Bulgaria: Investment Promotion Act

The Investment Promotion Act (IPA) and its Implementing Regulations (PPZNI) introduce a system of incentives for investment in tangible and intangible fixed assets and related jobs under European Commission Regulation No. 651/2014.

• Are connected with establishing a new facility, expanding an existing facility, diversifying production into new products, or fundamentally changing the overall production process of an existing facility;
• Will be carried out in the following economic activities, according to the Statistical Classification of Economic Activities (NACE Rev. 2), corresponding to Bulgaria's CEA 2008:

• manufacturing, excluding the economic activities under Chapter I, Article 1(2) and (3) of Regulation No 651/2014;

• high-technology activities in information technology and information services; software publishing;
• accounting, auditing and tax consultancy activities;
• research and development, professional activities at the premises;
• healthcare and medical activities;
• education;
• Warehousing and support activities for transportation, including services supporting production operations, such as the management of warehouses and transport infrastructure — airports, ports, etc.;
• office administrative and support activities, call centre activities and business support activities;
• architectural and engineering activities; technical testing and analysis.

:

• at least 80 per cent of future revenue must come from products manufactured (goods and services) through implementation of this investment;
• at least 40% of eligible investment costs to be financed through the investor’s own or borrowed funds;
• acquired assets must be new and purchased on market terms from third parties independent of the investor:
• the investment must be maintained in the region for at least five years for large enterprises and three years for SMEs from the date of its implementation;
• create new jobs and maintain them in the region for at least five years for large enterprises and three years for small and medium-sized enterprises, and
• the implementation period is three years from the date on which the investment class certificate is issued.

Under the IPA, incentives are not available to investment entities with an enforceable conviction, unless rehabilitated, or to undertakings in difficulty; investments implementing privatisation or concession contracts under the Privatisation and Post-Privatisation Control Act and, respectively, the Transformation and Privatisation of State and Municipal Enterprises Act and the Concessions Act; investments under offset agreements; or investments in production in the coal, steel, shipbuilding, synthetic fibres, fisheries and aquaculture industries, or activities connected with the primary production of agricultural products listed in Annex I to the Treaty establishing the European Community, pursuant to European Commission Regulation No 651/2014 on the application of Articles 87 and 88 of the Treaty to regional investment aid.

minimum investment thresholds for Class A and Class B under the PPZNI:

Minimum investment in an undertaking engaged in industrial and manufacturing activities:

Class A —

Class B —

The minimum investment amount for an economic undertaking in the services sector — warehousing and support activities for transportation; office administrative and support activities, call centre activities and business support activities not classified elsewhere — is:

Class A —

Class B —

.

Where the initial investment is made entirely within the administrative boundaries of municipalities for the previous year, before the current unemployment rate

, the minimum investment amount in a facility is:

Class A

Class B

Minimum investment in an undertaking engaged in high-technology activities in the industrial sector:

Class A —

Class B —

.

The minimum investment in an undertaking engaged in high-technology and knowledge-intensive activities in the services sector is:

Class A —

Class B —

.

Criteria for issuing a Class A or B investment certificate for the creation of new jobs:

Where the investment project is intended to create and maintain a specified level of full-time employment, the investment amount is reduced as follows:

Class A – BGN 4 million and 150 new jobs;

Class B — BGN 2 million and 100 new jobs;

. Class A — BGN 1 million with 150 new jobs created;

Class B — BGN 0.5 million and 100 new jobs created.

Where the initial investment is made entirely within the administrative boundaries of municipalities for the previous year, before the current unemployment rate

jobs created and maintained, which must number no fewer than:

25 new jobs — Class A

10 new jobs – Class B

Where the investment project is implemented in high-technology activities in the industrial sector of the economy

jobs created, which must be maintained at no fewer than:

25 new jobs — Class A

10 new jobs – Class B

Where the investment project is implemented in high-technology service-sector activities

jobs created, which must be maintained at no fewer than:

50 new jobs — Class A

25 new jobs — Class B

Priority investment projects

Priority investment projects concern all economic sectors under Regulation (EC) No 651/2014 and are particularly important for the economic development of the Republic of Bulgaria or its regions. The minimum investment amount and minimum average annual number of employees from the date following completion of the investment, as conditions for issuing a priority investment project certificate (PEP), are as follows:

• In general, BGN 100 million and 200 employees;
• Within the administrative boundaries of municipalities where the unemployment rate for the year preceding the current year was equal to or higher than the national average: BGN 50 million and 100 employees;
• In industrial and manufacturing economic activities (codes 10–33.2) — 50 million and 200 employees;
• For high-tech manufacturing activities: BGN 30 million and 100 employees;
• In high-tech and knowledge-intensive services—education, professional and scientific research activities, healthcare and information technology—BGN 20 million and 50 employees;
• For the construction of an industrial zone and development of an industrial park to attract investment: BGN 15 million and 15 employees;
• To build a technology park: BGN 15 million and 50 employees.

Investment thresholds may be reduced when permanent jobs are created in the following proportions:

• where the investment project provides more employment than in the general case for municipalities with high unemployment and high-technology manufacturing activities, the minimum required investment amount is reduced by 10% for every 100 employees;
• Where the investment project creates more jobs than specified for high-technology service-sector activities, the minimum required investment is reduced by 10% for every 50 employees.

The certificate specifies the investment class and investors’ rights under the law

Within the scope of the Investment Promotion Act

are encouraged by:

1. shorter waiting times for administrative services—certificates for Class A and B ;
2. Individual administrative services needed to implement the investment project; — Class A ;
3. simplified arrangements (without auction or tender) for acquiring ownership or limited rights in rem over privately held state or municipal real estate —Class A and B ;
4. sale, exchange or creation for consideration of limited rights in rem, without an auction or tender, over property owned by wholly state- or municipally owned companies and companies whose capital is held by a sole owner consisting of a state-owned enterprise — Class A and B ;
5. financial support for constructing physical infrastructure elements needed to implement one or more investment projects; — Class A (or 2 of the Class B industrial zone project) — On a competitive basis;
6. financial support for vocational training, including trainees from universities in the country who occupy jobs connected with the investment, solely for investments in high-technology activities or municipalities with high unemployment — Class A and B , in a basic tender;
7. financial support to partially reimburse the investor for compulsory employer contributions paid on its behalf for state social insurance, supplementary pension insurance and compulsory health insurance for newly recruited employees implementing the investment project — Class A and B On a competitive basis.

Under the IPA, investment projects with a certificate of

may be promoted through all the steps listed above for the

, with the following additional measures:

1. sale or creation for consideration of limited rights in rem over privately held state or municipal real estate, without auction or tender, at prices below market value (but not below the tax valuation), and exemption from stamp duty when land is used;
2. sale, exchange or creation for consideration of limited property rights, without auction or tender, over property owned by wholly state-owned or municipally owned companies and companies whose capital is held by a sole-owner company with state participation, at prices below market levels (but not below the assessed value);
3. institutional support, partnerships or the creation of public-private joint ventures;
4. various types of transactions concluded with the participating commercial company established for the construction and development of industrial zones;
5. by providing grants:

a) maximum investment aid intensity of up to 50% for investments in

, in carrying out no less than 25 per cent of the minimum investment amount;

b) up to 10% of the maximum aid intensity for investments in manufacturing, where at least 50% of the minimum investment amount is implemented.

Incentives under the investment promotion legislation apply only to investors who have received a certificate for an investment class or a priority investment project. The certification procedure and investment requirements are set out in the PPZNI.

Application for an enforceable instrument

For an investment class certificate or priority investment project, applicants submit to the Bulgarian Investment Agency (BIA)

application form under the PPZNI, Annex No. 1. The application is supplemented by an information document concerning the applicant and the investment itself

the project seeks incentive measures, a series of declarations and other documents. The application lists all documents that must be attached to it. Some of the required documents are as follows:

1. Declaration form concerning the category of enterprise, pursuant to Article 5(1)(4) of the PPZNI—classified as a ‘small and medium-sized enterprise’ or ‘large enterprise’ on the basis of data for the financial year preceding the application; for newly established enterprises whose accounts have not yet been approved, the data are determined on the basis of performance figures for the current financial year.
2. Privacy help.
3. Documents evidencing the person's financial position: the annual financial statements for the last completed calendar year, or interim financial statements if the person has been operating for less than a year.
   1. Documents evidencing the financing options and sources for the investment project: a) own funds; b) financing agreements; c) bank and other guarantees; d) a finance lease agreement under Regulation No 651/2014 containing an obligation to purchase the asset at the end of the lease, taking into account the resources relating to the asset only for the investment project's three-year implementation period; e) where applicable, a declaration by the capital owners committing to finance the project; f) other financing or guarantee documents.
   2. Certificate of conviction Where it can be issued in Bulgaria or in an EU Member State or affidavit ( in other cases ), issued no earlier than three months before the deadline for submission by: sole owners of the capital; managers; board members and, where members are legal persons, their representatives on the governing body.
   3. Consultation with the competent environmental authorities on the admissibility of the investment project under the regimes established in approved river basin management and flood risk management plans, and on its compatibility with the rules governing activities in protected territories and/or protected areas, as well as the applicable procedure under Chapter Six of the Environmental Protection Act and/or Article 31 of the Biological Diversity Act.
   4. Document certifying the absence of debts to the State.
   5. Document certifying the absence of debts owed to the municipality.
   6. Where measures under Article 22a of the IPA are requested—a document certifying the property owner's prior consent.
   7. Others specified in the application.

All foreign-language documents must be submitted with a Bulgarian translation.

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Conduct of the proceedings

Upon receipt and filing of the application with all supporting documents, the executive director of the IBA or an authorised official issues the applicant a certificate in accordance with Appendix No 2 to the Regulations for the Implementation of the Investment Promotion Act. Upon presentation of the certificate under paragraph 1, executive authorities and their administrations must cooperate fully with the investor in obtaining the documents needed for the issue of an investment class certificate, and notify the agency of the designated staff or departments that will provide the information services specified in the certificate.

Upon receiving an application for certification, the Agency’s executive director or a person authorised by the director appoints Agency staff to examine the investment project and the attached documents. If staff identify gaps and/or deficiencies in the application and attachments, the investor is notified in writing and a period of up to two months from submission of the application is set for their rectification. On the basis of an assessment by authorised persons, a recommendation is prepared for a certificate of investment class under the IPA and PPZNI.

On the basis of the assessment prepared, the Executive Director of the IBA submits a reasoned proposal to the Minister of Economy and Energy to grant or refuse a certificate within 30 days of receiving the application and the complete set of required documents.

The Minister of Economy and Energy or an authorised official must consider the proposal, issue or refuse to issue a certificate, or return the proposal and attached documents for reassessment where the requirements of the IPA and PPZNI have not been met.

An investment class certificate is granted by the Minister of Economy and Energy or an authorised official.

The procedure for issuing a priority investment project certificate is similar to that for an investment class certificate. The difference is that, following assessment and positive confirmation by authorised officials that the project and accompanying documents meet the requirements of the IPA and PPZNI, the Minister of Economy submits to the Council of Ministers (COM) a proposal for a memorandum or agreement of understanding between the Government of the Republic of Bulgaria and the relevant investor applying to implement the priority investment project, with a proposed specific package of IPA measures. After the Council of Ministers approves the memorandum or agreement, the Minister of Economy and Energy and/or the authorised person issues a priority investment project certificate in accordance with the ICJ ruling.

Investment projects of local significance — investment class certificates

Projects of local importance are encouraged according to investment classes when implemented within a particular municipality's administrative boundaries, and

— May be implemented in all sectors of the economy, except those referred to in Article 13a(3) of the IPA;

– The investment amount for the certified class must not exceed the minimum threshold for Class B under Article 3(2) of the Regulations for the Implementation of the Investment Promotion Act, namely BGN 2 million.

To promote investments of local importance, the municipal council adopts an ordinance setting out the rules and procedures for class certification and implementation of incentives. The investor applies to the mayor for an investment class certificate, specifying the incentives sought. The certificate is issued by the mayor on the basis of the municipal council's decision. Investments of local importance awarded a Class B certificate are encouraged to implement the investment project through:

• shorter waiting times for administrative services provided by the municipality in whose territory the investment takes place;
• individual administrative services provided by the municipality in whose territory the investment is made;
• acquisition of ownership or limited rights in rem over immovable property constituting private municipal property, under Article 22a(1), points 2 and 4 of the IPA.

Our law firm handles all activities relating to certification and obtaining incentives for investment in Bulgaria.