Expanding Your Business to Bulgaria: A Legal Guide for Czech Companies

Bulgaria has become an attractive destination for expansion for Czech companies thanks to one of the lowest corporate tax rates in the EU (10%), low labor costs, and a strategic location on the EU border. For your Czech company to successfully enter the Bulgarian market, it is essential to understand the legal framework, registration procedures, and practical steps required for establishing a company or a branch under local regulations.

Quick Summary

• A Czech company can establish either a separate legal entity in Bulgaria (most common) or set up a branch of a foreign company.
• The registration process typically takes 2–3 weeks and requires Bulgarian legal documents in Bulgarian (or bilingual), notarization, and payment of the share capital.
• A branch (Klon) is not a separate legal entity but an organizational unit of the parent company; it is operationally linked to the parent, which bears full liability for its obligations.
• Czech companies often face complications when opening bank accounts (AML regulations), securing a registered office, and meeting tax obligations.

Key Decision: Branch Office or Subsidiary?

The first step in expanding to Bulgaria is a fundamental strategic decision on how your Czech company should conduct business in Bulgaria. You essentially have two options: establish a branch (organizational unit) of your Czech company or set up an entirely new Bulgarian company as a subsidiary. This decision will affect your tax position, legal liability, operational complexity, and the future flexibility of your business.

Branch of a Foreign Company and the Risk of Liability Transfer

A branch (Klon) is not a separate legal entity. It is an organizational unit of your Czech company that performs business activities in Bulgaria according to Art. 17a of the Bulgarian Commercial Act (Targovski zakon). Although it has its own ID number (EIK) and maintains its own accounting for Bulgarian tax purposes, from a legal perspective, it remains part of the parent entity.

In certain specific cases, a branch may be easier to liquidate (strike off) than a capital company, and no share capital contribution is required for its establishment.

The disadvantage is that the Czech parent company bears full legal and financial liability for all the branch's obligations. If the branch incurs debt, creditors can seek satisfaction directly from the assets of the parent company in the Czech Republic. A branch creates a so-called permanent establishment for income tax purposes, and profits generated by the branch are taxed in Bulgaria.

Subsidiary with Greater Flexibility

The alternative is to establish an entirely new Bulgarian company. The most frequently chosen form is an OOD (Družestvo s ograničena otgovornost), which is the equivalent of a Czech limited liability company as defined in Chapter Thirteen of the Bulgarian Commercial Act. For a single owner, there is the EOOD variant (Ednolično družestvo s ograničena otgovornost).

A subsidiary is a separate legal entity, meaning your Czech parent company is not automatically liable for the obligations of the Bulgarian subsidiary.

However, the registration process requires the preparation of founding documents (Articles of Association/Foundation Deed) and the payment of share capital (minimum 2 BGN, though more is recommended). It is also necessary to maintain full double-entry bookkeeping according to Bulgarian standards.

MicroFAQ: Choosing Between a Branch and a Subsidiary

1. When is it more appropriate to establish a branch?
A branch may be suitable for specific projects where it is necessary for the parent company to be the direct contracting party (e.g., due to references in public tenders), or for low-cost market testing without the need to deposit capital.

2. When should a subsidiary be chosen?
If you plan a long-term presence, standard commercial operations, protection of the parent company's assets, or if you want to build an independent brand in the market, a subsidiary (OOD/EOOD) is the correct and safer choice.

3. Can the structure be changed later?
Yes, procedures for transformation or business transfer exist, but they are administratively and legally demanding. It is more efficient to choose the right form from the start. Our Czech legal team at ARROWS law firm can help you set up the optimal strategy. Simply contact office@arws.cz.

Registration of a Subsidiary in Bulgaria

If you decide to establish a subsidiary, you will need to go through a series of steps leading to its entry in the Bulgarian Commercial Register (Targovski registar) maintained by the Registration Agency.

Document Preparation and Choosing a Legal Form

The first step is deciding on the legal form. Most often, Czech companies choose an OOD (limited liability company with multiple partners) or an EOOD (limited liability company with a single partner). There is also the AD (Akcionerno družestvo), which is a joint-stock company suitable for large projects with a minimum capital of 50,000 BGN under the Commercial Act.

After choosing the form, it is necessary to prepare the documents:

• Articles of Association / Foundation Deed (Družestven dogovor / Učreditelen akt).
• Resolution on the establishment of the company (minutes of the general meeting or the sole shareholder's decision).
• Specimen signature of the managing director, which must be notarized.
• Managing director's declaration regarding fulfillment of conditions and truthfulness of data.
• Proof of capital payment and an extract from the commercial register of the parent company.

Documents signed in the Czech Republic must be provided with higher authentication (an apostille) unless an international treaty states otherwise (the Legal Assistance Treaty – Decree No. 3/1978 Coll. applies between the Czech Republic and Bulgaria), and must be officially translated into Bulgarian.

MicroFAQ: Documents for Registration

1. Do I need to be physically present in Bulgaria for registration?
Not necessarily. You can authorize an attorney via power of attorney. However, for opening a bank account, the physical presence of the managing director (or ultimate beneficial owner) is often required by banks due to AML regulations. Our Prague-based attorneys at ARROWS law firm can streamline these processes as much as possible.

2. How long does document preparation take?
Typically 3–5 working days. Translations and notarizations may extend the process.

3. How much does registration cost?
The state fee for registering an OOD/EOOD is 55 BGN (approx. 28 EUR) for electronic filing and 110 BGN for in-person filing. However, costs for legal services, translations, notary fees, and bank fees range from hundreds to low thousands of EUR.

Opening an Account for Capital Payment and Deposit

One of the critical steps is opening a so-called escrow/collection account (nabiratelna smetka) for the deposit of the share capital. Due to strict Anti-Money Laundering (AML) rules based on the Law on Measures against Money Laundering (LMML), banks conduct thorough Know Your Customer (KYC) checks on foreign owners.

The procedure involves selecting a bank, submitting corporate documents and information about the Ultimate Beneficial Owner (UBO), opening the account, and depositing the capital, which provides you with a certificate of capital contribution.

Without this certificate, the company cannot be registered in the Commercial Register (except for specific exceptions for very low capital contributions in certain situations).

Who can you contact?

Registration in the Bulgarian Commercial Register

With the complete documentation, an application for registration (Form A4) is submitted. If submitted electronically by our Czech legal team or local partners, the fee is lower and the process is faster. The Registration Agency (Agentura po vpisvanijata) has a statutory deadline for decisions; in practice, registration usually takes place within 3–5 business days of submitting a flawless application. Upon registration, the company receives an EIK (Unified Identification Code).

Tax Registration and Obligations

By registering in the Commercial Register, the company is automatically registered with the National Revenue Agency (NRA) for basic tax purposes. Before you start invoicing or hiring employees, you must submit a declaration of commencement of activity to the social security administration.

VAT registration is mandatory if the turnover for the last 12 months exceeds BGN 100,000 (approx. EUR 51,130) according to Art. 96 of the VAT Act.

From 2025, an increase of the limit to BGN 166,000 (EUR 85,000) is planned based on Council Directive (EU) 2020/285, but it is necessary to monitor the current legislative status. Voluntary VAT registration is possible at any time (suitable for international trade).

MicroFAQ: Tax Obligations After Registration

1. How often are tax returns filed?
Corporate income tax is declared once a year – the deadline is June 30 of the following year (including tax payment) according to the Corporate Income Tax Act (CITA). VAT returns are filed monthly, no later than the 14th day of the following month.

2. What is the corporate tax rate?
The rate is 10% of profit. Dividends paid to individuals are subject to a 5% withholding tax. Dividends paid to a parent company in the EU (meeting the conditions of Council Directive 2011/96/EU) are exempt from withholding tax.

3. Are there tax incentives?
Bulgaria offers specific incentives, e.g., for investments in regions with high unemployment, but the general rate of 10% is already very low in itself.

Risks and Sanctions	How ARROWS (office@arws.cz) assists
Formal document defects: Rejection of registration by the registry court. Loss of the paid fee and time delay.	Legal review: Our Prague-based attorneys ensure that documents (including bilingual versions) meet all requirements under Bulgarian law.
Late VAT registration: If you exceed the turnover threshold and do not register in time, you face fines and VAT assessment.	Tax monitoring: We monitor your obligations and ensure timely registration (both mandatory and voluntary).
Banking issues (AML): Refusal to open an account for a Czech parent company due to an unclear UBO structure.	Compliance support: We prepare complete documentation for the bank proving the source of funds and ownership structure according to AML legislation.
Failure to register the Beneficial Owner (UBO): Obligation to register the UBO in the Commercial Register if not apparent directly from the entry.	UBO Registration: We ensure the correct registration of ultimate beneficial owners in the register within the deadline after company formation.

Registration of a Foreign Company Branch in Bulgaria

The process of registering a branch is slightly more demanding in terms of translations regarding the parent company's documentation. The application is submitted to the Commercial Register, and after registration, the branch receives an EIK.

Documents Required for Branch Registration

• An extract from the Czech Commercial Register proving the existence of the parent company and the persons authorized to act on its behalf.
• The current version of the Articles of Association/Statutes of the parent company.
• Resolution on the establishment of the branch, its address, scope of business, and appointment of the branch manager.
• Granting of power of attorney and consent of the branch manager with a notarized signature (Specimen).
• Financial statements of the parent company for the last accounting period (sometimes required).

All documents from the Czech Republic must be officially translated into Bulgarian.

MicroFAQ: Branch Registration

1. Who can be a branch manager?
A natural person (Czech citizen, Bulgarian, or foreigner). They do not need to have permanent residency in Bulgaria, but it is advantageous for practical operations.

2. What are the tax obligations of a branch?
The branch maintains accounting for its activities in Bulgaria. The branch's profit is taxed with Bulgarian income tax (10%). The transfer of profit from the branch to the parent company (taxed in BG) is no longer subject to withholding tax in Bulgaria.

3. Liability:
As mentioned, the Czech parent company is liable for the branch's obligations with all its assets.

Practical Aspects: Registered Office and Bank Account

Registered Office in Bulgaria

Every company and branch must have a registered address (seat) in Bulgaria. Authorities deliver correspondence to this address. You can choose a real office, a virtual office, or a seat at a lawyer's office.

You must be able to receive mail at the address, as the non-deliverability of correspondence from the NRA (tax office) can lead to VAT deregistration and serious problems.

Bank Account in Bulgaria

After the company is established, it is necessary to convert the escrow account into a current account or open a new one. Bulgarian banks (e.g., UniCredit Bulbank, DSK, UBB, Postbank) are cautious.

A practical tip is to open an account with a bank that is part of the same financial group as your Czech bank, which may facilitate the process. Expect account maintenance fees in the range of approx. EUR 10–30 per month and fees for international payments.

MicroFAQ: Bank Accounts and Payments

1. Can I have an account in EUR?
Yes, this is common. Furthermore, the Bulgarian currency (Lev - BGN) is pegged to the EUR at a fixed rate (approx. 1.95583 BGN = 1 EUR), which eliminates exchange rate risk against the Euro.

2. Can I use fintech (Revolut, Wise)?
For operational activities, yes. However, for tax payments and payments to the state budget, an account in a local bank is preferable (and often necessary), as they support the specific format of budget payments (so-called BISERA/RINGS systems).

Tax and Legal Obligations After Registration

Tax Returns and Accounting

Bulgarian accounting regulations are harmonized with the EU but are formally strict. Documents must be in Bulgarian (or with a translation). Monthly VAT (returns and sales records) must be submitted by the 14th day of the following month according to the VAT Act. The annual income tax is handled by June 30.

Financial statements must be published in the Bulgarian Commercial Register by September 30th of the following year, in accordance with the Accountancy Act (Zakon za schetovodstvoto). Non-compliance with this deadline is automatically and strictly penalized in Bulgaria (fines start at hundreds to thousands of BGN).

Accounting Services

Czech companies with a subsidiary in Bulgaria usually hire a local accounting firm. Prices for accounting services range from EUR 100 per month for inactive/small companies to several hundred EUR for active commercial entities.

Bulgaria implements strict rules for cash payments. Payments exceeding BGN 10,000 (approx. EUR 5,000) must be conducted exclusively via bank transfer through a bank account, according to the Law on Limitation of Cash Payments.

Common Pitfalls and How to Avoid Them

Absence of Local Support

Language barriers and lack of familiarity with the specifics of official communication can be an issue, as forms are in Cyrillic and the Bulgarian language. The solution is cooperation with a Czech-Bulgarian legal team; ARROWS International has proven partners in Bulgaria.

Neglecting UBO Registration

Many companies forget to report the "Ultimate Beneficial Owner" (UBO) to the register after incorporation if it is not directly apparent from the shareholder structure (natural persons), which is a mandatory obligation under the Bulgarian Anti-Money Laundering Act.

Errors in VAT Invoicing

Bulgarian invoices must contain specific mandatory requirements. Missing data can lead to the rejection of VAT deductions; therefore, it is essential to ensure the correct setup of invoicing systems.

Risks and Sanctions	How ARROWS Assists (office@arws.cz)
Late Publication of Statements: Fines for failing to publish annual financial statements in the register by Sept 30th (fines of BGN 200–3,000).	Deadline Monitoring: Our Prague-based attorneys will alert you to upcoming deadlines and ensure the publication of documents.
Late VAT Payments: Penalties and late payment interest.	Communication with Accountants: We coordinate the transfer of documents between you and the Bulgarian accounting firm.
Cash Limits: Violation of the ban on cash payments over BGN 10,000 (fine of 25% to 50% of the amount).	Advisory: We inform you about the limits and rules of financial transactions under Bulgarian law.
Incorrect Tax Structure: Double taxation or failure to utilize the Parent-Subsidiary Directive.	Tax Optimization: Our Czech legal team will set up a structure that is tax-efficient and compliant with the relevant Double Taxation Treaty.

Conclusion

Expanding your Czech company into Bulgaria is a strategic step that can bring significant tax savings and access to new markets. Whether you choose a branch or a subsidiary, the key to success is not underestimating administrative preparation and compliance. The registration process is formal and requires precision.

Thanks to our ARROWS International network and direct connection to Bulgarian colleagues, we can manage the entire process efficiently, securely, and without the need for your long-term presence abroad.

ARROWS law firm in Prague is insured for damages up to CZK 400,000,000. If you want to increase your chances of success and avoid unnecessary complications, contact us at office@arws.cz – we will propose a tailor-made solution for you.

FAQ – Frequently Asked Legal Questions Regarding Company Registration in Bulgaria

1. What is the minimum capital required to establish a company in Bulgaria?
The legal minimum for an OOD/EOOD is BGN 2. In practice, we recommend depositing at least BGN 100–500 to ensure the company appears credible and has funds to cover initial fees.

2. How long does it take to register a company or a branch?
The actual entry into the register usually takes 3–5 business days from filing. The entire process, including document preparation, notarization, translations, and opening an account, typically takes 2–3 weeks.

3. Can I own a Bulgarian company as a Czech citizen or company?
Yes, without restrictions. Both shareholders and directors can be foreigners (natural or legal persons, though a director must always be a natural person).

4. What if I do not open a bank account?
Depositing capital into an account is generally necessary for company formation. If the company subsequently lacks an operational account, it complicates the payment of taxes and social security contributions, which can lead to state sanctions.

5. How are dividends taxed from Bulgaria to the Czech Republic?
If the parent company is a Czech s.r.o. or a.s. holding a stake in a Bulgarian subsidiary (meeting EU Directive conditions, typically at least a 10% stake held continuously for a certain period), the dividend payout in Bulgaria is exempt from withholding tax (0%).

6. What are the biggest risks I should avoid?
Underestimating mandatory VAT registration when turnover thresholds are exceeded, failing to publish financial statements in the Commercial Register within the legal deadline, and failing to register the Ultimate Beneficial Owner (UBO). All these risks can be prevented with quality legal and accounting support. Contact office@arws.cz.

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, legislation and its interpretation evolve over time. To verify the current wording of regulations and their application to your specific situation, it is essential to contact ARROWS law firm in Prague 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; therefore, do not hesitate to contact us.

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