INTRODUCTION:

 

The Bulgarian economy suffered serious and dynamic development in recent years. Due to lower tax rates, favorable geographical location and membership in the European Union, the country has become a preferred destination for directing capital and development of new industries that were either stagnant over the last two decades or have lack of resources for their development. With the accession of Bulgaria to the EU and the two-way opening markets, the economy has undergone rapid development, together with both the abrupt rises and recessions. However, with the view of the shaky economy in the world, the country currently has one of the smallest deficits in Europe and relatively low external debt to its own GDP. 

Over the past year the number of mergers and acquisitions, as well as their size decreases compared to 2011. The main transactions are in the areas of agriculture, telecommunications, food, and energy. 

In order to overcome the decrease in the investment activity and to stimulate investments, the Bulgarian government amended an important for the foreign investor's law - Investment Promotion Act ("IPA"). 

The changes in the law can be divided conditionally into 4 main groups:

 

EXPOSITION: 

OPTIMIZATION OF THE PROCEDURE FOR CERTIFICATION THROUGH DECENTRALIZATION AND EXTENTION OF THE POWERS OF THE MUNICIPALITIES FOR INVESTMENT PROMOTION 

Changes of IPA in this regard aim to enable the Municipalities in Bulgaria to encourage the investments in their own region, taking into account its specific needs. In this respect, the law provides the mayor with the right to issue a municipal certificate for investment class "C" which threshold for certification is lesser than the minimum for class "B" if the investment project is in the relative municipality. The incentives for projects with certificate class "C" are: 

  • Individual administrative services including shorter terms for the services provided by the municipalities;
  • Providing ownership or limited real rights without tender over real estates which are private municipal property. 

 

ENTERING OF ADDITIONAL CRITERIA FOR CERTIFICATION OF THE CLASS OF THE INVESTMENTS – NUMBER OF NEWLY OPENED JOBS 

The amendments to the IPA actually change the criteria that should be met by the investment project to receive investment class certificate. In so far, in the current legislation, there were two criteria that the priority investment projects have to meet cumulatively - the amount of the investment and the number of new jobs that are supposed to be open. With the new amendments, IPA provides that the two criteria could move in inverse proportion, giving priority to the creation of new jobs - lower investment, but generating higher employment. This will allow companies with less capital and resources to develop new investment projects which projects will lead to the reduction of unemployment and will cover a wide range of people. 

INTRODUCTION OF A NEW INCENTIVE MEASURE - RECOVERY OF THE PART OF THE OBLIGATORY INSURANCE PAYMENTS FROM THE INVESTORS, AS EMPLOYERS FOR CERTAIN PERIODS OF TIME

 

Another important change in the IPA is the introduction of an incentive measure, which is subject to partial reimbursement of investors’ obligatory insurance payments for employees occupying new jobs. The new measure will be applied to high-tech projects or those implemented in areas with unemployment rates exceeding the average for the country. Thus the aim is to be developed new sectors, sustainable economic development and to address the high unemployment in some communities. Furthermore, this measure is a strong incentive for investors to be innovative. The measure is applicable to small, medium and large enterprises and aims to create long-term employment - at least 3 to 5 years as of receiving the financial aid. 

It is important that this measure should be distinguished from similar measures focused on the financial support for the construction of public technical infrastructure. Need for such infrastructure next to the border of their property usually have production companies or industrial investors which aim to construct new or to expand existing facilities. The new measure provided in IPA is primarily targeted towards the service sector, which generates more jobs. The measures for financial support for construction of public infrastructure and the newly amended measures in IPA could still be applied to projects in the industrial sector, but now the investor has the opportunity to take advantage of only one of them, appreciating his own specific needs. The two measures cannot be applied simultaneously within the same project. 

In itself, the new measure provides the investor with free financial support to the amount of the already paid by the employer contributions for each employee who has been appointed at newly created job. In addition to the criteria for innovation or for a region with a high unemployment rate, the projects should qualify also for investments that can obtain regional aid. 

Due to the need to comply with strict fiscal policy and to reduce the budget expenditures are included limitations of the maximum amount for financial support per employee and the period to which the measure will be implemented. 

In order for the investor to recover part of the obligatory social security contributions, he must meet the following conditions cumulatively: 

  • the investment is completed on time and the amount is verified through financial statements in accordance with the Accounting Act, certified by a registered auditor under the Independent Financial Audit Act and the operative expenses of the auditor shall be on behalf of the investor; 
  • The number of the newly opened jobs created with the implementation of the investment, towards the average number of the personnel, is not lesser than the specified threshold; 
  • the annual salary of the employees on employment contracts in the enterprise should be higher than the average national salary for the respective business in which the investment project is implemented, according to the National Statistics Institute and others; 
  • The investor has actually paid all due securities attested by a document issued by the NRA.

 

ADDITIONAL MEASURES RELATED TO THE OPPORTUNITY FOR FOREIGNERS FROM THIRD PARTIES - POTENTIAL INVESTORS TO ACQUIRE THE RIGHT TO STAY IN BULGARIA AND TO OBTAIN BULGARIAN CITIZENSHIP IN CONNECTION WITH INVESTMENT PROJECTS IMPLEMENTED IN THE COUNTRY 

Sometimes a key element of the investment plan proves the possibility for third parties to gain the right for temporary or permanent residence on the territory of the Republic of Bulgaria, including the ability to acquire Bulgarian citizenship. The amendments in IPA creates a new chapter that refers to the Foreigners Act ("FA") and the Bulgarian Citizenship Act ("BCA"), in which chapter are provided additional measures related to the possibility of foreigners - potential investors to acquire right of residence in the Republic of Bulgaria and Bulgarian citizenship in connection with investment projects implemented in the country. The proposed changes are associated with the expansion of the policy to encourage investments and to create opportunities for investors and key employees to be able to acquire long or permanent residence under the Foreigners Act, which are: 

  • equity owners, managers or procurators, in key positions in case of performance of certified investment project;
  • owners of capital (50%) in a Bulgarian company, which has made investments under the IPA and created employment above certain thresholds in certain economic activities where there is no certified investment project;
  • Individuals who donated at least BGN 200,000 to the National Innovation Fund. 

There will be also an opportunity for acquiring Bulgarian citizenship under the Citizenship Act, after assessment of the merits of the candidates in the economic sphere by covering some criteria related to implemented investments and opened new jobs created under the IPA. 

With the introduction of these new measures, the investment climate and conditions for investments in the Republic of Bulgaria are improving, which should lead to more stable economic development in the country. Investors themselves, in turn, will be able to enjoy a number of privileges, especially if their country is not a member of the European Union.  

CONCLUSION: 

With the view of the decreased amount of the investments in almost all sectors, the changes in the IPA are providing favorable opportunities that could achieve good results, both for investors as well as the employees on the labor market in Bulgaria. The correct use of the provided by IPA new measures could not only directly stimulate key sectors of the Bulgarian economy but also, indirectly, a number of secondary branches. The expected results are reduced, but not limited to: 

  • Restoring of the levels of the foreign direct investments accounted for in the period before the global economic crisis;
  • Economic growth due to higher investments in the manufacturing and services with high added value;
  • Increasing the share of the investment as a percentage of GDP;
  • Maintaining a strong external financial position of the country;
  • Creation of highly qualified employment and sustainable reduction of unemployment;
  • Encouragement of the economic activity in slow regions and reduction of the regional differences in the country;
  • Enhancing the role of the local government to carry out the policies for investment promotion.