Expanding to Bulgaria: Opportunities, Legal Risks, and Eurozone Preparation

Bulgaria attracts Czech expansion with its 10% corporate tax rate and planned entry into the eurozone. However, doing business there carries risks ranging from strict inspections to specific challenges in debt collection. This article provides an overview of the necessary steps before entering the market and advice on how to avoid legal issues that could cost tens of thousands of euros under Bulgarian and regional legislation.

Quick Summary

• Low Taxes and Fast Registration: The corporate tax rate is 10%, the minimum share capital is only 2 BGN (approx. 1 EUR), and companies are typically registered within 3–5 business days, which is highly attractive for entrepreneurs.
• Preparation for the Eurozone: Bulgaria is working intensively to meet the criteria for adopting the Euro (current target date is 2025 or 2026), which will eliminate transaction costs and exchange rate risks.
• Labor Law and Tax Complexities Require an Expert: Bulgarian labor law is more formal than Czech legislation, double-entry bookkeeping is mandatory, and the tax authorities (NAP) are uncompromising.
• Choosing the Right Partner and Credit Checks: Incorrect partner selection or insufficient due diligence can lead to unpaid invoices, fraud, and difficult legal enforcement in Bulgarian courts.

Economic and Political Environment in Bulgaria

Bulgaria has been a member of the European Union since 2007 and is striving to enter the Eurozone, although the exact date of adoption depends on meeting convergence criteria. This integration opens market access for international businesses and simplifies cross-border transactions. The economy shows stable growth, with GDP growing at a rate of around 2% in recent years.

Bulgaria has long been in the sights of international investors, particularly in energy, real estate, and the IT sector, with mutual trade growing steadily.

Although the economic environment shows positive trends, Bulgaria faces structural challenges. It has the lowest GDP per capita in the EU and deals with political instability, manifested by a series of early elections between 2021–2024. Frequent changes in government and caretaker cabinets can slow down legislative processes.

The Tax System and Differences from the Czech Republic

The most attractive aspect of Bulgaria for foreign entrepreneurs is the tax system. The flat Corporate Income Tax (CIT) is 10%, as stipulated by the Corporate Income Tax Act, which is one of the lowest rates in the entire Union. The average EU rate is significantly higher, making Bulgaria a tax-efficient jurisdiction.

Bulgaria also offers the possibility of 0% income tax in regions with high unemployment, and the withholding tax on dividends is only 5%.

Low taxes are complemented by lower operating costs: energy prices for industry and labor costs are among the lowest in the EU, although they are gradually rising. This allows companies to establish efficient production or service centers.

VAT and its Specifics in the Bulgarian Economy

The standard VAT rate in Bulgaria is 20% according to the Value Added Tax Act. There is a reduced rate of 9% and a zero rate for international transport or the supply of goods to another EU member state. Mandatory VAT registration occurs if a company's taxable turnover exceeds 100,000 BGN over the last 12 consecutive months.

If you provide services to a business in the Czech Republic (B2B), the place of supply is in the Czech Republic and you invoice under the reverse charge regime. However, if you receive services from abroad, you must register for VAT in Bulgaria under special provisions, often even before reaching the turnover threshold.

Using a Czech bank account for a Bulgarian company is possible, but for VAT refunds or tax payments to the Bulgarian authorities, an account held in Bulgaria is often necessary. An alternative is an institution that allows payments to the state budget (BISERA/RINGS system).

microFAQ: Tax Obligations in Bulgaria

1. Can a foreign company have a branch in Bulgaria?
A branch (organizational unit) of a foreign entity does not have its own legal personality but is a tax subject in Bulgaria. It must maintain separate accounting for Bulgarian operations and file tax returns there.

2. What happens if I have errors in VAT reporting?
The Bulgarian authorities (NAP) are digitized and perform strict audits. Sanctions for incorrect VAT management or failure to file reports are high. When requesting a VAT refund, a tax audit is almost a rule.

3. Where can you learn about current tax changes?
The primary sources are the National Revenue Agency (NAP) and the Ministry of Finance. We recommend using the services of a local tax advisor or a law firm, as the interpretation of regulations can change.

Company Registration in Bulgaria

Establishing a company in Bulgaria (most commonly an OOD – equivalent to a Czech s.r.o. or Ltd.) is administratively manageable but requires precision. The registered capital can be as little as 2 leva (BGN), approximately 1 EUR. A company can be established via power of attorney without the shareholder having to travel to Bulgaria.

The process begins with choosing a unique business name in Cyrillic and depositing the registered capital into a restricted account.

The Agency has a statutory deadline for decisions, which is very short for electronic filings, but in practice for foreign owners, the process may take longer due to document verification. An important obligation is also the registration of Ultimate Beneficial Owners (UBO) in the register according to the Measures Against Money Laundering Act.

Our attorneys in Prague at ARROWS provide a complete turnkey registration process, including bilingual documentation and representation before the authorities.

Tax Registration and Accounting Obligations

Once the identification number (EIK) is assigned, the company is registered. Subsequently, it is necessary to ensure access to the tax office's electronic services. Bulgarian legislation requires double-entry bookkeeping according to local and international standards. Corporate income tax returns are filed by June 30th of the following year.

microFAQ: Registration in the Bulgarian Commercial Register

1. Do I have to travel to Bulgaria for registration?
Not necessarily. Most actions can be performed remotely via power of attorney. Documents signed abroad must be notarized and provided with an apostille (unless a bilateral legal assistance treaty applies).

2. What happens if the Registration Agency returns the application?
You will receive instructions to rectify defects within a deadline (usually 3 days). If the defects are not corrected, the application is rejected and the administrative fee is forfeited.

3. How long does it take to gain legal personality?
The company is created upon entry into the register. From the submission of a flawless application, it usually takes 3–5 business days. Document preparation and translations take approximately 1–2 weeks beforehand.

Opening a Bank Account

While setting up a company is relatively fast, opening a bank account for a company with foreign owners in a Bulgarian bank is complex. Banks perform in-depth due diligence (KYC) as part of AML procedures, requiring the personal presence of the director, proof of economic substance, and ties to Bulgaria.

A solution may be to use fintech institutions that provide IBANs and are accepted in Bulgaria, or to open an account in another EU country.

ARROWS law firm in Prague assists clients with preparing documentation for banks and finding alternative solutions to secure financial flows.

Employment Law Specifics

The Bulgarian Labor Code is formal and protective. If you employ people in Bulgaria, you are governed by Bulgarian law. An employment contract must be in writing and is subject to mandatory registration with the National Revenue Agency (NAP) within 3 days of its signing.

A mandatory part of the documentation is the job description, which the employee must sign; otherwise, the employment relationship is considered incomplete.

As of January 1, 2025, the minimum wage in Bulgaria is 1,077 BGN (approx. 550 EUR) based on Government Decree. The employer pays social security contributions of approximately 18.92% above the gross wage according to the Social Insurance Act.

microFAQ: Employment Law Specifics in Bulgaria

1. Must the employment contract be in Bulgarian?
Yes, all employment documentation must be in Bulgarian. Bilingual versions are possible, but the Bulgarian text is legally decisive.

2. What about termination?
Grounds for termination are exhaustively defined by law. Termination "without cause" is not possible for indefinite employment contracts on the part of the employer.

3. Is a Job Description really necessary?
Yes, it is a legal requirement. Its absence is one of the most common findings during labor inspection audits.

Selecting a Business Partner and Verifying Credibility

The Bulgarian market is characterized by the phenomenon of so-called inter-company debt and longer invoice payment terms. Caution is necessary regarding "shell" companies that have no assets.

Verifying a partner should include an extract from the Commercial Register, a VAT registration check, and insolvency verification.

Our Czech legal team at ARROWS provides in-depth due diligence of Bulgarian entities to ensure clients do not enter into relationships with high-risk entities.

Legal and Contractual Aspects of Business Cooperation

Contracts with Bulgarian partners within the EU are governed by the Rome I Regulation, which means parties can choose the governing law. However, if a dispute arises, enforcement in Bulgaria will be governed by Bulgarian procedural law.

Litigation in Bulgaria can be lengthy; therefore, it is crucial to have high-quality contracts with clear rules and an enforceable arbitration clause.

Note on pricing: In Bulgarian B2B transactions, prices are often quoted excluding VAT, but this must be explicitly stated in the contract. The general statute of limitations is 5 years, but for certain periodic payments, it is only 3 years under the Law on Obligations and Contracts.

Risks and Potential Issues

Risks and Sanctions	How ARROWS Assists (office@arws.cz)
Incorrect Tax Registration and VAT: Fines for late VAT registration or incorrect filings can reach thousands of euros and lead to tax assessments.	Tax Compliance: We ensure timely registration.
Unenforceability of Rights: Courts are overburdened and proceedings take a long time. Without securing the debt, the chance of recovery is low.	Prevention and Enforcement: We prepare strong contracts with security instruments.
Labor Law Fines: The absence of mandatory documentation or failure to report an employee is sanctioned with high fines from the Labor Inspectorate.	HR Agenda: Our Prague-based attorneys prepare all employment contracts.
Bank Account and AML: Rejection of account opening by the bank due to the "riskiness" of a foreign owner.	Banking Advisory: We assist with KYC processes at banks.
Administrative Omissions: For example, failing to register the Ultimate Beneficial Owner (UBO) carries fines in the thousands of BGN.	Corporate Housekeeping: We monitor deadlines and registry changes.

Political and Economic Trends: Outlook for the Coming Years

Bulgaria is undergoing a period of transformation aiming for full integration into the Eurozone and Schengen (after joining the air/sea Schengen, it is striving for land borders). Adopting the Euro is a government priority, which will simplify trade for international firms in the future. However, the political scene remains dynamic.

Although political instability may cause concern, the private sector operates normally, and the country remains a strategic market for Czech and international firms due to geographic proximity and historical ties.

Preparation for the Eurozone

Bulgaria has set a goal to adopt the Euro (original deadlines were pushed back, currently targeting the 2025/2026 period). For businesses, this will mean simplified payments and eliminating the need for CZK/EUR/BGN exchange (the Bulgarian Lev is, however, firmly pegged to the Euro at a rate of 1.95583 BGN/EUR).

Preparation for the transition will require adjustments to accounting systems, capital revaluation, and changes in price lists. Our Czech legal team monitors legislative preparations for the conversion and is ready to guide clients through this process.

Who can you contact?

Support for Czech Business in Bulgaria

Czech companies can contact the Embassy of the Czech Republic in Sofia, which provides economic diplomacy services. Furthermore, the Bulgaria-Czech Chamber of Commerce operates to bring companies together and assist with networking.

Programs such as PROPEA exist, which (depending on current calls) can financially support expansion and the use of professional advisors when entering the market.

International Contractual Relations

A Double Taxation Treaty (from 1998) exists between the Czech Republic and Bulgaria, preventing the same income from being taxed twice. Furthermore, a bilateral treaty on legal assistance applies, which in certain cases simplifies the recognition of public documents.

Taking advantage of double taxation treaties requires proof of tax domicile and correct invoicing setup, which an ARROWS tax specialist can assist you with.

Table of Main Administrative Obligations

Administrative Obligation	Deadline / Term	Note
Company Registration (OOD)	3–5 days from filing	Requires an escrow account for capital
UBO Registration	After entry into the register	Obligation under the AML Act
VAT Registration	Before exceeding 100k BGN turnover	Or voluntary / mandatory for foreign services
Employment Contract Reporting	Within 3 days of signing	Before starting work
Tax Return (CIT)	By June 30th	According to the current Income Tax Act
Publication of Financial Statements	By September 30th of the following year	In the Commercial Register

Specific challenges for small and medium-sized enterprises

Smaller companies often underestimate the language barrier (official communication is exclusively in Bulgarian) and the necessity of a local accountant. Attempts to manage a Bulgarian company "remotely" without a local representative often end in administrative collapse or fines for failing to collect electronic or physical mail. ARROWS offers solutions in the form of providing a registered office and mailbox management to ensure the company remains in compliance with the law.

Conclusion

Entering the Bulgarian market is a logical step for expansion into the Balkans. The combination of low taxes and growing consumption is attractive. However, success depends on not underestimating bureaucracy and legal risks.

The attorneys at the ARROWS law firm have years of experience and know-how in Bulgaria that will save you time and money.

Contact us at office@arws.cz for a non-binding consultation regarding your business plan.

FAQ – Frequently Asked Legal Questions

1. Which legal form should I choose?
The most common is an OOD (limited liability company) or EOOD (sole-member LLC). It is flexible and requires minimal capital. A joint-stock company (AD) is suitable for large projects (minimum capital of 50,000 BGN).

2. How much does it cost to set up a company?
State fees are low (approx. 55–80 EUR), but you must account for notary costs, translations, bank fees, and legal services. Overall, professional incorporation ranges from hundreds to low thousands of euros depending on complexity. Write to us for a quote at office@arws.cz.

3. What are the total labor costs?
The employer must add approximately 19% in social security and health insurance contributions to the gross wage. Personal income tax is a flat rate of 10%.

4. What are the risks of ignoring regulations?
Freezing of bank accounts, high fines from the NAP (National Revenue Agency), VAT forfeiture, and in extreme cases, criminal liability for the managing director.

5. How can I verify a Bulgarian partner?
The basis is the Commercial Register (brra.bg). For a deeper background check (debts, litigation, reputation), utilize the services of a law firm.

6. What are the most common mistakes?
Underestimating mandatory VAT registration when receiving services from abroad (Facebook, Google ads), incomplete employment contracts, and relying on oral agreements with partners.

Disclaimer: The information contained in this article is for general informational purposes only and serves as a basic guide to the issue. Although we strive for maximum accuracy, legal regulations and their interpretation evolve over time. To verify the current wording of regulations and their application to your specific situation, it is essential to contact the ARROWS law firm directly (office@arws.cz). We bear no responsibility for any damages or complications arising from the independent use of information from this article without our prior individual legal consultation and professional assessment. Every case requires a tailor-made solution, so please do not hesitate to contact us.

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