed by activities: on which alternative taxes are levied under the Corporate Income Tax Act ; on which a nal annual (license) tax is levied. The annual taxable amount shall be determined by debiting the taxable income referred to herein for the tax year with the contributions for social and health insurance.
year of acquisition of the income. Certain items of income are also subject to provisional tax payable through the year on monthly or quarterly basis If the annual tax return is submitted on or before the 10th day of February of the next succeeding year, a rate rebate of 5 per cent of the balance of tax due under the annual tax return where remitted on or before the same date is allowed. If the return is submitted on or before this date by electronic means, a rate rebate of 5 per cent of the balance of tax due under the annual tax return where remitted on or before the same date is provided.
VIII.9.9. Double Taxation Treaties

As mentioned above Bulgaria has concluded more than 60 double tax conventions. They also provide rules regarding the natural persons. If no such treaty exists with the respective country pursuant to the Income taxes on natural persons act resident natural persons are allowed foreign tax credit in respect of identical or similar foreign taxes levied abroad by the respective competent authorities.
VIII.10. Excise Duties

On November 15 2005 the existing Excise Duties Law has been abolished and substituted by a new excise law, which introduced the system of the tax warehouses. A tax warehouse is the place where excise duty goods are produced, stored, entered or sent by traders under the term of delayed excise duty payment. Certain luxury products, as well as certain other goods listed in law are subject to excise duties. Excise duties are payable as one-time consumption tax on the import of dutiable products in Bulgaria, or on the rst sale of locally manufactured products in Bulgaria by their manufacturer. The following main categories of products are subject to excise duties: liquors and beer, and raw materials with a content of alcohol; wine is zero-rated for
VIII.9.8. Tax Returns and Payment of Taxes

Natural person should le an annual tax return. The obligation to submit an annual tax return does not apply to persons who have received solely: income from employment relationships, non-taxable income; income on which a nal tax is leviable; income accruing to non-resident persons, on which a nal tax has been levied. The return should be led before the 30th day of April of the year next succeeding the year of acquisition of the income. The tax should be remitted on or before the 30th day of April of the year next succeeding the
64
excise duty purposes, but the producers of wine may be subject to excise duty registration and control; tobacco products such as cigars, cigarettes, tobacco for consumption; energy products and electricity;
As of 1 January 2008 coffee and extracts from coffee are not subject to excise duties. Another amendment are the increased tax rates for some types of fuels, coal, electrical energy for business and administrative needs etc. Excise duties are normally charged as a at amount per measurement unit for the respective product (BGN per piece/ton/liter, etc.). Exports are exempt from excise duties. Where excise duties have been paid for products that are subsequently exported, a refund could be received. Where excise duties are charged on row materials with a content of alcohol which have been used for production of dutiable liquors or non-dutiable food products or medicines, a refund could be claimed for the duties paid on the row materials.
Under Bulgarian legislation taxable person shall mean any person who independently carries out an economic activity, whatever the purpose and results of that activity. As of 19 December 2007 subject to obligations under the Value Added Tax Act are also persons who practice a liberal profession, including as private bailiffs, lawyers and notaries. However, services, representing procedural representation whereby the right to defense of natural persons in preliminary, legal, administrative and arbitration proceedings is exercised, are exempt from VAT. Non-taxable persons should be these which are not a taxable within the meaning given above and which effects intra-Community acquisition of goods. The intra-Community acquisition of goods is dened in details in the Value Added Tax Act.
VIII.11.1. Registration of Persons

Pursuant to VAT Act some of the persons which fall within the requirements of the law are obliged to register with the National Revenue Agency, which maintains VAT Persons Register. Upon registration each persons is issued a unique ID number for VAT purpose having BG prex. The requirement for registration applies to each taxable person who is established within the territory of the country and who affects taxable supplies of goods or services. Also the person is required to register under the VAT Act it is a taxable person who is not established within the territory of the country and who effects taxable supplies of goods or services covered under Article 12 other than those for which the tax is chargeable from the recipient. According to the VAT Act there are two types of registration compulsory and optional. The compulsory registration applies to taxable person having a taxable turnover of BGN 50,000 or more for a period not exceeding twelve consecutive months last proceeding the current month. These persons should le an application for registration within 14 days after the lapse of the tax period during which such turnover has accrued. These requirements should not apply to persons to whom the following
VIII.11. VAT System

Pursuant to Bulgarian legislation the following transaction should be VAT taxable: each taxable supply of goods or services effected for consideration; each intra-Community acquisition effected for consideration, whereof the place of transaction is within the territory of the country, by a person registered under this Act or by a person in respect of which an obligation to register has arisen; each intra-Community acquisition of new means of transport effected for consideration, whereof the place of transaction is within the territory of the country; the importation of goods; each intra-Community acquisition whereof the place of transaction is within the territory of the country of excisable goods.
65
conditions are simultaneously fullled: they supply services electronically to recipients who are non-taxable persons, who are established or have a permanent address or usually reside within the territory of the country; - they are not established within the territory of the Community; - they are registered for VAT purposes for their activity referred to in Item 1 in another Member State. In case of intra-Community Acquisition the taxable and non-taxable persons which do not cover the presented above conditions are required to register, if they conduct intraCommunity acquisitions. This requirement should not apply to persons which sum of the acquisitions does not exceed 20 000 BGN for the current calendar year. Notwithstanding the taxable turnover, the registration requirement under the VAT Act shall apply to each person who is established in another Member State, who is not established within the territory of the country and who affects taxable supplies of goods which are assembled or installed within the territory of the country by or for the account of the said person. Obligation for registration occurs also for a person who performs distance supplies - supplies whereof the place of transaction is within the territory of the country, the recipient of the supply is not registered for VAT purposes in the country and the supplies effected under the terms of distance selling for the territory of the country exceed the amount of BGN 70,000 for the current calendar year or have exceeded the said amount for the last preceding calendar year The optional registration under the VAT Act provides the persons which satisfy a certain requirement the right to register (but not the obligation) and to benet from the regime of the VAT system. Pursuant to Article 100, para. 1 any person which do not cover the condition for compulsory registration may register under the VAT Act. Any taxable and non-taxable legal person, which does not cover the compulsory registration conditions, has the right to register under the VAT
Act for intra-Community acquisition. Also any taxable person may register provided that the said person has notied the tax administration of the Member State where the said person is registered for VAT purposes that the said person wishes the distance selling effected thereby to have a place of transaction within the territory of the country. The optional registration is administered by the National Revenue Agency where the persons may le an application. An amendment in the applicable law, effective since 19 December 2007, aiming to reduce the participation of companies with pending obligations in the VAT system is the right of the revenue authorities to require security in cash, in government securities or in unconditional and irrevocable bank guarantee for a term of one year in order to register a person on which data exist that one or more of its owners, managing directors, procurators, majority partners or shareholders are or have been, at the time of occurrence of the liabilities, owners, procurators, majority partners or shareholders, members of managing or controlling bodies of persons with unsettled value added tax liabilities exceeding BGN 5,000, or have unsettled value added tax liabilities exceeding BGN 5,000 in the capacity as natural persons or are persons against whom penal proceedings have been initiated or have been convicted for offenses against the tax system In some cases the tax authorities may initiate a registration procedure for a person who has fallen within the requirements for compulsory registration. In this case the tax authority would issue an ordinance stating the grounds and the date on which the obligation to register has arisen.
VIII.11.2. Tax Rates

The rate of tax is 20% and is applicable to: the taxable supplies, except for those expressly specied as subject to the zero rate; the importation of goods into the territory of the country;
66
the taxable intra-Community acquisitions. The rate of tax applicable to accommodation provided by a hotelier, where part of a package tour, is 7%.
VIII.11.3. VAT Exemptions

The following major transactions are entitled to zero rate of VAT: supplies of goods dispatched or transported to destination outside territory of the European Community; certain transactions related to international transportation; supply for handling of goods; supply related to duty-free trade; supply of goods provided by agents, brokers and other intermediaries. Since 19 December 2007 the Value Added Tax Act regulates the forwarding services and treats them as equivalent to transport services. Main transactions which are exempt from VAT are: supply linked to health care; supply linked to welfare and social security work; the transfer of the right of ownership of land, excluding development land and land situated under the buildings; the creation or transfer of limited rights in rem to land, as well as the letting or leasing of land Transactions with buildings or parts thereof, which are not new, with building land, as well as the creation and transfer of other rights in rem thereto, are an exempt supply. The letting of a building or part thereof for residential use to a natural person who is not a merchant shall likewise be an exempt supply. However the transfer of a right of ownership of a regulated lot within the meaning given by the Spatial Development Act, with the exception of the building land of buildings which are not new is not exempt from VAT.
regulation of export under the previous VAT Act as far as transaction between merchants from different member states is concerned. Intra-community supply of goods is any supply of goods, transported from the territory of the country to the territory of another Member State, where both supplier and recipient are registered for VAT. Intra-Community acquisition is acquisition of the right of ownership of goods, as well as the actual receipt of goods, which are dispatched or transported to the territory of the country from the territory of another Member State, where the supplier is a taxable person registered for VAT purposes in another Member State. Intra-community supplies with the exception of the exempt intra-community supplies referred are liable to tax at the zero rate. Regarding intra-community acquisition, the recipient charges 20% VAT and is entitled to deduct credit for input tax.
VIII.11.5. VAT Documents, Reporting and Payment

Tax documents are: the invoice; the advice to an invoice; the memorandum. 1. Invoice. Each taxable person who is a supplier is obligated to issue an invoice for a supply of goods or service affected thereby or upon receipt of an advance payment before affecting such a supply except in the cases where the supply is documented by a memorandum. The invoice to contain some compulsory requisites. The invoice shall mandatory be issued not later than ve days after the date of occurrence of the chargeable event for the supply, and in the cases of advance payment, not later than ve days after the date of receipt of the payment. However, upon an intra-Community supply, including in the cases of advance payment, the invoice shall mandatory be issued not later that the 15th day of the month following the month during which the chargeable event occurred
VIII.11.4. Intra-community Supply of Goods

The new VAT Act provides the intra-community supply of goods which actually replaces the
67
2. Advice to an invoice. It is issued if the taxable amount has changed or where other circumstances have occurred which result in change of the due tax and an invoice has already been issued. 3. Memorandum. It is a new tax document, issued where the VAT is due by the recipient. As of 19 December 2007 the memorandum shall be issued not later than 15 days after the date on which the tax became chargeable instead of 5 days as it was provided for before the amendment of the law. VAT is generally reported and paid monthly. The monthly VAT returns are to be led and monthly VAT payments by the 14-th day of the following month. The tax under this Act shall become chargeable in respect of the taxable supplies and an obligation for the registered person to charge the said tax shall arise on the date when the supply of goods or services is affected. The tax upon an intra-Community acquisition shall become chargeable on the 15th day of the month following the month during which the supply of goods or services is affected. Any registered person, in respect of whom the tax has become chargeable, shall be obliged to charge the said tax and, to this end, must issue a tax document and indicate the tax on a separate line therein
eligible investment projects are entitled to import assets needed for the project without effective payment of import VAT. In addition, such investors are entitled to refund VAT incurred on local purchases within 30 days after ling of the tax return. In order to benet from the special investment rules, the investor needs to obtain an advance approval from the Minister of Finance. In order to receive the approval, the investment project must meet certain conditions, such as: the time limit for implementation of the project does not exceed two years; the amount of investment exceeds BGN 10 million for a period not longer than two years; more than 50 new jobs are created; the person is capable of nancing the project, as well as of constructing and maintaining facilities ensuring the implementation of the said project.
VIII.11.8. Special VAT Regulations for Tourist Sector

There are two regimes in the new VAT Act regarding the tourist sector depending on the services provided. The rate of tax applicable to accommodation provided by a hotelier to foreign tour operators for organized group of foreign tourists (which is called basic tourist service) shall be 9 %. The provision by a tour operator or a travel agent, acting in his own name, of goods or services in connection with the journey of a tourist for the direct benet of the tourist, is treated as a supply of a single service to tourists. The goods and services directly beneting the tourist shall be the goods and services which the tour operator or the travel agent has received from other taxable persons and has provided to the tourist without alteration. If the place of transaction of a single service to tourists is in Bulgaria, the tax rate is 20%. However, if the supplies of goods and services for the direct benet of the tourist have a place of transaction within the territory of third countries and territories (i.e. outside the territory of the Community) they are taxed at zero rate.
VIII.11.6. VAT Refunds

Where VAT incurred on purchases exceeds VAT charged on sales, the excess VAT deduction is rst carried forward for a period of three months to offset VAT debt due in these three months. If at the end of the three-month period the excess VAT or part thereof has not been recovered, the balance is refunded within 30 days after the date of ling of the VAT return for the third month.
VIII.11.7. Special Rules for Material Investment Projects

VAT-registered investors who perform certain
68
CHAPTER NINE: CUSTOMS REGIME
IX
CUSTOMS REGIME
Following Bulgarias accession to the European Union (EU) and its gaining full member status as of 01.01.2007, a number of changes and specic developments occurred in the foreign trade and customs regime in regard to exports and imports of goods. More specically, the new developments concerned the direct application of Community acquits, which regulates the common procedures, tariff and non-tariff measures (prohibitions and restrictions) on exports and imports of goods to and from non-member states and uniform customs control instruments. The basic acts in the area of EU customs acquits are as follows: Council Regulation (EEC) No. 2913/92 of 12 October 1992 establishing the Community Customs Code; Commission Regulation (EEC) No. 2454/93 of 2 July 1993 laying down provisions for the implementation of Council Regulation (EEC) No 2913/92 establishing the Community Customs Code, as amended and supplemented; Regulation (EC) N0 450/2008 of the European Parliament and of the Council of 23 April 2008 laying down the Community Customs Code (Modernised Customs Code), whose implementation shall be completed by 24 June 2013 at the latest. It must be pointed out that Bulgarias national legislation in this area was not superseded entirely. The issues, related to the status and powers of the customs administration, as well as those, related to performance of post-clearance control, are regulated at the national level. Likewise, the administrative and penal provisions of the Customs Act, more specically the texts dening components of customs violations, as well as the rules for establishment of such violations and for sanctioning of offenders, are also in effect. The Single Market of the EU was built in the course of three decades in compliance with three founding documents: The Treaty
establishing the European Community (EEC) of 1957, the Merger Treaty of 1967, which merged the activities of EEC, ECSC (the European Coal and Steel Community) and Euratom (the European Atomic Energy Community) and of the Single European Act of 1986, whereby the procedure for establishment of a Single Market by the end of 1992 was introduced. After the EC (now EU) institutions adopted the respective regulatory acts Directives, Regulations and others, the Single Market (SM) started functioning as of the beginning of 1993. Mainly the following aspects are typical for the SM: Establishment of a Customs Union; Ensuring free movement of goods; Implementation of a common trade policy. As a full EU member, on 01.01.2007 Bulgaria became also an equal participant in the Single Market of the EU. Likewise, domestic legislation in the respective areas was brought into conformity with the legislation of the Community the acquis communautaire. Thus Bulgaria gained access to the vast European market with a population of more than 500 million consumers and should now take up its niche in the manufacturing specialization of unied Europe, as well as an appropriate share in intra-European trade. In addition it must actively participate in the process of achievement of one of the basic goals of European integration - transition to economic and monetary union of the countries of the EU.
IX.1. CUSTOMS UNION

The introduction of the Customs Union as of 01.01.1993 required elimination of customs duties in mutual trade of the Community Member States, as well as of quantitative restrictions and measures having equivalent effect. Thus, in the process of crossing of internal borders between the Member States, the customs formalities and documents were limited only to the existing scal, statistical and other control documents and procedures. The
PENKOV-MARKOV & PARTNERS
69
customs legislation of the EU was harmonized by the Community Customs Code, which eliminated differences of interpretation of customs provisions in the individual Member States. At its accession to the EU Bulgaria eliminated the customs duties in its trade with the other European Union Member States and started applying the Common Customs Tariff of the EU in its trade with non-member states. The Common Customs Tariff requires levying of the same duties on products, imported from third countries. In addition, it is used by the EU as an instrument for regulation of international trade. EU keeps adapting the Common Customs Tariff to the results of negotiations for tariff reduction within the framework of the General Agreement on Tariffs and Trade (GATT), recently applied by the World Trade Organization (WTO). In respect of Bulgaria, the agreements reached as a result of tariff negotiations led to a decline in imports from non-EU states of industrial goods on average from 9% to 4% and for agricultural and food products - on average from 22% to 16%.
as measure having an effect, equivalent to a quantitative restriction (Decision on the so-called Dessonville Case). The White Paper identied three types of barriers, impeding free movement of goods, which must be eliminated: physical (administrative), technical and scal (indirect). Physical barriers, subject to elimination, comprise: differences in foreign trade documents, such as customs declarations, certicates of origin, etc.; differences in foreign trade statistics and in the forms for obtaining the respective data; treatment of intra-Community transit as external transit, which requires different formalities, leading to waste of time and resources; performance of customs, veterinary and phyto-sanitary checks on internal borders of the Community, as well as on its external borders. As of 01.01.1993 physical control of goods at their passage through the internal boundaries of the Community was eliminated. A control system is in place for verifying conformity of goods to the mandatory veterinary, phytosanitary and technical norms for access to the Single European Market, in which control bodies are controlling the manufacturers, the wholesale trade warehouses and the store networks within each individual country. Technical barriers are divided into two main groups. barriers, related to differences in national standards and other mandatory technical requirements and norms: barriers, resulting from differences in the procedures of obtaining certicates. Problems and expenditures arise in the process of proving conformity of certain products to the mandatory national standards and other requirements for obtaining certicates from laboratories in the importing country. Fiscal barriers are related to differences in the rates of indirect taxes (VAT and excise duties)
IX.2. FREE MOVEMENT OF GOODS

Although the abolition of duties in intraEuropean trade took place easily, the elimination of taxes, charges and other stamp duties, viewed as measures having equivalent effect, turned out to be a serious problem. The issue is whether a certain domestic tax or charge ought to be classied among the prohibited barriers, which are subject to elimination. Nearly 300 draft Directives are included in the White Paper on Completing the Internal Market, prepared by the European Commission, whereby a signicant number of barriers in mutual trade, which persisted also after the introduction of the Customs Union, would be removed. An important precedent in the drive against the hidden restrictive measures, which pose obstacles to mutual trade, was the 1974 decision of the EC Court, reading: Each trade regulation measure of a Member State, which may, directly or indirectly, actually or potentially impede intra-Community trade, must be deemed
70
in the individual EU Member States, as well as to absence of a uniform system for collection and allocation of indirect taxes. With the view to reduce the impact of those barriers in the European Community, from the beginning of 1993 a provisional system for uniform collection of VAT and other indirect taxes was introduced, which is based on the following rules: preserving national sovereignty over tax policy; preserving the practice in foreign trade, under which importers pay VAT on imports and VAT is refunded to exporters; the rates of VAT and other indirect taxes would be approximated and a minimum standard rate of 15 % and a reduced rate of 5% would be introduced for VAT; introducing a uniform tax registration for VAT and a uniform procedure for refund of tax credits in mutual trade of EU Member States, which in practice equalized tax liabilities in instances of imports with tax credits in instances of exports. It must be noted that by analogy with the manner, in which Bulgarian local goods would be moved, handled and warehoused on the territory of this country, without any intervention on the part of the customs administration, goods enjoying Community status would be handled in the same way on the territory of the any of the EU Member States. As regards movement of goods from and to third countries the Community acquis would apply, as related to the customs control in regard to goods and transportation means, customs regimes and procedures, the rules on customs debt, etc. It may be stated in general that the currently applicable Customs Act and the Regulation on the Implementation of the Customs Act largely regulate those relationships in a way similar to the regulation, contained in the Community Customs Code and the Regulation for its Implementation. In this sense the changes, related to introduction of non-Community goods into the territory of the Community and their placing under any customs regime, by declaring them under the respective procedure, are not of essential importance.
IX.3. COMMON TRADE POLICY

The EU Member States implement a Common Trade Policy in their foreign economic relations. It is formulated in Article 133 of the Treaty of the European Community (TEC). The new version of this Article of TEC from the Treaty of Nice (2000) expanded the powers of the EU in the areas of services and intellectual property. In parallel, the opportunities for making of decisions by the Community were limited, by introducing the requirement for unanimity when adopting internal orders. In terms of scope, the Common Trade Policy is sub-divided into autonomous and contractual policy. The autonomous trade policy comprises the measures, relevant to imports and exports of goods by Community Member States, outside the framework of specially undertaken contractual obligations with third parties. This policy includes application of common rules (regulations) on imports and exports, of anti-dumping measures, of measures against subsidized imports and prohibited trade practices, of quantitative restrictions (quotas), of externally motivated trade sanctions, such as embargoes, etc. An important trade policy instrument is the Regulation adopted, authorizing the EU to react swiftly in instances of unfair trade practice in exports to third countries. The international procedure for consultation and dispute settlement is applicable and in cases of failure to reach agreement, more stringent measures are applied, such as cancellation of trade preferences, extended to the respective country, increase of levels of duties on imports from it and imposition of quantitative restrictions. The contractual trade policy incorporates all agreements of the EU with individual countries or groups of countries, related to imports or exports of goods. The agreements within the framework of the Common Trade Policy may relate both to foreign economic relations in general, as well as to individual goods or commodity groups (sectoral agreements).
71
The trade and cooperation agreements transcend the boundaries of purely commercial relations and include cooperation in the elds of industrial production, investments, science, technologies and environmental protection. These agreements are of a very high importance for Bulgaria, because they help the accelerated development of an effective economy, in particular by fostering high technology and export-oriented types of manufacturing. The Association agreements also occupy an important place in European integration. They contributed greatly to the formation in the 1990s of the so-called European Economic Area, which encompassed all nonmember states of EU or those, which prepared themselves for full membership, as was the case with Bulgaria. With the view to create a broader free trade area, the EU entered into association agreements with a number of Mediterranean states, and a Customs Union with Turkey entered into force as of 1996. As of the date of its accession to the EU Bulgaria adopted entirely also the Common Customs Tariff of the EU. To check the applicable duty in imports of any product into the EU after 01.01.2007, please consult the database of the EU TARIC information system, accessible at the European Commission site on the Internet at http://ec.europa.eu/ taxation_customs/dds2/taric/taric_consultation. jsp?Lang=en. The search may be performed either by the CN code of the commodity, country of origin or other data. In 2008 the new Community action programme Customs 2013 was established (Decision No 624/2007/EC of the European Parliament and of the Council of 23 May 2007). The programme scheduled to be completed by 31 December 2013, aims at facilitation of legitimate trade, simplication and speeding up of the customs procedures in the Member States. The programme shall respond to the necessity of dening a policy concerning safety (management of external borders and control of the whole international supply chain), the creation of electronic customs environment and the ght against counterfeiting and piracy.
For these purposes the programme consists of activities in the eld of: - communication and information-exchange systems; - benchmarking; - seminars and workshops; - project groups and steering groups; - working visits; - training activities; - monitoring actions.
IX.4. MODERNISED CUSTOMS CODE

The Modernized Customs Code Regulation (Regulation (EC) No 450/2008) is based on the common internal market concept and includes the common rules and procedures that ensure application of tariff and other measures of the common policies with respect to the trade with goods in the EC and states or territories outside the customs territory of the Community. Till 24 June 2013 all three acts, i.e. Council Regulation (EEC) No. 2913/92, Commission Regulation (EEC) No. 2454/93 and Regulation (EC) No 450/2008 shall apply, whereafter only Regulation (EC) No 450/2008 shall be regulating the customs regime in the Community and the rst two shall be repealed. The adoption of rules on the application of Modernized Customs Code Regulation and the implementing of its provisions should be completed as of such date. The main changes in the regime under the Modernized Customs Code Regulation are the following: Introduced is the electronic submission of customs declarations as a rule Envisaged is electronic exchange of information between the customs authorities of the Member States and other competent authorities Centralized preparation of customs declaration at the place, where the economic operator is established Laid down are the bases for appliance of one-stop shop service. Introduced are also a number of other new and important novelties in the regime.
72
CHAPTER TEN: EU STRUCTURAL FUNDS IN BULGARIA
EU STRUCTURAL FUNDS IN BULGARIA
X.1. General Review

Bulgarias accession to the European Union has brought about signicant funding opportunities and access of the country to the nancial mechanisms of the European Union. The Community has established nancial instruments for implementation of the Regional Policy of the European Union as laid down in the European Union Treaty. The term Structural Funds is general, encompassing several different funds to achieve various goals. With the reform carried out in the Cohesion Policy upon the European Commissions initiative the term Structural Funds relates to the rst two of the following nancial instruments: (i) the European Regional Development Fund (ERDF), established in 1975, aims to reinforce social and economic cohesion by redressing the main regional imbalances. It supports programmes addressing regional development, economic change, enhanced competitiveness and territorial co-operation throughout the EU. Funding priorities include research, innovation, environmental protection and risk prevention, while infrastructure investment retains an important role, especially in the least developed regions. (ii) the European Social Fund (ESF), established in 1958, aims to contribute to strengthening the economic and social cohesion by improving employment and job opportunities, with ultimate goal to achieve full employment and quality and productivity at work and promote social integration, including access of disadvantaged people to employment as well as diminishing national, regional or local employment disparities. (iii) the Cohesion Fund (CF) was established in 1993 for the purpose of strengthening the economic and social cohesion in the Community and promoting sustainable development. The fund aims at nancial support for underdeveloped Member States and its priority is funding big infrastructure
projects (trans-European transport network and environment projects). (iv) the European Agricultural Guidance and Guarantee Fund (EAGGF), established in 1962, aims at implementing the Common Agriculture Policy. The Fund funds measures for development of rural areas and investment help for farmers. (v) the Financial Instrument for Fisheries Guidance (FIFG) was established in 1993 and its ultimate goal is restructuring the branch funding the modernization of shing industry. The European Commission has approved the National Strategic Reference Framework for Bulgaria for programming period 2007 2013 setting out four main priorities: (a) Improving Basic Infrastructure; (b) Increasing the Quality of Human Capital with a Focus on Employment; (c) Fostering Entrepreneurship, Favorable Business Environment and Good Governance; (d) Supporting Balanced Territorial Development. Each priority is passed through any of the seven Operational Programmes: 1. Regional Development with budget of EUR 1,601,274,759, of which EUR 1,361,083,545 nanced by the ERDF, and EUR 240,191,214 as national co-nancing. The programme is managed by the Ministry of Regional Development and Public Works; 2. Development of the Competitiveness of the Bulgarian Economy with budget of EUR 1,162,215,552, of which EUR 987,883,219 nanced by the ERDF, and EUR 174,332,333 as national co-nancing. The programme is managed by the Ministry of Economy, Energy and Tourism; 3. Environment with budget of EUR 1,800,748,085, of which EUR 1,466,425,481 nanced by the ERDF and CF, and EUR 334,322,604 as national co-nancing. The programme is managed by the Ministry of Environment and Waters; 4. Transport with budget of EUR
PENEV & PARTNERS
73
2,003,481,166, of which EUR 1,624,479,623 nanced by ERDF and CF, and EUR 379,001,543 as national co-nancing. The programme is managed by the Ministry of Transport, Information Technology and Communications; 5. Human Resources Development with budget of EUR 1,213,869,575, of which EUR 1,031,789,139 nanced by the ESF, and EUR 182,080,436 as national conancing. The programme is managed by the Ministry of Labour and Social Policy; 6. Administrative capacity with budget of EUR 180,789,087, of which EUR 153,670,724 nanced by the ESF, and EUR 27,118,363 as national co-nancing. The programme is managed by the Ministry of Finance; 7. Technical Assistance with budget of EUR 56,819,427, of which EUR 48,296,513 nanced by the ERDF, and EUR 8,522,914 as national co-nancing. The programme is managed by the Ministry of Finance, as well as: National Strategy Plan for Rural Development, managed by the Ministry of Agriculture and Forestry and National Strategic Plan for Fisheries and Aquaculture, managed by Executive Agency for Fisheries and Aquaculture with the Ministry of Agriculture and Forestry. Each Operational Programme encompasses different priority axes and various operations or measures so that more areas are intervened and better results are achieved. Each axis/operation/ measure species the main intervention area, sets eligible nance and beneciaries. The process of operation of each operational programme includes the following interrelations: (i) the Central Coordination Unit at the Ministry of Finance is responsible for coordination between the European Commission, Monitoring Committees and Managing Authorities. It observes the proper implementation of European policies and principles in respect of the funding provided by the Structural Funds. It receives reports from the Managing Authorities with regard to the implementation of the
Operational Programmes and from the Certifying Authority with regard to the nancial implementation of the Operational Programmes; (ii) the Monitoring Committee of each Operational Programme includes representatives from the Central Coordination Unit. It is responsible for review and approval of operations to be nanced, monitoring of the progress and results of the implemented projects, approval of reports on the implementation, proposals to the Managing Authorities for current changes in the Operational Programmes; (iii) each Managing Authority is responsible for management and implementation of the Operational Programme under its supervision through announcing calls for proposals for potential beneciaries under particular operation or measure, evaluation of the eligibility of projects; approval of expenditures under projects and processing payments as per approved nancing. The Managing Authority also reports to the Certifying Authority on a monthly basis regarding executed payments and to the Central Coordination Unit regarding the implementation of the Operational Programme and annually to the European Commission; (iv) the role of Certifying Authority is undertaken by National Fund Directorate at the Ministry of Finance. Its two main functions are (i) receiving funds from the European Structural Funds managed by the European Commission and (ii) executing all payments towards the Managing Authorities. The Certifying Authority also veries expenditures declared by beneciaries to actually having been made and certies all reporting documents of a certain project. The Certifying Authority also sends nancial reports to the Central Coordination Unit. (v) the role of Audit Authority is undertaken by the Audit of European Funds Directorate at the Ministry of Finance. It carries out system audit and audit of operations. The Audit Authority issues annual control report and
74
PENEV & PARTNERS
audit opinion that all nancial operations are legal and regular. (vi) Intermediate Bodies are institutions to which the Managing Authority may delegate some of its functions on management of the Operational Programme (e.g. project promotion and campaigns among publicity, project selection and approval, nancial control and accounting, monitoring). However, the ultimate responsibility for management of the Programme is borne by the Managing Authority. (vii) Beneciaries are individuals, legal entities or public authorities, specied in general or in particular in the Operational Programmes. Beneciaries are the ultimate recipients of nancing from the European Structural Funds. Eligible beneciaries as per operations or measures submit project proposals or claims for funding to the Managing Authority or the Intermediate Body and once their project or claim has been approved, funding is granted. Depending on the operation or measure the Managing Authority may execute follow-up control and evaluations of the implementation of the project and the expedience of funds received under the programme. Due to the great number of priority axes, operations or measures available for beneciaries that are public authorities or institutions, the funds granted are subject to public procurement rules. Grant agreements between the Managing Authorities and Beneciaries are signed with regard to the responsibilities for conducting the public procurement procedure. Beneciaries are responsible for preparation of tender documents and subcontracting agreements, announcement of public procurement procedure, evaluation of offers and concluding contract with subcontractors. The Managing Authority should review and verify the tender documentation required as well as review and approve the Beneciarys evaluation of the received offers. The subcontracting agreement is approved by the Managing Authority before the Beneciary signs it with the chosen supplier or service provider. The Beneciary then submits all
invoices issued for services rendered to the Managing Authority for reimbursement of the costs from the approved funding. All information regarding awarded public procurements is entered into the Public Procurement Register kept by the Public Procurement Agency with the Ministry of Economy and Energy.
X.2. Operational Programmes X.2.1. Operational Programme Regional Development

The programme is managed by the Ministry of Regional Development and Public Works. The programmes main objective is improvement of the quality of life in all regions of the country through modernization of infrastructure and tourism boost. Priority Axis 1 - Sustainable and Integrated Urban Development is meant to deliver basic environmental, social and economic services to all residents of a community through implementation of the following operations: (i) Improvement of social infrastructure in order to ensure appropriate and cost effective, educational, environmental and cultural infrastructure consistent with future demands of the cities and their surrounding urban areas; (ii) Housing policy to provide better living conditions for city residents, raising the standard of life and improving the conditions for disadvantaged people; (iii) Organization of economic activities such as upgrading and development of existing business-related infrastructure (communications links, electricity, gas delivery); reconstruction and revitalization of existing industrial zones not affected by contaminations; (iv) Improvement of physical environment and risk prevention to enhance quality of life and environmental conditions; (v) Sustainable urban transport system. Beneciaries under this priority axis: municipalities, non-prot associations, public authorities and associations of owners of multifamily houses, municipalities or associations of municipalities, Ministry of Interior, National Service Fire Safety and Population Protection,
PENEV & PARTNERS
75
non-government organizations in conjunction with municipal authorities. Priority Axis 2 - Regional and Local Accessibility - includes the following operations: (i) Regional and Local Road Infrastructure target activities are: rehabilitation and reconstruction of 2nd and 3rd class roads; maintenance of municipal roads within the agglomeration areas; (ii) Information and Communication Technologies Network development of secure, dependable and trusted public-owned infrastructure, development of public parks; support of municipal ICT projects; (iii) Access to sustainable and efcient energy resources through construction of gas distribution pipeline, construction and installations of systems of renewable energy resources, etc. The operation supports only investment in energy distribution, not energy production. Beneciaries under this priority axis are municipalities, State Agency for Informational Technology and Communication, Road Infrastructure Company, etc. Priority Axis 3: Sustainable development of tourism. This priority axis aims to enhance the regional tourism potential of the country and to develop and market territorially specic and diversied tourist products through (i) Enhancement of tourist attractions and related infrastructure; (ii) Regional tourism product development and marketing destinations aiming to increase the awareness of the diverse tourism potential and to maintain the current position of Bulgaria on the tourism market; (iii) National Tourist Marketing. Beneciaries are: municipalities, associations of municipalities, Ministry of Culture, national and local tourism associations, registered in National Tourist Register, municipalities, State Tourism Agency. Priority axis 4: Local development and co-operation. The activities planned under this axis are designed to contribute to local and inter-regional development, especially for development and implementation of investment projects, introduced by local communities related to local property, as long as such projects address problems at local level and have the exibility to solve them. The axis is to be
implemented through two projects in two areas of intervention: (i) Small-scale Local Investments targeted at less developed small municipalities due to their geographical or economic isolation and (ii) Inter-regional cooperation - regional and local innovations through exchange of practices within the European territory. Beneciaries are: municipalities, districts, Euro regions and non-government organizations in partnership with municipal and district authorities.
X.2.2. Operational Programme Competitiveness

The main objective of Operational Programme Competitiveness is the development of dynamic economy which is competitive to the European and world market with two specic targets encouraging innovation thus increasing the effectiveness of enterprises as well as improving business environment in Bulgaria. Managing authority of the programme is the Ministry of Economy and Energy. Priority Axis 1: Development of a knowledgebased economy and innovative activities. The axis is aimed to improve Bulgarian innovation system and pro-innovative infrastructure through (i) support for starting innovative enterprises, especially in respect of innovative industrial research and experimental development stages and set-up companies that release innovative products on the market (e.g. business plans, services related to the project, marketing etc.); (ii) support for development of innovations and their marketing; (iii) support for increasing the number of research and development professionals in companies. Funds released under this operation will be designated to cover expenses incurred by the companies for remuneration, social security payments, equipment and materials for research; (iv) support for industrial property rights protection - nancing will cover expenses related to assessment of innovations, registration fees, etc; (v) nancing various companies providing professional and consultancy services for set-up companies; (vi) support for renovation of equipment for practical purposes; (vii) establishment of national innovation network.
76
PENEV & PARTNERS
Beneciaries under this priority axis are: scientic research organizations, universities, setup companies, companies that recruit research and development professionals and adopt innovations in their production process; Bulgarian companies engaged in inventions, scientic organizations and universities, municipalities, public or private organizations/companies, including non-government organization. Priority Axis 2: Increasing efciency of enterprises and promoting supportive business environment. This part of the programme is intended to fund small and medium-sized enterprises in the light of improving their competitiveness on the market. The following operations will be nanced under this priority axis: (i) Technological renovation of companies - aims at providing modern and effective equipment and technologies through introducing new machines or innovations; (ii) Satisfaction of internationally established standards; (iii) Establishment of Business support organizations network; (iv) Creation of regional business incubators. Beneciaries: small and medium-sized enterprises; large enterprises (for some operations), public organizations, nongovernment organizations, companies providing information-consulting services. Priority Axis 3: Financial resources for developing enterprises. Intervention under this axis aims to overcome the downsides of nancing small and medium-sized enterprises due to lack of credit guarantees and venture capital. Financial engineering will be implemented through establishment of a Holding Fund pursuant to Art. 44 of Regulation 1083/2006. The nancial instruments to be used by the Holding Fund will be offering guarantees for certain credit portfolios for small and medium enterprises; support for micro-loan funds and support for venture capital funds investing in small and medium enterprises. Beneciaries are small and medium enterprises, guarantee funds, hedge funds, banks, organizations. Priority Axis 4: Strengthening the international market positions of Bulgarian economy through promoting the advantages of investing in Bulgaria; support for Bulgarian companies
playing on the international market. Invest Bulgaria Agency, being the main beneciary under this axis should elaborate a long-term programme to be followed including campaigns to attract investors, providing information regarding foreign markets, etc. Priority Axis 5: Technical assistance: The objective of the priority axis is to improve the quality of the interventions to be carried out and to increase the effectiveness of Structural funds absorption through the realization of the Operational program at the level of Managing authority and Intermediate bodies Beneciaries are the Managing Authority, Intermediate Body..
X.2.3. Operational Programme Environment

The main objective of the programme is to meet the need of investments in infrastructure, aiming at achieving compliance with EU standards. Its main objective is to increase the share of the population connected to water and sewerage system, as well as to ensure quality and allyear delivery of water to more remote areas. Managing Authority of the programme is the Ministry of Environment and Waters. Priority axis 1: Improvement and development of water and wastewater infrastructure. The main aim to be achieved under this priority axis is preservation and improvement of the environmental condition of the water in the country through construction and modernization of wastewater treatment plants as per the particular need of settlements. Priority Axis 2: Improvement and development of waste treatment infrastructure resulting in soil and groundwater condition improvement and the existing landlls for household waste is decreased. Beneciaries under this axis are municipal administration and regional associations. Priority Axis 3: Preservation and restoration of biodiversity aiming to provide support for the entire management of species and natural habitats within the National Environmental Network comprising protected areas and
PENEV & PARTNERS
77
protected zones under NATURA 2000. The main priority of the axis is to reduce and hinder the loss of biodiversity in the country by improvement and update of the management plans regarding protected areas; information campaigns to increase public awareness on NATURA 2000 Network; establishment of management bodies of NATURA 2000; nancing action plans for protection of endangered species of national, European and global signicance, etc. Beneciaries under the programme are: municipalities and departments in the Ministry of Environment and Waters and the Ministry of Agriculture and Food Supply engaged in the management of NATURA 2000, municipal administration, Water Supply and Sewerage Companies and River Basin Management Directorates. Priority Axis 4: Technical assistance Provide support for the program management, implementation, monitoring, control, and evaluation as well as for publicity measures, program promotion and exchange of experience. This priority supports the realization of the activities, as well as all studies, considered as necessary for the successful Program and priorities implementation. Beneciaries under the program are: Managing Authority, Intermediate Body, Monitoring Committee,/subcommittees, Project Selection and Coordination Committee, Internal Audit Directorate within the Ministry of Environment and Water, working groups established for the purposes of the operational program and Beneciaries under Priorities Priority Axis 1 to 3.
X.2.4. Operational Programme Transport

Operational Programme Transport aims at modernization and renovation of road and railway infrastructure, especially Trans-European road and railway network and improvement of travelling conditions. Managing authority of the programme is the Ministry of Transport, Information Technology and Communications. Priority Axis1: Development of railway infrastructure along the Trans European and major national transport axes establishment
and development of nation-wide cross-border railway infrastructure of European importance, including modernization, rehabilitation and electrication of railway section along the TransEuropean transport network. Priority Axis 2: Development of road infrastructure along the Trans European and major national transport axes - establishment and development of nation wide cross-border road infrastructure of European importance. Priority Axis 3: Improvement of inter-modality for passengers and freight. The priority of the axis is to make travelling conditions and transfer of passengers and freight more environmentally friendly through two main operations: (i) development of combined transport, railway connections, logistic related activities to attract international operators and (ii) development of multimodal mobility for passengers in Soa through extension of Soa underground and creation of inter-modal connections for passengers in Soa. Priority Axis 4: Improvement of maritime and inland waterway navigation. The main aim is improving navigation way to secure international navigation and all-year passage of vessels in the two most critical sections of Danube River. Beneciaries under this programme are: National Railway Infrastructure Company, National Road Infrastructure Fund, Soa Municipality Metropolitan EAD Company, Agency for Exploration and Maintenance of Danube River, Maritime Administration Executive Agency. Priority Axis 5: Technical assistance: aims at achievement of effective and efcient management and implementation of the program.
X.2.5. Operational Programme Human Resources Development

Operational Programme Human Resources Development nances activities aiming to support the overall improvement of the labour structure and labour maret conditions in the country. The programme is managed by the Ministry of Labour and Social Policy.
78
PENEV & PARTNERS
Priority Axis 1: Promotion of economic activity and development of inclusive labour market increasing the economic activity and integration of vulnerable groups and inactive persons on the labour market and employment through establishment of entrepreneurships. Beneciaries are: Employment Agency, educational and training institutions and organizations, employers, branch organizations, social-economic partners, NGOs, centers for information and vocational training, vocational guidance institutions, micro-enterprises, consultancy companies, entrepreneurship development centers. Priority Axis 2: Raising the productivity and adaptability of the employed persons improving workforce adaptability and exibility as well as mobility through investments in human capital, improving working conditions at the workplace. Beneciaries are: Employment Agency, educational and training institutions and organizations, employers, branch organizations, social-economic partners, NGOs, institutions and organizations exercising control over working conditions, units and services established to support employees. Priority Axis 3 Improving quality of education and training in correspondence with the labor market necessities and building a knowledgebased economy through introducing high quality education and training services, modernizing the educational and training system. Beneciaries: Ministry of Education and Science, National Evaluation and Accreditation Agency; National Agency on Vocational Education and Training, science institutions and centers, employers, branch organization, municipalities, etc. Priority Axis 4 Improving the access to education and training the ultimate goal is more productive social and labour advancement of people through (i) access to education and training for disadvantaged groups; (ii) more extensive coverage of children and youth in education and society expansion of extracurricular engagement of adolescents and setting up mechanism for provision of scholarship for higher education; (iii) development of life-long educational system.
Beneciaries for this axis are: Ministry of Education and Science, National Evaluation and Accreditation Agency; National Agency on Vocational Education and Training, kindergartens, non-government organizations. Priority Axis 5: Social inclusion of vulnerable groups and promotion of social economy through (i) support to the social economy by investing in social capital; (ii) provision of social services to vulnerable groups for prevention of social segregation and overcoming its consequences; (iii) employability through better health; Beneciaries: Social Assistance Agency, Agency for People with Disabilities, State Agency for Child Protection, specialized organizations of people with disabilities, consultancy agencies, employers, municipalities, Ministry of Health, State Agency for Youth and Support. Priority Axis 6: Improving the effectiveness of labour market institutions and improving social and healthcare services. The axis aims to improve institutional system in the eld of labour market through (i) development and modernization of the labour market system and (ii) strengthening the capacity of institutions for social integration and provision of health services. Beneciaries: Labor market institutions at national and regional level, control authorities, institutions exercising control over the working conditions in the enterprises, Ministry of Labor and Social Policy and its secondary budget spending units, Ministry of Health and its secondary budget spending units engaged in social and health services, etc. Priority Axis 7: Transnational and interregional cooperation through (i) collaboration between projects in different Member States, (ii) collaboration between national, regional and local institutions and organizations in Member States. Beneciaries under axis are: public authorities, non-government organizations, educational, scientic and training institutions, employers, branch organizations. Priority Axis 8: Technical assistance - targeted at supporting the effective management and implementation of HRD OP according to the EU requirements.
PENEV & PARTNERS
79
Beneciaries under axis are: Managing Authority and Intermediate Bodies.
X.2.6. Operational Programme Administrative Capacity

The main objective of Operational Programme Administrative Capacity is the modernization of the Bulgarian State administration leading to effective functioning of the administrative and judicial system, enhancing qualication of employees in administration, as well as provision of modern and adequate service by the state administration. Managing authority of the programme is the Ministry of Finance. Priority Axis 1: Good governance aiming at effective functioning of the administration and judicial system through (i) organizational development of the administrative structures; (ii) transparency and integrity of state administration; (iii) effective coordination and partnership in policy making and implementation of policies; (iv) making administration cooperative towards business; (v) increasing the condence of citizens in judicial system by making it effective and transparent; (vi) establishing transnational and inter-regional cooperation. Beneciaries under the axis are: central, regional and municipal administrations, Ombudsman, civil society structures, Ministry of Justice, Supreme Judicial Council, Prosecutors Ofce, National Investigation Service. Priority Axis 2: Human resources management. The main goal of the axis is improving the qualication and effectiveness of state and judicial administration personnel through (i) improving human resources management in the central, municipal and regional administration; (ii) improving professional qualication of state administration employees; (iii) strengthening the capacity (in terms of knowledge and skills) of civil society structures; (iv) improving the qualications of magistrates and introducing overall human resources management policy in the judicial system.
Beneciaries are: Institute of Psychology, Registry Agency, Ministry of Justice. Priority Axis 3: Provision of quality administrative services and development of E-Governance aims at modern and up-to-date service provided by the administration through (i) improvement of services to citizens and business sector; e-government development; (ii) providing integrated and interoperable information and communications environment for better administrative service delivery to citizens and business sector; (iii) development of information technology and integrated information system aiming at transparent and effective services delivered by judicial system. Beneciaries under the axis are: central and municipal administration, Ministry of Justice, Prosecutors ofce. Priority Axis 4: Technical assistance: aims at strengthening the capacity of the Managing authority for OPAC management.
X.2.7. Operational Programme Technical Assistance

The programme aims at strengthening the capacity and functioning of central and local administrative structures involved in absorbing EU Structural Funds and increasing information and public awareness with respect to the efcient use of EU Funds in Bulgaria. Managing authority of the programme is the Ministry of Finance. Priority Axis 1 Support to structures at central level (e.g. Central Coordination Unit, Certifying Authority, Audit Authority). Priority Axis 2 Further development and support to the functioning of the Unied Management Information System; Priority Axis 3 Promotion of European Cohesion Policy in Bulgaria and its purposes in Bulgaria, as well as provision of general and statistical information. Beneciaries under the programme are: Central Coordination Unit, Certifying Authority, Audit Authority, NSRF Monitoring Committee, OPTA Monitoring Committee, OPTA Managing Authority, Central Information Ofce.
80
PENEV & PARTNERS
CHAPTER ELEVEN: CURRENCY REGIME
XI
CURRENCY REGIME
XI.1. Legal Framework Laws and Regulations

The main statutory acts pertaining to this matter are the Currency Act, the Credit Institutions Act, the Measures against Money Laundering Act, the Bulgarian National Bank Act. There are also numerous regulations that have been issued in relation to implementation of the said acts provisions.
XI.2. International Institutions

Bulgaria is a member of (i) the International Monetary Fund as of 1990 where the quota of the state is BGN 640.2 million SDR; (ii) the International Bank for Reconstruction and Development as of 1990 whereas the shareholding of the state is 0.33 % of the banks capital; (iii) the European Bank for Reconstruction and Development as of 1990 as the shareholding of the state towards 31 December 2003 is EUR 158.0 million. The Republic of Bulgaria has also joined the Agreement for Setting up the Black Sea Bank for Commerce and Development on 23 December 1994 thus being among the establishers of the bank. The shareholding of the state in the bank is 13.5 % of the capital as of 31 December 2008.
(iii) supervising banks through determination of the compulsory minimal reserves that should be kept with it by the banks; (iv) determining the policy regarding sustainable credit system, etc. The BNB acts in accordance with the principle of the open market economy and free competition favoring an efcient allocation of funds. With the accession of the Republic of Bulgaria to the European Union the BNB supports the general economic policies of the European Community thus aiming to contribute to the achievement of the main goals of the European Community as laid down in Article 2 of the Treaty establishing the European Community. The BNB procures policy of sustainable and non-inationary growth. The BNB also promotes establishment and functioning of effective payment systems, as well as supervision thereof. For purposes of maintaining the stability of the bank system and safeguarding depositors interests, the BNB regulates and supervises the activities of all banks in Bulgaria. In relation to performing its functions the BNB may require from and inspect documentation of the other Bulgarian banks. The BNB is the authority which determines through regulations the specic rules pertaining to the currency regime and the various obligations which must be performed by the participants on the foreign exchange market and the payment system.
XI.3.1. Bulgarian National Bank

The national currency of the Republic of Bulgaria is the Bulgarian lev (BGN). No individual or legal entity is allowed to refuse payment carried out in the national currency. The exchange rate is currently xed by law at 1.95583 Levs per 1 Euro as per the Currency Board Arrangement dated 1 July 1997. The Bulgarian National Bank (BNB) is the authority responsible for: (i) conducting monetary and credit policy; (ii) emitting banknotes and coins, which is its exclusive right;
XI.3.2. Payments and transactions between local and foreign persons and cross-border payments and transfers
The Currency Act regulates the transactions and payments between local and foreign persons, the cross-border transfers and payments, the foreign currency transactions by occupation, the transactions with precious metals and gemstones by occupation, their import, export and processing, the import and export of Bulgarian levs and foreign currency in cash, as well as the collection, maintenance
PENEV & PARTNERS
81
and reporting of statistical information on Bulgarias balance of payment and exercising of foreign exchange control. A local person as per the Currency Act is: (i) an individual having permanent residency in Bulgaria or a legal entity having its seat in Bulgaria or foreign entity operating via registered branch in the country; (ii) Bulgarian diplomatic, consular or trade representation ofces, etc.; (iii) Bulgarian citizens residing outside Bulgaria for educational or medical treatment purposes. A foreign person is any individual or legal entity not meeting the criteria for a local person, as well as foreign diplomatic, consular or trade representation ofces, international organizations, as well as their members, etc. The Currency Act does not impose restrictions as to the buying and selling of foreign currency on the territory of Bulgaria and these activities may freely be done between licensed commercial banks or registered currency exchange bureaus and other persons, between commercial banks themselves and between the BNB and the commercial banks. There are no restrictions as to the amount of money which may be paid in cash, nor there are restrictions as to the type of currency used for payment. Local and foreign legal entities and individuals are entitled to possess and operate with various currencies. Most Bulgarian banks require the following documents for opening a bank account: (a) if the applicant is a legal entity a registration certicate, issued by the Registry Agency and copy of the companys by-laws.; (b) if the applicant is an individual - an identity card or passport. A signature pattern of the person authorized to operate with the bank account is to be provided to the bank. In case the individual or the person representing the company is unable to open the bank account personally, a notarized power of attorney in favour of the person opening the bank account should be provided.
Registers for payment balance statistics are kept with: BNB and commercial banks regarding payments and transfers involving local and foreign persons or crossborder transactions in amounts equal or exceeding BGN 100,000 or its equivalence in foreign currency; Ministries and state agencies regarding funds received from EU Structural Funds or other nancial aid in amount equal or exceeding BGN 5,000; Central Depository regarding capital market transactions related to transfer of registered securities issued by local persons between local and foreign persons in amount equal or exceeding BGN 5,000; Registered securities issuers regarding transactions involving transfer of registered securities between local and foreign persons as per the statutory requirements in amount equal or exceeding BGN 5,000; Investment intermediaries regarding transactions with securities between local and foreign persons in amount equal or exceeding BGN 5,000; Insurers or pension funds regarding sums received from or paid to foreign persons in amount equal or exceeding BGN 5,000; Notary publics or registration judges regarding real estate transactions between local and foreign persons in amount equal or exceeding BGN 5,000. Certain transactions, irrespective of their amount, require declaration with the BNB within 15 days as of their execution. The declaration is made with statistical purposes (for payment balance statistics) and it is not a prerequisite for the closing of a deal. The Bulgarian National Bank store all documents submitted on paper and electronically by nancial institutions for their registration and stated changes for a period of ve years after the date of the nancial institutions deletion from the register. Failure to declare
82
PENEV & PARTNERS
a transaction is subject to nes as set out in the Currency Act. Such transactions should relate to: initial direct investments abroad (meaning establishing a company abroad, acquisition of real estate abroad, acquisition of rights of an unlimited liable partner or more than 10% of the voting rights in the general meeting of shareholders of a foreign entity, etc.) effected by local legal entities or sole traders, and granting of nancial credits between local legal entities or sole traders and foreign persons. Currency transfers and payments abroad may be made through banks only after informing the bank regarding the grounds of the transfer. If a person wishes to transfer abroad currency exceeding BGN 25,000, that person should apart from notifying the bank regarding the grounds of the transaction, also present transfer related data and documents, which are determined by a regulation issued by BNB (such as an invoice, contracts, an enforceable judgment, other documents certifying the reason for the transfer). Local and foreign individuals may import and export Bulgarian levs, foreign currency in cash and payment instruments payable to the bearer under the following conditions: amounts up to BGN 5,000 or their equivalent in other currency may be exported freely and should not be declared before the customs authorities; amounts between BGN 5,000 and BGN 25,000 or their equivalent in other currency must be declared at the customs; amounts over BGN 25,000 or their equivalent in other currency may be exported only after they have been declared before the customs authorities. The declaring person should point out the origin and the exact amount of the money exported, including payment instruments payable to the bearer, and should present
a certicate issued by the respective territorial directorate of the National Revenue Agency, certifying the lack of public liabilities as well.
XI.4. Currency transactions and transactions with precious metals and gemstones
Currency transactions may be legally carried out by the BNB, commercial banks, nancial institutions and currency exchange bureaus. The Currency Act itself regulates the gure of the currency exchange bureau. Currency transaction in cash by occupation may be carried out by a person, registered as a trader as per the Commerce Act, as well as a person registered as a trader as per the legislation of a Member State of the European Union or a member state of the European Economic Area Agreement, and only after it has been entered into the public register of persons conducting business as currency exchange bureau. The public register of persons conducting business as currency exchange bureau is kept and maintained by the Ministry of Finance. Registration in the register is made within 14 days from ling all the documents required under a regulation issued by the Minister of Finance. Persons professionally engaged in production, processing and trade with precious metals and gemstones and items made with or from them by occupation are obliged to register with the Ministry of Finance within 14 days as of commencement of operation. The Ministry of Finance keeps and maintains a public register of persons engaged in production, processing and trade with precious metals and gemstones and items of them by occupation.
XI.5. Measures against money laundering

Notwithstanding the liberalization of the currency regime, money ow is still
PENEV & PARTNERS
83
controlled by the state through the measures contemplated by the Currency Act and specically by the measures provided by the Measures against Money Laundering Act. According to the latter act money laundering shall represent (i) transformation and transfer of property, acquired through illegal activity or through acts of participation in such activity for the purpose of concealing the illegal origin of the property or for the purpose of helping a person avoid the legal results of such activity; or (ii) concealing the nature, source, location, movement and rights of the property, acquired by illegal activity or participation therein; (iii) acquisition, possession or use of property when the person at the moment of acquisition of the property knows the assets are result of an illegal activity or participation in such activity; or (iv) participation in whatever of the activities under items (i) to (iii), association to commit, and attempts to commit such activities, as well as aiding, abetting and facilitating the commission of such activity or its disguise.. Furthermore, money laundering shall represent obtaining property through any of the enumerated acts if committed in a Member State of the European Union or in any other country beyond the jurisdiction of the Republic of Bulgaria. The persons responsible for carrying out the measures specied in the Measures against Money Laundering Act inter alia are: the Bulgarian National Bank, credit institutions carrying on activity within the territory of the Republic of Bulgaria, nancial institutions, exchange bureaus and the other payment service providers, insurers, postal ofces accepting or receiving money or other valuables, leasing entities, political parties, trade unions and professional organizations, non-for-prot legal entities, sports organizations, merchants dealing in arms, petrol and petrochemical products, pension funds, privatization bodies, mutual investment schemes, investment intermediaries and management companies, persons who organize the awarding of public procurement
orders, National Revenue Agency authorities, notaries public, registered auditors, customs authorities, the Central Depository, market operator and/or regulated market, as well as the other persons/entities/institutions listed in Article 3, (2) of the Measures Against Money Laundering Act. The persons obliged to apply mandatory measures against money laundering, have to determine the identity of their clients upon establishment of permanent commercial relations with them, including upon opening a bank account, or in the course of a transaction, which exceeds BGN 30,000 or the equivalent in foreign currency. Further, if a transaction in cash exceeds BGN 10,000 or the equivalent in foreign currency only certain persons under the Measures against Money Laundering Act are obliged to meet the statutory requirements (such as the BNB, leasing entities, etc.). In addition, the origin of the funds should also be declared. Should the persons obliged to identify its client are unable to identify it, they should not proceed with the transaction. Apart from the identication of clients, other measures to be undertaken may be: data collection on the substantial elements of the transaction, data safe-keeping and reporting suspicious transactions to the Financial Intelligence Directorate with National Security State Agency. The Agency is authorized to collect, process, analyze, store the data received from the respective persons and disclose it to the state authorities, when statutory required.
84
PENEV & PARTNERS
CHAPTER TWELVE: CONCESSIONS REGIME
XII
CONCESSIONS REGIME
a) Public Works Concession A public works concession has as its subject the partial or the entire construction of the object of concession and the management and maintenance of the completed facility after its becoming operational; the concessionaires consideration therefor shall consist either only of the right to operate the object of the concession, or of that right in addition to a compensation on behalf of the grantor. b) Service Concession A service concession has as its subject the operation of a service of public interest at the concessionaires own risk, as the consideration therefor shall consist either only of the right to operate the service - object of concession, or of that right in addition to compensation on behalf of the grantor. The right to manage the service of public interest encompasses provision of services and/or execution of other economic activities in exchange for acquisition of certain income. A service concession may also include the execution of partial additional construction and assembly works in cases when there is a need for completion of ongoing construction, or partial extension, partial reconstruction, partial rehabilitation or renovation of the object of concession. c) Mining Concession A mining concession has as its subject the exploitation of natural resources by means of their extraction, carried out with funds provided by the concessionaire and at the latters own risk. Specic cases: (i) a mining concession for extraction of subsurface resources shall be awarded in accordance with the provisions and procedures of the Subsurface Resources Act. (ii) the concession for the extraction of mineral waters has as its subject the use of mineral waters by water abstraction. The concession herein shall be granted following the terms and conditions of the CA insofar as the Water Act does not provide for otherwise.
XII.1. Legal nature XII.1.1. Legal framework

As per Bulgarian law concessions and all major related matters thereto are set forth by the Concessions Act. The latter abolished the former Concessions Act in order to harmonize Bulgarian legislation with the EC requirements in the eld. Further, there are numerous provisions of the sectorial legislation, which provide for specic rules depending on the objects of concessions Subsurface Resources Act (SG 23/1999) Water Act (SG 67/1999), Forestry Act( SG 125/1997), Civil Aviation Act (SG 94/ 1972) Energy Act (SG 107/2003), Rail Transport Act (SG 97/2000),Maritime Space, Inland Waterways and Ports of the Republic of Bulgaria Act (SG 12/2000), Fisheries and Aquaculture Act (SG 41/2001), Roads Act (SG 26/2000), Physical Education and Sport Act (SG 58/1996), Protected Areas Act (SG 133/1998). However, the basic denitions, terms and procedures set out by the Concessions Act apply.
XII.1.2. Legal denition

The Concessions Act (hereinafter referred to as CA) establishes the concession as the right to operate a facility and/or a service of public interest, awarded by a grantor to a merchant (the concessionaire) on the basis of an agreement in writing, in exchange for the merchants obligation to build and manage and maintain the facility object to concession or to operate the service of public interest at his/her own risk. It is a long-term legal relationship due to its specic objects, agents, terms and main objectives the most essential of which being obtaining ultimate benet from certain resources of public interest.
XII.1.3. Types of Concessions

According to its subject, a concession may be one of the following types:
ARSOV, NATCHEV & GANEVA
85
XII.1.4. Term of Concession

Concessions are granted for up to 35 years, without an option for extension. The concession period shall be calculated as of the date of entry into force of the concession agreement. In determining the concession term, the nancial and economic indicators of concession, as well as the technical and/or technological specications of the object of the concession, must be taken into consideration.
XII.1.5. Compensation for the concessionaire. Concession payments to the grantor

a) compensation Compensation of the concessionaire has been set out for the cases of public works concession and service concession. It shall be effectuated through reimbursement of the concessionaire by the grantor for part of the costs for the construction, management and maintenance of the object of concession or respectively for the operation of the services of public interest. It shall not relieve the concessionaire of the obligation to assume the bulk of the risk pertinent to the construction and/or the management and maintenance, and shall be allowed in cases where either it is necessary to ensure a socially acceptable price of the services provided through the object of concession, when such price is determined by an act of legislation, or for reconstruction of the object of concession after the impact of force majeure. Compensation for construction, management and maintenance of the object of concession shall be effected following commencement of its operation, solely provided that the project is operational. Compensation for the operation of the public service shall be effected solely for the period during which the service has been performed. b) concession payments Concession payments to the grantor may
be provided for as an obligation of the concessionaire in exchange for the right of operation of the object of concession. In each specic case the amount of the concession payment shall be determined depending on: (i) the economic advantages, which the concessionaire would obtain from the concession; (ii) fair sharing of the economic benet between the grantor and the concessionaire; (iii) ensuring a socially acceptable price of the services provided through the object of concession, when such price is determined by an act of legislation. The procedure and deadlines for making the concession payment shall be determined by the concession agreement.
XII.2. Objects and Agents of Concession XII.2.1. Objects

a) objects state or municipal property The CA establishes the facilities of public interest which can be operated on concession: facilities declared as exclusive state property; facilities, properties or parts of properties - public state property or public municipal property, by means of which economic activity is performed; facilities, properties or parts of properties - private state property or private municipal property, by means of which economic activity is performed; properties or parts of properties owned by a public legal organization, by means of which economic activity is performed. The rst two types of objects of concession (facilities declared as exclusive state property; facilities - public state property or public municipal property, by means of which economic activity is performed) shall be made available for building and operation only through a public works concession, and for operation purposes - only through a services or a mining concession. In all cases, the grantor retains its title of
86
ownership over the object of concession. In the case of public work concessions, the facility built shall become property of the grantor as of the date of its commissioning into operation under the procedure of the Spatial Development Act. Any accretions and improvements to the object of concession, including when not taking place in fulllment of the concession agreement, shall become property of the grantor as of the moment of their materialization. b) objects property of the concessionaire Paragraph 2 of art. 13 CA provides that in case of services concession, the object thereof may be property of the concessionaire.
XII.2.2. Agents
a) Grantor The grantor of any concession awarded under the Concessions Act shall be: (i) the Council of Ministers, for assets constituting state property; or (ii) the Municipal Council, for assets constituting municipal property; or (iii) a public law organization, represented by a body in accordance with its act of establishment in regard to facilities in its ownership; or (iv) water supply and sewage associations established under the Water Act for water supply and sewage assets located within the respective WSS area. b) Concessionaire Any natural person or legal entity or an association of such persons may participate in a concession procedure, provided they do not come under the regulatory restrictions set out in art. 16 of the CA. A concessionaire shall be a participant in a concession procedure with whom the grantor has executed a concession agreement. Concessions shall solely be granted to merchants. Therefore, in cases where the participant selected as a concessionaire is a natural person or a legal entity/association
other than a merchant, the concession shall be granted to the newly established trade company in which the natural person, respectively the entity or association, owns the whole capital and accordingly the members of the association own the whole capital in the same proportion as per their articles of association. With the amendments of July, 2008 of the Concessions Act a possibility was introduced, in line with the European Commissions Interpretative Communication on the application of Community law on Public Procurement and Concessions to Institutionalized Public-Private Partnerships (IPPP), for granting of concession to a newly established company in which one of the partners is the private company of the selected bidder and the other partner is either the state/a municipality or a public law organization; or a company solely owned by the state/a municipality or a public law organization; or a state/municipal enterprise.
XII.3. Procedure
As per the CA, the granting of a concession shall include: taking preparatory action; conduct of a concession procedure and execution of a Concession Agreement.
XII.3.1. Preparatory activities

Art.19 CA provides that the respective body with regard to the specic object of concession shall perform the preparatory activities and submit a proposal for award of concession: (i) a minister appointed by virtue of law for facilities constituting state property; (ii) the respective municipal mayor for facilities constituting municipal property; (iii) the person, running the public legal organization where the facility (object of concession) is owned by such public legal organization. The preparatory activities for granting a concession shall begin upon resolution of the respective body with regard to the specic type of concession or upon the initiative of any
87
interested party. Due justication of the rationale of the concession must be enclosed along with the initiative or the resolution therefor. Based on the said justication, the competent body shall prepare drafts for a decision for the launching of a concession award procedure, an announcement of the conduct of a concession procedure, a concession agreement and bidding documentation.
XII.3.2. General characteristics of the concession procedure

The concession procedure is based on the principles as determined in Directive 2004/18/ EC. The concessionaire is determined by means of an open procedure, conducted in keeping with the principles of publicity, transparency, free and fair competition, equal treatment of, and non-discrimination against, any candidates or participants in the concession procedure. The procedure for granting a concession is conducted by a Commission appointed by the respective body under Art. 19 of the CA. The Commission takes a decision to disqualify participants for which the exclusion criteria set forth in the CA apply. An award procedure shall be validly carried out, even if only one applicant is admitted for participation.
object, business activities which may be performed through the object of concession; terms and conditions, maximum period, starting date, conditions for implementation of the concession, rights and obligations as per the concession agreement; conditions for making concession payments where envisaged, form, amount and conditions of the possible compensation for the concessionaire etc. Within seven days from adopting the decision, the competent body issues a decision for approving the announcement of the procedure, the tender documentation and the draft concession agreement and forwards it (the second decision) for promulgation in State Gazette, and for entry into the National Concessions Register. b) Submission of bids to the Commission The time limit for receipt of bids by the Commission is determined in the announcement for launching of the procedure. In preparing the bid, each candidate has to comply with the conditions stated in the tender documentation. Until expiry of the deadline for receipt of bids, each candidate under the procedure may amend, supplement or withdraw their bid. Any candidate in a procedure for granting a concession shall be entitled to submit only one bid. A candidate may propose several variants within the bid, except in cases where the possibility for doing so is restricted by virtue of the concession announcement. Each participant may attach a declaration to their bid designating which part of the information contained therein is condential. Together with their bid, each candidate shall submit a guarantee for participation in the concession procedure in the form of a cash deposit or a bank guarantee. The form of the security can be selected by the candidates themselves. c) Selection of the candidates The Commission for conducting the concession procedure (the Commission) carries out the selection of the candidates
XII.3.3. Stages
a) Decision for launching of concession award procedure As a result of the completed preparatory action, the competent body shall submit to the grantor a reasoned proposal to launch a concession procedure, along with the justication of the concession, the draft documentation and other documents determined by special law or by the Regulation on the implementation of the CA. On the basis of the proposal, the grantor adopts a decision for launching a procedure leading to the award of a concession. The decision shall determine all major aspects of the concession granted:
88
or participants that have been admitted to participate in the concession tender procedure in accordance with the following criteria: (i) suitability to pursue the professional activity; (ii) economic and nancial standing; (iii) technical capability and/or professional qualication. The minimal required levels thereof shall be specied with respect to the object of concession and/or the management of the service of public interest, and shall be indicated in the announcement of the launching of the concession award procedure. The candidates that comply with the selection criteria shall be determined by a decision of the Commission and shall continue their participation in the procedure, while the rest of the candidates shall be eliminated. d) Assessment of the offers At this stage the Commission shall assess the offers, as the main criterion shall be the economical feasibility of the offers. The economically most feasible bid shall be identied on the basis of a comprehensive assessment in accordance with criteria specied in the decision and in the announcement of the launching of the concession award procedure. e) Selection of a concessionaire The body, which organizes the conduct of the concession award procedure, shall submit to the grantor a report and a draft resolution for selection of a concessionaire. Based on the report and the protocol of the commission, following individual review of the facts and circumstances described therein, the grantor shall adopt a decision on: selection of concessionaire of the participant, rated rst, or charging the Commission to remedy irregularities established and subsequently to perform a new rating, or termination of the procedure in the cases provided for by the CA. The decision for selection of a concessionaire has to specify the main parameters of the
concession in accordance with the offer of the participant, nominated as concessionaire and prescribe a deadline for execution of the concession agreement.
XII.3.4. Execution of a concession agreement

The decision for selection of a concessionaire shall be published in State Gazette and may be appealed within 10 days of its publication before the Commission for Protection of Competition. The concession agreement shall be executed after entry into force of the said decision. In the process of execution of the concession agreement the participant, selected as concessionaire, shall be bound by the proposals made within its offer and the draft concession agreement. Specic attention must be paid to the possibility for making amendments to the concession agreement. There are certain explicit terms based on which the contract could be amended: changes of legislation; partial loss of the object of the concession or in the event of objective impossibility to use it; or in cases of subsequent occurrence of any threat to the national security and defense of the State, to the environment, human health, to protected territories, zones and sites and to public order. In case of restructuring or termination of the concessionaires company, the legal successor thereof shall be entitled to request an extension of the concession contract if it matches the requirements of the initial concessions procedure.
XII.3.5. National Concessions Register

All awarded concessions shall be recorded at the National Concessions Register, maintained by the Council of Ministers. The le of each concession shall contain the information under art. 97, paragraph 1 CA (type of concession, object, period, data about the concessionaire etc.) as well as subsequent changes in that information.
89
CHAPTER THIRTEEN: COMPETITION LAW REGIME IN BULGARIA
XIII
COMPETITION LAW REGIME IN BULGARIA
XIII.1. Legislative Framework and General Rules XIII.1.1. Applicable Legislation

The core legislative act governing and protecting the competition environment in Bulgaria is the Protection on Competition Act (PCA), which is entirely new law introduced at the end of 2008. The new PCA, revoking the old Protection on Competition Act as of 1998, has been adopted as a result of the Bulgarian accession to the EU in 2007 and aimed to harmonize the national law with the EU competition rules. The new PCA is in conformity with the Council Regulation (EC) 1/2003 and Council Regulation (EC) 139/2004 and introduces more effective measures for protection of competition as well as entirely new amounts of nes. Other primary legislation, governing specic aspects of these relations is the Administrative Procedure Code and the Civil Procedure Code. The Commission on Protection of Competition (CPC) has adopted a number of secondary legislation such as Methodology for setting nes under the PCA, Methodology on Investigation and Denition of the Market Position of Undertakings in the Relevant Market, etc. It should be taken into consideration that although the Notices of the European Commission are not binding on the Bulgarian competition authorities, CPC tends to apply them in its practice.
of the CPC are: imposing nes; imposing interim measures; granting authorizations; cooperating with the European Commission and the other national competition authorities of the Member States; ruling termination of infringements, including imposition of appropriate behavioural and/or structural measures; making proposals to the competent state authorities and local governmental bodies to revoke or amend their administrative acts that prevent, restrict or distort the competition; drafting sector analyses, etc. The decisions of CPC, along with some of its rulings, are subject to appeal before a three-member committee of the Supreme Administrative Court regarding their compliance with the law. If the Court establishes lack of such compliance, it is not entitled to resolve the dispute, but to return the case to CPC for resolving with respective mandatory instructions. Subject to appeal before the Supreme Administrative Court could be not only a decision in its substantial part but also the amount of the imposed nes. On the other hand, the decisions of the three-member committee of the Supreme Administrative Court are subject to cassation appeal before a ve-member committee of the Supreme Administrative Court. An important aspect of the Bulgarian Competition law is the fact that the decision of the Supreme Administrative Court conrming CPCs decision for infringement of competition is binding on the Civil Courts regarding cases for indemnication of aggrieved persons, i.e. legal or natural persons who has suffered damages as a result of this infringement are not obligated to prove again within the civil proceedings the fact of the infringement and the identity of the infringing party. Citizens or companies suffering damages from the infringement of the competition legislation, may claim indemnication before the Civil District Court, acting as a rst instance court in such cases.
XIII.1.2. Competent State Authorities

CPC is the Bulgarian national competition authority responsible for the application of Article 101 and Article 102 of the Treaty on the Functioning of the European Union and the PCA. The other main competences
90
XIII.1.3. Scope of PCA

There are four groups of legal persons having the obligation to comply with the provisions of the PCA: (i) undertakings and associations of undertakings, which operate within or outside the territory of Bulgaria, hindering the competition in Bulgaria; (ii) state and municipal authorities which by their acts hinder or may hinder the competition in the country; (iii) undertakings to whom the state or the municipality have assigned services of public interest insofar as the application of the law does not impede de facto or de jure the fullment of the assigned services and the competition in the country is not affected to a signicant extent; (iv) natural persons, infringing this law
(iii) limit or control production, trade, technical development or investment; (iv) apply to certain partners different conditions for equivalent transactions, thereby placing them at a competitive disadvantage; (v) make the conclusion of contracts subject to acceptance by the other party of additional obligations or to the conclusion of additional contracts which, by their nature or in accordance with the reasonable commercial practise, have no connection with the subject matter of the main contract or with its performance. The legal consequence of such infringement is not only that the agreement, decision or concerned practise shall be rendered as null and void, but also the fact that CPC has the right to impose ne on the infringing undertaking. It should be noted that the concept of infringing undertaking includes more than just a company, but also a natural person and an unincorporated civil partnership that carries out economic activities, regardless of its legal or organisational form. On the other hand, the agreements, decisions and concerned practices with minor anti-competition effect shall remain valid and enforceable. This concept is known as de minimus rule. An agreement, decisions or concerned practice is deemed to have a minor effect on the competition if the aggregate share of the undertakings, participating in the market and affected by the agreement, decision or concerned practice does not exceed: (i) 10% of the relevant market if the participating undertakings are competitors; (ii) 15% of the relevant market if the participating undertakings are not competitors. It should be borne in mind that the de minimus rule does not apply to those
XIII.2. Main forms of infringement on competition

The Bulgarian competition legislation recognizes four main forms of infringement for which CPC imposes nes or other measures:
XII.2.1. The law prohibits all types of agreements between undertakings, decisions by associations of undertakings as well as concerned practices of two or more undertakings, having as their object or effect the prevention, restriction or distortion of competition on the relevant market.
Agreements, decisions and concerned practices with such effect may be those which: (i) directly or indirectly x prices or other trading conditions; (ii) share markets or sources of supply;
91
agreements, decisions or concerned practices having as a result the so called hardcore restrictions on the competition, i.e. restrictions such as: price xing; limitation of output or sales; market sharing. Some agreements, decisions and concerned practices are exempted from the above prohibition on one of the following grounds: (i) if the agreements, decisions and concerned practices contribute to the improvement of the production or distribution of goods or to promotion of technical or economic progress, granting the consumers a fair share of the resulting benet and which do not: impose on the concerned undertaking such restrictions which are not indispensable to the attainment of these objectives; enable such undertakings to avert the competition on a substantial part of the relevant market.
(i) price xing; (ii) limitation of output, trade and technical development impairing the consumers interests; (iii) application to certain partners different conditions for equivalent transactions, thereby placing them at a competitive disadvantage; (iv) making the conclusion of contracts subject to acceptance by the other party of additional obligations or to the conclusion of additional contracts which, by their nature or in accordance with the reasonable commercial practise, have no connection with the subject of the main contract or to its performance; (v) unjustied refusal to supply goods or to provide services to actual or potential customers in order to impede their economic activity. In order to impose nes or other measures on such undertaking, CPC should rstly dene what constitutes relevant market in that particular case and subsequently to establish that this undertaking actually enjoys either a monopoly position (position, granted only by law, to carry out exclusively certain type of economic activity) or a dominant position (an undertaking, which, in view of its market share, nancial resources, possibilities for market access, level of technology and economic relations with other undertakings, may hinder competition on the relevant market, as it is independent of its competitors, suppliers or consumers). Additionally, CPC should prove that this abusive behaviour may or in fact has a negative effect on the competition and on the consumers interests.
A new important aspect of the exemption, introduced by the new PCA, is the fact that it is an obligation of the undertaking itself to decide on and to prove whether the agreement, decision or concerned practice complies with the criteria for exemption. No prior notication to or approval of CPC is required. (ii) if the agreements, decisions and concerned practices have been explicitly exempted by a decision of CPC (the so called block exemption).
XIII.2.2. The law prohibits abuse of monopoly or dominant position by an undertaking or by two or more undertakings enjoying a collective dominant position, which may prevent, restrict or distort competition and impair consumers interests. The legislation provides a non-exhaustive list of concrete forms of such abuse:
92
XIII.2.3. The law prohibits the concentration of undertakings only if it leads to creation or strengthening of a dominant position, as a result of which the effective competition in the relevant market would be signicantly impeded.
Under the Bulgarian law the concentration may take one of the following forms:
(i) merger or merger by acquisition of two or more independent undertakings; (ii) acquisition of control over other undertakings or part of undertakings such control (direct or indirect) may be acquired through acquisition of shares, securities, assets or other rights by means of a contract or other relevant way. The essential characteristic of the term control is the decisive inuence that the acquiring undertaking shall have over the acquired undertaking by means of: acquisition of right of ownership or right to use over the whole or part of the assets of the undertaking; acquisition of rights on the grounds of agreement by which the acquiring undertaking shall inuence over the composition, voting or decisions of the undertakings bodies
the contemplated concentration after they conclude the agreement, publicly announce the offer for concentration or acquire the control, but in any ways before taking any actions for actual implementation of the transaction. As an exceptional case, the parties may request from CPC to assess the concentration prior to conclusion of the agreement or the public announcement of the offer. As a general rule, CPC shall not authorize concentration which leads to creation or strengthening of a dominant position, as a result of which the effective competition in the relevant market would be signicantly impeded. However, even if the concentration has such anti-competition effect, the same shall be authorized if it aims at modernisation of the respective economic activity, improvement of market structures, better meeting the interests of consumers and overall the positive effect outweighs the negative impact on competition.
(iii) establishment of a joint venture acting as an autonomous economic entity. A concentration of undertakings is subject to notication to CPC, if it complies with the following requirements: (i) the total turnover during the preceding business year of the undertakings, participating in the concentration within the territory of Bulgaria is less than 25 million Bulgarian leva; AND (ii) the turnover of each of at least two of the undertakings, participating in the concentration, during the preceding business year within the territory of Bulgaria does not exceed 3 million Bulgarian leva; OR (iii) the turnover of the undertaking, subject to acquisition, during the preceding business year within the territory of Bulgaria does not exceed 3 million Bulgarian leva. The PCA provides for additional specic exceptions from the obligation for notication. The parties are bound to notify CPC for
XIII.2.4. The last form of infringement prohibited by law is the unfair competition conducted by an undertaking.
As a general rule the law prohibits any actions or omission of an undertaking in the course of its business activity which is contrary to the good commercial practice and damages or may damage the interests of the competitors. The interpretation and application of this general prohibition could be very broad. It may include for example the case whereby one undertaking uses the trade name or trade mark of another undertaking, regardless of the fact whether the trade mark in question has been legally registered. The important factor shall be whether the use of the trade mark or trade name may or in fact impedes the consumers interest and not necessary whether this usage has been illegal according to other regulations.
93
There are seven explicitly regulated and prohibited forms of unfair competition: (i) Damaging the good name of competitors by means of dissemination of false information or by way of misrepresentation of facts; (ii) Misleading in respect of substantive characteristics or in respect of the manner of use of goods or services by asserting false information or misrepresenting of facts; (iii) Misleading advertising any advertising which in any way deceives or is likely to deceive the persons to whom it is addressed and is likely to affect his economic behaviour or to damage its interests or is likely to damage a competitor. Most often this infringement takes the form of misleading statements, exaggerations, conceal of substantial information, etc.; (iv) Prohibited comparative advertising - Comparative advertising is such advertising that directly or indirectly identies a competitor or goods or services offered by him. However, not every kind of comparative advertising is prohibited, but only the one that does not comply with the specic requirements set out in the law. An example for such infringement shall be the case whereby an advertising undertaking circulates such an advertising as a result of which the consumers in fact take the advertising undertaking for its competitor; (v) Imitation The following forms of imitation are prohibited by law: imitation by means of appearance of goods or products this includes the packaging, marking, name or other features. The purpose of this infringement should be to deceive the consumers that
this product or service has a specic origin, manufacturer, seller, method and place of manufacture, quantity, quality, nature and other substantial characteristics; imitation of name, trade mark or geographical indication identical or similar to those of other persons, in a manner that may lead to damaging the interests of competitors; imitation of domain name or web-site design identical or similar to those of other persons in a manner that may mislead and/or injure the interests of competitors.
(vi) Unfair solicitation of clients This prohibition includes several different ways of unfair solicitation of clients such as offering or granting either free of charge or at an ostensible price a supplement to goods; conducting a sale by means of conditional promise to grant something, provided that the consumer solves a task, puzzle, rafes, etc.; sale on the domestic market of signicant quantities of goods during an extended period of time at prices lower than the costs of their production and marketing, with the purpose to unfairly solicit clients, etc.; (vii) Disclosure of manufacturing or trade secrets of competitors contrary to good faith commercial practices.
XIII.3. Investors liabilities and nes imposed by CPC

The new PCA contains entirely new concept and amounts of nes in comparison to the old legislation, whereby the nes were set by a minimum (5000 Bulgarian leva) and maximum (300 000 Bulgarian leva). The new law complies with the European model for assessment of nes and sets the latter as a percentage of the undertakings turnover. The most severe ne amounts to up to 10%
94
of the total turnover of an undertaking for the preceding business year. This ne shall be imposed by CPC for infringements such as execution of prohibited agreements, decisions and concerned practices, abuse of monopoly or dominant position, conduct of unfair competition, completion of concentration, prohibited by law, lack of notication to CPC upon concentration, non-compliance with decisions or rulings of CPC, etc. A substantially lower ne (up to 1% of the total turnover for the preceding business year) CPC imposes for actions related to non-compliance of an undertaking with its obligation to cooperate with CPC, to present to CPC full, accurate and not misleading information, etc. Heavy burden for the infringing undertakings are the so called periodic penalty payments which CPC imposes for each day until the end of the infringing behaviour. Depending on the type of the infringement the periodic penalty payments amount to either up to 5% or up to 1% of average daily turnover for the preceding business year. While assessing the amount of the ne in each particular case CPC takes into consideration a number of relevant factors such as gravity and duration of the infringement along with circumstances mitigating or aggravating the liability. The CPC has adopted a Methodology for assessing the exact amount depending on the particular type of infringement. The main principle followed by CPC in determining the ne is that the latter should be of such amount as to restore the competition and to allow the infringing undertaking after paying it to continue sufciently its business activity. However, the infringing undertakings may elude paying nes for participation in a secret cartel if they provide CPC with specic information set out in the law. Further, CPC may decrease an imposed ne of such undertaking which provides CPC with a
substantial evidence for the infringement by the end of the proceedings. Along with the nes CPC may impose other measures (structural or behavioural) aiming to restore the competition such as division or merger of capitals, shares or assets, termination of joint control, etc.
XIII.4. Proceedings for issuing authorizations for concentration

(i) The procedure commences with notication submitted before the CPC by the undertakings, participants in the concentration; (ii) Upon acceptance of the notication CPC initiates proceeding for assessment of the concentration by means of rst stage investigation within 25 days as of the day of acceptance of the notication; (iii) After the end of the rst stage investigation, the working team drafts a report based on which the Chairman of CPC schedules the closed session for resolving on the case; (iv) In its decision CPC may rule that: the transaction does not constitute concentration, it authorizes the concentration, it authorizes the concentration in accordance with the amendments proposed by the participants, it commences a second stage investigation for assessing the concentration. CPC commences the second stage investigation of concentration if during the rst stage establishes that the contemplated concentration may have as effect creation or strengthening of a dominant position or hindering of the effective competition on the relevant market. This investigation normally takes up to 4 months and ends up with a decision of CPC resolving on the issue.
.
95
CHAPTER FOURTEEN: PERMITS AND LICENSES ACCORDING TO SPECIAL LEGISLATION
XIV PERMITS AND LICENSESACCORDING

TO SPECIAL LEGISLATION XIV.1. Legal Framework
Permits and licenses for performance of specic industrial activities are governed by general legislation applicable to regulatory and controlling activity of regulatory authorities, as well as by special legislation applicable to specic industry areas. The general legal framework of regulatory and controlling activity of regulatory authorities is set forth in the Constitution of the Republic of Bulgaria 1991 (the Constitution), the Code of Administrative Procedure 2006, the Administrative Violations and Sanctions Act 1969 and the Restricting Administrative Regulation and Administrative Control over Industrial Activity Act 2003 (the Administrative Regulation Act). The legal framework of specic industry areas is set forth in special laws and the secondary legislation on their implementation.
XIV.2. General Review

The Constitution proclaims the principle of free economic initiative. The Administrative Regulation Act, effective as of the end of 2003, aims at restricting administrative regulation and control exercised by regulatory authorities. Said law sets forth the general principle that a licensing or registration regime for performing an industrial activity, or a permit, certication or notication regime for performing a specic transaction or action, may be established only by law. The Administrative Regulation Act exhaustively lists the industry areas which may be subject to a licensing regime due to posing higher risk for the national security or public order, the environment or the rights of citizens or legal entities. (Such industry areas amount to 41 and are listed in an appendix to the Administrative Regulation Act.) In addition, a licensing regime may only be introduced for industrial activities related to sites which
are exclusive state property or over which the State exercises sovereign rights pursuant to the Constitution. Further, with respect to regulatory authorisations or permits the Administrative Regulation Act introduces the principle of implicit consent, i.e. where an application is submitted for issuance of a permission or a certicate for performance of a single transaction or action, and the competent authority has not ruled on such application within the statutory deadline, the authoritys consent of the latter shall be deemed given, unless otherwise provided for by law. Under Bulgarian law special permits and licenses are generally granted by way of a decision of the competent regulatory authority. As a general rule, decisions of regulatory authorities granting or, refusing to grant, a special permit or license are subject to appeal before the Supreme Administrative Court under the terms and procedure of the Code of Administrative Procedure 2006. It is to be noted that special legislation often sets forth denitions of the activities that qualify as particular industrial activities. Further, such special legislation would usually dene, among other matters, the objectives and principles of regulation, the powers of the competent regulatory authorities and the procedure and documents required for granting of relevant permits or licenses. Below we have provided a summary of the regulatory regime of only some of the countrys main industry areas, and in particular insurance, energy, electronic communications and media services.
XIV.3. Permits and Licenses According to Special Legislation. Procedure - Competent Authority, Documents Required, Terms and Fees XIV.3.1. Insurance
Insurance activity is governed by the Insurance Code 2005, the Financial Supervision Commission Act 2003 (the
96
DJINGOV, GOUGINSKI, KYUTCHUKOV & VELICHKOV
FSCA), the Export Insurance Act 1998 and the regulations on their implementation. Insurance activities may be conducted only by an insurer, whereas an insurer may be (i) a Bulgarian joint stock company registered under the Commerce Act 1991 and licensed under the terms and conditions of the Insurance Code, or (ii) a co-operative registered under the Co-operatives Act 1999 and licensed under the terms and conditions of the Insurance Code, or (iii) an insurer having its registered seat in a member state of the EU or the European Economic Area (EEA) under the terms and conditions of the freedom of establishment or freedom of services. An insurer from a third state, i.e. a state different from Bulgaria and the EU and EEA member states, may also perform insurance activities in Bulgaria through a branch registered under the Commerce Act and licensed under the terms and conditions of the Insurance Code. A re-insurer may be (i) a Bulgarian joint stock company licensed under the terms and conditions of the Insurance Code; (ii) a person licensed to perform active re-insurance having its registered seat in a EU or EEA member state; and (iii) a person licensed to perform active re-insurance having its registered seat in a third state (a third state re-insurer) through a branch registered under the Commerce Act and licensed under the terms and conditions of the Insurance Code or from its registered seat or from a branch in a third state, provided the terms and conditions of the Insurance Code are complied with. Further, a captive re-insurer with a limited scope of re-insurance activities, as envisaged in the Insurance Code 2005, also qualies as a reinsurer. The share capital of an insurer or re-insurer, organised in the form of a local joint stock company, shall not be less than a minimum guarantee capital set out in the Insurance Code. The minimum amount of the guarantee capital depends on the licensed insurance activity and is as follows: (i) for accident, illness, land, rail and sail transportation vehicles, aircrafts, freight damages and losses, re and natural calamities, other
property damages, nancial losses, legal costs and transportation assistance insurance BGN 4,600,000; (ii) for life, health, marriage and children, unit linked, capital purchase, supplementary (including additional life and health risks), general tort liability and tort liability for damages related to possession and use of transportation vehicles, credit and guarantee insurance BGN 7,000,000; and (iii) for a captive re-insurer - BGN 2,200,000. For an insurer licensed to perform the activities under item (i) of the previous sentence, which performs active re-insurance, the minimum amount of the guarantee capital is BGN 7,000,000 provided the premiums registered under active reinsurance exceed 10 per cent of the gross amount of the registered premiums or BGN 97,800,000 or the technical reserves formed in relation to active re-insurance exceed 10 per cent of the gross amount of the formed technical reserves. The Insurance Code regulates separately the minimum guarantee capital required for insurers organised in the form of co-operatives, as well as the capital requirements for Bulgarian branches of insurers from third countries. In certain cases, the minimum amounts of the guarantee capital set forth in the Insurance Code shall be updated annually in accordance with the European index of consumer prices, as published by Eurostat. Licenses for insurance and/or reinsurance activity are granted by the Financial Supervision Commission (FSC), a specialised state body in charge for the regulation and supervision over the activity of, among others, insurers and insurance intermediaries. Licenses are granted pursuant to a detailed procedure and upon submission of documents set out in the Insurance Code. The FSC is required to rule on the application within four months as of submission thereof. As mentioned above, insurers having their registered seat in an EU or EEA member state may perform the respective licensed insurance activity in Bulgaria under the freedom of establishment or freedom of services, after the FSC has been duly
97
notied pursuant to a procedure set out in the Insurance Code. The FSC charges insurers and re-insurers a fee for issuance of licenses and an annual fee for its regulatory and supervisory activity. The amount of the latter fees is set in a tariff representing an appendix to the FSCA.
XIV.3.2. Energy
The main principles of the Bulgarian legal regime in the energy sector are set forth in the Energy Strategy of the Republic of Bulgaria 2000-2010, the Energy Act 2003, the Energy Efciency Act 2008, the Renewable and Alternative Energy Sources and the Biofuels Act 2007, and secondary legislation adopted in the implementation thereof. The Energy Strategy of Bulgaria has as its objective the increase of competitiveness of the Bulgarian energy sector in the regional Balkan and integrated European market, as well as to attain liberalisation of the industry to the fullest possible extent. The achievement of this target requires corresponding development in the following areas: (i) nancial restructuring and accelerated privatisation of Bulgarian energy enterprises; (ii) the establishment of a clear and stable regulatory framework; (iii) implementation of institutional changes, and (iv) gradual deregulation of the market. As of 1 July 2007 the electricity market has been fully liberalised. However, the thermal power sector remains subject to higher regulation. The Energy Act sets forth detailed rules on the organisation and functioning of the energy sector. It regulates the relations associated with (i) generation of electricity and/or thermal power; (ii) transmission of electricity, thermal power or natural gas; (iii) distribution of electricity or natural gas; (iv) storage of natural gas; (v) trade in electricity; (vi) organisation of the electricity market; (vii) public contracting of electricity or natural gas; (viii) transit transmission of natural gas; (ix) supply of electricity or natural gas by end suppliers; (x) management of the
electric energy system; and (xi) distribution of electric energy through the railway distribution network. All of these activities are subject to a licensing regime, based on objective, transparent and non-discriminatory criteria. The competent regulatory authority for granting, amendment and supplement, termination and withdrawal of licences in the energy sector is the State Energy and Water Regulatory Commission (the SEWRC), an independent specialised state regulatory body in the energy sector. Pursuant to the Energy Act, the SEWRC can grant only one license in the territory of Bulgaria for (i) transmission of electricity or natural gas, (ii) organisation of the electricity market, (iii) public contracting of electricity or natural gas; and (iv) management of the electric energy system. Furthermore, the SEWRC can grant only one license for a specic territory for (i) transmission of thermal power, (ii) distribution of electricity or natural gas, and (iii) end supply of electricity or natural gas. Licenses for activities in the energy sector are granted pursuant to a detailed procedure and upon submission of required documents set forth in the Energy Act. Only legal entities registered under the Bulgarian Commerce Act 1991, legal entities originating from an EU or EEA member country may apply for a license. Licenses are issued for a term of up to 35 years with a possibility for extension for another up to 35-year period. The SEWRC shall issue or, refuse to issue, a license within three months as of submission of the application. Licensed entities shall pay (i) an initial fee - upon the initial grant or modication of a license; and (ii) an annual fee - for the regulatory activity of the SEWRC under the license for the respective year. The amounts of license fees and the terms of payment thereof are set forth in the Tariff on the Fees Charged by the State Energy and Water Regulatory Commission under the Energy Act, approved by the Council of Ministers. Although, as mentioned above, the electricity market is now fully liberalised, the following is important to note. In respect of electricity
98
price formation two parallel markets operate: (i) a regulated market where the prices are regulated by the SEWRC and (ii) a nonregulated market where the participants freely negotiate prices. However, the prices of the electric power, at which some generators sell to the public contractor for the needs of the end suppliers and the public contractor sells to the end suppliers, as well as the prices of the thermal power, are subject to regulation by the SEWRC even after the liberalisation of the electricity sector. The Renewable and Alternative Energy Sources and the Biofuels Act imposes an obligation on the public provider and the end suppliers to buy out the entire volume of power generated from renewable energy sources and registered with a certicate of origin, with the exception of the quantities contracted/offered on the bilateral market or on the balancing market. The mandatory purchase is carried out on the basis of long-term power purchase agreements (PPAs). The term of the PPAs is 25 years for geothermal and solar power plants and 15 years for hydroelectric power plants with installed capacity of up to 10 MW and other power plants utilizing renewable energy sources as of commencement (not later than December 31, 2015) of the generation for all new generators. The preferential tariffs for electric power generated from renewable energy sources are regulated by the SEWRC. On a different note, it is intended that the Renewable and Alternative Energy Sources and the Biofuels Act is replaced by a new law. The Draft Bill on Renewable Energy Sources (the Draft Bill) has already been submitted to the Parliament for reading. If adopted, such new law will substantially modify renewable energy regulations, namely: (i) the transmission and distribution grid operators will coordinate with the SEWRC and the Minister of Economy, Energy and Tourism maximum capacity available for interconnection, designated zones of connection and permissible voltage levels and on this basis SEWRC will determine total assigned capacity for interconnection
altogether with designated zones and voltage levels; (ii) in order to connect to the grid, power generation companies will have to submit applications for assigned generation capacity on an annual basis; (iii) the transmission grid operator or the distribution grid operator shall sort the applications out on a rst-come, rst-served basis; (iv) whenever the overall capacity applied for by power generation companies exceeds the total capacity for a designated zone any further applications shall be rejected; (v) a participation guarantee shall be deposited to the amount of BGN 5,000 (approx. EUR 2,556) for each MW of the capacity applied for; (vi) for the purposes of grid interconnection, companies developing renewable power generation facilities will be liable for an advance payment of BGN 50,000 (approx. EUR 25,565) for each megawatt of installed capacity; and (vii) the preferential tariff shall be capped for the duration of the PPAs.
XIV.3.3. Electronic Communications

The currently effective Electronic Communications Act 2007 (the ECA) transposes the principles set out in the EU 2002 regulatory framework. The 2009 amendments to the EU regulatory framework have not been transposed yet into national law. Pursuant to the Electronic Communications Policy of the Republic of Bulgaria, adopted by the Council of Ministers in December 2010, such transposition should take place until 25 May 2011. The governmental policy in the telecoms sector is implemented by the Council of Ministers, the National Radio Frequencies Spectrum Council and the Minister of Transport, Information Technology and Communications. The Communications Regulation Commission (the CRC), an independent state body, is vested with specic powers to regulate and control the compliance of provision of electronic communications with the applicable law.
99
The CRC is vested with the powers, among others, to (i) determine the relevant markets of electronic communications networks and/ or services subject to regulation under the ECA, (ii) investigate, analyse and evaluate the level of competition on the relevant markets, and (iii) determine the undertakings having signicant market power (SMP undertakings) and impose, amend or revoke specic obligations on those undertakings. The CRC is the authority competent to issue, amend, supplement, transfer, suspend, terminate or revoke permits for use of individually allocated scarce resource. The CRC has the power to (i) resolve disputes between undertakings, providing electronic communications, and (ii) review claims submitted by end-users in a limited number of cases envisaged in the ECA. The CRC maintains mutual cooperation with the national regulatory authorities of other EU member states and with the European Commission in order to procure the development of consistent regulation practices and implementation of the EU law. In compliance with the Authorisation Directive (2002/20/EC), the ECA provides that public electronic communications networks and/or services shall be provided freely following submission of a notication to the CRC, unless individually allocated scarce resource is needed. In the latter case, electronic communications networks and/or services may only be provided upon issuance by the CRC of a permit allowing the use of the respective individually allocated scarce resource (e.g. radio frequencies, positions of the geostationary orbit, or numbers from the National Numbering Plan). A permit for use of individually allocated scarce resource is granted for an initial period of up to 20 years with a possibility for extension for up to 10 more years. The general authorisation is not limited in time and an undertaking operating under such authorisation may terminate the provision of public electronic communications networks and/or services upon submission of a notication to the CRC. Pursuant to the ECA an undertaking that
has obtained a permit for use of individually allocated scarce resource may transfer such permit, or part of the rights and the corresponding obligations set forth in the permit for use of individually allocated scarce resource - radio frequency, only after the prior approval of the CRC. Undertakings carrying out electronic communications have to pay: (i) an annual fee for the CRCs controlling activities (up to 1.2% over the annual gross revenues from provision of electronic communications networks and/ or services, VAT not included and following deductions as provided for by the law); and (ii) a one-time fee for administrative services. In addition, undertakings using individually allocated scarce resource have to pay: (i) an annual fee for use of such resource; and (ii) a one-time fee for granting a permit for use of such resource. In 2010 the regulation of data retention and call interception by the undertakings carrying out electronic communications turned out to be one of the most widely discussed topics in in the public domain. Pursuant to the ECA data retention shall be done only in view of detection and investigation of severe and computer crimes, as well as for tracing down of individuals. Retained data shall be stored for not more than 12 months, and upon expiry of said period the retained data must be destroyed. The type of data that shall be retained is set forth by the law. In addition, undertakings providing public electronic communications networks and/or services are obliged to ensure a possibility to intercept electronic communications in real time, a possibility for twenty-four-hour surveillance, as well as access in real time to data related to a specic call. However, the possibilities for interception, twenty-four-hour surveillance and access in real time to data, related to a specic call, may only be implemented following a procedure set forth in the Law on Special Intelligence Means. With respect to the switch over to digital TV, the Plan for DVB-T Switch Over in the Republic of Bulgaria, adopted by the Council of Ministers (the Plan), envisages the
100
transition to digital TV to take place in two phases and be completed by 31 December 2012. The Plan envisages the construction during the First Phase of: (i) two networks with national scope for terrestrial digital radio broadcasting of programs of commercial TV operators, (ii) one network with national scope for terrestrial digital radio broadcasting of programs of public TV operators, and (iii) twelve networks with regional scope for terrestrial digital radio broadcasting of programs of commercial TV operators. With respect to the Second Phase, the Plan envisages the construction of: (i) three networks with national scope for terrestrial digital radio broadcasting of programs of commercial TV operators, and (iii) fteen networks with regional scope for terrestrial digital radio broadcasting of programs of commercial TV operators. In accordance with the above, the CRC has issued permits with national scope and term of 15 years to Towercom Bulgaria EAD, and respectively Hannu Pro Bulgaria EAD, for use of radio frequency spectrum for carrying out electronic communications through electronic communications networks for terrestrial digital radio broadcasting of television programs of commercial TV operators, pursuant to the First and Second Phases of the Plan. The CRC is expected to shortly issue permits with regional scope for use of radio frequency spectrum for carrying out electronic communications through electronic communications networks for terrestrial digital radio broadcasting of television programs of commercial TV operators.
XIV.3.4. Media Services

In compliance with the Framework Directive (2002/21/EC) transmission is regulated separately from content and thus the rules governing the provision of electronic communications and the media rules are stipulated in two separate laws (the ECA and respectively the Radio and Television Act 1998 (the RTA)) and controlled by
two distinctive regulatory authorities - the CRC and the Council on Electronic Media (CEM). Whereas the CRC is the authority in charge of the technical parameters, the CEM regulates media services through registration or issuance of licenses, and supervises the activity of media service providers. The Audiovisual Media Services Directive, which sets out the legal framework for creating a level playing eld in Europe for all audiovisual media services - both traditional television and radio (linear service) and video/ audio-on-demand (non-linear service), has been recently implemented into the Bulgarian media law. Pursuant to the RTA carrying out of radio and television activity is subject to a license or registration regime, depending on the distribution platform. Radio and television activity in the form of creation of programs designated to be broadcasted through electronic communications networks using radio frequency spectrum, is subject to a program license granted by the CEM. Both Bulgarian sole proprietors and legal entities, and legal entities incorporated under the law of an EU or EEA member state, are eligible to apply for a license, provided that they comply with the legal requirements towards applicants. Where the radio and television activity shall be carried out through use of available and/or new electronic communications networks for terrestrial analogue broadcasting, the program license is issued by the CEM following a tender procedure and after prior consultation with the CRC on the technical parameters needed for the terrestrial analogue radio broadcasting, including the available radio frequencies, etc. The tender procedure could take between 5 and 10 months. As a result of the tender procedure, the CEM would issue a license for radio and television activity, and the CRC, based on CEMs decision, would issue a permit for carrying out electronic communications through available and/or new telecommunications networks for terrestrial analogue radio broadcasting. However, due to the switch over to digital TV, permits for use of radio frequency for terrestrial analogue radio
101
broadcasting could be issued only until 31 December 2008, with maximum validity term of up to 31 December 2012. Radio and television activity in the form of creation of programs designated for broadcasting through electronic communications networks for terrestrial digital radio broadcasting, is also subject to a program license granted by the CEM. The license grants the right the respective program to be broadcasted by a telecoms operator holding a permit issued by the CRC for use of radio frequency spectrum for carrying out electronic communications through networks for terrestrial digital radio broadcasting, at the territory specied in the latter permit. The digital program license is issued by the CEM following a procedure set forth by the law and involving expert review and approval by an expert commission consisting of members from the CEM and the CRC. The license procedure might take about 2-3 months. The number of licenses that could be issued is unlimited. A TV operator holding a digital broadcasting license can not be granted a corresponding broadcasting permit by the CRC under the telecoms law, because of the legal prohibition that a multiplex operator or any of its related parties is also a content provider. Accordingly, in order that a TV operators channels are broadcast digitally, that TV operator should enter into a contractual relationship with a broadcaster holding a broadcasting permit. The RTA explicitly sets forth the cases in which TV channels shall be granted a must carry status. Excluding those channels granted a must carry status, pursuant to the provisions of the law, the digital broadcast of a TV operators channels is not necessarily guaranteed. Where the radio or television program is to be broadcasted through technical means different from terrestrial radio broadcasting, i.e. through cable or satellite, such activity is subject to a registration regime. The registration procedure is quite straightforward. Registration is of unlimited term. Upon registration no restrictions may be set by
the CEM in respect of the territorial scope of broadcasting. Concerning on-demand audiovisual services, the provision of such services is subject to less burdensome legal rules and administrative procedures. The providers of audiovisual services on demand shall simply notify the CEM about their activities. The CEM keeps a public register of broadcasted radio and television programs. In particular, subject to registration in said register are: (i) Bulgarian radio and TV programs that may be broadcasted at the territory of Bulgaria though cable and satellite; (ii) foreign radio and TV programs that may be broadcasted at the territory of Bulgaria through cable and satellite; (iii) licensed radio and television programs broadcasted through available and/or new electronic communications networks for terrestrial analogue radio broadcasting, or electronic communications networks for terrestrial digital radio broadcasting, (iv) on-demand media services, and (v) enterprises that broadcast Bulgarian and foreign programs.
102
CHAPTER FIFTEEN: INDUSTRIAL & INTELLECTUAL PROPERTY
XV
INDUSTRIAL & INTELLECTUAL PROPERTY
and examination of corresponding objects of Industrial Property.
XV.1. Legal Framework XV.1.1. Laws and Regulations

Copyright and Neighboring Rights Act, published in State Gazette No. 59 of June 29, 1993 as in force from August 1, 1993, last amendments published in State Gazette No 12 of February 13, 2009 as in force from January 1, 2010. Patents and Registration of Utility Models Act, published in State Gazette No. 27 of April 02, 1993 as in force from July 01, 1993, last amendments published in State Gazette No 19 of March 9, 2010 as in force from June 10, 2010. Marks and Geographical Indications Act, published in State Gazette No. 81 of September 14, 1999 as in force from December 15, 1999, last amendments published in State Gazette No 80 of October 12, 2010 as in force from October 15, 2010 and State Gazette No 19 of March 9, 2010 as in force from March 10, 2011 Industrial Design Act, published in State Gazette No. 81 of September 14, 1999 as in force from December 15, 1999, last amendments published in State Gazette No 35 of May 11, 2010 as in force from August 12, 2010 Topography of Integrated Circuits Act, published in State Gazette No. 81 of September 14, 1999 as in force from December 15, 1999, last amendments published in State Gazette No 30 of April 11, 2006 as in force from March 1, 2007 Protection of New Plant Varieties and Animal Breeds Act, published in State Gazette No. 84 of October 10, 1996 as in force from January 04, 1997, last amendments published in State Gazette No 26 of April 6, 2010 as in force from April 9, 2010 Different Regulations on drafting up, ling
XV.1.2. EU legislation
Council Regulation (EC) No 1383/2003 of 22 July 2003 concerning customs action against goods suspected of infringing certain intellectual property rights and the measures to be taken against goods found to have infringed such rights. Council Regulation (EC) No 207/2009 of 26 February 2009 on the Community trade mark. Council Regulation (EC) No 6/2002 of 12 December 2001 on Community designs. Regulation (EC) No 469/2009 of the European Parliament and of the Council of 6 May 2009 concerning the supplementary protection certicate for medicinal products.
In 2005 and 2006 legislative improvements were introduced in Bulgarian legislation for the implementation of Directive 2001/84/EC on the resale right for the benet of the author of an original work of art and Directive 2004/48/EC on the enforcement of intellectual property rights.
XIV.1.3. International Treaties (bilateral and multilateral)

a) General Paris Convention for the Protection of Industrial Property of March 20, 1883 as in force from September 27, 1965 Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs Agreement) of April 15, 1994 b) Specic International Agreements (i) Copyright and Neighboring Rights Berne Convention for the Protection of Literary and Artistic Works of 1886 International Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations Convention for the Protection of the Producers of Phonograms against
BOROSLAV BOYANOV & CO
103
Unauthorized Reproduction of their Phonograms. (ii) Patents Patent Cooperation Treaty of June 19, 1970 as in force from May 21, 1984 European Patent Convention of October 05, 1973 as in force from July 01, 2002 (iii) Trademarks Madrid Agreement Concerning the International Registration of Marks of April 14, 1891 in force as of August 01, 1985 Protocol Related to the Madrid Agreement Concerning the International Registration of Marks of June 27, 1989 in force as of October 02, 2001 (iv) Industrial Design Hague Agreement Concerning the International Deposit of Industrial Designs of June 02, 1934 as in force from December 11, 1996 (v) Others Madrid Agreement for the Repression of False or Deceptive Indications of Source f Goods of April 14, 1891 as in force from August 1, 1975 Lisbon Agreement for the Protection of Appellations of Origin and their International Registration of October 31, 1958 as in force from August 12, 1975 Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedures of April 28, 1977 as in force from August 19, 1980 International Convention for the Protection of New Plant Varieties (UPOV) of December 02, 1961 as in force from April 24, 1998
inventions from all area of the technics which are new, have inventive step and are industrially applicable. Utility models are granted legal protection by their registration with the Patent Ofce. Utility models are registered if they are new, industrially applicable and have inventive step. The discoveries, scientic theories and mathematical methods, results from artistic work, schemes, rules and methods of intellectual activity, for playing games or doing business, computer programs as such, or presentation of information are not regarded as inventions. The following objects are not patentable: (i) invention the exploitation of which would be contrary to the public order or morality; (ii) methods for treatment of human or animal body by therapy or surgery, as well as diagnostic methods practiced on the human or animal body. This provision is not related to products, in particular substances or compositions used in these methods; (iii) plant varieties or animal breeds or essentially biological processes for obtaining them. This provision does not apply to microbiological methods and the products thereof. Mark - a sign which is capable of distinguishing the goods or services of one person from those of other persons, and which can be presented graphically. Such signs can be words, including names of persons, letters, numerals, drawings, gures, the shape of the products or the packing thereof, combination of colors, sound signs or any combinations of such signs. Geographical indications means appellations of origin and indications of source. Industrial Design is the appearance of the whole or a part of a product resulting from the specic features of the shape, lines, contours, ornamentation, colours or combination thereof. Product means any industrial or handicraft item, including parts intended to be assembled into a complex item, sets or composition of items, packaging, graphic symbols and typographic typefaces.
XV.2. Legal Denitions

The copyright over literary, artistic and scientic works arise for the author with the creation of the literary, artistic and scientic work. According to the Patents and Registration of Utility Models Act patents are granted for
104
XV.3. General Review XV.3.1. Copyright and Neighbouring Rights

The law provides for protection of copyright during the whole life of the author and for 70 years after his death, irrespective of the date when the work is lawfully made available to the public. The author is entitled to the exclusive right to use the work created by him and to permit its use by other persons. The reproduction of the work, regardless whether it is related to the distribution, presentation, broadcasting, transmission or public exhibition and if it is addressed to unlimited number of people or to a limited number of people (in certain cases), is considered as a use of this work. The copyrights of performers, producers of phonograms and broadcasting organizations are protected for a period of 50 years as from January 1 of the year following the year in which the author work is made public. The performer has the exclusive right to permit against compensation: (a) the broadcasting of his/her performance by wireless means, its transmission and retransmission by cable, as well as a sound and video recording of the performance, the reproduction of the recording on video or video carriers and their distribution; (b) the public performance, broadcasting by wireless means, transmission and retransmission by cable of such recordings; (c) offering by wireless means or cable of access to the recording of unlimited number of people and (d) import and export of the recording in commercial quantities. The broadcasting organizations, as far as their programs are concerned, have the right to permit their re-broadcasting, re-transmission, recording, reproduction and distribution. The computer programs are copyright objects and the law provides for their protection for 70 years. The copyright over such a program
belongs to the person, whose work has resulted in the creation of computer program. In case the computer program was created under an employment contract and unless otherwise agreed, the copyright over it shall belong to the employer.
XV.3.2. Patents
The exclusive right on invention is obtained by issuance of a patent by the Bulgarian Patent Ofce. The procedure includes (i) a formal examination and (ii) an examination whether the criteria for patentability are fullled. Any patent application may enjoy a priority from earlier application led in a Member-State of the Paris Convention within 12-months. The scope of protection is determined by the patent claims. The exclusive right on an invention includes the right of usage of the invention, the right to prevent third parties from usage and the right to dispose of the patent. Where the subject matter of the patent is a method, the patent owner shall have the right to prohibit others from performing the following acts: (i) application of the method; (ii) offering or putting on the market, using or importing, or stocking for offering or putting on the market or use of a product obtained directly by the patented method. The term of validity of a patent for invention is 20 years from the date of ling of the application. In order to maintain the validity of a patent annuity fees are due. The exclusive right on utility model is obtained by its registration with the Patent Ofce. The procedure includes (i) a formal examination and (ii) an examination whether the criteria for registration are fullled. The term of validity of utility model registration is 4 years from the date of the ling of the application. That term may be extended for two consecutive periods of three years each. The total term of protection may not exceed 10 years from the date of the ling of the application.
105
XV.3.3. Marks
The exclusive right on a mark is obtained by its registration in the Bulgarian Patent Ofce. The law provides protection for trademarks, service marks, certicate marks and collective marks. The procedure of registration consists of two stages: (i) formal examination, and (ii) examination about the existence of the absolute and relative grounds for refusal. Any trademark application may enjoy a priority from an identical application led in memberstate of the Paris Convention within a 6-month period. Each application, which satises the requirements as to proper form, and is not in conict with the absolute grounds for refusal of registration, shall be published in the Ofcial Bulletin of the Patent Ofce. Within three months after the date of publication of the application, any person may give notice of objection to the registration of the mark in pursuance of the absolute and relative grounds for refusal of registration. Within the same period holders of earlier rights may le an opposition against the trademark application based on the relative grounds for refusal of registration. One of the substantial amendments to the Marks and Geographical Indications Act, in force as of March 10, 2011, provides that refusal for trademark registration based on the relative grounds may be granted by the Patent Ofce only in case the holder of the earlier rights has led a notice of opposition to the registration of the mark. The exclusive right on a mark includes the right of the owner to use it, to dispose of it and to prevent other parties from unauthorized use in the course of business activity of any sign which: (i) is identical with the mark in relation to goods or services which are identical with those for which the mark is registered; (ii) due to the identity or similarity to the mark, and the identity and similarity of the goods or services, there is a likelihood of confusion among the consumers and a possibility of association with the mark; (iii) is identical or similar to the mark in relation to goods or services which are not identical or similar to those for which the mark is registered,
where the mark is known on the territory of the Republic of Bulgaria, and where the use of the sign takes without due cause unfair advantages of the distinctive character or renown of the mark or is detrimental to them. The term of protection of a registered mark is ten years from the date of ling the application. The registration may be renewed for an unlimited number of ten-year periods. The registration of a trademark may be revoked if within a period of ve years following the date of registration the owner has not put the mark to genuine use on the territory of Bulgaria or if such use has been suspended during an uninterrupted period of ve years. The registration of a mark may be cancelled when (i) it has been registered in breach of the absolute or relative grounds for refusal; (ii) it is registered in the name of an agent or a representative of the owner without its consent; (iii) the applicant has acted in bad faith when ling the application which has been established with a court decision; (iv) the usage of the trademark could be prohibited on the grounds of earlier right such as a right on a name, and a portrait, copyright, a right on a name of new plant variety or animal breed, industrial property right.(v) the trademark consists of or contains the trading name of another party whereof the trading name has been registered and used in the Republic of Bulgaria prior to the date of ling of the application for registration in relation to identical or similar goods and services. The Marks and Geographical Indications Act provides for detailed criteria for the recognition of a mark as well known or as a mark of renown in compliance with the respective criteria applied by the Ofce for Harmonization in the Internal Market (OHIM). With the latest legislative amendments the disputed State Register of well-known and famous marks with the Patent Ofce was revoked. A Community trade mark registered in the OHIM under Council Regulation (EC) No 207/2009 of 26 February 2009 on the Community trade mark (that repealed Council Regulation (EC) No. 40/94 on the Community trade mark which had been in force in the Republic of Bulgaria as of 1 January 2007)
106
shall have effect on the territory of the Republic of Bulgaria as of 1 January 2007. The use of a Community trade mark on the territory of Republic of Bulgaria may be prohibited if an earlier trade mark or other earlier right was registered, applied for or acquired in good faith in Bulgaria prior to 1 January 2007.
priority date shall be deemed an application led regularly on the territory of the Republic of Bulgaria. Civil legal protection in case of infringement of the rights over a Community design shall be carried out in accordance with the procedure set forth in Council Regulation (EC) No 6/2002.
XV.3.4. Geographical Indications

The protection of a geographical indication is obtained by its registration. Entitled to apply for registration is any person who carries out his production activity in the corresponding geographical region and the goods which he produces conform to the established properties and features. The geographical indication can be used by any recorded user.
XV.3.6. Licenses
The owner of a patent, registered mark or industrial design could assign the right of usage through a license agreement which should be recorded with the Patent Ofce. The License Agreement or at least an extract thereof has to be submitted to the Patent Ofce, containing the identication data of the licensor and the licensee, bibliographic data about the patent, trademark or industrial design, the kind of the license (exclusive or non-exclusive), the term of the agreement. The license agreement is in effect with regard to third parties as of the date of its recordal in the State Register.
XV.3.5. Industrial Designs

The exclusive right on industrial design is obtained by its registration at the Patent Ofce. The criteria for registration of industrial designs are world novelty and originality. The procedure of registration consists of two stages: (i) formal examination, and (ii) examination about the presence of the criteria for registration. The scope of protection of registered industrial design is determined by its representation(s) and includes any design which does not produce on the informed user a different overall impression. The exclusive right on registered industrial design includes the right of its owner to use it, to dispose of it and to prevent third parties from copying or using in the course of business activity a design included in the scope of protection. The term of protection of registered industrial design is 10 years from the date of ling the application. It could be extended three times for further periods of 5 years, i.e. the maximum term of protection is 25 years. Under Council Regulation (EC) No 6/2002 a Community design application led with the OHIM with an established date of ling or
XV.4. Protection Against Infringement of IP Rights XV.4.1. Civil Protection

In any case of unlawful use of a patent, trademark, industrial design or geographical indication the rightful owners are entitled to lodge a claim with the competent rst-instance court the Soa City Court - against the infringer in order to: (i) establish the infringement; (ii) claim compensation for the damages suffered because of the infringement, (iii) require the termination of the infringing actions. (iv) require the seizure and destruction of the products- subject of the infringement The Marks and Geographical Indications Act provides explicitly the terms and conditions for determination of the amount of compensation for damages occurred as a result of the infringements.
107
In case the court rules in favor of the claimant the latter may require the decision to be published in two dailies and a viewing time of a television organization with national coverage, as well as the infringing objects to be destroyed or reprocessed. Soa City Court is the competent rst-instance court to rule on disputes on the authorship of inventions, utility models and disputes related to marks and industrial designs Upon infringement of a right to a mark or infringement of a registered geographical indication or industrial design, or where there is good reason to believe that any such infringement will be committed or some evidence will be lost, destroyed or concealed, the court, acting at the request of the rightful owner or of the exclusive licensee, may furthermore admit some of the following provisional measures without notifying the respondent of this: prohibition of performance of any acts which allegedly constitute or will constitute unauthorized use of a mark, geographical indication or industrial design seizure of the goods which allegedly wrongfully bear a registered mark or geographical indication or have allegedly been manufactured by means of copying or using any design within the scope of protection; sealing of the premise in respect of which an infringement is allegedly committed or will be committed. In any case of infringement of a copyright or a neighboring right the rightful owners or, as the case may be, the persons entitled to exclusive rights of use are entitled to lodge a claim with the competent district court against the infringer in order to: establish the infringement require the termination of the infringing actions; receive a compensation for the damages suffered because of the infringement. In case the claims ground is established but
the amount of the damages may not be estimated the above persons may, instead of compensation, receive: o the value of the subject of infringement calculated on the basis of the retail prices of lawfully reproduced copies; or o sum amounting between BGN 500 and BGN 100,000 determined by the court upon its discretion; In determining the amount of the sum to be paid the court shall take into account the proceeds obtained as a result of the violation. require the seizure and destruction of the infringing copies and the equipment exclusively used for their production. require the court decision to be published in two dailies, as well as to be announced at a time determined by the court of a television organisation with national coverage.
XV.4.2. Criminal Protection

According to the Criminal Code: Any person who records, reproduces, distributes, broadcasts or transmits, or makes any other use the object of a copyright or neighbouring right without the consent of the owner of holder of such right as required by law, shall be punished by imprisonment for up to ve years and a ne of up to BGN 5,000. Anyone who, without consent of the person required by law, detains material carriers containing the object of copyright or a neighbouring right, amounting to a largescale value, or who detains a matrix for the reproduction of such carriers, shall be punished by imprisonment from two to ve years and a ne of BGN 2,000 to BGN 5,000. If the acts described above have been repeated or considerable damaging consequences have occurred, the punishment shall be imprisonment from one to six years and a ne of BGN 3,000 to BGN 10,000. Anyone who, without the consent of the owner of the exclusive right uses in commercial activity a trademark, industrial
108
design, a plant variety or animal breed, object of said exclusive right, or makes use of a geographical indication or imitation thereof without a legal justication, shall be punished by imprisonment of up to ve years and a ne of up to BGN 5,000. Where the act is repeated or signicant damages have been caused, the punishment shall be imprisonment from ve to eight years and a ne from BGN 5,000 to BGN 8,000. The object of the crime shall be taken to the benet of the state, irrespective of the fact whose property it is, and it shall then be destroyed. Anybody who issues or uses under his name or under a pseudonym anothers work of science, literature or art or a substantial part of such a work shall be punished by imprisonment of up to two years or by a ne of BGN 100 to BGN 300, as well as by public reprobation. The same punishment is provided for any person who, without having participated in the creative work, by abusing his authority joins as a co-author of a work of science, literature or art.
infringe a right protected by the Copyright and Neighboring Rights Act. The customs authorities will detain such goods at the written request of the holder or, as the case may be, at the request of the owner of the copyright or persons entitled to exclusive rights of use.
XV.5. Foreign Investors Related Measures

Foreign authors will enjoy the same rights as Bulgarian authors unless otherwise provided by international treaties and agreements. In case Bulgarian law is applicable to foreign authors or the object of copyright was rst created or published in a foreign country, the holder of the right will be determined by the respective foreign law and the term of protection will be the one provided by the foreign law if Bulgarian law provides for a longer period. Foreign individuals and legal entities and all persons with a domicile or seat outside Bulgaria may apply for the registration of a patent, trademark, geographical indication, industrial design only through their local industrial property representatives listed with the Patent Ofce. The provisions of Bulgarian law will apply to foreign individuals and legal entities whose respective country of origin is a member to international agreements, to which Bulgaria is a party. To other foreigners Bulgarian laws will apply only in case of reciprocity, which will be established by the Patent Ofce in case-by-case basis. Where bilateral international agreements exist their provisions will apply. The international registrations of patents under the Patent Cooperation Treaty; of trademarks in conformity with the Madrid Agreement; of geographical indications under the Lisbon Agreement; and of industrial designs under the Hague Convention, have the same effect as if the applications were directly lodged and the registrations were made in Bulgaria according to the relevant Bulgarian law.
XV.4.3. Administrative Protective Measures

The President of the Patent Ofce is empowered to impose administrative penalties nes or monetary sanctions between BGN 500 and 5 000 - on infringers of rights of the owners of trademarks or geographical indications. The administrative penalties on infringers of rights of the owners of copyrights or neighboring rights are imposed by the Minister of Culture or a person authorized by him. In addition in all cases mentioned above the infringing goods shall be seized, regardless of the ownership thereof, and shall be destroyed. Border control measures are also established for goods carried through the borders of the state bearing a registered mark or geographical indication without the consent of the holder or an imitation thereof or such goods for which there are grounds to consider that they
109
CHAPTER SIXTEEN: PUBLIC PROCUREMENT
XVI PUBLIC PROCUREMENT
The specic character of the budgetary and public funds requires a special procedure for their spending. Therefore, the Public Procurement Act sets forth the state policy on the award of public procurement contracts. The Bulgarian legislator has provided special procedures for spending of the funds provided for or accumulated by public services. Thus it aims at increasing the effectiveness of the use of budget and public resources and at the protection of the consumers of public services. The Public Procurement Act codies the public procurement legal framework. One of the principal goals of this Act is to harmonize the Bulgarian legislation concerning public procurement with the major public procurement directives of the European Union. The Bulgarian legislation acknowledges the importance of the public interest related to the award of public procurement contracts and provides the rules for the protection and control over public and budgetary spending. The provisions are imperative and regulate all material aspects of public procurement. A number of amendments to the Public Procurement Act were approved in 2008 and 2010. The amendments were necessitated by the changes in the EU regulatory framework in the sphere of public procurement, as well as by the necessity to introduce new preventive control mechanisms in relation with the utilization of the funds from EU structural funds and other sources. The Public Procurement Act regulates the terms and procedures for the award of public procurement contracts, the objects and subjects of the public procurement procedures, the bodies implementing the state policy in this area, the procedures on awarding contracts and the procedure on appeal against public procurement related decisions. The Acts denes the parties in the contract award procedures assignors,
candidates, participants and contractors. ASSIGNORS are enumerated in the law and classied in several categories. These are the state bodies, the diplomatic and consular representations of the Republic of Bulgaria abroad, organizations of the public law, public organizations (legal entities created for the satisfaction of a given public interest, having no commercial or industrial character, and satisfying the conditions set in the law), public companies and their alliances, as well as and commercial companies when they perform some of the activities specied in the law, etc. The assignors benet from a special legal protection, as the law provides that several imperative clauses in their favour should be implemented in any public procurement contract. An example for such a clause is the assignors right to unilaterally terminate the awarded contract under some special conditions, explicitly set in the law. CANDIDATES for the award of a public procurement contract can be any Bulgarian or foreign natural person or legal entity as well as their alliances that have applied for participation in the procedure for public procurement assignment. PARTICIPANT is any Bulgarian or foreign natural person or legal entity or their alliances that have presented an offer or a project. Above denitions make it obvious that unlike the old Public Procurement Act (1999), the effective Law does not require the candidates to be registered as free lancers, sole entrepreneurs or companies. Hence, for the award of public procurement contract can apply all kinds of merchants, regardless of their organizational form. Foreign persons and entities can also apply in the public procurement procedures regardless whether they are registered as merchants under Bulgarian or their respective local legislation. The Act provides the assignors with the right to require that the candidate shall create a legal entity when the chosen candidate is an alliance of natural persons or legal entities. In such cases the newly incorporated company shall be bound by the offer. The assignor cannot set the incorporation of a new
110
MODUS CONSULT
company as a condition for participation in the procedure for assigning a public procurement. For a limited number of business activities the special legislation can impose specic requirements on the candidates. In this case the possible scope of the candidates shall be limited. For example, public procurement contracts for the supply of insurances can only be awarded to insurers. The CONTRACTOR is a candidate who took part in the public procurement procedure and who has concluded a public procurement contract. Objects of public procurement can be various types of activities that can be assigned to contractors under the procedures for the award of public procurement contracts under the rules of the Public Procurement Act. Instead of listing all the objects of public procurement procedures, the Act marks most of them, but expressly indicates all the exceptions of this scope. Those exceptions refer to the character of the activity or the value of the contract. In general, the Act benchmarks higher contract values above which a public procurement procedure must take place. The amendments to the Public Procurement Act introduced a requirement, stipulating that public procurement contract for services may be assigned for a period of up to 5 years. The value thresholds of all public procurement contracts are in compliance with the levels specied in EU Directives. The terms and conditions for assigning a public procurement contract are compulsory for the following procurements (without VAT accrued): - Construction for more than BGN 2,150,000.00 and when abroad BGN 6,000,000.00; - Delivery for more than BGN 180,000.00 and when abroad BGN 250,000.00; - Services for more than BGN 110,000.00 and when abroad BGN 250,000.00; - Design contest - for more than BGN 110,000.00. The Act regulates the types of procedures for the award of the public procurement
contracts. These types include the open procedures, the restricted procedures, competitive dialogue, negotiated procedures and the design contest. The executors can be chosen in an open procedure, a restricted procedure and the negotiated procedure with an announcement through the use of an electronic competition when the technical specications of the procurement can be strictly dened. The main criterion for distinction between the various types of procedures is the scope of the possible participants in each procedure. In an open procedure all interested persons and entities can obtain the documentation, present their offers and participate in the procedure as candidates. In a restricted procedure, the assignor conducts a preliminary selection among an unlimited number of candidates and invites the approved candidates to present their offers. Similarly, in the negotiated procedure contracting with an announcement, the procedure is open to all interested candidates, but the assignor conducts a preliminary selection and invites in the negotiations only the approved candidates. In the negotiated procedure without an announcement, the assignor invites for negotiations a limited number of candidates, and an announcement for the start of a procedure is not published at all. Public procurement contracts are assigned by means of a competitive tender in case of an exceptionally complex order, which is impossible to assign by using an open or limited procedure. The design contest is a procedure for acquiring by the assignor a plan or a project prepared by an independent jury based on a contest with or without awards. The design contest procedure can be conducted either as an open procedure or as a restricted procedure. The assignors are free to choose the type of procedure that they can conduct. However, some procedures can only be applied in a limited number of cases explicitly set forth in the law. The European legislation like the new Bulgarian public procurement legislation
MODUS CONSULT
111
introduces special rules for the award of public procurement contracts by entities operating in the water, energy, transport and telecommunications sectors. The main difference from the general rules is the right for the assignors to choose and apply any procedure, the restriction being that the rights of the assignor to choose a procedure are limited by law. The procedure for awarding public procurement contracts is opened by decision of the assignor. With this decision the assignor approves the public announcement and the documentation for the candidates participation in the procedure. The Decision and the announcement are sent to the Agency for the Public Procurement for registration in the Register of Public Procurement. In the cases where the value of public procurement contracts equals or is higher than the limits specied by a European Commission Regulation, the Assignors are obliged to submit the information for the respective public procurement contract for publication in the Ofcial Journal of the European Union. The announcement should meet the requirements of the Law concerning its form and minimum content. Further, the announcement for the opening of a public procurement procedure must be sent in electronic form. The Act provides that a preliminary announcement for an opening of a public procurement procedure should be made whenever the value of the contract exceeds certain levels. The preliminary announcement is also sent to the State Gazette and the Register of Public Procurement. This obligation affects a scope of assignors dened in the Act. The announcement should be sent before the 1 March of each year and should contain all public procurement procedures and frame agreements that the assignor plans to open during the same year. The Public Procurement Act contains a possibility for signing a frame agreement. It is concluded by and between one or more assignors and one or more potential executors. Its aim is to dene in advance the
terms and conditions of the contracts which the parties intend to conclude for a period no longer than four years regarding the prices and if possible the expected quantities. As an exception the term of the frame agreement may be longer than four years. The assignors are entitled to sign frame agreements for every public procurement procedure except for the negotiated procedure without an announcement. The assignor appoints a special commission for the purpose of conducting the procedure. The commissions task is to review, evaluate and rate the candidates offers according to the terms set by the assignor. The commissions nal act is the protocol for the candidates classication. Based on that protocol, the assignor has to adopt a decision that announces the classication of all candidates and the candidate that has been chosen for a contractor. Then the assignor signs a public procurement contract with the candidate who won the rst place according to the commissions protocol and therefore obtains the award the contract. The public procurement contract includes all the participants proposals of the offer, which helped him to be chosen as an executor. A contract cannot be concluded for an indenite period of time. The assignor shall inform the Agency about every contract or frame agreement signed, in order to be registered in the Public Procurement Register. Besides, the Assignor will also have to submit to the Register information regarding already completed public procurement contracts. The acts of the assignors are considered to be individual administrative acts. The identication the acts of the assignors as individual administrative acts has an effect on the way and on the procedures for their appeal. The decisions of the assignors are under the control and can be appealed before the Commission for Protection of Competition by any of the candidates or participants or by anyone whose interests have been injured
112
MODUS CONSULT
with some exceptions. An appeal against a decision of the contracting authority, with the exception of the decision on selection of a contractor does not suspend the public procurement award procedure unless an interim measure of suspension has been requested by the appealing party. An appeal against a decision on selection of a contractor suspends the public procurement award procedure until the conclusive settlement of the dispute, except where anticipatory enforcement has been admitted. The resolutions of the Commission can be attacked before the Supreme administrative court. The courts decision is nal and is not subject to control. Any disputes between the Assignor and the Contractor (Assignee), arising out of an effective public procurement contract, may be subject to deliberation by a court of arbitration. The judicial power of the Arbitration court is subject to the existence of an arbitration agreement. According to the provisions of the Public Procurement Act, the State policy in the area of the public procurement is carried out by the Minister of Economy, Energy and Tourism. The Agency on Public Procurement assists the minister. The Agency manages a Register of the Public Procurement, where the Agency shall register decisions and announcements on the opening of public procurement procedures, information on the awarded public procurement contracts and other data, as provided by the law. The Agency is managed and represented by an Executive Director, who performs functions, which are explicitly specied in the Act. One of the functions of the Agency on Public Procurement is to exercise preliminary control on public procurement procedures for amounts exceeding the levels specied in the European Commission Regulation, in case nancing is fully or partially provided from European funds. These procedures will be controlled by the Agency jointly with the respective managing authority of the operative program. The preliminary control
shall cover draft decisions on launching public procurement procedures, and the notications or invitation for participating procedure documentation for the assignment of public procurement contracts, the activities of the commission in charge of the procedure, and the draft of the decision to select a contractor, which are all subject to approval pursuant to the provisions of the draft decisions as mentioned above. The Agency on Public Procurement exercises preliminary control by drafting a preliminary report regarding the compliance of the procedure documents with the requirements as set out in the Public Procurement Act, by the participation of observers in the proceedings of the commission and by drafting a report on the compliance of its procedures with the relevant legislation. Another new function, assigned to the executive director by force of the amendments to the act is the exercise of preliminary control on the decisions to open negotiations procedures without notication in cases, which are explicitly specied in the Act and in case these decisions are taken by explicitly specied Assignors.
MODUS CONSULT
113
CHAPTER SEVENTEEN: SECURITIES AND BANKS
XVII SECURITIES AND BANKS

XVII.1. Securities XVII.1.1. Overview OVERVIEW
After discontinuing the public trade of securities after World War II, the First Bulgarian Stock Exchange started functioning in 1991. The Bulgarian Parliament adopted the rst act regulating the trade in securities the Securities and Stock Exchanges Act from 1995. This Act provided for the creation of the State Securities Commission (SSC) the state regulator of the stock market. At the same time most stock exchanges merged to the Bulgarian Stock Exchange. In 1997 the SSC ofcially licensed the Bulgarian Stock Exchange to organize a regulated market and in 2001 to organize an unofcial market. In the end of 1999 the Bulgarian Parliament adopted the Act on the Public Offering of Securities, which is currently in force. This act set the grounds for the development of a market working under criteria and conditions similar to those in the European Union. Further positive development was seen in 2000 with the launch of a modern trading system and of an ofcial index SOFIX. The latest trends in the securities market development were marked by the replacement of the SSC with a new state regulator the Financial Supervision Commission. An additional step for bringing Bulgarian securities market closer to local and international investors is the launch of the Client Order-Book Online System, a.k.a. COBOS. COBOS allows clients or stock exchange members to place real-time orders over the Internet. Now orders can be placed not just from all over the country, but they can also be placed from all over the world. THE LEGAL FRAMEWORK The most important legal rules related to
securities and their trade in Bulgaria are contained in the Public Offering of Securities Act. The Act governs most of the material aspects related to the trade in securities - the public offering of, the issuing and disposition of dematerialized securities;the operation of the Central Depository, the investment and management companies; the requirements to the public companies and to the other issuers of securities, the state supervision, etc. The Act is aimed at the investors protection; the creation of a fair, transparent and efcient securities market and the establishment of a strong public condence in the securities market overall. The regulations of the Public Offering of Securities Act sustained considerable changes during the last couple of years. Its entire subject and many key positions in it have been amended. These changes were necessary in order to balance the Bulgarian legal framework with the requirements of EU Directive 2004/39/EC (MIFID), Directive 2003/71/EC of the European Parliament and Directive 2004/109/EC of the European Parliament, Directive 85/611/EEC and other EU directives in the eld of securities. In November 2007 a new act was adopted - the Markets in Financial Instruments Act, which governs the issues, regarding the activities of regulated markets and investment intermediaries. This Act extended the range of nancial instruments, subject to supervision. Subject of the Act are securities, money market instruments, units in undertakings for collective investment, options, futures, swaps, forward rate agreements and other derivative contracts on securities, currencies, interest rates, yields, other derivative instruments, indexes or nancial indicators, which may be settled physically or in cash, derivative nancial instruments for credit risk transfer, contracts for differences, etc. The new act introduced new requirements for the investment intermediaries, which differ from the ones in the Public Offering of Securities Act, as well as additional regulations for the consolidated supervision, executed by the Financial Supervision
114
MODUS CONSULT
Commission. An entirely new generation of organized market systems was created which is to operate parallel to the regulated markets. The purpose of this Act is to ensure protection of investors in nancial instruments, inter alia by creating conditions to supply them with full and more appropriate information regarding the market in nancial instruments. It also aims to create conditions for the development of a transparent, open and efcient market in nancial instruments and to uphold the stability and the public condence in the market in nancial instruments. The other important acts in that area are the Commercial Code, the Act on the Privatization Funds, the Act for the Encouragement of the Investments, the Act on the Privatization and Post-Privatization Control and the Financial Supervision Commission Act, the Supplementary Supervision of Financial Conglomerates Act, Measures against Market Abuse with Financial Instruments Act, the Mortgage Bonds Act, the Distance marketing of Financial Instruments Act, etc. The Financial Supervision Commission has the power to adopt ordinances related to the public trade of securities, such as: Ordinance on the requirements for the activities of the investment intermediaries; Ordinance on the requirements for the activities of the management companies; Ordinance on the requirements to the activity of the investment companies and the contract funds; Ordinance on the capital adequacy and liquidity of the investment intermediaries; Ordinance for licensing of activities on regulated markets, organizing multilateral trade system and for performing activities as a investment intermediary, investment company, management company and company with special investment purpose; Ordinance on auctioning and exchange of securities; Ordinance on the central depositary of Securities; Ordinance of permission of securities to ofcial markets, etc. The Bulgarian Stock Exchange adopted its rules and regulations, which provide the principles governing the overall operations on the Bulgarian Stock Exchange - Soa.
It determines the listing requirements, the trading components and all related and pursuant proceedings, membership provisions, disclosure, surveillance as well as procedures pertaining to disputes and discipline subjects. The Bulgarian National Bank (BNB) is also vested with the powers to adopt regulations, some of which affect the trade in securities as well. Such regulations of the Central Bank govern the Control over Transactions in Book-entry Government Securities, the Government Securities Settlement, etc. In 2007 three new ordinances were adopted by the BNB in collaboration with the Minister of nance which introduced a completely new legal framework, regarding the execution and control over transactions with Government Securities. XVII.1.1.1. THE MARKET PLAYERS REGULATED MARKET is a multilateral system operated and/or managed by a market operator, which brings together or assists for the bringing together of multiple third party buying and selling interests in nancial instruments through the system and in accordance with its non-discretional rules in a manner, the result of which is the conclusion of a contract in relation to nancial instruments. A regulated market also is any multilateral system which is authorized and operates in consistence with the requirements of Title Three of Directive 2004/39/EC of the European Parliament and of the Council. The regulated market must have internal organization and structure which ensure conduct of the business in compliance with the provisions of the law. The organization and management of the regulated market are performed on the basis of Rules for operation of the regulated market, which are adopted by its Board of directors or by the Management board of the market operator. The Rules lay down the terms and conditions for transactions concluded on the regulated market, the conditions which must be met by the members or participants on the regulated
MODUS CONSULT
115
market and the rules and procedures for clearing, settlement and securing the transactions. The Financial Supervision Commission is responsible for the issue of regulated markets licenses. The applicants for such licenses should present together with their application the Articles of association of the market operator, rules on operation of the organized regulated market, particulars about capital, members of management and controlling bodies, premises and the technical equipment, program of operations, etc. The Commission then determines whether the requirements for issuing the requested license have been met on the basis of the submitted documents. It decides on the request within three months from its receiving. All licensed registered markets should be registered at the commercial register of the Bulgarian Registry Agency, if they are separate legal entities from the market operators. The Commission maintains on its web site an up-dated list of the regulated markets for which the Republic of Bulgaria is a home Member State. MARKET OPERATORS organize the business and operations of the regulated markets and are responsible for compliance with the provisions of the law by the regulated markets. The market operator is a public company with minimum capital of BGN 5 000 000. Not less than 25 per cent of that capital must be paid in at the time of filing the application for the issue of a license. The regulated market must at any time have financial resources, required for its due functioning, as well as an internal organization and structure, ensuring that its business activities shall cover all legal requirements. The persons who are members of the operators management body or manage its activity, must have a good reputation and professional experience, which are to ensure the stable and reasonable management and operation of the regulated market.
INVESTMENT INTERMEDIARIES provide of one or more investment services or investment activities, such as reception, delivery and execution of orders regarding nancial instruments, including intermediation for entering into transactions, dealing on their own account in nancial instruments, management of portfolios, providing of investment consultations, offering for initial sale of nancial instruments, organization of multilateral trading facilities, safekeeping and administration of clients nancial instruments, etc. The provision of investment services may be carried out only by licensed joint-stock companies or limited liability companies with a registered ofce on the territory of the Republic of Bulgaria. The licenses are issued by the Financial Supervision Commission. Investment services may also be provided by a bank, which has obtained authorization by the Bulgarian National Bank. All investment intermediaries, except for banks, may not carry out by way of occupation some other commercial transactions. Investment intermediaries, except banks, cannot as a rule perform other trade transactions. For obtaining licenses from the Commission applicants should submit their Articles of association, particulars for their capital and the management, a program of the companys operations, the general conditions applicable to contracts with clients, etc. The Commission decides on the application within three months of its receipt, and where additional information and documents have been requested within one month of their receipt. An investment intermediary, who holds client cash or securities and provides one or more of the investment services must have an initial capital not less than BGN 250 000. Investment intermediaries who do not hold client cash and nancial instruments must have an initial capital not less than BGN 100 000. Other investment intermediaries must have an initial capital no less than BGN 1 500 000. Investment intermediaries shall issue only dematerialized shares with one voting right. If the investment intermediary
116
MODUS CONSULT
is a limited liability company, any partner shall have a number of votes in the general meeting proportionate to his share in the capital. For reception and delivery of orders for nancial instruments and providing of investment consultations intermediaries also need to have a professional liability insurance with minimum insured sum of 1 500 000 Euro for all insurance events, valid for the whole territory of the European Union and the European Economic Area, for the damages which may occur as a result. The investment intermediary must at any time maintain own funds exceeding or equal to the amount of the capital requirements for the risks associated with its activities. The investment intermediary should maintain internal organization, including qualied personnel, equipment and software, which is to make adequate arrangements for the performance of the investment services and activities, for avoidance of conicts of interest, for observance of the existing rules for personal transactions, for safekeeping of information, for prompt and accurate execution of client orders, for risk assessment and management, etc. Any person, having qualied holding in an investment intermediary, must have good reputation, professional experience, and nancial stability corresponding to its qualied holding and observing all other requirements set forth in the Market of Financial Instruments Act. PUBLIC COMPANIES are the companies traded on the regulated markets. One important change was introduced in the Public Offering of Securities Act in 2009 the public companies under the Bulgarian legislation need to have a registered ofce in Bulgaria. The companies need to have registration at the Commercial register as well as at the register of the Financial Securities Commission. To be public, a joint-stock company having a registered ofce in the Republic of Bulgaria must: 1. have issued shares under the terms of a primary public
offering, or 2. have a share issue recorded in the register at the Financial Supervision Commission Act for the purpose of trading on a regulated market, or 3. have more than 10,000 shareholders on the last day of two successive calendar years. Many companies listed are former state companies. They were listed before or during their privatization. Therefore, many companies went private after being privatized. To go public, the company should generally publish a prospectus and make an IPO. The Public Offering of Securities Act contains special requirements towards the content of a prospectus and the other requirements to be met in order the company to go public. The Bulgarian legislation provides for a series of special rules, which grant the shareholders rights and provides them with equal access to information. For example, unlike general legislation, whenever a public company wants to increase its capital, it has to follow a specic procedure which protects the minority shareholders against dilution of their participation. The voting in a public company is executed with standard written forms, which have been approved and published in advance. Electronic voting is also allowed. In all cases identication of the voter is required. The legislation also provides some rules to secure the principle of equal access to information so as to enable the shareholders to exercise their rights, as well as to guarantee the integrity of this information. The public company is obliged to disclose any changes in the rights of separate classes of shares, including changes in the rights to derivative nancial instruments issued by it, which give right to acquisition of shares of the company. Any public company is also obliged by law to ensure equal treatment of the shareholders enjoying equal status, including participation and voting right in the companys general meeting. INVESTMENT COMPANIES are joint-stock companies whose business is investing cash raised through public offering of shares, in
MODUS CONSULT
117
securities and other liquid nancial assets and which acts on the principle of risk diversication. An investment company is also any public company that raises funds through public offering of shares and whose investments in securities exceed 50 per cent of its balance sheet assets in the course of 6 months. Investment companies can either be open-end or closed-end. The capital of an open-end investment company is always equal to the net value of its assets. It may not be less than BGN 500 000. A closed-end investment company must also have a capital of at least BGN 500 000, but its structure and ratio with the balance sheet assets and liabilities of the company are determined by the requirements of a special ordinance. The business of an open-end investment company must be managed by a managing company in accordance with a contract made while a closed-end investment company can be managed either by a management company or by the management body of the investment company itself. In any case though the investment company may not exercise control over the management company and vice versa. An investment company may not transform itself into another type of commercial company, as well as to change its scope of business. Transformation of a closed-end investment company into an open-end one may be carried out only with an authorization from the Commission. All dematerialized nancial instruments held by the investment company are entered in the register of the depository institution in the sub account of the depository bank and its other assets are kept at a depository bank. Bulgarian legislation requires a license for carrying out investment companys activities. This license is granted by the FSC within 3 months of application. The application form is led together with the Articles of Association, particulars about the capital subscribed and paid-in, information about the members of the management and supervisory bodies or about the individuals representing legal entities
authorized to manage and represent the investment company, as well as information about their professional qualication and experience, the contract with the management company and the contract for depository services, particulars about the persons who hold, directly or through related parties, more than 10 percent of the voting shares of the applicant or may control it otherwise, etc. MANAGEMENT COMPANIES manage investment companies and contractual funds and provide investments management, administration of the shares, legal services and accounting services, assets valuation and calculation of the shares price, control for compliance with the legal requirements, maintenance of the book of the shareholders, distribution of dividends and other payments, issue sale and redemption of shares, execution of contracts, keeping records, marketing services, etc. Each management company should have no less than BGN 250,000 registered capital and should also be licensed by the FSC. The Commission will issue the license within 3 months of submission of the application form, together with the documents required by law. CONTRACTUAL FUND is a separate property with the purpose of collective investment in securities and other liquid nancial assets, of cash rose through public offering of units, which is carried out by a management company on the principle of risk diversication. Contractual funds are managed by management companies. The mutual fund may only be open-type. The net value of the mutual fund capital may not be less than BGN 500 000. The mutual fund is organized and managed by the management company. In managing the mutual fund, the management company acts on its behalf and at the account of the mutual fund. FUND FOR COMPENSATION OF SECURITY INVESTORS is a legal entity organized to guarantee the payment of compensation to the clients of an investment
118
MODUS CONSULT
intermediary and to its subsidiaries in the host member states by the raised in the fund money in the cases where the investment intermediary is not able to pay its liabilities to the clients due to reasons directly linked to its nancial situation. Any investment intermediary, which holds, administers or manages clients moneys or nancial instruments and for which liabilities to clients may arise, is obligated to contribute pecuniary premiums in the fund. This fund pays compensation to each client of the investment intermediaries amounting to 90 % of its receivables, but in no case more than BGN 40 000. The Act includes a list of the persons who are not entitled to compensation, such as members of the management and supervisory body of the investment intermediary, persons who own directly or indirectly 5 or over 5 per cent of the votes in the general meeting of the investment intermediary, credit institutions, insurers, pension and social insurance funds, etc. The fundraising sources of the fund are the initial installments by the investment intermediary, annual installments, income from investing the moneys raised by the fund, other sources such as loans, grants, international assistance, etc. XVII.1.1.2. CONCLUSION Bulgaria keeps on attracting ever growing interest with its investment opportunities. Foreign investors are interested to invest in Bulgarian securities market in many forms. They can just invest in listed securities or create an investment company or investment intermediary. Foreign investors should always keep in mind that they are treated equally with local investors, thus enjoying the special investors protection provided by the local legislation.
years now Bulgaria has been publishing data on its macro-economic stability. These data, in combination with the scal discipline of Bulgarian governments enhance the condence to Bulgarian economy and contribute to the high rate of economic growth over the recent years. All this was only possible after a series of measures that Bulgaria had to undertake following a wave of banks bankruptcies a little than a decade ago. These measures cover both the introduction of currency board arrangements and pegging of the BGN exchange rate to EUR, and the robust regulatory framework of the banking sector. The major pillars of this framework are the Bulgarian National Bank Act and the Credit Institutions Act adopted in the beginning of 2007. It also includes the Registered Pledges Act (1996), the Act on Information regarding Non-performing Loans (1997), the Bank Deposits Guaranty Act (1998), the Measures against Money Laundering Act (1998), the Foreign Exchange Act (1999), the Mortgage Bonds Act (2000), The Government Debt Act (2002), the Bank Bankruptcy Act (2002), the Consumer Credit Act (2006), Payment Services and Payment Systems Act (2009) and the Bulgarian Development Bank Act (2009). Rules related to banking are also adopted by the Council of Ministers and the Central bank.
THE CENTRAL BANK The Bulgarian National Bank (BNB) is the central bank of the Republic of Bulgaria. Its major tasks are through the mechanisms of monetary control to maintain the national currency stability, to secure the functioning of effective payment mechanisms, and to regulate and supervise the activity of banks in the country. The bank is responsible for the stability of the banking system and the protection of depositors interests. The Bank also regulates and exercises supervision of the activities of the operators of payment systems and payment institutions in Bulgaria.
XVII.2. The Banks

The banking sector is crucial for the proper functioning of countrys economy. For many
MODUS CONSULT
119
According to the Credit Institutions Act BNB also exercises control on parent credit institutions and credit institutions controlled by EU parent nancial holding companies. The central bank is the only institution in the country authorized to issue banknotes and coins. It is also obliged upon request to exchange without limitation Euro for Bulgarian levs at a xed rate. Thus the Bulgarian Lev is pegged to the Euro. The bank has the power to adopt regulations on conducting banking business in the country to the extent provided by the law. The bank is managed by a Board, a Governor and three Deputy governors. The Board of the Bank consists of seven members - the Governor, the Deputy governors and three members. The Governor and the Deputy governors are appointed by the Parliament. BNBs activities are organized in three departments the Issue Department, the Banking Department and the Banking Supervision Department, each reporting to one of the three Deputy governors of the central bank. The Issue Department maintains full coverage of the gross amount of monetary reserves of BNB and manages the international currency assets of the bank. In case of occurrence of a system risk for the banking system stability, the Banking Department performs the function of a creditor of last resort. Supervision over the banking system is exercised by the Deputy Governor in charge of Banking Supervision Department.
at a safe deposit; issue electronic payment instruments; perform transactions of noncash payments; issue and management of bank cards; provide bank safe deposit boxes; nancial leasing and bank guarantees, issue electronic money, etc. Banks are not entitled to perform any other business transactions besides the ones listed in the Act, except when it is required in relation to the performance of banking operations.
XVII.2.2. Establishment and Management

The Credit Institutions Act includes a list of obligatory requirements with regard to the legal form of the banks. It also provides some special requirements to their managing bodies. Banks can only be incorporated as public companies. At the time of their incorporation, the paid-in capital should be equal to or exceed BGN 10 000 000,00. Contributions can only be made in cash. The bank issues only dematerialized shares, which entitle their holders to one vote. Banks should be managed and represented by at least two individuals jointly. At least one of the managers should speak Bulgarian. The members of the Managing Board or of the Board of Directors can be only individuals having acquired university education with at least a masters degree and considerable professional experience, in addition to many other requirements they have to meet.
XVII.2.1. Banks and their Scope of Business

The Act denes the bank as a legal entity that attracts deposits and grants credits and other funding on its own risk. Each bank is entitled to conduct only the business transactions expressly allowed by law and included in the bank license. In addition to the transactions in the denition above, banks can provide payment services according to the requirement of the Payment Services and Payment Systems Act; accept valuables
XVII.2.3. Licensing Procedures

The Bulgarian National Bank issues the banking permits (licenses) to the banks. Conducting banking operations without such a license is illegal. The procedures for issue and revocation of banking licenses are dened in chapter III of the Credit Institutions Act and Ordinance No. 2 from 22.12.2006 on licenses and permits issued by BNB.
120
MODUS CONSULT
A license for banking operations in the country can be issued by BNB to a public company based in Bulgaria or a local branch of a foreign bank. A bank licensed in a member-state may operate in Bulgaria after BNB had been notied about that by the respective authority, which had issued the license. Any foreign bank, licensed in a member-state, which is operating via a branch, needs to open only one branch, regardless of the number of places of activity. The application of a local company for a bank license should be accompanied by the founding documents, records of the shares issued and the installments made, a business plan, description of the management and control systems of the bank, personal details about the individuals participating in the managing and control bodies and the persons who have acquired more than 3 % of the shares, as well as other documents, required by Ordinance No. 2 and necessary to decide if all legal requirements are met. The application for a license for banking operations in Bulgaria through a branch should be submitted together with documents proving the registration of the Bank in its homeland, its Articles of incorporation, the banking license issued by the competent local authority to the applicant bank, a business plan, annual nancial statements for the last three years, a written consent of the banking supervision authority for opening a branch, details about the persons, conducting the branch management, etc. The branch can be licensed to perform only activities included in the bank license. BNB performs a research on the validity of the presented documentation and reliability and the nancial state of the applicant. Within three months as of the receiving all required documents BNB makes a resolution about the issue of the license. The license is issued if within three months as of the above term the applicant provides evidence that the minimum capital had been paid in, all managers had acquired the necessary professional licenses and qualications, an inside management and control system had been provided, etc.
There is a certain restriction for acquiring shares in a bank. Any natural or legal person as well as persons acting in agreement may not, without the prior written approval of the BNB, acquire directly or indirectly shares or voting rights related to shares in a bank licensed in the Republic of Bulgaria if as a result of the acquisition their holding would become qualifying holding or if such holding would reach or exceed the thresholds of 20, 33 or 50 percent of the shares or voting rights related to shares, or in the cases where the bank would become a subsidiary. A prior approval by the BNB is also required where the holding would become qualifying or the thresholds would be reached or exceeded as a result of acquisition of shares in the stock exchange or another regulated securities market. There are also certain restrictions for transformations, mergers and acquisitions of banks. The national bank controls all such procedures. FINANCIAL INSTITUTIONS are persons other than a credit institution whereof the principal business is: 1. one or more of the bank activities; 2. acquisition of stakes in credit institutions or other nancial institutions; 3. granting of credits with funds which have not been raised from receiving deposits or other repayable funds from the public. Financial institutions which are not subject to licensing (authorisation) or registration under another law must be entered into a Register of the BNB in order to be able to operate. In 2009 the Payment Services and Payment Securities Act was adopted. It governs the requirements for the activity of payment service providers and the types of payment services; the terms and conditions for authorisation and the activities carried out by payment institutions; the rights and obligations of the parties in the course of the provision of payment services, etc. In the meaning of this Act, payment service providers are banks, electronic money institutions, payment institutions, the
MODUS CONSULT
121
European Central Bank and the national central banks of the Member States, when not acting in their capacity of monetary policy authority or other public law authorities. PAYMENT INSTITUTIONS are legal entities established in a Member State, which have obtained an authorisation for providing and executing payment services throughout the European Community; such authorisation shall be obtained from the competent authorities in the home Member State. The BNB shall be the authority issuing authorisations for carrying out activities as a payment institution, when the head ofce of the applicant is in the Republic of Bulgaria. Any payment institution authorised in the Republic of Bulgaria may provide the payment services included in its authorisation in the territory of another Member State through a branch, an agent or directly, provided that it noties the BNB in writing of its intention to operate for the rst time in the territory of another Member State. PAYMENT SYSTEM shall be a fund transfer system which operates on the basis of formal and standardised arrangements and common rules for the processing, clearing and/or settlement of payment transactions. The payment system shall be serviced by a payment system operator. Operators of payment systems which operate in BGN must be authorised by BNB. PAYMENT SYSTEM SETTLEMENT shall be the transfer of assets towards settlement accounts with the purpose of execution of payment orders between participants in the payment system. ELECTRONIC MONEY means electronically, including magnetically, stored monetary value, which represents a claim on the issuer, is issued upon receipt of funds for the purpose of execution of payment transactions and is accepted as a means of payment by a natural or legal person other than the issuer of electronic money. A person intending to
issue electronic money as an electronic money institution shall be subject to obtaining authorisation by BNB for carrying out activity as electronic money institution before commencing issuing of electronic money. The initial capital of electronic money companies must exceed 700 000 BGN. BANKING SECTOR STABILITY The legal framework of the banking sector is meant to provide a high level of stability. This is an important prerequisite for the development of the economy overall. Therefore, the Credit Institutions Act, together with the BNB regulations forms a modern framework providing for the necessary strict requirements for banking in Bulgaria. Banks have to maintain liquidity, i. e. always to be prepared to perform without any delay their daily obligations both in a normal banking environment and in a crisis situation. Banks also have to maintain obligatory minimum reserves in their current accounts in local and foreign currency with BNB against their borrowed funds in BGN and foreign currency, respectively. Capital adequacy of banks is guaranteed through requirements to the minimum amount and structure of banks equity.
122
MODUS CONSULT
CHAPTER EIGHTEEN: INVESTMENT DISPUTES AND DISPUTES RESOLUTION IN BULGARIA
XVIII INVESTMENT DISPUTES AND

XVIII.1. Legal Framework
DISPUTES RESOLUTION IN BULGARIA
XVIII.1.1. Laws and Regulations

Civil Procedure Code (promulgated in State Gazette, issue 59 of 2007, in force as of March 1, 2008, last amendments published in State Gazette No 5 of January 14, 2011, in force as of January 17, 2011); Private International Law Code (promulgated in State Gazette, issue 42 of May 17, 2005, last amendments published in State Gazette No 100 of December 21, 2010, in force as of December 21, 2010) International Commercial Arbitration Act (promulgated in State Gazette, issue 60 of August 5, 1988, last amendments published in State Gazette No 59 of July 20, 2007, in force as of March 1, 2008);
Bulgaria is a party to more than 50 bilateral Investments Protection Treaties (Treaties), and all of them explicitly provide for certain dispute resolution mechanism. The overwhelming majority of the Treaties stipulate for two separate mechanisms applicable depending on the type and level of the dispute: i) a dispute between a signatory state and an investor from the other state; and ii) dispute between the signatory states themselves. According to most of the Treaties the disputes between the signatory states would be referred to an ad-hoc arbitration in case the parties fail to reach settlement through friendly negotiations. Each Treaty provides for the specics of the arbitration in each separate case. However, this particular mechanism concerns only disputes between the states and it could be initiated only by a contracting state in the event of breach by the other, i.e. at a governmental level. Nevertheless, it may still be used as a (last) indirect possibility for protection of the interest of a particular investor but only if undertaken by its own state. The direct means of action available to an investor in case of a dispute with the host-state (i.e. Bulgaria) will be reviewed separately below.
XVIII.1.2. International Treaties (Bilateral and Multilateral)

1958 New York Convention for recognition and Enforcement of the International Arbitral Awards (ratied by Bulgaria in 1961); 1961 European Convention on the International Commercial Arbitration (ratied by Bulgaria in 1964); 1959 European Convention on Mutual Assistance in Criminal Matters (ratied by Bulgaria in 1994); 1965 Washington Convention for Settlement of Investment Disputes Between States and Other States Citizens (ratied by Bulgaria in 2000); Number of bilateral treaties on protection of investments (over 50) and in the eld of legal assistance (over 25) entered into by Bulgaria.
XVIII.2.2. Average Dispute Resolution Mechanism

Most of the Treaties provide for three potential institutions a dispute between a foreign investor and the host-state (Bulgaria) could be referred to: ad-hoc arbitration; International Centre for Settlement of Investment Disputes (ICSID); the competent national (Bulgarian) courts/ arbitration. The different Treaties provide for a number of potential combinations of these institutions. Few of the Treaties admit only the jurisdiction of the national courts or refer all disputes directly to arbitration ad-hoc. Some of the Treaties grant to the investor the possibility to choose upon its own discretion the institution to which to refer the
XVIII.2. Investments Disputes. General Review XVIII.2.1. Investments Protection Treaties
BORISLAV BOYANOV & CO
123
dispute. The majority of the Treaties, however, provide for a differentiation of the procedure and institution disputes should be referred to depending on the nature of the dispute itself. The most frequently stipulated mechanism involves: Ad-hoc or ICSID arbitration for disputes concerning nationalization or expropriation of investments / property and especially due compensations as well as concerning repatriation (transfer) of investments income, prot and other related funds; Jurisdiction of national (Bulgarian) courts in all remaining cases. However, any investor considering the possibilities to protect its interests in an investment dispute should in any case thoroughly examine the provisions of the particular Treaty between its country and Bulgaria.
participating countries. ICSID procedures are specically designed for the settlement of disputes between foreign investors and host nations. ICSID is a de-localized system operating independently and exclusively of domestic legal systems. The role of domestic courts is limited to judicial assistance in recognition of ICSID awards. Further information on ICSID is available at: http://www.worldbank.org/icsid/ .
XVIII.3. National (Bulgarian) Court/Arbitration XVIII.3.1. Court Dispute Resolution

The Bulgarian Judicial System and the hierarchy of Bulgarian courts include four types of judicial bodies: regional courts, district courts, courts of appeal, and topping the hierarchy are the two highest courts the Supreme Court of Cassation and the Supreme Administrative Court. The resolution of disputes by the courts is generally regulated by the Civil Procedure Code (CPC). According to the CPC Bulgarian courts are exclusively competent to consider all civil cases including investment disputes. Bulgarian courts are competent to administer justice against all persons (individuals and legal entities) in Bulgaria except in cases of extraterritoriality. Since 1st January 2007 when Bulgaria became a Member to the European Union the relevant EU laws will be applicable in Bulgaria including Council Regulation (EC) No.44/ 2001 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters. In case Bulgarian courts will be competent to resolve an investment dispute under the rules of the Regulation, the provisions of CPC will be applied for the court proceedings. The CPC introduces special claim proceeding applicable for resolving of commercial disputes. The legal denition of commercial dispute in the CPC is very broad and it includes in its content as follows: 1. a commercial transaction disputes, as
XVIII.2.3. Arbitration Ad-hoc

As a principle, ad-hoc arbitration stipulated in the Treaties would be held by three arbitrators. Each party would appoint one arbitrator whereas the third to be appointed by the other two should in most cases be national of a third country which keeps diplomatic relations with both contracting states. Some of the Treaties stipulate the third arbitrator to be appointed by a respected international institution. Many of the Treaties explicitly refer to UNCITRAL arbitration rules (http://www.uncitral.org/english/texts/ arbitration/arb-rules.htm).
XVIII.2.4. International Center for Settlement of Investment Disputes (ICSID)

ICSID is an autonomous institution closely linked to the World Bank. ICSID was established by the 1965 Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States. The purpose of the Convention is to stimulate larger ow of private international investment between
124
2.
3.
4.
5.
well as for lling gaps in a commercial transaction or adjustment of any such transaction to intervening circumstances; a privatization contract, a public procurement contract, or a concession contract; participation in a commercial company, as well as for establishment of admissibility or nullity of a recording and for nonexistence of a circumstance recorded in the commercial register; replenishment of the bankruptcy estate, including the actions of creditors for a declaratory judgment; cartel agreements, decisions and concerted practices, concentration of economic activities, unfair competition, and abuse of a monopoly position or of a dominant position.
Court proceedings in front of Bulgarian courts may develop in three instance rst instance court, court of appeal (which may be the District Court or the Court of Appeal) and court of cassation (the Supreme Court of Cassation). The resolution of the second instance may be reviewed by the Supreme Court of Cassation in case the appealable interest exceeds BGN 5.000 (circa. EUR 2.500) in civil disputes or BGN 10.000 (circa. EUR 5.000) in commercial disputes and provided that the second instance court has pronounced on a issue of substantive law or procedural law: 1. which is addressed in conict with the case law of the Supreme Court of Cassation; 2. On which there exist an inconsistent court practice; 3. is relevant to the correct application of the law, as well as to the progress of the law and jurisprudence. Prior to the lodging of the claim or after the claim has been lodged the claimant may request the court to impose against the assets of the (future) defendant specic injunction measures for a total amount of up to the size of the claim. Such injunction may be enforced by placing interdict on a real estate; distraint on movables and receivables of the debtor and
by other appropriate measures, determined by the court, including by stopping of the implementation of some actions of the debtor. The court fees involved in a dispute resolution procedure depend on the scenario of the particular case. Generally, they may be summarized as follows: Court fee for the rst instance court 4 % of the claims value but not less than BGN 50. Court fee for the second (and third, when applicable) instance court 2 % of the amount of the appealed part of the ruling. In addition parties may have to pay court expenses for the appointment of court experts, summons of witnesses, etc. The Bulgarian Private International Law Code (PILC) provides for specic rules applicable to the recognition and enforcement of foreign judgments, but in case the foreign judgment is issued by a court of a EU Member State the provisions of Council Regulation (EC) No.44/ 2001 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters will be applicable. Both legal instruments have similar provisions. According to the PILC the judgments of foreign courts shall be recognized by the authority whereto the said judgment is presented. Should the conditions of recognition of the foreign judgment be raised as the issue in a dispute, an action for ascertainment may be brought before the Soa City Court. This court is competent to hear cases for enforcement of foreign judgments as well. In proceedings for recognition and for enforcement of foreign judgments the court shall not examine the merits of the dispute decided by the foreign court. It will only verify the conditions covered as dened by the PILC, namely: 1/ that the foreign court had jurisdiction according to the provisions of Bulgarian law, but not if the nationality of the plaintiff or the registration thereof in the State of the court seized was the only ground for the foreign jurisdiction over disputes in rem; 2/ that defendant was served a copy of the statement of action, the parties were duly summoned, and fundamental principles of Bulgarian law, related to the defense of the said
125
parties, have not been prejudiced (however the defendant in the proceedings for recognition and enforcement of the foreign judgments may not invoke such violations in case the said defendant could have raised them before the foreign court); 3/ that no effective judgment has already been given by a Bulgarian court based on the same facts, involving the same cause of action and between the same parties; 4/ that no proceedings based on the same facts, involving the same cause of action and between the same parties, are brought before a Bulgarian court earlier than the case instituted before the foreign court in the matter of which the judgment whereof the recognition is sought and the enforcement is applied for has been rendered; and 5/ that the recognition or enforcement is not contrary to Bulgarian public policy. The above said shall furthermore apply to court settlements, if they enjoy equal status as judgments of court in the State in which they are reached. The state fee for ling an application for recognition and enforcement of a foreign judgment is BGN 50. In addition, the CPC implements in its Part VII the provisions of Council Regulation (EC) No 1393/2007 of November 13, 2007 on the service in the Member States of judicial and extrajudicial documents in civil or commercial matters, Council Regulation (EC) No 1206/2001 of 28 May 2001 on cooperation between the courts of the Member States in the taking of evidence in civil or commercial matters, Regulation (EC) No 805/2004 of the European Parliament and of the Council of 21 April 2004 creating a European Enforcement Order for uncontested claims and Regulation (EC) No 1896/2006 of the European Parliament and of the Council of 12 December 2006 creating a European order for payment procedure.
XVIII.3.2. Order for Performance Procedure

The newly adopted CPC introduces new procedure before the Regional Courts for issue of order for performance. In principle, that procedure may be applied only for receivables
up to BGN 25,000 and for obligations for delivery/return of movables with value not exceeding BGN 25,000. In addition the CPC allows order for performance to be issued on the grounds of certain documents exclusively enumerated as follows: 1. an administrative act, whereunder the admission to enforcement is vested in the civil courts; 2. a document or an excerpt of the books of account, whereby receivables of governmental institutions, municipalities and banks are established; 3. a Notary Deed, a settlement or another kind of contract with notarized signatures in respect of receivables and/or of obligations contained therein for delivery of fungible or particular things; 4. an excerpt of the Central Register of Special Pledges on a registered security interest and on commencement of foreclosure: in respect of the delivery of pledged things; 5. an excerpt of the Central Register of Special Pledges on a registration of a contract for sale with retention of title until payment of the purchase price or a lease contract: in respect of the return of corporeal things sold or leased; 6. a contract of pledge or a mortgage deed provided that the special requirements under the Obligations and Contracts Act are met; 7. an effective administrative act establishing a state or municipal receivable, where the enforcement of this administrative act is effected according to the procedure established by the CPC; 8. a decit deed; 9. a promissory note, a bill of exchange or another negotiable security payable to order which is equivalent thereto, as well as a bond or coupons attached thereto. Once the order for performance is granted the debtor has two weeks term for submission of a formal written objection against the order for performance (and no evidence or substantive
126
arguments have to be presented). In order to suspend the preliminary execution conducted on the grounds of any document under p. 1 8 above the debtor has to provide sufcient guarantee to the creditor (pledge over bank account or mortgage). In case any objections of the debtor the applicant has one month term for lodging a claim. Failure to lodge the claim will lead to cancellation of the order for performance. In case the debtor does not submit any objections the order for performance will enter into force and a writ of execution can be issued. As an exception, the writ of execution may by granted before the entry into force of the order for performance provided that the latter is issued on the grounds of any of the documents listed above in p. 1 8.
XVIII.3.3. Alternative Dispute Resolutions

Being faster and less expensive compared to the court proceedings, arbitration is the most popular alternative dispute resolution in Bulgaria. Arbitration proceedings in Bulgaria are governed by the International Commercial Arbitration Act (ICAA), the relevant international treaties to which Bulgaria is a party and rules of the respective arbitration institution, if relevant. ICCA applies to international arbitration based on an arbitration agreement, when the place of arbitration is within the territory of the Republic of Bulgaria and one of the parties under the dispute has its habitual residence, registered ofce according to its Deed of Incorporation or place of the actual management outside Republic of Bulgaria. ICCA also applies to domestic arbitration when neither party to the proceedings is a foreign person/entity. The arbitration is competent to settle civil and/or commercial disputes, as well as disputes related to the lling gaps in contracts or their adaptation to newly arisen circumstances. The CPC explicitly excludes from the competence of the arbitration the disputes having as their subject matter any real rights or possession over a real estate, alimony or a right under a labor relation. There are more than a dozen arbitration
institutions in Bulgaria at the moment such as the Marine Court of Arbitration at the Bulgarian Marine Chamber, Soa Court of Arbitration at the Association for Internal and International Arbitration, Court for Small Civil Disputes at the Bulgarian Association for Civil Society and Legal Initiatives, etc. The most famous and reputable among them are the Court of Arbitration at the Bulgarian Chamber of Commerce and Industry (http://www.bcci.bg/arbitration/index.html) and the Arbitration Court at the Bulgarian Industrial Association (http://www.bia-bg.com/arbitration/). The fees attributable to the arbitration institutions in Bulgaria differ from one another and are specied in their respective Tariffs and Rules on Arbitration. In principle the fees are formed on the basis of the value of the claim as they increase in proportion to it. The state fee for the enforcement of an arbitration award issued by an arbitration court in Bulgaria is 0.2% on the interest for which the enforcement is requested. With regard to the recognition and enforcement of foreign arbitration awards the ICCA refers to the international agreements to which Bulgaria is a party. In view of the above mentioned such awards shall be recognized and enforced in compliance with the provisions of the New York Convention for Recognition and Enforcement of Foreign Arbitration Awards (the Convention) to the extent it is not conicting to the bilateral agreements concluded by Bulgaria which provide for specic rules for recognition and enforcement of foreign arbitration awards. Unless otherwise provided in an international convention to which Bulgaria is a party the competent court is the Soa City Court. Soa City Court may in some specic cases refuse the recognition and enforcement of the award, f. ex. where there was no valid arbitration agreement or in case of breach of the procedural rules or the provisions of the arbitration agreement as well as when the recognition or enforcement of the award would be contrary to the public order in Bulgaria. The fee collected by the Soa City Court for the recognition and enforcement of foreign arbitration awards is xed to BGN 50 (appr. EUR 25).
127
CHAPTER NINETEEN: TELECOMMUNICATION
XIX
TELECOMMUNICATION
XIX.1. Legislation
The new Electronic Communications Act (ECA) was adopted in the middle of year 2007. The new Act introduces the 2002 EU Regulatory Framework which provides the Sector Regulator (Communications Regulation Commission CRC) with broader powers and mechanisms for inuencing the activities of the players in the communications markets. The CRC being the sector specic regulator in Bulgaria is generally supposed to act under its powers outlined by the ECA in its full strength of 5 members taking its decisions by majority of the votes. 1. The Interconnection market is fully liberalized: All undertakings carrying out electronic communications have the rights to negotiate and conclude written contracts for interconnecting each other. The interconnection is meant to cover all types of services and networks. The content of the reference offer is stipulated by the ECA. The full set of specic obligation is envisaged to be imposed on the signicant market power undertakings. The CRC has very comprehensive powers with regard to intervention in the interoperator relations, imposition and amendment of specic obligations. 2. The ECA provides that operators shall be designated as having signicant market power (SMP), solely or jointly with others, after identication, analysis and assessment of the relevant markets as not effectively competitive according to the principles of competition law and after public consultations and in consultation with the European Commission. The order to be followed in identifying the markets, in carrying out analyses and assessment of the relevant markets, and the criteria to be applied to designate undertakings as having signicant market power is laid down in a special Methodology.
On designating operators as having SMP on the relevant market of access and interconnection, CRC can impose one or more of the following specic obligations: (a) transparency, (b) non-discrimination, (c) accounting separation, (d) price restrictions and cost orientation and implementation of a cost accounting system and (e) access to and use of necessary network facilities and equipment. 3. The ECA introduces signicant changes to the regulations in the eld of telecommunications and the relationship between the two regulatory bodies the General Regulator Competition Protection Commission (CPC) and the CRC. The one of the signicant articles of the ECA present the CPC with the opportunity to consult the CRC, share information and opinions and form joint work groups on specic issues/cases. The CRC shall analyse the effectiveness of competition on a relevant market according to the methods and principles of the competition law. This is the main interaction point between the CRC and CPC in the process of dening the markets. The CPC analyses the market only after it receives written application concerning a specic case and it creates another signicant difference between the CPC and CRC as the latter analyses the markets ex ante.
XIX.2. Fixed Lines Market

Nowadays Bulgaria has an open legislation for telecom investments (Electronic Communications Act, 2007). Fixed telephony could be said as one liberalized service. From a legal point of view there are no essential barriers of entrance. The market is facing serious competition and develops shortly. The new market players (so-called alternative operators) make good progress and increased the market share. Based on the market analyses of the CRC BTCwas designated as SMP operator on the retail market for access to the public telephone network at a xed location for residential and non-residential customers. On wholesale level BTC was designated as SMP on the market for call origination
128
GEORGIEV, TODOROV & CO
on the public telephone network provided at a xed location, on the market for call termination on individual public telephone networks provided at a xed location, on the wholesale (physical) network infrastructure access (including shared or fully unbundled access) at a xed location and on the market for wholesale broadband access. The preparation of the market for wholesale terminating segments of leased lines, irrespective of the technology used to provide leased or dedicated capacity is still in progress but because of its SMP status the till the coming into force of the market analyses the obligations are imposed on BTC. Because of its SMP status BTC has several ongoing obligations to provide wholesale services as follows: for interconnection, including carrier selection and carrier pre-selection, leased lines, collocation, bitstream access, local loop unbundling access, access to its duct network. BTC only on the telecommunications market is obliged also to apply cost oriented pricing for all wholesale services above. In spite of the regulatory framework in force which seems to be aimed to foster so called facility based competition the regulator tries to promote the service-led completion on the market. The competition in a network industry is not symmetric, because the alternative providers dont invest in network infrastructure signicantly. One of the very important new facts is a decision of the CRC for reduction of the prices for the use of BTC local ducts. The price per meter was reduced from BGN 0,20 to BGN 0,8. . The imposed prices (as values and structure) are result of the carried out negotiations with the CRC and the operators. This is very positive step toward to increasing the competition in the market. CRC nalized the analysis of the wholesale xed voice markets (origination and termination markets) and imposed on BTC the full set of respective obligation for access and interconnection mentioned above. The main restrictions are connected with reduction of the
termination prices to the average EU levels by glide-path till the middle of 2010. Call origination and termination services must be provided at non-discriminatory conditions, irrespective of the trafc origin, except for termination of international calls and calls to VAS numbers. The CRC adopted nal decision also on the retail xed voice markets where BTC is nominated as SMP. The resulting new main obligations are for publishing WLR offer and for cost oriented prices of the retail services. CRC started the preparation of new market analyses both for the retail and wholesale market. It is expected to have these analyses and the remedies based on them in force till the end of 2011. For the time being BTC is the only Bulgarian xed operator that is investing signicantly in infrastructure Digitalization of the network is in process, as well as installation of new lines in remote areas.
The xed number portability was successfully launched in June 2009.
XIX.3. Mobile Market

At present there are three mobile operators that are active on the Bulgarian market three of them operating under the GSM/ UMTS standard. The NMT/CDMA network operated by BTC under 450 MHz has ceased providing retail services in H2 of 2008. The GSM operators were licensed in 1994 (Mobiltel), 2000 (Globul) and 2004 (Vivatel) holding market shares respectively about 50%, 28% and 12% by consumers. These operators are competing strongly against each other and as a result the prices of mobile services have dropped considerable especially after the launch of the third GSM operator (Vivatel) which commenced commercial operation in 2005. The GSM operators were awarded UMTS licences in April 2005 after conducting an open tender. Presently all GSM operators provides UMTS services.
129
CRC has nalized its market analysis on the mobile termination market nominating all mobile operators as SMP. Based on this nomination CRC has introduced the full set of specic obligations regarding the rst two mobile operators, including cost orientation initially under the form of symmetric glide-path reduction of the MTRs to about 0.06 Euro per minute in the middle of 2010. In parallel all three operators shall work out and apply Cost Allocation Systems (LRIC) and ultimately form costoriented MTRs based on it. The discrimination of trafc based on origin is forbidden except for incoming international calls. All three mobile operators apply strictly the prices restrictions (maximum price levels) imposed by the EC on the wholesale and retail roaming prices through the Roaming Regulation. As of year 2008 Mobiltel and Globul started offering converged xed/mobile services and launched virtual operators (MVNO) on their networks. The fourth and fth GSM authorization in 1800 MHz range initiated by CRC failed twice in 2008. Obviously the high market penetration (about 140% by population for 2008), the lack of adequate national roaming obligation and the economic crisis have created barrier for the potential investors. The Mobile Number Portability was launched in April 2008. Under pressure from the European Commission, Communications Regulation Commission imposed provisional measures to implement price caps for terminating incoming international voice calls over the mobile networks of Mobiltel EAD, Cosmo Bulgaria Mobile EAD and the Bulgarian Telecommunications Company AD. From 01.04.2011 the required price cap will be 0.13 BGN / min. The measure was imposed pursuant to Art. 42, para. 9 of the Electronic Communications Act. It should be noted that this is the rst case in which the CRC imposes provisional measures without actually analyzing the market. Extremely
questionable is whether the measure is imposed legitimately and what will be its legal effect. There is no attributed pre-execution of the decision nor reasons for that. On the other hand the measure is under art. 35, para. 6 of the ECA and by law those decisions are with attributed immediate execution. Since the effect of the measure is tens of millions euros in losses for the operators there is no doubt that series of lawsuits against the decision of the regulator will follow.
XIX.4. Alternative Service Providers

The CRC has issued about 30 permissions for provision xed voice services, including CS and CPS. The market growth of the alternative operators was signicant in 2008, but their market share is still not very high (the incumbent still holds over 90% of the xed voice market).
XIX.5. Broadband market

Characterized by growing but still low penetration under 10% by population mainly because of the low PC penetration. The dominating technology is LAN (over 50% of the market) followed by CATV and DSL holding the rest of the market by almost equal shares. The wireless and mobile internet access penetration is still negligible. Services are offered predominantly in the big cities and towns. However the growth potential is good because of the rapidly falling prices and increasing access speeds, and more affordable PC offers.. EU telecoms reform package was reached by the European Parliament and Council of Ministers on 4 November 2009. The EU legal framework for regulating telecoms services has been developed with the aim of creating a better-functioning internal market for telecommunication networks and services. The Bulgarian Ministry of Transport Information and Communication Technologies published for discussion a draft amendment of the Electronic Communications Act. The goal of the
130
amendments is to transpond the EU acquits 2009 in Bulgaria. The Bulgarian National Assembly has to adopt the amendments and they have to come into force till the end of May 2011. The amendments introduces signicant changes in the telecom legislation. The main changes are as follows: 1. More competition The amendments will remove the requirements for ex ante regulation in major parts of the telecoms sector. In these markets, ex post regulation will become the norm, i.e. operators will have to seek redress for any problems through application to the competition authority and/or through the courts. In the future, therefore, regulatory action will focus on those sectors of the telecoms market where competition has so far been most restricted. The amendments will also give to the Communications Regulation Commission the possibility to introduce functional separation when necessary. That means that an operator would have to separate its services division from the division managing the infrastructure, although both would stay under the same ownership. This will ensure that competing operators have access to infrastructure without discrimination. 2. Better regulation regarding radio spectrum The aim is to enable the telecoms sector to make better use of radio spectrum. Management of radio spectrum will be made more exible and market oriented, to make sure those industries dependent on radio spectrum can reap the maximum economic benets of this vital and scarce resource. The digital dividend the valuable part of the spectrum released through the introduction of digital television broadcasting and resultant analogue switch-off will be available for new uses. 3. Better consumers protection The EU Commission has always expressed its determination to ensure that all citizens have a basic set of rights, including access to
telephone/internet connection and protection of personal data, as well as specic rights for people with disabilities to be able to gain access to telecoms services. The new legislation builds on the existing rights, to ensure that consumers benet from the development of competition in the telecoms market. In particular, operators will be obliged to publish information on prices so that consumers can more easily compare the different offers available on the market. With regard to personal data, telecoms operators must inform customers in the event that their personal data becomes compromised. Further, the legislation steps up EU efforts to combat malicious uses of the telecoms system such as spam and spyware which threaten to stunt the growth of the European Information Society. These efforts will be strengthened in particular through the creation of a Chief Network Security Ofcer within the European Telecom Market Authority. The draft amendments of the ECA ensures that telecoms consumers can expect: Provision of universal services that ensures reasonable quality of services at affordable prices regardless of geographical location. This must include the possibility to access the emergency services in necessity and to enable people with disabilities or specic needs to access telecoms services. To receive a written contract including specic details, in particular on tariffs and costs, with the possibility to break the contract if the supplier changes the terms. Telecommunication service providers and operators to ensure that their networks and services are as secure as possible. High standards of data protection for personal data stored in or transmitted over the telecommunication network. Procedures to protect user identity, if required. Portability of user numbers (within geographical limits) when requested. Fair pricing for mobile phone calls wherever located in Europe, giving citizens the freedom to roam.
131
CHAPTER TWENTY: PERSONAL DATA PROTECTION NEW DEVELOPMENTS
XX
PERSONAL DATA PROTECTION NEW DEVELOPMENTS
XX.1. International Aspect

The Convention for the Protection of Individuals with Regard to Automatic Processing of Personal Data of The Council of Europe1 (Convention 108), adopted on January 28th, 1981 was ratied by Bulgaria in May 2002. The Convention is in force in Bulgaria since January 2003 and its text was promulgated in the State Gazette in March 2003. The purpose of the Convention is to secure respect for rights and fundamental freedoms of individuals, and in particular their right to privacy, with regard to automatic processing of personal data related to them.
up-dated if necessary; The data should be extinguished or corrected when they were found incorrect or disproportionate to the purposes of their processing; The data should be kept in such a manner that allows identication of the respective individual for a period not longer than the one necessary for the purposes of the data processing.
The version of PDPA adopted in the year 2002 contained texts that generated a lot of practical problems. The latter were related mainly to the application eld of the law and the registration of data controllers regime. End of the year 2005 the general regulation of personal data protection laid down in PDPA was substantially changed especially with respect to the personal data denition, the administrators of personal data registration regime, etc.
XX.2. Applicable Bulgarian Legislation

The Bulgarian legislation provides a general data protection regime, contained in the Personal Data Protection Act (PDPA), in force from January 1st, 2002. The Act was adopted in the end of 2001 and promulgated in State Gazette issue #4, 2002. In general the Act follows the main standards set in Convention 108. The PDPA text guarantees free collection and processing of personal data whenever that is necessary, provided expressly stated principles were followed: The data should be processed lawfully and in good will; Collected for concrete, precisely dened and lawful purposes; The data should be proportional with the purposes for which they are processed; The data should be precise and are to be
XX.3. Denition Changes

One of the signicant changes in PDPA was the new personal data denition in Article 2, para.1 Personal data shall be any information referring to an individual that is or could be identied directly or indirectly with an identication number or by one or more specic indicators related to his/her physical, physiological, genetic, psychic, psychological, economic, cultural or social identity. From the denition dropped out data related to the participation of physical persons in civic associations and/or the management, control and supervision of bodies corporate, as well as in governmental bodies. That amendment guaranteed to the citizens a wider access to information especially regarding
1 Convention 108 of the Council of Europe from Jan. 28, 1981 for the Protection of Individuals with Regard to Automatic Processing of Personal Data ratied by the 39th Parliament of Bulgaria on May 29, 2002. State Gazette issue 56 June 7, 2002; published by the Ministry of Interior promulgated in SG issue 26 of 21.03.2003., in force as of 1.01.2003.
132
CHAPTER TWENTY: PERSONAL DATA PROTECTION NEW DEVELOPMENTS
information about public persons in line with the Constitutional Courts perception in the interpretation of Articles 39 to 41 of the Bulgarian Constitution. The second signicant amendment to the denition, already mentioned above, was the express listing in paragraph 1 of Article 2 of the principles to be followed regarding the collected data.
and to the Commission itself. The amended text of the law provides for obligatory registration only for administrators who: Process the so called sensitive personal data (disclosing racial or ethnical origin, political, religious or philosophical beliefs, etc.); Process personal data performing obligations under law; Support registry with data for more than 100 individuals; Were expressly obliged by the Commission.
XX.4. Application Scope Changes

With the new amendment PDPA is to be applied only with respect to the processing of personal data comprising of or designated to be part of a public registry. The processing is to be performed by a personal data administrator. Article 4, paragraph 2 expressly allows free collection and processing of personal data in cases when it serves journalism, literature or art expression.
XX.5. Administrators of Personal Data Registration Regime Changes (article 17, paragraph 2)
Subject to Article 3, para 1 of the PDPA administrator of personal data is any physical or body corporate, as well as governmental body, which according to the activity performed denes the type and volume of data processed, their aim, means for processing and protection. The position of data administrator originates from the type of activities performed by the respective person. Pursuant to the text of the PDPA prior to the amendment each person processing personal data was subject to registration at the Personal Data Protection Commission (the Commission). That general obligation resulted to be unnecessary and created practical problems to the business
The Bulgarian Personal Data Protection Act provides for the establishment of an independent body - the Personal Data Protection Commission, which overlooks the implementation of the Act. The Commission was elected by the Bulgarian Parliament on May 23, 2003. Subject to Article 10 of the PDPA the Commission was granted a number of rights, so that it may effectively ensure the data protection of individuals in cases of violation of their rights. The Commission is entitled to review appeals against personal data controllers, perform inspections, issue binding decisions, order temporary suspension of personal data processing and impose sanctions on persons, who process personal data against the provisions of domestic law. The Commission creates and keeps a register of data controllers. Under the PDPA the Commission is to adopt internal rules, regulating its activities, describing the structure of its administration, the procedures for keeping the data controllers register and the procedures for considering appeals, issuing orders and imposing sanctions. The initially adopted Rules for the work and organization of the Commission provided for an administration of 76 ofcials, including its members. Until now most of the positions have not been lled in2.
2 In comparison to the Bulgarian Commission, the Personal Data Commissioner of Ireland has an administration of 16 ofcials, while 40 people work for the Commissioner of Sweden.
133
CHAPTER TWENTY ONE: AUDIO-VISUAL SECTOR
XXI AUDIO-VISUAL SECTOR

XXI.1. Legal Framework
The audio-visual sector is governed by th Radio and Television Act. Some relevant provisions can be also found in the Act for the copyright and related rights. Almost the whole legal framework is in accordance with the European standards and the legal rules contained in the international instruments related to the subject matter of this sector.
the underage to convince their parents or other persons to buy the commodities or the services which are advertized. Prohibited are also commercials using means of subconscious suggestions as well as concealed commercials. The owner of the commercials is obliged not to interfere with the contents of the programmes. The commercials cannot use the state coatof-arms, the anthem of the Republic of Bulgaria, persons occupying elective positions in the state government, as well as the voices and the images of journalists working for the operators - regarding news, political and economic broadcasts. The commercials for commodities and services for whose production and trade special permit is required can be included in the programmes of the radio and television operators only after the commercial owner presents the necessary permit. Prohibited are any commercials for cigarettes and for the smoking. The commercials for all kinds of alcoholic drinks must meet special requirements. The commercials for medical supplies and medical treatment can be included in the programme only if they are in accordance with the legal requirements. Commercials for medical supplies and medical treatment permitted for use only by a doctors prescription is prohibited. Prohibited is also the radio and TV market of medicines and medical treatment. The commercials must be clearly distinctive as such and to be separated from the other parts of the programme by visual or sound means. The commercials are included in the programmes in the form of commercial blocks. As an exception, the programmes can include individual commercials. In broadcasts consisting of individual parts the commercials can be included between these parts.
XXI.2. Commercials, Radio and Television Market and Sponsorship XXI.2.1 Commercials
The commercials must be in accordance with the requirements for loyal competition under the legislation in force. The commercials cannot encourage behaviour harmful to the health or the personal security of the citizens, as well as behaviour damaging the environment. It is prohibited to broadcast commercials containing pornography or inciting violence and humiliation of the human dignity as well as behaviour that violates the public peace and good manners. Forbidden are commercials with erotic contents with participation of underage and minors or designated for them. It is also forbidden to broadcast commercials based on national, political, ethnic, religious, racial, sexual and other discrimination. The commercials directed to underage persons must meet the following conditions: not to appeal to the underage to purchase commodities or use services taking advantage of their inexperience or trustfulness; not to use the special trust the underage have in their parents, teachers and other persons; not to show underage in dangerous situations. not to encourage directly the minors and
XXI.2.2 Sponsorship
The individual broadcasts of the operators can be sponsored entirely or partially.
134
ILIEV AND PARTNERS LAW OFFICE
Sponsors of broadcasts cannot be political parties and organizations, religious organisations or persons whose main activity is the production of commodities and services prohibited for commercials. Political and economic broadcasts cannot be sponsored if they contain analyses and commentaries or whose subject is similar to the subject of activity of the sponsor. News cannot be sponsored, with the exception of the sport news, if they are separated from the other parts of the programme by visual or sound effects or an individual broadcasting. The sponsor doesnt have the right to inuence the contents and the presentation of the sponsored broadcast. The sponsored broadcasts cannot appeal for sales, purchase or using commodities and services of the sponsor or of third person, particularly by showing these commodities and services in the broadcasts. The name of the sponsor and/or his trade mark can be mentioned, presented or indicated in another way, only at the beginning and/or at the end of the broadcasting.
without a tender/competition or on the basis of registrations. Applicants for issuance of license cannot be: legal persons to whom it has been refused or withdrawn the license for insurance activity; legal persons in which the legal persons under item 1 or the partners or the shareholders in them possess shares; legal persons, natural persons-sole entrepreneurs who cannot prove the ownership of the property of the capital according to the Law for the measures against money laundry; legal persons in which the persons under item 3 possess shares; natural persons-sole entrepreneurs and legal persons who, during the last ve years preceding the application for licence have been declared insolvent or are under proceedings for insolvency or liquidation; legal persons in which the shareholders are persons included in the list under Article 3 of the Act for the information on the unpaid credits; legal persons in which there are partners or shareholders who are partners or shareholders also in legal persons having in their registered scope of activity advertising activity or carry out advertising activity as well as natural persons-sole traders having in their scope of activity advertising activity or carrying out advertising activity; natural persons-sole entrepreneurs and legal persons who, during the last year, preceding the application for license, have received a refusal for the same kind of licensed activity or the licence issued under RTA has been withdrawn. The candidates for licence have to present to the Council for electronic media the following documents: certicate for good standing or respective document (regarding the foreign persons)
XXI.3. Licensing And Registration of Radio and Television Operators XXI.3.1. General information
Radio- and television activity for creation of programmes designated for broadcasting by means of electronic communication networks (in cases related to using individually dened limited resource radiofrequency spectrum), is carried out on the basis of individual licenses issued by the Council for electronic media. Applicants for license can only be natural persons-sole entrepreneurs and legal persons registered under the Bulgarian legislation.They may also be legal persons, registered under the legislation of a Member State of the EU. The Bulgarian National Radio and the Bulgarian National Television carry out radio and television activity as national public operators on the basis of licenses issued
135
having been issued not more than one month before the date of ling the application; documents proving the origin of the capital for the last three years, including endorsed accountancy report, considered from the date of ling the documents; a list of the media enterprises where they are stock holders or partners.
The license is personal. The transfer of a license may be permitted by the Council for electronic media in accordance with the requirements for the persons for initial licensing. Upon transfer of a license for radioand television activity issued under articles 116, 116, 116, 116 116 of the RTA, the Council for electronic media in 14-day term has to notify the Commission for regulation of communications. In 10-day term after the notication under the previous sentence the Commission for regulation of communications transfers the permit for using individually dened limited resource radiofrequency spectrum, for carrying out electronic communications by means of available and/ or new electronic communication networks for land analogue radiobroadcasting by the person to whom the respective license for radio- and television activity has been transferred, in conformity with the relevant provisions of the Electronic Communications Act. At the time of presentation of the documents for receiving licenses the applicants have to declare that they do not possess shares, stock or other rights of participation in radio and television operators above the admissible percentage according to the Competition Act. The licenses are issued for a period of up to 15 years. The term can be prolonged by the Council for electronic media upon request of the licensed person, as the total duration cannot be longer than 25 years. The term of the permit for using individually dened limited resource radiofrequency spectrum, for carrying out electronic communications by means of available and/or new electonic
communication networks for land analogue radiobroadcasting must correspond to the term of the license under the RTA. . The license for radio and television activity must contain: the name (the rm) and the headquarters of the radio operator or television operator; the kind (public or commercial); the date of issuing of the licence; the initial date of broadcasting of the programme; the range of broadcasting; the duration of the license; the technical and other requirements to the programmes including requirements to delivery of the programmes for spreading in uncoded form.
XXI.3.2. The procedure for licensing

The applicants for license for radio and television activity must le written application to the Council for electronic media accompanied by: articles of incorporation; certicate for commercial registration or documents certifying the formation of the legal person; a certicate under the Tax-insurance Procedure Code for presence or absence of public obligations; proposal for method of broadcasting of the programmes; declarations under RTA; proof of availability of enough nancial resources for performance of the activity; programme project, programme concept, programme prole, programme scheme, list of the additional radio and television services; preliminary contracts for ceded copyright for protected work in the programmes and for ceded related rights for ceded broadcasting of foreign programmes. The Council for electronic media has to
136
inspect the regularity of the led documents. When omissions and shortcomings are found in the documents the applicant has 7 days for their removal. If the omissions and shortcomings are not removed within that period the documents of cannot be considered. The procedure of holding of competition can be opened upon request of an interested person or by initiative of the Council for electronic media. The Council for electronic media in 14-day term from the submission of the request must require in writing from the Commission for regulation of communications information regarding the technical parameters which are necessary for land analogue radiobroadcasting of radioand television programmes for a certain town/village, region or for the whole territory of the Republic of Bulgaria including free radiofrequencies, admissible capacities of broadcasting, possible points of broadcasting, as well as other necessary technical information. The Commission for regulation of communications submits to the Council for electronic media its decision related to the inquiry in term of three months (in case when it is necessary that there must be international coordination of the radiofrequencies and radiofrequency lines, as well as technical characteristics of the radioutilities which shall be used in term of 8 months) taking into consideration the requirements for efcient using of the radiofrequency spectrum. Upon availability of free radiofrequency spectrum, in conforminty with the inquiry, the Commission for regulation of communications attaches to the decision draftpermit for using individually dened limited resource radiofrequency spectrum. Within 14 days from receiving the reply the Council for electronic media must take a decision for opening competition or competitions in accordance with the available free radio frequency spectrum. The decision has to be promulgated in the State Gazette and has to contain the date, the place and
the hour of holding the competition, the term and the place of ling applications for participation, the place, the term and the order of purchasing the competition papers. The competition papers contain: draftpermit for using individually dened limited resource radiofrequency spectrum; requirements regarding the rate of development and/or servicing; requirements for environmental protection; requirements for quality; requirements with regard to the creative, nancial and technical capacities and experience; criteria for assessment and their relative importance in determining the complex assessment, by following the requirement for priority of the assessment of the programme project. The Council for electronic media must appoint a chairman and members of an expert commission for conducting the competition who obligatorily include members of the Council for electronic media and of the Commission for regulation of the communications. Participants in the expert commission can also be experts from other interested administrative agencies and structures. Within a period of three days from the enactment of the decision for issuing license the Council for electronic media has to inform the Commission for regulation of the communications. Within period of ten days the Council for electronic media has to issue license for radio and/ or television activity and the Commission for regulation of communications issues a permit for using individually dened limited resource radiofrequency spectrum, for carrying out electronic communications by means of available and/or new electronic communication netweorks for land analogue radiobroadcasting.
137
XXI.3.3. Radio- and television activity for creation of programmes designated for broadcasting by means of electronic communication networks for land digital radiobroadcasting.
Radio- and television activity for creation of programmes, designated for broadcasting by means of electronic communication network for land digital radiobroadcasting, is carried out on the basis of a license issued by the Council for electronic media. This license allows the programmes to be broadcast by an enterprise that has obtained permit (issued by the Commission for regulation of communications) for using individually dened limited resource radiofrequency spectrum, for carrying out electronic communications by means of networks for land digital radiobroadcasting on the territorial range poited in the permit. Such an enterprise has the right to broadcast licensed television programmes whose type and prole are determined by the Council for electronic media. The procedure for issuing a license for radio- and television activity for national/ regional programmes which may be broadcast by means of electonic communication network for land digital radiobroadcasting is opened at the request of the interested person or by the initiative of the Council for electronic media or at the initiative of the Commission for regulation of communications. The Council for electronic media adopts a decision that declares the procedure for issuing such a license on its internet site and in the State Gazette. This decision points the term and place for submission of an application. The candidates have to attach to the application proofs for the capacities for creation of their own quality production as well as a business plan project for carrying out the activity. In 7-day term the Chairman of the Council for electronic media appoints an expert commission in which mandatorily there are three members of the Council for electronic media and two members of the Commission
for regulation of communications. The expert commission makes a suggestion to the Council for electronic media to issue or refuse issuing of a license. The number of licenses is not limited. The Council for electronic media determines the type and prole of the licensed Bulgarian television programmes or radioprogrammes that obligatorily have to be broadcast by means of the networks for land digital radiobroadcasting. The number of programmes may not be more than two programmes for each electronic communication network for land digital radiobroadcasting. In one month term after the issuing of a permit under the Electronic Communications Act the enterprise that has obtained permit (issued by the Commission for regulation of communications) for using individually dened limited resource radiofrequency spectrum, for carrying out electronic communications by means of networks for land digital radiobroadcasting makes a suggestion to the Council for electronic media regarding the type and prole of the licensed television programmes that shall be broadcast by means of the electronic communication network for land digital radiobroadcasting. In one month term after the submission of the suggestion the Council for electronic media conducts consultations with the enterprise. In 7-day term after the expiration of the abovementioned term the Council for electronic media agrees on the type and prole of the licensed television programmes that shall be broadcast by means of the networks for land digital radiobroadcasting. The enterprise that has obtained a permit (by the Commission for regulation of communications) for using individually dened limited resource radiofrequency spectrum, for carrying out electronic communications by means of networks for land digital radiobroadcasting may not be radio- and television operator. This restriction is applied also regarding related persons within the legal scope of the Commerctal Act.
138
XXI.3.4. Supervision and termination of the license

The supervision for the observance of the law and the requirements under the license must be carried out by the respective ofcials from the Council for electronic media. For established offences the Council for electronic media is obliged within one month to consider and discuss the presented documents and take decision for imposing proprietary sanctions and/or revoking of the license. The license must be revoked in cases of: gross violation of the principles of the radio and television activity; systematic offences of the provisions of RTA In case of revoking a license for radio and television activity the Council for electronic media informs the Commission for regulation of the communications which, within 10 days, has to revoke the individual license for telecommunication network for using available and/or construction, maintaining and using new telecommunication networks for ground radio broadcasting. Not later than 6 months before the expiration of the term of the license the licensee must declare intention for extending the term of the licence. The Council for electronic media has to consider the request for extension of the term of the license.
territory of the Republic of Bulgaria by means of cable and satellite: 3. Third chapter including licensed radio- and television programmes broadcast by means of: ) available and/or new electronic communication networks for land analogue radiobroadcasting; ) electronic communication networks for land digital radiobroadcasting.
XXI.4. Public registers

The Coucil for electronic media maintains a Public Regiter. In that Regiter there are three separate chapters: 1. First chapter including Bulgarian radioand television programmes that may be broadcast on the territory of the republic of Bulgaria by means of cable and satellite; 2. Second chapter including foreign programmes that may be broadcast on the
139
CHAPTER TWENTY TWO: ENERGY SECTOR
XXII ENERGY SECTOR

XXII.1. Introduction. Basic Legal Denitions
The Energy sector is governed by the Energy Sector Act (hereinafter referred to as ESA). This Act settles the public relations with regard to the implementation of the activities of production, import and export, transfer, transit transfer, distribution of electric and heat energy and natural gas, transfer of oil and oil products through pipelines, trade with electric and heat energy and natural gas, as well as the legal powers of the state structures in determining the state policy, regulation and control.
distribution of electric power or natural gas; storing of natural gas; trade with electric power; organizing of market of electric power; public supply of electric power or natural gas; transit transfer of natural gas; supply of electric power or of natural gas by end suppliers; management of the electric power system; distribution of electric power to distribution networks of the railway transport.
The license allows the implementation of some of the above mentioned activities under conditions pointed by it and it is an integral part of the decision for its issuing. If a license is issued before the construction of the energy site for performing the relevant activity, the license has to include the conditions for the construction of this site and a term of starting the licensed activity. Issuing of license is not necessary for: production of electric power by a personowner of electric power station with overall installed capacity up to 5 MW; production of heat power by a personowner of a heat power station with overall installed capacity up to 5 MW; transfer of heat power by a person-owner of heat transfer network, to which are connected power stations with a overall installed capacity up to 5 MW; production of heat power for own consumption only. License is issued to a corporate legal person registered under the Commercial Act which: has the necessary technical, nancial, material and human resources and an organizational structure for meeting the legal requirements for performing the licensed activity; has real rights on the energy sites by means of which it will carry out the activity, if they are built; gives proof that the energy sites by
XXII. 2. Regulation of the Activities in the Energy Sector

XXII.2.1. State Commission for Energy and Water Regulation The regulation of the activities in the energy sector and in the water supply and sewerage is carried out by the State Commission for Energy and Water Regulation (hereinafter referred to as the Commission). The Commission is an independent, specialized state structure a corporate legal person with headquarters in Soa. It is a collective body consisting of 13 members, including a chairman and two deputy chairmen. The chairmen, the deputy chairmen and the members of the Commission are elected on the basis of a decision of the Council of Ministers and are appointed by the Prime Minister.
XXII. 3. Licenses XXII.3.1. Issuing of Licenses.

The activities subject to licensing under ESA are: production of electric and/or heat power; transfer of electric power, heat power or natural gas;
140
means of which the licensed activity will be performed correspond to legal requirements for safety and for environmental protection. License must not be issued if there is a danger of harming the life and the health of the citizens, the property of third persons and the interests of the consumers, lack of the reliable supply of electric or heat power or natural gas. In case where the same person performs more than one of the licensed activities, individual licenses must be issued for every activity. The license may also be given to a legal person incorporated and existing under the law of a Member State of the European Union or of another country party to the European Economic Area Agreement in accordance with the above mentioned conditions. The license is issued for a period of up to 35 years in correspondence with the legal rules of the respective ordinance. The term of the license may be prolonged for a period not longer than the above mentioned period if the holder of the license meets the relevant legal requirements and performs all obligations and requirements of the license, and it has led a request in written form for extension at least one year before the expiry of the term of the initial license. Only one license may be issued on the territory of the country for: transfer of electric power or natural gas; organizing market of the electric power; public supply of electric power or natural gas; management of the electric power system. Only one license may be issued for one outlined territory for: distribution of electric power or natural gas; supply of electric power or natural gas by end suppliers; transfer of heat power.
One outlined territory of distribution of electric power has to comprise no less than 150 thousand consumers connected to the distribution network This territory must include at least one region according to the administrative and territorial structure of the state. For an outlined territory only one license for supply of electric power by end suppliers is issued. One outlined territory of distribution of natural gas has to include no less than 50 thousand consumers who might be connected to the distribution network. For an outlined territory only one license for supply of natural gas by end suppliers is issued. The holder of the license for management of electric power system, may not be granted another license for other licensed activity under ESA except for a license for organizing a market of electric power. The licensee for transfer of natural gas may not be granted a license for another licensed activity under ESA, except for a license for storing natural gas and a license for transit transfer of natural gas. The holder of a license for transfer of natural gas may not trade with natural gas. Persons to whom license has been issued for distribution of electric power may not be granted licenses for other licensed activities under ESA. Persons to whom license has been issued for distribution of natural gas, may not be granted licenses for other activities subject to licensing under ESA, except for a license for public supply of natural gas or for supply of natural gas by an end supplier, if the consumers, connected to the gas transfer network on this territory are less than 100 000. The license has to dene: the title of the license; the licensed activity; the sites through which the licensed activity is carried out; the territorial range of the license; the period of the license.
141
XXII.3.2. Competition
Only if there is a necessity of a new capacity for production of electric power, established and announced in a public way, the holder of the license including an obligation for its construction has to be determined by a competition. The holders of licenses for distribution of natural gas for the outlined territories have to be determined by competitions. If the competition is won by a foreign person that is not registered in a Member State of the European Union or in another country party to the European Economic Area Agreement then the license has to be issued to a company registered under the Commercial Act, in which the foreign person possesses at least 67 percent of the capital. The public supplier has to conclude a contract for purchasing electric power with the person that has won the competition.
of allowing transformation of a licensee or an administering transaction if this is not related to termination of the license.
XXII.3.3. Amendments, Supplements, Termination and Withdrawal of Licenses

The license may be amended and/or supplemented by the Commission at a request of the licensee or at an initiative of the Commission. The Commission has the right to an initiative for amendment and/or supplement of an issued license in the following cases: of guaranteeing the reliability or the uninterrupted and quality supply of the consumers with electric and heat power and natural gas; of changes in the legislation; of guranteeing the national security and the social order in cooperation with the respective competent state authorities; of danger of harming the life and the health of the citizens, of harming the environment or the property of third persons if it does not require withdrawal of the license and/or at the proposal of specialized state structures;
The Commission has to inform the holder of the license for the start of the proceedings for amendment and/or supplement of the license. The Commission permits reorganization of a licensee through merger, consolidation, division, separation if the person that will perform the licensed activity after the reorganization meets the requirements for issuing of license for the specic activity. Transactions for transferring sites under construction or property by means of which the licensed activity is performed, may be concluded only in their entirety, upon a permit of the Commission. The Commission also issues a permit in the cases of pledge or mortgage of a property by means of which the licensed activity is carried out. Permit is not necessary in cases of replacement or modernization. The transactions that violate the preceding rules may be declared void by the court at a request of the Commission or every interested person. On privatization of a separate part of an energy enterprise a permit may not be required. The Commission issues a license to the new owner if he has requested the issuing of a license and meets the requirements for its issuing. The license is terminated by the Commission: at a request of the holder of the license, including for a example a transfer of the property by means of which the licensed activity is carried out; on a loss of the energy site by means of which the licensee carries out its activity; on reorganization of the holder of the license if the reorganization leads to termination of the corporate legal person holder of the license; on entering into force of a court decision for declaring the licensee bankrupt or of a decision for termination of the activity due to liquidation of the licensee.
142
The Commission may also terminate the license if the licensee does not perform the licensed activity for a period of more than one year. The licensee is obliged, at least one year before the expiry of the term of the license to submit an application for prolongation of the term, or to inform the Commission that the licensee will not carry out the licensed activity upon expiry of the term. The Commission, upon a notication within a set period, shall withdraw the license if the licensee does not perform its obligations or violates instructions of the control structures of the Commission. The Commission may withdraw a license for distribution of natural gas, issued after a held competition, if the licensee does not construct, within the period pointed in the license, the respective gas distribution network shown in its offer for participation in the competition.
high, medium and low voltage serving for distribution of electric power.
XXII.4.2. Production of Electric Power

Production of electric power may be performed by energy enterprises having received license for production under ESA. The producers of electric power are obliged to maintain reserves of fuel, including local solid fuel in quantities guaranteeing a continuous and reliable production.
XXII.4.3. Transfer of Electric Power and Management of the Electric Power System
The transfer of electric power is performed by a transfer enterprise owner of the transfer network, having received license for transfer of electric power. The holder of the license may assign by means of a contract the expoitation and the maintenance of the transfer network only to the electric power system operator, who has received a license for management of the electric power system. The transfer and the transformation of electric power is a universally offered service. The transfer enterprise has to provide the expansion, reconstruction and the modernization of the transfer network in accordance with the long-term prognoses and plans for development of the electric power sector. The electric power system operator provides: the united management of the electric energy system and the reliable functioning of the transfer network; the transit of electric power through the transfer network; the maintenance of the sites and equipment of the transfer network in accordance with the technical requirements and with the requirements for safety; In order to draft the energy balance of the country, the electric power system operator has to:
XXII.4. Electric Power Sector XXII.4.1. General Review. Electric Power System.
All electric power sites on the territory of the country are connected and functioning in a unied and integrated electric power system with a joint operational regime and an uninterrupted process of production, transformation, transfer, distribution and consumption of electric power. The electric power system includes the electric power stations, the transfer network, the distribution networks and the electric utilities of the consumers. Electric transfer network is a unity of electric power lines and electric equipment serving for transfer, transformation of the electric power of high voltage to medium voltage, redistribution of electric ows or transit of electric power to a third party. Electric power lines are installations for connection of electric facilities for transfer, transport or distribution of electric power. Electric distribution network is a unity of electric power lines and electric facilities of
143
prepare prognoses for change of the consumption of electric power in the country; organize research of the possibilities of expansion and modernization of the transfer network, introduction of new technologies.
consumers; the transfer enterprise; the distribution enterprises; the dealers of electric power; the electric power system operator; the end supplier.
XXII.4.4. Distribution of the Electric Power

The distribution of electric power and the functioning of the distribution networks is performed by distribution enterprises owners of the distribution networks on a separate territory, licensed to perform the distribution of electric power to the respective territory of the country. The distribution of electric power is the universally offered service. The distribution enterprise has to provide and guarantee: distribution of the electric power received in the distribution network; continuity of the electric power supply and quality of the supplied electric power; management of the electric distribution network; maintenance of the distribution network, sites and equipment in accordance with the technical requirements; expansion, reconstruction and modernization of the distribution network and accessory networks.
XXII.4.6. Connection of Producers and Consumers to The Relevant Networks. Access to the Networks
The transfer enterprise, respectively the distribution enterprise, is obliged to connect every producer of electric power located on the respective territory that: has concluded a written contract with the transfer or distribution enterprise at a price for connection determined in accordance with the applicable ordinance; has met the requirements for connection to the transfer or distribution network, and has constructed electric equipment within its own property or on the property on where it has a right of construction. The transfer or the respective distribution enterprise are obliged to expand and reconstruct the transfer or distribution networks related to the connection of electric power stations to the place of connection. The owners of electric equipment are obliged to provide access of the transfer enterprise, respectively the distribution enterprise, to their own installations for the purposes of transformation and transfer of electric power to other consumers.
XXII.4.5. Trade Relations. Parties to the Transactions with Electric Power

Transactions with electric power may be concluded at prices regulated by the Commission, at freely negotiated prices between parties and on the organized market of electric power. Parties to the transactions with electric power are the following persons: the public supplier of electric power; the producers; the consumers, including the privileged
XXII.5. Heat Supply XXII.5.1. General Review

The heat supply is a process of production, transfer, supply, distribution and consumption of heat power by means of a heat carrier of water steam and hot water for household
144
and economic purposes. The heat supply is carried out through sites and installations for production, transfer, supply and distribution connected to a heat supply system.
XXII.5.2. Production of Heating Power

The production of heating power is carried out by an energy enterprise having received a license for production. The production of heating power is carried out in: power stations for combined production of heating and electric power; heating power stations; installations for utilization of waste heating power and of restorable energy sources.
of heating power for economic purposes; a heat transfer enterprise and associations of the consumers of heating power in a condominium; a heat transfer enterprise and a provider of heat power; a provider of heat power and the consumers in a building condominium. The consumers of heating power in a building condominium, may buy heating power from a provider, selected by the general assembly of the condominium.
XXII.6. Gas Supply XXII.6.1. General Review

The gas supply is a unity of the activities of transfer, transit transfer, storing, distribution and supply of natural gas for meeting the needs of the consumers. The sites and the installations for carrying out the activities of transfer, storing and distribution of natural gas on the territory of the country, connected among each other, work in an integrated gas transport system of general regime of operation. Gas transfer network is a system of gas pipelines of high pressure and the equipment to them, with a unied technological regime of functioning, for transfer of natural gas to the outlet of the gas measuring station or gas regulation station, having connected consumers and/or distribution enterprises. Gas distribution network is a local or regional system of gas pipelines of high, medium or low pressure and the installations to them for distribution of natural gas to the respective consumers on a territory determined by a license. Gas transport system is a system of connected networks for transfer, transit transfer, distribution of natural gas, as well as installations to and from gas storages and production enterprises on the territory of the country.
XXII.5.3. Connection to the Heat Transfer Network

The heat transfer enterprise is obliged to connect to the heat transfer network producers and consumers located on the respective territory dened by the license for transfer of heating power. The connection of the consumers in a building -condominium by means of a junction or its individual branches has to be carried out on the basis of a decision of the general meeting of the condominium with the majority of two thirds of all owners and holders of real right of use of building condominium.
XXII.5.4. Trade Relations

The sale of heating power is carried out on the basis of written contracts under general conditions, concluded between: a producer and the heat transfer enterprise; a producer and directly connected consumers of heating power for economic purposes; a heat transfer enterprise and consumers
145
XXII.6.2. Transactions with Natural Gas

The transactions with natural gas are carried out on the grounds of written contracts by observing the provisions of the law and of the rules for trade of natural gas adopted by the Commission. The transaction with natural gas are supply, transfer along a transfer and distribution networks and storing of natural gas. Parties to the transactions with natural gas are: a public supplier of natural gas; producing enterprises; operators of gas storages; a transfer enterprise; combined operator; a distribution enterprise; dealers of natural gas; privileged consumers; consumers who are not privileged. end supplier of natural gas; consumers clients of the end supplier. The producing enterprises may conclude transactions for supply of natural gas with the public supplier of natural gas, with the public provider of natural gas, with operators of gas storages, with dealers of natural gas and with privileged consumers. The producing enterprises may also conclude transactions for transfer of natural gas with the transfer and distribution enterprise. They may also conclude transactions for storing natural gas with the operators of gas storages. The producing enterprises, the public supplier of natural gas, the public providers of natural gas, the end suppliers, the operators of the gas storages, the dealers of natural gas and the privileged consumers may conclude transactions for supply of natural gas with local persons in a Member State of the European Union, or registered in a country, with which the Republic of Bulgaria has reached an agreement by virtue of international instrument for mutual application of the respective law of the European Union:
in case according to the legislation of the other country the right of free trade of natural gas is acknowledged to the producing enterprises, the dealers of natural gas the public supplier of natural gas, the public providers of natural gas, the end suppliers, the privileged consumers, and under the conditions of reciprocity, in case the legislation of the other country provides a possibility of free trade of natural gas for its privileged consumers.
The public supplier of natural gas is a legal person registered under the Commercial Act or under the legislation of a Member State of the European Union or of another country party to the European Economic Area Agreement, who may conclude transactions for supply of natural gas with producing enterprises, with dealers of natural gas, with public providers of natural gas, with privileged consumers and with consumers directly connected to the transfer network. The public supplier of natural gas may conclude transactions for transfer of natural gas with the transfer and distribution enterprises. The public supplier of natural gas may conclude transactions for storing natural gas with the operators of gas storages. The public providers of natural gas are legal persons registered under the Commercial Act or under the legislation of a Member State of the European Union or of another country party to the European Economic Area Agreement, that conclude transactions for supply of natural gas with end consumers connected to the gas distribution network, on the territory for which they are licensed. The end supplier is a person licensed for its activity, that provides the supply of natural gas to household consumers and enterprises, which have less than 50 employees with annual turnover amounting up to 19, 5 million BGN. Dealer of natural gas may be any Bulgarian and foreign corporate legal person registered as an entrepreneur under the Commercial Act or under its national legislation. The dealers of natural gas may conclude
146
transactions with producing enterprises inside or outside of the country, with privileged consumers, with other dealers of natural gas, with the public supplier of natural gas and with operators of gas storages. The privileged consumers are consumers of natural gas meeting denite requirements set by the law, having the right to choose the persons from which they will buy natural gas in and/or outside the country. The privileged consumers are obliged to inform in advance the transfer enterprise and/or the distribution enterprise about the contracts concluded by them for natural gas. The contracts for natural gas are concluded: 1. at prices regulated by the Commission for universally offered services related to the transfer, distribution and supply of natural gas or at freely negotiated prices between the parties on an organized market, administered and managed by the operator of the transfer system. The producing enterprises, the dealers of natural gas and the privileged consumers conclude transactions for natural gas among themselves at freely negotiated prices. The end supplier of natural gas sells natural gas under publicly announced general conditions. The general conditions must include: the terms of quality of the supply; information provided by the supplier; term of the contract; the responsibility of the energy enterprise for non-performance of the general conditions. The published general conditions enter into force for the consumers, who buy natural gas from an end supplier without explicit written consent. The consumers of the end supplier conclude a contract with the distribution enterprise for the transfer to distribution networks of the natural gas, consumed by them under publicly announced general conditions. The general conditions must include: the terms of quality of the supply;
the terms of termination or interruption of the supply; the responsibility of the energy enterprise in case of non-regulated interruption and low-quality supply.
The published general conditions shall enter into force for the consumers, who buy natural gas from an end supplier without explicit written consent.
XXII.6.3. Connection to the Gas Pipeline Network

The connection to the transfer and distribution networks is carried out under conditions and by an order dened by a special ordinance for connection to be issued by the Minister of Economy and Energy. The connection to the gas transfer and/or to the gas distribution networks of producing enterprises, enterprises storing natural gas, distribution enterprises and end consumers has to be carried out at prices determined by the respective ordinance and on the grounds of a written contract concluded between the transfer, respectively the distribution enterprises and the connected persons. The transfer enterprise is obliged to connect to its network, at a point set by it, the distribution enterprises, the producing enterprises and the enterprises storing natural gas. Connected to the transfer network may also be privileged consumers of natural gas via direct connecting gas pipelines. The transfer enterprise may refuse the connection to the transfer network where: a capacity of the network is lacking, or there is no connection to the network, and improvement of the network is not economically feasible. The owner of the connecting gas pipeline is obliged to provide its servicing, maintenance and repair. The transfer enterprise may, at a request of the owner, against payment, service, maintain and repair the connecting gas pipelines.
147
Directly connected to the gas transfer network consumers are obliged to provide access to the respective gas distribution enterprise, having obtained license, through their own installations for the needs of the transfer of natural gas to other consumers on the territory determined by the license. The distribution enterprises are obliged to construct for their account their distribution network to the point of connection determined by the transfer enterprise. The distribution enterprises are obliged to connect and provide the consumers with natural gas on the basis of the conditions of equality and by observing the technical requirements for reliability and safety. The branches and the installations for connection of the consumers to the respective distribution network have to be constructed by the distribution enterprise.
XXII.7.2. State governance in the area of energy from renewable sources.

The Council of Ministers determines the state policy for encouragement the production and consumption of electric energy, thermal energy and cooling energy from renewable sources, production and consumption of gas from renewable sources, as well as production and consumption of biofuels and energy from renewable sources in transport; adopts a National action plan for energy from renewable sources (NAPERS); adopts national supporting schemes for using energy from renewable sources; and adopts normative instruments in the cases, provided by the law. The state policy in this area is conducted by the Minister of Economy, Energy and Tourism. The State commission for energy and water regulation (SCEWR) determines preferential prices for buying electric energy from renewable sources; develops methods for fair distribution of the difference between the market and preferential prices of the electric energy, produced from renewable sources among all consumers, including traders of electric energy for the quantities in the cases of export; approves and publishes on its internet site the envisaged electric capacities, which may be provided for joining to the transfer and distribution electric networks of sites for production of electric energy from renewable sources; executes control while performing procedures for joining energy sites for production of electric energy to the transfer and distribution electric networks; executes control for performance of the duties of the operators of the transfer and distribution electric networks to report on the cases of signicant decrease of the quantities of transferred and/or distributed electric energy from renewable sources and on the undertaken corrective measures. The state policy regarding renewable energy is performed by the executive director of the Agency for sustainable energy development (ASED) who directs, manages and represents ASED; participates in the development and updating of NAPERS in cooperation with the executive bodies, including mayors of
XXII.7. Legal framework of renewable energy sources and biofuels XXII.7.1. Legal framework.
The legal framework of the public relations regarding energy from renewable sources is provided by the Act on energy from renewable sources (AERS) (in force from 03.05.2011). It governs the public relations, connected with production and consumption of electric energy, thermal energy and energy for cooling from renewable sources; gas from renewable sources; biofuels and energy from renewable sources in transport. The main purposes of this law are: promotion of production and consumption of energy, produced from renewable sources; promotion of production and consumption of biofuels and energy from renewable sources in transport; creating conditions for including gas from renewable sources in the networks for transfer and distribution of natural gas; creating conditions for including thermal energy and energy for cooling from renewable sources in heattransfer networks; reliability of the energy supply, delivery and technical safety.
148
municipalities; organizes the performance of the activities and measures, included in NAPERS in cooperation with the interested persons; provides assistance while developing and implementing the municipal programmes for promotion the use of energy from renewable sources and biofuels; organizes the evaluation of the available and forecast potential of the types of resources for production of energy from renewable sources on the territory of the state; organizes the formation and maintenance of the system for issuing of guaranties for the energy origin. The regional governor performs the state policy for encouragement of the production and consumption of electric energy, thermal energy and cooling energy from renewable sources, the production and consumption of gas from renewable sources, as well as the production and consumption for biofuels and energy from renewable sources in transport on the territory of the respective region; performs the coordination of the relevant activities between the municipalities in the region. The municipal councils adopt long-term and short-term programmes for encouragement of the use of energy from renewable sources and biofuels. The mayors of municipalities develop and submit for adoption by municipal councils municipal long-term and short-term programmes for encouragement of the use of energy from renewable sources and biofuels in accordance with the NAPERS.
by a model, adopted by a resolution of the European Commission. The Minister of Economy, Energy and Tourism develops and submits to the European Commission every two years by 31 December 2021 a report on the performance of the NAPERS.
XXIIII.7.4. Production of energy from renewable sources.

XXII.7.4.1. General overview. Promotion of production of energy from renewable sources is carried out through: development of supporting schemes and consumption of energy from renewable sources; development of joint supporting schemes with other EU Member States; nancing activities and projects for production of energy from renewable sources, as well as for using energy from renewable sources at end consumption of energy from fund: Energy effectiveness and renewable sources and from other nancial institutions; contracts with guaranteed result in compliance with the Energy Effectiveness Act, regarding the use of energy from renewable sources. The production of electric energy from renewable sources, including electric energy from combined production of thermal and /or cooling energy and electric energy from renewable sources, is promoted and encouraged through: providing guaranteed access of electric energy, produced from renewable sources, to the transfer and distribution electric networks while observing the security criteria; guaranty of the transfer and distribution of electric energy; providing building up of the needed infrastructure and electric energy powers; buying electric energy, produced from renewable sources for a period, determined by the law; dening preferential price for buying electric energy, produced from renewable sources, including electric energy, produced from biomass, through technologies for direct burning, with the exception of the energy, produced from hydropower stations with total installed power above 10 MW.
XXII.7.3. National action plan for energy from renewable sources (NAPERS).
For the purposes of achieving the national target of the Republic of Bulgaria for 16% general share of the energy from renewable sources in the gross end consumption of energy, including 10% mandatory share of the energy from renewable sources in transport, the Minister of Economy, Energy and Tourism develops the NAPERS. The NAPERS covers the period 2010 2020, and must be drafted
149
XXII.7.4.2. Connecting energy sites for production of electric energy from renewable sources. The operators of distribution electric networks must annually till the end of February submit to the operator of the transfer electric network the envisaged for one year period electric powers, which may be produced for connecting to the distribution networks on regions of connecting and specications of tension. The operator of the transfer electric network on the basis of the 10-year plan for development of the transfer network and the suggestions must annually till the end of April submit to SCEWR and to the Minister of Economy, Energy and Tourism the envisaged for 1 year period electric powers, which may be produced for connecting to the transfer and distribution networks of sites for production of electric energy from renewable sources in the regions of connecting and specications of tension. The Minster within one month period from obtaining the suggestions should submit to SCEWR an opinion on their compliance with the NAPERS. The SCEWR approves annually till the end of June and publishes on its internet site the envisaged for 1 year period, from 1 July, electric powers, which may be provided for connecting to the transfer and distribution electric networks of sites for production of electric energy from renewable sources in regions of connecting and specications of tension. Persons, who wish to construct energy sites for production of electric energy from renewable sources or to enlarge existing electric power stations or to increase the installed electric capacity of stations for production of electric energy from renewable sources, may submit to the operator of the relevant electric network applications for connecting in pointed by them regions, approved by SCEWR. The operator of the relevant electric network should check the applications in the order of their receiving and by a motivated opinion shall resolve on the admissibility of every application. While submitting the applications, to the benet of
the operator of the relevant electric network a guarantee should be deposited for participation in the procedure in the amount of BGN 5000 per MW declared capacity for connecting. The participation guarantee in the aforementioned cases is a part of the advance money required by the law and payable to the operator of the relevant electric network. The expenses for the construction of the utility for connecting of an energy site of a producer to the relevant network to the border of ownership of the electric utility are at the account of the producer. The expenses for the construction of utility for connecting of an energy site of a producer to the relevant network from the border of ownership of the electric utility to the place of connection, as well as for development, including reconstruction and modernization of the electric networks in relation to the connection are at the account of the owner of the relevant network. Upon signing preliminary contract for connection, the producer of electric energy from renewable sources must effect to the transfer or the relevant distribution enterprise, which connects him an advance payment in the amount of BGN 50 000 for each MW installed capacity of the future energy site, where the installed capacity is bigger than 5 MW; or BGN 25 000 for each MW installed capacity of the future energy site, where the installed capacity is up to 5 MW. The advance payment is a part of the price for connecting and remains to the benet of the energy enterprise owner of the transfer or distribution electric network, in the cases, where the energy site of the producer of electric energy from renewable sources is not constructed within the time framework, dened in the contract for connection, when the nonperformance is due to a reason, for which the producer is liable. The contract for connection regulates the payment of the remaining portion of the dened in it price for connection, in the cases, where this price is higher than the value of the advance payment. These money resources have the function to cover the expenses for the construction of the utility for connection and for the planned development, including reconstruction, modernization and
150
management of electric networks, related to the connection of the concrete energy site for production of electric energy from renewable sources. The preliminary contract for connection has a time framework, not longer than one year, where prior to the expiry of this time limit, the producer must submit a written application for signing a contract for connection. The contract for connection has a time framework not longer than the time period for entering into operation of the producers energy site and the utility for its connection, but not longer than 2 years, where the entry into operation has been envisaged to be carried out in one stage. In case of entry into operation in several stages, the time period for entry into operation of the rst stage should be no longer than 2 years after signing the contract. XXII.7.4.3. Buying, transfer and distribution of electric energy from renewable sources. The producers of electric energy from renewable sources, whose energy sites are with total installed capacity more than 30 kW, should conclude a contract for access to the operator of the transfer or distribution network under general conditions, approved by SCEWR and published on the internet site of the operator of the relevant distribution network before concluding the contract for buying the electric energy. Integral part of the access contract should be the assessment of the potential, where its drawing out is mandatory, on the basis of which potential the forecast schedules for production of electric energy from renewable sources are developed. The electric energy from renewable sources is bought from the public supplier, respectively the end providers under the dened by SCEWR preferential price, acting on the date of drawing up the written act for nalizing the construction of the energy site, according to Territory Planning Act. The electric energy from renewable sources should be bought on the basis of signed longterm contracts for buying for the period of: - 20 years for electric energy, produced
from geo-thermal and solar energy, as well as for electric energy, produced from biomass; - 12 years for electric energy, produced from wind energy; - 15 years for electric energy, produced from waterpower stations with installed capacity up to 10 MW, as well as for electric energy, produced from other types of renewable sources. The time periods start from the date of entry into operation of the energy site, and for energy sites, entered into operation after 31 December 2015, the time periods should be decreased with the time from this date till the date of entry into operation of the energy site. The price of the electric energy from renewable sources should not change for the period of the contract for buying. The public provider, respectively, the end providers should buy all the quantity of electric energy, from renewable sources, for which a guarantee for origin has been issued, according to the applicable ordinance, with the exception of the quantities, which the producer uses for own needs; or upon his choice uses for own consumption and provides for own branches, undertakings and sites; or sells at freely agreed prices. The preferential prices are dened as provided by the relevant applicable ordinance, where the type of the renewable source, the types of the technologies, the installed capacity of the site, the place and way of mounting of the equipment should be considered, as well as: the investment expenses; the norm of regaining; the structure of the capital of the investment; the productivity of the installation according to the type of technology and the used resources; the expenses, related to a higher level of environmental protection; the expenses for raw materials for production of energy; the expenses for fuels for transport; the expenses for labour and work salaries; other operation expenses. XXII.7.4.4. Guaranties for origin of the energy from renewable sources. The activities for issuing, transfer and
151
cancellation of the guaranties for origin of the energy from renewable sources is done by ASED. Guaranty for origin is issued to a producer for standard quantity energy of 1MWh, and it is valid for the period of 12 months from the production of the relevant unit of energy and contains at least the following information: the renewable source, used for the production of the energy; the initial and nal data of production of the energy from renewable sources; type of the production energy; name, location, type and total installed capacity for the energy site, where the energy has been produced; used supporting schemes; date of entry into operation of the energy site; date and place of issuing; unique identication number. For each unit of produced energy only one guaranty of origin may be issued.
production of biofuels, priority should be given to the production of biofuels from wastes, residues, non-food cellulose materials and lingo-cellulose materials. XXII.7.5.2. Consumption of Biofuels and Energy from Renewable Sources in Transport and of Liquid Fuels from Biomass. Biofuels and their derivatives in transport should be used pure or in mixtures, as a compound part of the liquid fuels from petrol origin. The liquid fuels and biomass are used for production of electric energy, thermal energy and cooling energy in case that they meet the sustainability criteria. Persons, who place on the market liquid fuels from petrol origin in transport are obliged at liberation for consumption in the meaning of the Excise and Tax Warehouses Act to offer the fuels for diesel and petrol engines mixed with biofuels in certain percentage relation, specied in the law. XXII.7.5.3. Requirements for Quality, Control and Placing on the Market Biofuels and their Mixtures of Liquid Fuels of Biomass. The persons, who place on the market biofuels and their mixtures with liquid fuels from petrol origin in transport must draw up for every lot a conformity declaration with the quality requirements according to the Clean Atmosphere Air Act. The distributors must be obliged to provide for every following placement on the market a copy of the conformity declaration for the placed on the market lot of biofuels and their mixtures with liquid fuels of petrol origin, where they should point the quantity of liquid fuels, the person, to which it is given and the number of the document for expedition and should enter the number and date of the conformity declaration of the lot of liquid fuels in all other accompanying documents. Mixing biofuels with liquid fuels of petrol origin should be done only in tax warehouses, licensed as required by the Excises and Tax Warehouses Act.
XXII.7.5. Production and consumption of biofuels and energy from renewable sources in transport and of liquid fuels and biomass.
XXII.7.5.1. General overview. Production and consumption of biofuels and energy from renewable sources in transport should be promoted by: accessibility of the transport fuels; effective operation of the motors in accordance with the technical and quality norms for production of biofuels; offering mixtures of biofuels as compound part of the liquid fuels of petrol origin for internal combustion engines; sustainable development of the agriculture and forestry; development and introducing new technologies for using wastes, residues, non-food cellulose and lingocellulose materials for production of biofuels; development and introduction of electric cars in the public and personal transport; construction of stations for charging the electric cars while building new or reconstruction of existing car parks in urban territories; construction of infrastructure for charging electric cars outside the urban territories; nancial support for consumption of biofuels. In case of providing nancial support for
152
CHAPTER TWENTY THREE: CONSUMER LAW
XXIII CONSUMER LAW

XXIII.1. Legal Framework
The Bulgarian legislation, regulating the requirements to the non-food goods is extremely rich1. In most of its parts it implements the requirements of directives of the EU, but it contains also a number of national specics with which the traders in the separate sectors shall conrm their activity. The main laws are the Law for the Protection of the Consumers and the Law for the Technical Requirements to the Products, to which there is a number of sub-legislative legal acts. Besides, there are important sector laws, such as the Laws for the Medical Products in the Human Medicine, the Law for tobacco and tobacco products, the Law for the tourism, Wine and Spirits Law and a number of sub-legislative acts. Furthermore there is a number of laws and sub-legislative acts governing different types of services, nancial services regulation having most wide coverage. The said acts are not subject of the present review.
XXIII.2. Purpose of the legal regulation

Establishing the requirements to the commercial activity with non-food goods, the Bulgarian law-maker achieves some very important aims: non-acceptance of the offering of dangerous goods on the market; ensuring to the consumers of objective information for the origin, quality and the price of the products; improvement of the competitive environment.
safe products. All persons, participating in the process of realization of the goods at the chain producer - consumer (importers, distributors, traders) are obliged immediately to stop the offering of goods, for which they are aware or have a suspicion that it contains a risk for the life or health of the Consumers or for the environment. . All goods, for which there are specied legal requirements for safety could be launched of the market only after they pass the obligatorily procedures for evaluation of their conformity with these requirements. The main groups of products, for which there exist detailed requirements in respect of the safety and the evaluation of the conformity are these, regulated by the European directives of the so called New approach, which in Bulgaria fall under the scope of the Law for the Technical Requirements to the products. The most signicant of them are: electrical devices children toys scales; means for measurement; gas installations; cauldron for hot water; personal protection means; machines; recreation vessels; radio installations and telecommunication installations; measurement devices; under pressure container; construction products lifts; explosive substances for civil purposes. These products could be offered to the market after having preliminarily passed procedures on the evaluation of the conformity and they shall be accompanied by documents obligatorily by law (technical le, EU declaration for conformity, instructions
XXIII.3. Safety of the products

The law for Protection of the Consumers contains a general clause, getting obliged the producers to offer to the market only
KRAPOV, VARADINOV & PARTNERS
153
for exploitation, etc.). the conformity of the product with the safety requirements is certied by the putting it by the producer and if the producer is located outside the EU, by its authorized representative of the conformity marking . The sign has a compulsorily graphic design and proportions. It could not be less than 5 mm. The conformity marking is put on the product or its packing in such a way so that it shall be visible, readable and easily accessible for the controlling bodies and for the Consumers. The marking shall not be put in a way not allowing its removal without obvious traces. On the product there could not be put other markings, which could lead to misleading regarding the conformity marking or that breach its visibility and readability. The producers do not have a right to put the conformity marking on the products, for which this is not explicitly provided under the Law for the Technical Requirements to the products. The specic requirements to the offering of the separate types of products we would illustrate in short through two examples electrical devices and machines. ) Electrical devices Electrical equipment can be released to the market only if it was designed and manufactured in accordance with the set safety practices and if it doesnt endanger the safety of humans, domestic stock or possessions. Every electrical equipment before its release on the market shall be subject to a procedure for assessment of its
compliance Internal manufacturing control. All electrical devices shall be offered at the market with the following information and marking provided: - the name (company name) or the trade mark and the registered address of the manufacturers or importers; - the essential features, the knowledge and compliance with which shall ensure the safety of use of the electrical equipment. Whenever the announcement of the requirements upon the device proves to be impossible, this information shall be presented in an accompanying instruction paper. - mark for compliance - Price - certain types of electrical devices shall be provided with an obligatory label and information leaet stating the energy consumption - announcement of the noise emission - instruction for use in Bulgarian language - EU declaration for compliance, issued by the manufacturer or his duly authorized representative The manufacturer and in cases he may be located outside the territory of the EU, his authorized representative, shall be under the obligation to prepare and maintain a technical dossier of the product, which shall be presented to the controlling bodies when need may be. B) Machinery All machinery and their components of protection shall be released on the market and/or activated, only when they do not endanger the health and safety of humans, the safety of domestic animals, the protection of environment and possessions, and if they are properly tted, maintained and used in accordance with their purpose, and when they meet the essential legal requirements. Machines must have marking for compliance attached and be accompanied by an EU
154
declaration for compliance. Every machine shall have appropriate signalling system for danger situations. Machines shall be accompanied by information about their control and safe use, as well as data about: - name and address /seat of the manufacturer; - marking for compliance; - designation of the series or the type; - serial number, if any; - year of production.
misleading the customers. All goods, packed or pre-packed, shall contain information about their quantity, which must be provided on the packing, and where such packing is missing upon the goods, themselves. Goods, whose use requires technical knowledge, goods, containing dangerous substances, or goods whose use suggests availability of special skills or requires compliance with special requirements for safety, shall have to be accompanied by directions for use, prepared by the manufacturer. All directions for use of the goods shall contain such information as needed by the customers for the proper and safe usage and installation, connection, maintenance or storage of the goods. All directions for use shall contain a list of their constituent parts and elements of the commodity, if this will allow the users to better orient themselves about the essence of the commodity and avoid any risks while assembling and using the commodity. All directions for use shall be mandatory in Bulgarian language. Separate from the mentioned general requirements, there are special laws governing the provision of additional information for particular types of products, such as textile, shoes, crystal glass, medicines, tobacco products etc.
XXIII.4. Customer information

All customer goods, offered at the Bulgarian market shall have to be provided with labels in Bulgarian language or in Bulgarian language, as well. Whenever the information can be presented by the use of widely known symbols, like pictograms and other signs / often used in shoes and textile /, which are easy to understand for the customers, or through names for origin of the goods, which are well-known to the public, it can be presented in such a way. The label shall mandatory contain information about the manufacturer and the importer, if the goods are imported in the EU; about the type of the goods, its essential features, its tness period and the storage conditions and, if necessary, directions for use. The information, contained on the label must be well understandable, available, clear, and easy to distinguish and not to mislead. When the information contains measurement units it must be expressed in the units and quantities of the International system of units SI (meter, litre, gram and their derivatives). No sales person shall have the right to remove or change the label, marking or any information, provided by the manufacturer or importer, if this action of his will result in
XXIII.5. Prices
Prices of user commodities in Bulgaria are free of any state control and are freely determined. Exceptions exist in very few sectors, where there is still a state control on the prices or on the price-formation methods (power engineering, medicines). There are no rules regarding the ways of announcement of prices in the business relations. The law introduces special requirements
155
regarding the announcement of prices for goods and services, offered to the end users. These prices must be obligatorily preannounced in the local currency Bulgarian levs (BGN) . The price shall be announced per the appropriate measurement unit (meter, litre, and gram) as well as per packaging, when the latter is different from the rst, or per piece. The price per measurement unit shall not be mentioned, if it is identical with the sale price. The announced sale price and the price per measurement unit shall include the value added tax and all other additional taxes and charges, as well as the price of all commodities and services, which ought to be paid additionally by the customer, in cases when these shall be obligatorily provided by the sales person. Announcement of different prices of one and the same type of commodity in the commercial site is prohibited, apart from the cases when discounts are announced.
may order stopping of the advertisement as well as broadcasting of correction statement.
II.7. Unloyal trade practices

In accordance with European legislation, any forms of unfair trade practice are prohibited in Bulgaria. Any trade practice that contradicts to the principles of good faith and that effect on the economical behavior of the consumers is considered as unfair. Misleading and aggressive practices are the typical example and the Consumers Protection Law contains a detailed list of examples for these practices. It is important to accentuate that this detailed list is an example. It indicates only few examples, not all of them. In case of detection of unfair trade practice, the state authorities are empowered to prohibit it and to impose nes of the traders that could amount on 15 000 BGN.
XXIII.6. Promotion
All offered at the market non-food commodities can be freely promoted. The law provides for the promotional announcements to contain elements of delusion or to mislead or confuse the addressee to whom it reaches. The liability about misleading advertisements shall be borne by the advertiser and the advertisement agency that prepared the advertisement. he advertiser is obliged to prove that the advertisement is not from the category of the forbidden, i.e. it do not represents a misleading or unallowed comparative advertisment. Sanctions for dissemination of misleading advertisements are putted by Commission of Consumers protection and could reach till 10% from the general turnover of the company for the preceding nancial year. Separate from this, Commission of Consumers protection
XXIII.8. State control

The control for compliance with the legal requirements when offering at the market of non-food commodities is implemented by specialized state bodies, with administrative structures on the territory of the entire country at their disposal. The main administrations are the Commission of Consumers protection and the State Agency for Metrology and Technical Surveillance/Supervision. The controlling bodies have at their disposal a wide scope of possibilities for inuencing upon the market. They may impose property sanctions, in amounts depending upon the type and gravity of the violation. In the course of procedure for imposing the sanctions the administrative body shall obligatory provide opportunity for the affected person to present his arguments and evidences. The inspectors shall have the right of free access to all kinds of manufacturing and commercial sites and storage premises and to
156
the products situated inside, with the right at their discretion to collect samples for testing. When ascertaining dangerous goods offered at the market, the controlling bodies may order their cessation of being offered for sale and their withdrawal from the market or provide compulsory instructions for their bringing into compliance with the legal requirements, such as placing warnings regarding the risks, related to the use of the product, placing warning texts related to the risks related to the use of the commodity, subjecting the product to tests by an independent and competent body, ordering the commodity to be used for other purposes, to be returned to the country it has been supplied from or to be destroyed, in cases its bringing into compliance with the safety requirements proves to be impossible, recalling goods from customers; to issue directions for increasing the self-control in the enterprise, personnel training, keeping the necessary hygienic requirements, performance of additional construction and building works, necessary for provision of guarantees for the products safety and others of the kind. In cases of serious risks for the health and safety of the customers, the administrative body can issue an order for closing down of the commercial or manufacture site or part of it, or for temporary suspension of the activities of the manufacturer or salesman. The administration is obliged to present to all affected parties copies of all administrative acts and penalties of violation issued against them. Normally, these can be appealed in front of the courts, with the terms for such appeals starting to run from the date of their delivery.
157
CHAPTER TWENTY FOUR: ENFORCING IN BULGARIAN COURTS
XXIV ENFORCING IN BULGARIAN COURTS

Introduction.
Typically, investments in Bulgaria are successfully made and exited without recourse to formal dispute resolution. Nevertheless, investors in Bulgaria, as elsewhere, need assurance that where a dispute cannot be settled amicably, adequate mechanisms exist to safeguard investors interests. Should an investor seek the assistance of a court of law, an arbitration tribunal or a quasi-judicial body regardless of whether the initial forum is within Bulgaria or overseas, the outcome of dispute resolution must be enforceable against the defaulting counterpartys Bulgarian interests in a predictable manner. Key dimensions of investors rights include the efciency and cost of enforcement. Where other jurisdictions are also involved, a good understanding of the foreign requirements and how these translate in the Bulgarian context; the appointment of an advisor capable of acting skilfully in tandem with a foreign lawyer; and the speed of procedural action are crucial. The following is an overview of the general issues suXXIVounding enforcement in Bulgaria in civil and commercially-relevant administrative matters.
arbitration awards and settlements: judgments and orders of the Bulgarian courts; Enforcement Orders1 of the Bulgarian courts; settlement agreements, approved by the court and backed by a court order; awards of domestic arbitration tribunals and agreements to apply for consent awards. (ii) Foreign judgments and orders not requiring recognition proceedings (principally those governed by the Brussels rgime2); (iii) Foreign judgments subject to full recognition proceedings before execution;
XXIV.1.2. Awards of arbitration tribunals

Foreclosure against a charged or pledged asset Where the default is on a debt secured by a registered pledge, the pledgee must le a notice of default with the Register of Registered Pledges and notify the pledgor in writing. On ling with the Register of Registered Pledges, the pledgee obtains limited rights of disposal in the pledged assets and may: take steps to preserve the assets, draw an income or sell them (the latter requires a minimum of two further weeks from the foreclosure notice). If the pledgee fails to sell the assets within six months, any other creditor with a subsequent in order charge (if any) may take control. Pledged property may only be sold by the pledgee for cash. The proceeds are placed with a Depositary whose role is prescribed and subject to the supervisory jurisdiction of the courts. The balance of proceeds after distribution to creditors is paid over to the pledgor.
XXIV.1. What may be enforced? XXIV.1.1. Final judgments and orders of the courts
(i) Domestic judgments and orders, domestic
1
The application for an Enforcement Order is accompanied by a back-to-back application for a Execution Order, where his claim is based on a notarial deed containing obligations to pay money or other fungibles, or to deliver particular things; or is based on any negotiable security payable to order. The delivery of bonds or coupons attached thereto; documents certifying pledge or mortgage; other documents provided for by law are also the subject of immediate specic performance under Enforcement Order provisions. 2 The regime created by Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters and the Lugano Convention (Convention of 16 September 1988 on jurisdiction and the enforcement of judgments in civil and commercial matters - where EFTA countries are concerned).
158
NEW BALKANS LAW OFFICE
Where there is a oating charge over a businesss undertaking, the chargee may seek enforcement against the undertaking as a whole or against individual assets forming it. The latter scenario boils down to the foreclosure process above. In the former scenario, the chargee appoints a director who is granted exclusive executive powers by law. Such an appointee however is restricted from disposing of the going concern or real estate of the business; executing negotiable instruments; borrowing or representing the undertaking in court without the prior consent of the chargor. Where the pledgor does not cooperate with the foreclosure, the pledgee may apply to court for an enforcement order and obtain the assistance of an enforcement ofcer. (i) Foreign arbitration awards issued by tribunals with seats in member states of the New York Convention (NYC) as incorporated by the Bulgarian Private International Law Code (ii) Foreign arbitration awards issued by tribunals with seats in non-NYC-member states requiring recognition of awards, as per the Bulgarian Private International Law Code (The subject of enforcement of arbitral awards is dealt with elsewhere in this Guide)
XXIV.2.1. Monetary vs. non-monetary remedies

The majority of dispute resolutions result in money awards. Where the judgment debtor is ordered to pay a judgment amount but does not comply voluntarily, Bulgarian government assistance can be recruited through execution proceedings. nforcement of non-monetary judgments is reviewed below at XXIV.6.
XXIV.2.2. The involvement and division of responsibilities of the creditor and enforcement ofcers
Enforcement by way of execution is carried out by either private enforcement ofcers or enforcement ofcers employed as civil servants. Both hold identical powers. Only with pledged chattels is direct enforcement by the judgment creditor possible. See further the text box. Both types of ofcial generally work efciently. Some creditors prefer the private enforcement ofcers who collect the service fees for their own account and are more immediately incentivised to be zealous and resourceful in pursuing enforcement. As the creditor is expected to cover the cost of enforcement upfront, before this is added to the execution debt for collection, cost may be an important consideration. Where the assets of the debtor are liquid and easily enforceable against and/or the resources of the creditor are not disproportionately small, this is less of a concern. The judgment creditor may change its election of type of enforcement agent while enforcement is in progress.
XXIV.1.3. Applications for enforcement of domestic and foreign orders for interim relief (the latter, in certain cases). XXIV.1.4. Unchallenged regulatory and administrative decisions which become subject to enforced collection by the State Receivables Collection Agency (these may be both a risk concern or a matter of tactical relevance to foreign investors). XXIV.2. Execution - commencement, progress and termination of enforcement
XXIV.2.3. Costs of execution

Upfront costs payable initially by judgment creditors include the commencement fee, the cost of searches carried out, the costs of charging and inventorying assets and of collecting the judgment debts. Major items of cost
159
are the (optional) cost of inventorying at 1.5% of the debt, and the debt collection fee which varies depending on the amount collected. Where the collection exceeds Lv 100,000 ( 51,200; $ 69,000), the fee is a xed at 5.225% over the rst Lv 100,000 plus 2% of the excess. Inventory fees are not payable where the higher level of debt collection fee is due.
on the presentation of an instrument signed by the creditor conrming satisfaction of the debt in writing, or where the Execution Order is cancelled. See also at XXIV.4 below.
XXIV.3. Limits on execution XXIV.3.1. Excluded Assets

(i) Certain income and assets of individual debtors and specically: such part of the income of an individual needed for his or her basic needs3; personal belongings of rst necessity; a dwelling which serves as a sole residence (unless it is charged by way of a mortgage in the creditors favour, when this exception does not apply).
XXIV.2.4. Ancillary powers of enforcement ofcers

A relatively powerful set of tools ancillary to execution is available to the creditor via the enforcement ofcer. The ofcer may make enquiries into the property of the debtor, search various publicly- and privately-held nancial and property records and require documents. The information from searches can then be fed back into the enforcement process. The creditor is permitted to direct the ofcer towards property desirable for execution. The costs of searches cumulate to the other costs of enforcement and are ultimately payable by the judgment debtor.
(ii) Property belonging to a third party The execution agent may only execute against property of the execution debtor. What constitutes property of the debtor is in the rst instance a question of fact and the agent has to exercise reasonable judgement in deciding this. Ostensible possession of personal property by the debtor is initial evidence of ownership of the debtor and therefore allow enforcement against such property, but the agent is under a duty to investigate evidence and may be put on notice (see further at XXIV.4). (iii) Enforcement against assets belonging to an agency of the Bulgarian State and/ or to a municipal authority4 Writs of execution against central government may not be enforced directly. Instead, on the presentation of a writ receivables are paid out
XXIV.2.5. Third-party notices (enforcement against receivables of the debtor)

An enforcement ofcer may seek to proceed against third parties holding assets of the debtor (including receivables against third parties), by issuing binding execution notices. The third party is obligated to pass judgment debtors property in its possession to the execution ofcer. Employment income, securities and/or participation interests in a corporation can be attached in this way.
XXIV.2.6. End of enforcement

The enforcement proceedings are terminated
3 Individuals are protected from enforcement against the following: a monthly income sufcient for sustenance as stipulated from time to time; individual dwellings, unless these are also charged by mortgage to the creditor, in which case it is treated as seizable (see further below). 4 Similar rules apply to protect the assets of international organisations and foreign sovereigns, governed by international law principles of state immunity. This note does not cover the application of these principles in Bulgarian courts, but we would be happy to advise separately on the subject.
160
of a special-purpose account maintained by the public body against which the judgment has issued. If funds in the special account are insufcient at presentation, the government body superior to the debtor body is obligated to make budgetary provision for the requisite funds to be available at the latest by the next budget. (iv) Enforcement against non-State entities directly funded from the State Budget Such bodies may include: state-owned hospitals, port and airport authorities, etc. Enforcement against the bank accounts in which such bodies receive budgetary funds only is inadmissible and there appears to be no provision to apply for payment from a special account. Enforcement against any other property of such debtors, however, follows the general rules.
directed against another property or receivable, or otherwise suggest a modication of the enforcement demanded by the creditor. The execution agent has discretion to adopt the alternative method proposed by the debtor if this would adequately satisfy the execution creditor.
XXIV.5. Distribution of the proceeds from execution. Order of preference in satisfaction

During enforcement, other creditors of the same execution debtor, including in all cases the State where applicable, may join the proceedings with the same rights as those enjoyed by the original execution creditor. If the amount collected through enforcement is insufcient to cover all claims, the enforcement ofcer pays out in the following order of preference, with each class of creditors being paid pro rata within their class: (i) claims for the costs of enforcement; (ii) claims of the State related to taxes on a certain property - up to the value of that property; (iii) claims secured by a pledge or mortgage up of the value of the pledged or mortgaged property; (iv) lien rights up to the value of the property over which a lien is exercised; (v) employee claims arising from employment contracts; (vi) claims of the State other than nes (which fall under (vii) below); (vii) all other claims.
XXIV.3.2. Other restrictions

Execution is stayed where there is no further property nominated by the creditor available to be seized; or on the lapse of two years of inaction by the creditor, and in certain other cases.
XXIV.4. Relief against execution

Wronged interested parties may appeal unlawful actions or refusals to act of the the execution agent by applying to the district court, their application led at the agents address for service. The execution debtor may also contest the enforcement in court proceedings, where the debtor bases his or her claim solely on facts occurring after conclusion of the proceedings under which the enforcement writ/order was issued. Any third party, whose rights have been adversely affected by the enforcement, may apply to court for a declaration that the property against which enforcement is levied is not a part of the debtors estate. The creditor is liable for damage to third parties caused through improper enforcement. As part of defending an execution proceeding, the debtor may propose that enforcement be
XXIV.6. Remedies other than repayment of a sum of money XXIV.6.1. Delivery

(i) Delivery-up of a Chattel It is open to a Bulgarian court to award the delivery-up of a chattel to the judgment creditor,
161
enforcement being by way of seizure and delivery. If at the time of attempted enforcement the chattel is not in the possession of the execution debtor or has deteriorated badly, the enforcement ofcer has the power to elect to enforce collection of the cash value of the same chattel from the debtor. (ii) Delivery of Possession of Land A Bulgarian courts order for the transfer of possession of land is enforceable via an enforcement ofcer. Where an occupier of land subject to a transfer order fails to vacate the land voluntarily on the presentation of the order, such an occupier is subject to eviction. If the occupier is a third party in relation to the order and the enforcement ofcer is satised that the third party acquired possession after the commencement of the case in which the order of possession was issued, the ofcer would enforce possession of the execution creditor, recording his reasons for believing that possession by the third party post-dated the commencement of the legal proceedings. If the third party claims rights adverse to the rights of the execution creditor, the enforcement ofcer must postpone enforcement to allow the third party to apply to the district court for a declaration. Where the evictee recovers possession without lawful permission, the enforcement ofcer, acting on a motion by the execution creditor, must re-evict. The evictee may be guilty of an offence where he or she gains possession in breach of a court order. For reasons of private international law, an order for the transfer of possession or title over land in Bulgaria, issued in a foreign court or tribunal, is either unenforceable or subject to a more complex enforcement route. This is an area which is not dealt with in this note.
act which he has been ordered to by a court, but which is capable of being performed by another (eg, because it is a service readily available in the market), the judgment creditor may seek the enforcement ofcers permission to obtain performance elsewhere and apply to court to order the judgment debtor to deposit with the court the amount necessary to cover the cost. Where the act ordered to be performed depends on the person of the execution debtor, the enforcement ofcer is entitled to require the debtor to perform, imposing a ne not exceeding Lv 200 (105, $160) for each successive failure to comply with the performance obligation except where the duty is an employment duty.
XXIV.6.3. Cease and desist orders

Where the judgment debtor acts contrary to what the debtor is obligated to do or to suffer, the enforcement ofcer, acting on the motion of the execution creditor, may impose on the debtor a ne not exceeding Lv 400 (210, $320) for each breach.
XXIV.7. Insolvency
Bulgarian law recognises corporate insolvency, the insolvency of an unlimited partner in a limited partnership (technically a body corporate under Bulgarian law) which is itself in insolvency proceedings, and the insolvency of a sole proprietor, but not otherwise personal insolvency. While this may be a consideration where personal guarantees are provided by counterparties who are individuals, there is for the time being no political desire to introduce a law of personal insolvency. Corporate insolvency is in our view commonly used and may be a suitable and cost-effective enforcement mechanism in certain situations. Insolvency proceedings are started in the regular courts and need to be commenced in the rst instance in the district courts of the registered address of the debtor. Applications are initially without notice to the allegedly insolvent
XXIV.6.2. Specic performance

Where the execution debtor fails to perform an
162
counterparty but are subsequently served on it and the counterparty is capable of defending the application. The proceedings are conducted in private to protect such interests of a debtor that may suffer unfairly as a result of an application which may ultimately be found unsupported by the evidence. Insolvency depends on the proof of several key elements: either the debtors inability to meet payments due and/or an over-indebtedness are required. In addition, proof that the debt results from a transaction which is commercial in a legal technical sense is also necessary. Where bankruptcy proceedings are formally opened as part of the insolvency process, various mechanisms kick in to protect creditors interests and any equity of redemption, to administer the corporation through the process and to administer the liquidation. The Bulgarian courts jurisprudence on the subject has evolved quite rapidly and has been marked by several seminal insolvency proceedings in the last several years, including the major Kremikovtzi case. The majority of proceedings tend towards a liquidation at a discount.
the respective court of competent jurisdiction. On becoming effective, administrative acts with a nancial consequence are subject to execution as public obligations.
XXIV.9. Enforcement of Brussels regime judgments XXIV.9.1. Enforcing a Brussels Regulation judgment
Enforcing judgments or equivalent instruments issued by courts in Brussels Regulation states requires their prior registration with the Bulgarian courts. Registration requires written evidence in support; an address for service within Bulgaria; details of any interest on the judgment claimed; a copy of the authentic judgment and a translation of it; a certicate as prescribed in Annex to the Brussels Regulation and a translation of it.
XXIV.9.2. Giving effect to a European Enforcement Order

An European Enforcement Order (EEO) issued by a court in an EU state other than Bulgaria is enforceable via an application to a Bulgarian court for the direct issue of a Execution Order. A court order with which the competent court grants such application may not be appealed and the debtor does not need to be put on notice of its issue. EEOs are issued where the original claim concerns one of a range of relatively clear-cut situations and is commercially highly relevant. The EEO is available in specic conditions in relation to uncontested claims, as per art 3 of Regulation (EC) 805/2004
XXIV.8. Awards and determinations of various regulatory, quasi-judicial and self-regulatory bodies and their interaction with court judgments
These include decisions of the Commission for the Protection of Competition (the national antitrust enforcement agency); the Commission for Consumer Protection; Commission for Protection from Discrimination, Data Protection Commission and various others, which have a supervisory jurisdiction and are able to make ndings of infringement and injunctions. Most ndings of infringement of administrative acts may be appealed before
XXIV.9.3. Giving effect to a European Payment Order5
An EPO issued by a court in a EU country other than Bulgaria is enforceable via an application made to the competent Bulgarian District court for the direct issue of a Execution Order.
Under Regulation (EC) No 1896/2006 of the European Parliament and of the Council
163
CHAPTER TWENTY FIVE: MERGERS AND DE-MERGERS
XXV MERGERS AND DE-MERGERS

XXV.1. Introduction.
This paper sets out the main types of business mergers and de-mergers under Bulgarian law. It focuses on cross border mergers involving Bulgarian companies and companies with a registered address in another Member State of the EU or Contracting Party to the Agreement on the European Economic Area (Member State). In Bulgaria, the European Cross Border Mergers Directive1 (the Directive) has been implemented into law by the Commercial Act.2 This applies to mergers by acquisition and mergers by formation of a new company, where at least one of the companies involved has its registered ofce in a Member State, and is of a company type specied in the First Council Directive3, namely: In Germany: die Aktiengesellschaft, die Kommanditgesellschaft auf Aktien, die Gesellschaft mit beschrnkter Haftung; in Belgium: de naamloze vennootschap, la socit anonyme; in France: la socit anonyme, la socit en commandite par actions, la socit responsabilit limite; in Italy: societ per azioni, societ in accomandita per azioni, societ a responsabilit limitata; in Luxembourg: la socit anonyme, la socit en commandite par actions, la socit responsabilit limite; in the Netherlands: de naamloze vennootschap, de commanditaire vennootschap op aandelen.
Prior to the adoption of the EC law permitting the establishment of a European Company4 (an SE) and Bulgarias entry to the European Union in 2007, the legal possibilities for a cross border merger were limited. A cross border merger in the meaning of a universal legal succession was not possible. Only an acquisition shares and assets under general Bulgarian law was available.
XXV.2. Relevant Bulgarian Laws

In addition to the Directive, the main laws and regulations governing business mergers and de-mergers are the: Commercial Act5 which is the main law regulating corporate issues, including company establishment, transformations/ mergers, shareholder rights and protections, insolvency and liquidation, and others; Public Offering of Securities Act6 which regulates public companies (those listed on the stock exchange or having more than 10,000 shareholders for the past two years) and the mergers in which a public company is involved; Commercial Register7 Act8 that regulates the registration of the merger with the Commercial Register Corporate Income Tax Act9 which regulates the tax issues involved in mergers and acquisitions including cross border mergers; Competition Protection Act10, regulating the merger lings;
Directive 2005/56/EC on cross border mergers of limited liability companies Chapter XVI, new Section V 3 Art. 1 of the First Council Directive (68/151/EEC). 4 Regulation (EC) 2157/2001 on the Statute for a European Company 5 Commercial Act - promulgated State Gazette No 34/2006, as amended 6 Public Offering of Securities Act, promulgated, State Gazette No. 114/30.12.1999, as amended 7 The Commercial Register is a unied centralized electronic database containing the registered facts about merchants, companies, branches of international companies and circumstances related to them as dened under the respective statutory provisions. The Commercial Register is managed by the Registry Agency established with the Ministry of Justice. 8 Commercial Register Act, promulgated, SG. No. 34/25.04.2006, as amended 9 Corporate Income Tax Act, promulgated, State Gazette No. 105/22.12.2006, as amended
1 2
164
WOLF THEISS
Code of Civil Procedure11 which regulates the ling process related to the transformation of entities with nonbusiness purposes, such as foundations; Labour Code12, regulating the employment issues involved in company transformations; Act on Information and Consultation of Workers in Multinational Undertakings, Groups of Undertakings and European Companies13 that regulates the employment issues involved in cross border mergers; Regulation on the Statute for a European Company (SE)14 which regulates the setting up of an European public limitedliability company (Societas Europaea or SE) and the related cross border merger details; and
XXV.4.1 Mergers through:

bundling all assets of one or more companies pass to one existing company that becomes their successor. The transforming companies are dissolved without a liquidation; or consolidation all assets of one or more companies pass to one newly formed company - their successor. The transforming companies shall be dissolved without a liquidation;
XXV.4.2 De-mergers through:

split-up all assets of one company pass to two or more companies - its successors. The transforming company shall be dissolved without a liquidation; or spin-off assets of one company pass to one or more companies - its successors. The transforming company is not dissolved;.
XXV.3. Types of Companies Involved in Mergers and De-mergers

Under Bulgarian law the types of companies that may be involved in mergers and demergers (within the territory of Bulgaria) are general partnerships, limited partnerships, limited liability companies, joint stock companies, and partnerships limited by shares, while the companies involved in cross border mergers may only be equity companies, i.e.: limited liability companies, joint stock companies and partnerships limited by shares.
XXV.5. Universal Succession

The merger, de-merger and change of the companys legal form are generally legally known as company transformations. As a principle, in this case all assets and rights, obligations and liabilities, as well as legal relationships, are transferred from the transferring company to the absorbing or newly formed company by way of universal succession. For comparison, in case of purchase and sale of shares and assets, where separate assets and shares are acquired, the purchasing or acquiring company is not a universal legal successor of the selling company.
XXV.4. Methods of Mergers and Demergers

Under Bulgarian law businesses may be merged and de-merged by:
10 11
Competition Protection Act , promulgated, State Gazette No. 102/28.11.2008, as amended Code of Civil Procedure, promulgated, State Gazette No. 59/20.07.2007, as amended 12 Labour Code, promulgated, State Gazette, No. 26/1.04.1986 and No. 27/4.04.1986 as amended 13 Act on Information and Consultation of Workers in Multinational Undertakings, Groups of Undertakings and European Companies, promulgated, State Gazette No 57/14.07.2006, as amended 14 Regulation (EC) 2157/2001
165
WOLF THEISS
Any permits, licences or concessions held by the merging company shall pass to the acquiring or newly formed one, if not explicitly prohibited under the Bulgarian law. Where the property of a merging company with a registered ofce in Bulgaria includes property rights over immovable, movables or other rights, the transfer of which are subject to registration in a special registry, the certicate issued by the Commercial Register and respectively, the notication for registration issued by the register of the other respective Member State (see item 6.8 below), shall be submitted for ling in the relevant registry.
XXV.6. Cross Border Mergers between Bulgarian and other Member State Companies
The bellow paragraphs summarize the main aspects and procedures related to the cross border mergers between Bulgarian and other Member State Companies. An important part of the cross border mergers are the merger terms (also known as general merger plan) containing the main terms and conditions of the merger.
XXV.6.1 Merger terms

In compliance with the Commercial Act, the merger terms shall be set forth in a general merger plan. Prior to the adoption of the resolution on the merger, the involved companies shall draw up the general merger plan in writing. It shall be signed by the representatives of the companies involved. The general merger plan shall include at least the following particulars: the types, names and registered ofces of the merging companies; the ratio applicable to the exchange of shares determined as of a selected date; the amount of (ancillary) cash payments to shareholders for attaining an equivalent exchange ratio (in an amount not exceeding 10 per cent of the aggregate
nominal value of the interest stakes or shares acquired); a description of the shares which each partner or shareholder is to acquire in the newly formed or acquiring company, including the envisaged increase of capital of the acquiring company, if any such increase is required in order to effect the merger, as well as the conditions regarding the allotment and delivery of shares in the newly formed or in the acquiring company; the date as of which the holding of securities or shares representing the company capital will entitle the holders to a share in prots and any special conditions affecting that entitlement; the date as of which the transactions of the merging companies will be treated for accounting purposes as being those of the company emerging from the cross border merger; the rights conferred by the company emerging from the cross border merger on shareholders enjoying special rights or on holders of securities other than shares; any special advantages granted to the experts who examine the draft terms of the cross border merger or to members of the administrative, management, supervisory or controlling bodies or the auditors of the merging companies; the likely repercussions of the cross border merger on the employees of the companies involved; where appropriate, information on the procedures by which arrangements for the involvement of employees in the denition of their rights to participation in the company resulting from the cross border merger are determined; information on the evaluation of the assets and liabilities which are transferred to the company resulting from the cross border merger; a precise description and allocation of rights and obligations from the property of the transferring company which pass to each newly emerging or absorbing
166
WOLF THEISS
company (to the extent there is more than one emerging or absorbing entity). The following shall constitute an integral part of the general merger plan: (i) a draft of the Articles of Association of the newly formed company or, respectively, the clauses amending and supplementing the Articles of Association of the acquiring company; and (ii) the annual nancial statements and the activity report and/or the balance sheet of the merging companies on the base of which the general merger plan was drawn. The general merger plan has to be led with the Commercial Register at least one month before the date of the General Meeting of the Bulgarian company adopting the resolution on the merger. The plan has to be presented together with the report of the management (see item 6.2.1) and a list containing (i) the company name; (ii) registered address and (iii) the register(s) in which each of the merging companies are registered; (iv) information for each of the companies regarding the applicable rules for protection of its creditors and minority shareholders, as well as (v) the address at which the complete information on those arrangements can be obtained. The report of the management shall be made available to the employees. Any opinions received from the employees shall be enclosed to the report. The merger terms should be accompanied with the report of the management, and the independent expert report.
independent expert report (see item 6.2.2) shall be made available (free of charge) at the registered address of the company to both the shareholders and the employees representatives, if any, or the employees themselves, at least one month prior to the date of the general meeting held to decide upon the proposed cross border merger. The employees representatives may prepare an opinion on the report of the management and such opinion is then to be attached to the report. XXV.6.2.2 Independent expert report An independent nancial expert report intended for the shareholders and made available at least one month before the date of the General Meeting shall be drawn up for each merging company. The expert report shall: indicate the method/methods used to arrive at the exchange ratio of compensation; the extent to which the use of these methods is appropriate and proper in that particular case; determine whether the share exchange ratio proposed for the cash compensation is fair and reasonable; indicate the values arrived at using such method, and the relative signicance of the method in determining the value of the shares or participating interests; particular difculties encountered in the evaluation, if any. The expert shall be liable to all companies involved in the merger and to their shareholders for any damages due to non-performance of his obligations. Neither an examination of the common draft terms of cross border merger by independent experts nor an expert report shall be required if all the shareholders of each of the companies involved in the cross border merger have agreed on that. Such a waiver shall be given in writing. For a jointly appointed expert, the involved parties shall le a respective request to the competent clerk at the Commercial Register.
XXV.6.2 Report of the Management, Independent Expert Report

XXV.6.2.1 Report of the management The management board of each of the merging companies shall draw up a written report on the merger. The report shall explain in detail and shall justify the legal and economic aspects of the general merger plan, and particularly concerning the exchange ratio, as well as the impact of the merger on the position of the shareholders, creditors, and employees. The report of the management and the
WOLF THEISS
167
XXV.6.3 Approval by the General Meeting

On the basis of the general merger plan, the management report, and the expert report (unless waived), the General Meeting of each of the merging companies shall approve the general merger plan of the cross border merger and shall adopt a respective resolution on it. Under the Commercial Act the following majorities are required for passing the resolution on the merger: the resolution on a merger of a limited liability company shall be adopted by the General Meeting by a majority of three-quarters of the capital. A majority of three-quarters of the voting shares represented at the General Meeting is necessary for the adoption of a resolution for a merger of a joint stock company. In case of different classes of shares the resolution is to be adopted by the shareholders of each class. A merger of a partnership limited by shares requires a resolution of the general partners taken unanimously in writing with notarized signatures, and a resolution of the General Meeting adopted by a majority of threequarters of the voting shares represented. Where a member of a limited liability company or a shareholder in a company that has its registered ofce in Bulgaria becomes a general partner in the acquiring or newly formed company, express consent is required on his behalf. The consent shall be considered given if the shareholder has voted in favour of the resolution on the merger. The General Meeting shall be attended by a notary public who is to draw up a memorandum. If a shareholder has not taken part in the voting for adoption of the resolution his consent might be given in writing with a notarized signature. Where the acquiring company is a sole owner of the capital of the merging companies, the transformation (as the merger is then called) shall take place on the basis of a resolution of the sole owner. In such cases an appointment of a nancial expert and an expert report are not required. Furthermore, the general merger plan does not need to contain: (i) the ratio applicable to the exchange of shares; (ii) the amount of the cash payments to shareholders for attaining an
equivalent exchange ratio; (iii) a description of the shares which each partner or shareholder is to acquire in the newly formed or acquiring company; (iv) the date as of which the holding of securities or shares representing the company capital will entitle the holders to share in prots and any special conditions.
XXV.6.4 Minority Shareholders Protection

The Commercial Act does not explicitly dene the cash compensation of minority shareholders in case of a cross border merger. Such shareholder protection is provided for in the Commercial Register Act which is referring to the general rules of the Commercial Act applicable to mergers of Bulgarian companies. Under the Commercial Register Act a claim lodged by a shareholder for cash compensation or participation termination notice (exit notice) shall not be considered an obstacle preventing the issuance of a Certicate under Art. 10 of the Directive; however, the registry ofcial shall note the respective circumstances in the Certicate. Within a period of three months after the date of legal effectiveness of the merger: a shareholder (in a limited liability company or a joint stock company) whose legal status is changing as a result of the merger and who has voted against the resolution on transformation may withdraw from the company where he has received shares. Termination of his participation shall be effected by a written and notarized participation termination notice to the company. The shareholder has the right to receive the equivalent of his shares held prior to the transformation, according to the exchange ratio provided for in the merger agreement or plan; as well as any shareholder may le with the competent court a claim for a cash compensation in case the ratio applicable to the exchange of shares determined under the general merger plan is not equivalent.
168
WOLF THEISS
XXV.6.5 Employment Issues

The general principle with regard to employees rights to participate in the merger process is that national laws apply, governing the company emerging from the cross border merger. By way of exception, the principles and arrangements relating to workers participation laid down in the relevant rules and provisions of the Member State of the absorbing company shall not apply where: at least one of the merging companies within six months before publication of the draft terms of the cross border merger, has an average number of employees that exceeds 500 and is operating under an employment participation system; the national legislation applicable to the company emerging from the cross border merger does not provide for at least the same level of employee participation as the one kept in the relevant merging companies, measured against the proportion of employees representatives in the administrative or supervisory body which covers the prot units of the company, subject to employee representation; the national legislation applicable to the company resulting from the cross border merger does not provide for employees of establishments of that company that are situated in other Member States, the same entitlement to exercise participation rights as is enjoyed by those employees employed in the Member State where the company resulting from the cross border merger has its registered ofce. The above mentioned exceptions result into either (i) the companies involved in the merger and the board of employees representatives agreeing on arrangements for the employees involvement, or (ii) if such agreement cannot be reached (in due time), application of the
so-called standard rules for participation. In principle, those standard rules provide for the application of the highest participation level of the involved companies. In contrast to the SE Regime, the management of the involved companies can decide without any prior negotiations to directly employ the standard rules for participation. The employees representatives must be informed about this decision. There are information duties towards the employees representatives (if any) or to the employees during the process of the cross border merger: The report of the management must include all implications of the merger that would affect the status of the employees. This report shall be made available to the employees representatives (or the employees) at least one month before the general meeting. The employees representatives have the right to provide an opinion which is to be attached to the management report. The employees (or the employees representatives, if any) must be informed about the merger in writing regarding the (proposed/scheduled) date of transfer, the reason for it, the legal, economic and social implications on the employees and any measures envisaged in relation to their status. Upon the merger becoming legally effective, the employment contracts together with all rights and obligations attached to each employment contract are automatically transferred to the absorbing company15. Please note that the Commercial Register can only issue a pre-merger certicate if evidence is presented showing either (i) the correct negotiation with the employees representatives concerning the participation of the employees; or (ii) the management has informed the employees representatives / the employees about its decision to choose to be directly subject to the standard rules for participation.
15 The transfer of any company pension claims or (company) collective agreement must be assessed separately
WOLF THEISS
169
XXV.6.6 Creditor Protection

In order to secure the protection of creditors of merging companies, a list containing an indication, for each of the companies, regarding the rules applicable to protection of its creditors and minority shareholders, as well as the address at which complete information on those arrangements might be obtained, is to be enclosed together with the general merger plan. The list should be led with the Commercial Register together with the general merger plan. Under the Commercial Act there are no explicit provisions for imposing securities or lodging claims by the creditors against the merging companies. With a view to the fact that the Directive was implemented in the Commercial Act in 2007 a court practice on the creditor protection is not available yet either. By way of interpretation it might be concluded that the general creditor protection rules (regulating the protection in case of a mergers between Bulgaria companies) might apply, i.e.: The acquiring or the newly formed company shall manage separately the property of each of the acquired companies which has passed thereto for a period of six months from the moment of registration of the merger. Within a 6 month period each creditor of a company involved in the merger whose claim is not secured and has arisen prior to the date of the merger may demand either an imposition of a security in compliance with his rights or an execution of the debtors obligation; or Where the newly formed company has a smaller amount of the capital, creditors holding claims that have arisen prior to the change of the legal form may demand security up to the amount of the difference in the capital.
companies involved in the merger have had an aggregated turnover of more than BGN 25 million in the business year prior to the merger and the turnover of each of at least two of the companies participating in the concentration on the territory of Bulgaria for the previous nancial year exceeds BGN 3 million, or the turnover for the previous nancial year, of the acquired Bulgarian company, exceeds BGN 3 million.
XXV.6.8 Registration Procedure

XXV.6.8.1 Inbound merger The competent authority for registration procedures related to corporate entities and their status in Bulgaria is the Commercial Register. Under the Commercial Act only newly formed and absorbing companies with a registered address in Bulgaria may initiate the registration procedure before the Commercial Register. For companies having their registered address outside Bulgaria the procedure is not applicable. The procedure is divided into the following steps: 1. ling of the general merger plan together with the attachments and required further documents (for details please see below); 2. registration of the merger. Any documents to be led with the Commercial Register must be translated into Bulgarian language by a certied translator. The management board of the newly formed or absorbing company which has its registered ofce in Bulgaria applies for registration of the merger in the Commercial Register. The following documents have to be enclosed in the application: general merger plan and the resolutions of all companies involved related to the merger; certicate referred to in Art. 10 of the Directive; copy of the Articles of Association of the absorbing company, which contains all amended and supplemented clauses, certied by the representatives; or
XXV.6.7 Merger Filings

The Competition Protection Act requires pre-merger notication to be led with the Competition Protection Commission if the
170
WOLF THEISS
the adopted Articles of Association of the newly formed company and the documents necessary for the registration of the bodies elected; experts reports; consent of shareholders becoming general partners (if any); list of persons acquiring shares, participating interests or membership in a newly formed or absorbing company, the type of membership, as well as data concerning any existing pledges; declaration of the depositories to the effect that the interim certicates or the shares have been delivered thereto (in case of dematerialized shares).
require the issuance of a premerger certicate; and once the merger is completed the Bulgarian company, shall le a request for deletion from the Commercial Register on the basis of a notication from the register of the relevant Member State in which the absorbing or newly formed company is registered.
Both requests should be led with the Commercial Register by the representatives of the transforming Bulgarian company.
XXV.6.9 Legal and Economic Effect of the Merger

The merger is effective from the moment of registration in the Bulgarian Commercial Register, while the transformation to an absorbing or newly formed company with its registered ofce in another Member State shall take effect according to the law of that state. Upon registration, the newly formed company shall be established and the transforming companies shall be dissolved. The rights and obligations of the transforming companies pass automatically to the absorbing or newly formed company. The shareholders in the transforming companies become shareholders in the absorbing or in the newly formed company. It should be noted that a Bulgarian company that owns land cannot be merged with a company registered in another Member State, when the registered address of the newly emerged company is in another Member State. A SE, which has its registered ofce in Bulgaria and which owns land, may not transfer its registered ofce to another Member State. This prohibition applies subject to the conditions of the Bulgarian accession to the European Union. Any permits, licences or concessions held by the transforming company pass to the absorbing or newly formed company, to the extent that a law or the act of conferment does not provide otherwise.
The merger is effective from the moment of the registration in the Commercial Register of the absorbing or, respectively, newly formed company which has its registered ofce in Bulgaria, as well as on the les of the transforming companies which have their registered ofces in Bulgaria, not earlier than fourteen days after the applying if the: transforming companies which have their registered ofces in other Member States have submitted certicates under Art. 10 of the Directive; companies involved in the merger, which have their registered ofces in Bulgaria, have complied with the requirements of the Commercial Act regarding the adoption of the resolution on the merger; transforming company and the absorbing company have approved a general merger plan; and requirements of the Bulgarian law regarding the acquisition or the newly formed company have been complied with. XXV.6.8.2 Outbound merger Where the newly formed or the absorbing company has its registered ofce in another Member State, the transforming companies which have their registered ofces in Bulgaria shall:
WOLF THEISS
171
A PPENDIX: SECTION XIII.3.

List of the Industry Areas that May be Subject to a Licensing Regime1
Banking activities, activity as an electronic monies company, activity related to performance of cash money transfers, as well as activity as a system operator of payment systems; Insurance activity and activity as an insurance broker; Activity as an organised securities market, an investment intermediary, an investment company or a managing company, as well as a special purpose company limited by shares; Carrying out of additional voluntary and mandatory pension insurance and carrying out of activity as an actuary to pension insurance companies; Carrying out of activities related to voluntary unemployment and/or professional qualication social security; Carrying out of activities related to health security; Carrying out of activity as a stock exchange; Carrying out of activity as a customs agent; Carrying out of duty-free trade; Carrying out of gambling activity; Manufacturing, transportation, trade and export of weapons, explosives and ammunition, as well as of certain goods and technologies of possible dual use; Carrying out of private security services; Design, production, import, trade, repair, installation and maintenance of anti-re equipment, performing re precautions activities, performing rehazardous and explosion-hazardous work; Production of compact disks (optical disks) and/ or matrix for the latter; Carrying out of activity as a health institution for hospital care or a social care institution; Conducting clinical tests, manufacturing, trade or import of medicines and medical products; Manufacturing, processing, transportation, trade, import, export and storage of drugs for medicinal and veterinary purposes; Industrial processing of tobacco and manufacturing of tobacco products; Carrying out of technical supervision over risky facilities and checks over measurement devices;
Production of spirits and distillates; Production and preparation of seeds from agricultural plants, testing different sorts of agricultural plans designated for production of seeds, distribution and trade in seeds which deviate from the minimum quality requirements; Carrying out activity as a public warehouse for grain and a grain-store; Extraction, processing and storage of sperm and ova, transplantation of embryos in institutions for articial insemination and carrying out an activity as a breeding association for selection of production within the system of veterinary medicine; Manufacturing and usage of veterinary medicine products and active ingredients for the latter, wholesale and retail trade in veterinary products, and transportation of animals; Industrial shing; Trading in scrap from ferrous and non-ferrous metals; Activities in the eld of energy; Carrying out of activities related to use of nuclear facilities and nuclear material and other sources of ionizing radiation; Exercising construction supervision in construction activities; Carrying out railway transportation of passengers and/or cargo and checking the technical condition of the vehicles and the professional qualication of the respective personnel; Carrying out public transportation, including international transportation, of passengers and cargo by cars; Carrying out checks of the technical condition of vehicles, repair and technical service of such vehicles; Carrying out universal post service or part of it on the territory of Bulgaria; Carrying out of an activity as an airport enterprise, terrestrial service operator or aircraft carrier; Technical service and repair of aircraft equipment; Manufacturing, import and/ or distribution of radio transmission devices for civil needs; Radio and television broadcasting activity; Transportation of cargos along inland water roads; and Delivery of social services for children.
1 The list represents Appendix to Article 9, Section 1, item 2 of the Restricting Administrative Regulation and Administrative Control over Economic Activities Act (promulgated in State Gazette, Issue 55 of 2003, as subsequently amended).
172

Legal Guide 2011

Загружено:

Сведения о документе

Исходное описание:

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Legal Guide 2011

Загружено:

Авторское право:

Доступные форматы

InvestBulgaria Agency

I.1. Legal Framework I.1.1. Laws and Regulations

I.1.2. International Treaties (Bilateral and Multilateral)

I.2. Foreign Investors

I.3. Certication measures and procedures

INVEST BULGARIA AGENCY

INVEST BULGARIA AGENCY

For the development of high-tech parks: BGN 30 million and 50 employees;

INVEST BULGARIA AGENCY

INVEST BULGARIA AGENCY

INVEST BULGARIA AGENCY

INVEST BULGARIA AGENCY

I.4. Invest Bulgaria Agency

INVEST BULGARIA AGENCY

ENTRY, STAY AND WORK OF FOREIGN NATIONALS IN BULGARIA

II.1. General Principles

Directorate at the Ministry of Internal Affairs.

II.3.1. Residence permits

II.3. Residence permits, residence certicates and residence cards

II.3.2. Residence certicates

II.3.3. Residence cards

II.4. Work permits II.4.1. General rules

II.4.2. Foreigners who generally do not require a work permit in Bulgaria

III.1. Legal Framework

III.3. Establishment of a Company

III.2. General Review

DJINGOV , GOUGINSKI, KYUTCHUKOV & VELICHKOV

III.4. Most Commonly Used Forms of Business Organisations

III.4.1. Limited Liability Company

DJINGOV , GOUGINSKI, KYUTCHUKOV & VELICHKOV

III.4.2. Joint Stock Company

DJINGOV , GOUGINSKI, KYUTCHUKOV & VELICHKOV

III.4.4. Trade Representative Ofce

DJINGOV , GOUGINSKI, KYUTCHUKOV & VELICHKOV

RESIDENCE AND CITIZENSHIP THROUGH INVESTMENT IN BULGARIA

IV.3.1. Legal Framework

IV.3.3. Permanent Residence

OWNERSHIP OF REAL ESTATE

V.1. Legislative Framework and General Rules V.1.1. Legislative framework

V.1.3. Indirect acquisition of real estate in Bulgaria by foreign companies or foreigners

V.1.5. Legitimacy of the buyer

V.1.4. The transaction

V.2. Verication of title V.2.1. Notary verication

V.1.6. Statutory costs and expenses for execution of a notary deed

V.2.2. Title review (Real estate legal due diligence)

V.4. Condominium Ownership Management

VI.1.3. Categories of construction works

VI.1.2. Administrative bodies

land plot on which construction works are to be carried out.

VI.2. Participants in the construction process. Insurance

VI.2.5. Structural engineer

VI.2.6. Technical controller

VI.4. Project design VI.4.1. Execution. Compliance valuation

VI.4.2. Approval of the project design. Validity

VI.5. Construction permit VI.5.1. Required documents. Procedure. Validity

VI.6.2. Legal requirements concerning construction works

VI.7. Completion VI.7.1. As-built documentation

VI.8. Permitting the use of completed works. Warranty periods

VI.9. Limitation of Liability

BULGARIAN LABOUR AND SOCIAL SECURITY LAW*

VII.1. Bulgarian Labour Law VII.1.1. Legal Framework

BELOKONSKI GOSPODINOV & PARTNERS IN COOPERATION WITH KARASEK WIETRZYK RECHTSANWLTE2

VII.1.2. Legal Denitions