1. Doing Business as Individuals (Natural Persons) – Sole Trader (ET)
Any Bulgarian or foreign citizen with legal residence status in Bulgaria can register as a sole trader (ET – Ednolichen Targovets) to conduct business individually.
This form is suitable for people intending to operate without business partners and involves straightforward setup and lower startup costs. However, the entrepreneur is personally liable for all business debts with their entire personal assets.
Key Points:
– No minimum capital is required.
– Simple registration with the Bulgarian Trade Register.
– Liability is unlimited.
– Suitable for small-scale operations or services.
– Foreigners from the EU/EEA and OECD countries can register without restrictions; third-country nationals must have a residence permit.
Advantages:
- Simple registration and management.
Disadvantages:
- Unlimited liability of the sole trader.
2. Limited Liability Company (OOD/EOOD)
The Limited Liability Company (OOD) is the most commonly used structure for businesses in Bulgaria. It can be founded by one person (EOOD) or multiple shareholders (OOD), who can be individuals or legal entities.
Key Points:
– Minimum capital: BGN 2 (~EUR 1).
– Shareholders’ liability is limited to their capital contributions.
– Management is handled by one or more managers (directors), who are appointed by the General Assembly.
– Profit is distributed according to the ownership percentage unless agreed otherwise.
Advantages:
– Flexible structure suitable for SMEs.
– Limited liability.
– low initial investment.
Disadvantages:
– The general meeting is responsible for some of the main decisions and thus the company’s activities may be hampered if conflicts arise between partners.
– Transfer of shares to a new partner is difficult as this new partner needs to be approved by the rest of the partners.
3. Joint-Stock Company (AD/EAD)
The Joint-Stock Company (AD) is ideal for larger businesses or companies seeking external investment. It can be established by one (EAD) or more shareholders.
Key Points:
– Minimum capital: BGN 50,000 (~EUR 25,000).
– Requires a General Meeting of Shareholders, a Board of Directors (single-tier), or Supervisory and Managing Boards (two-tier).
– A Supervisory Board is mandatory in the two-tier system.
Advantages:
– More attractive for investors.
– Easier to raise capital through public or private offerings.
– Shareholders have limited liability.
– Easy transfer of shares, unless there are specific “internal” rules.
Disadvantages:
– Lower control from the shareholders (in compare with OOD);
– Bigger management costs.
4. Limited Partnership (KD)
The Limited Partnership (Komanditno Druzhestvo – KD) consists of general and limited partners.
Key Points:
– General partners manage the business and are fully liable.
– Limited partners only contribute capital and have liability limited to their contribution in the company capital.
Advantages:
– Allows silent investors with limited liability.
– Flexible internal arrangement.
Disadvantages:
– Unlimited liability of part of the partners
5. General Partnership (SD)
A General Partnership (Sabiratelno Druzhestvo – SD) is formed by two or more partners with joint and unlimited liability.
Key Points:
– No minimum capital requirement.
– Partners are jointly and severally liable with their personal assets.
– Each partner can represent the partnership unless agreed otherwise.
Advantages:
– Simple setup.
– Strong personal commitment and mutual trust.
Disadvantages:
– Unlimited liability of partners.
Taxation of Businesses in Bulgaria
Corporate Income Tax: Flat rate of 10% for legal entities.
Personal Income Tax: Flat rate of 10% on business profits for individuals.
Dividend Tax: 5% withholding tax on dividends paid to individuals or foreign shareholders (unless reduced by treaty).
Value Added Tax (VAT): Standard rate is 20%, with reduced rates (e.g., 9% for certain services/goods).
Foreign companies may be liable for Bulgarian tax if they have a permanent establishment (PE) in Bulgaria.
Mandatory Business Registrations
– Trade Register: All business entities (including sole traders) must register with the Bulgarian Trade Register maintained by the Registry Agency.
– VAT Registration: Mandatory if turnover exceeds BGN 100,000 (~EUR 50,000) in the previous 12 months.
Additional Considerations for Foreign Nationals
– EU citizens: Can freely establish businesses in Bulgaria.
– Third-country nationals: May face more complex administrative requirements.
– Foreign legal entities: May open a branch (not a separate legal entity) in Bulgaria, which must be registered with the Trade Register.
– Professional Support: Legal and accounting professionals are strongly recommended to handle paperwork and filings accurately.
