Foundations in Bulgaria

THE LEGAL REGIME FOR FOUNDATIONS IN BULGARIA

Nature

Foundations are non-profit organisations, and the rules governing their activities and registration are set out in the Bulgarian Non-Profit Legal Entities Act (NPLEA) and the Bulgarian Code of Civil Procedure (CPC).

Under the NPLEA, both Bulgarian and foreign individuals and legal entities may establish a foundation. A foundation is created by a unilateral founding act, either during the founder's lifetime or by testamentary disposition after death, through which assets are provided without consideration to achieve a non-profit objective. Establishment during the founder's lifetime requires a written instrument with notarised signatures.

Where rights of ownership over immovable property are transferred, the founding instrument must be entered by the registrations judge at the district court for the location of the property.

Article 34 of the NPLEA sets out the requirements for the founding deed. It must state the name, registered office (place of management) and address (registered address), purpose, type of activity (public or private benefit), property provided, the foundation's bodies, branches, rules governing the powers of its bodies and arrangements for representation, the period for which the foundation is established, and the nature of its business activity, if the foundation undertakes such activity.

Management

A foundation must have a governing body, which may be collective or consist of a single person. The founding instrument may, however, provide for other bodies. In that case, under Article 35(2) NPLEA, the applicable rules are those governing the management board and general assembly of the other type of non-profit legal entity in Bulgaria: associations. Under those rules, decision-making powers include adopting internal regulations, appointing and removing management board members, and deciding to open and close branches. The management board represents the foundation, implements decisions of the general assembly, disposes of the foundation's assets and performs other functions.

Practice areas

In general, foundations operate on a non-profit basis: they are created to pursue charitable objectives of various kinds, such as environmental or educational aims. This does not, however, prevent foundations from engaging in economic activity. Such activity is possible if it is merely ancillary rather than the main activity, is directly connected with the principal purpose for which the foundation was registered, and the income generated is used to achieve those objectives.

Termination

The grounds for terminating a foundation in Bulgaria are set out in Article 13(1) NPLEA. They are expiry of the term for which it was established (if any), a decision by its governing body (if it is the sole body) or its supreme authority, or a decision of the district court at the foundation's registered office where it was established unlawfully, is declared bankrupt or carries on activities contrary to the law or public morals. Termination takes place together with liquidation, which is conducted by the manager, an authorised person or a person appointed by the district court if the manager has not appointed a liquidator or the foundation was established unlawfully. It is important to note that the provisions of the Bulgarian Commerce Act apply in insolvency. If any property remains after creditors have been satisfied, its distribution is decided under the founding instrument, by the foundation's governing body or by the liquidator where no decision has been made before liquidation begins. If there is no such decision, the foundation's assets pass to the municipality at its registered office, which must use them for purposes as close as possible to those of the terminated foundation.

After distributing the assets, the liquidator must apply to the district court of the foundation's registered office for its removal from the register.

Registration procedure

Under Article 34(3) NPLEA, the registration application must be made by the founder, an authorised person or body, the executor of the will or a successor, or a person who may benefit from the foundation’s activities under its founding deed. The foundation is registered by the district court at its registered office.

However, the following steps must be taken before making such an application:

• Preparation of an instrument of incorporation containing the requirements mentioned above;

• Selection and appointment of corporate governing bodies;

• Reserving the foundation's name and obtaining a certificate of uniqueness. This can be done at certain branches of Information Services JSC and costs BGN 60;

• Preparation of specimen signatures of the persons who will represent the foundation before third parties;

• Preparation and signing of an application to register the foundation in the district court’s register.

Once these steps have been completed, the relevant documents must, depending on the method of establishment, be submitted to the district court where the foundation is registered.

Where the foundation was established by a unilateral deed of donation, the following must be submitted:

• Application for registration by the founder or other authorised persons;

• Deed of incorporation;

• Resolution of the founder's management board, where the founder is a legal entity;

• A unilateral deed of donation transferring property to the foundation, usually coinciding with the founding deed but possibly contained in a separate document;

• a bank statement confirming that the amount transferred to the estate was paid on behalf of the foundation;

• Specimen signature(s) of the person(s) who will represent the foundation;

• Document certifying the uniqueness of the name;

• Proof of payment of the state fee (BGN 50).

When a foundation is established by a will, the court must be provided with:

• Application for registration;

• A copy of the will establishing the foundation. Practice requires the copy of the will to be certified;

• Testator’s death certificate,

• Certificate of inheritance, where the applicant for registration is the testator’s successor;

• Proof of ownership, certifying that the assets transferred to the foundation belonged to the testator;

• a bank statement confirming that the amount transferred to the estate was paid on behalf of the foundation;

• Specimen signature(s) of the person(s) who will represent the foundation;

• Document certifying the uniqueness of the name;

• Proof of payment of the state fee (BGN 50).

Once entered in the court register, a foundation becomes a new legal entity, and thus a holder of rights and obligations. Within seven days of receiving the registration judgment, it must also be entered in the BULSTAT register by submitting an application to the Bulgarian Registry Agency.

Tax treatment in Bulgaria

Corporate Income Tax Act (CITA)

As already stated, charities may carry out ancillary economic activities that help them achieve their objectives. Under Article 2(1)(1) of the Bulgarian Corporate Income Tax Act, they would therefore be regarded as taxable persons when engaging in economic activities as an occupation that provide a regular source of income and generate profit or are carried out in the foundation’s interests, with market-based transaction prices. In that case, the tax rate applied to the profit realised is 10%. However, funds received as project financing are not considered profit. Donations to the foundation and sales of donated assets fall outside the scope of the CITA because they do not constitute commercial transactions under Article 1(2) of the Bulgarian Commerce Act. The property with which the foundation was established and any subsequent property contributions by the founders form the foundation’s assets and, as such, are not subject to taxation.

Value Added Tax Act (VATA)

In general, any taxable person may register for VAT under the Bulgarian Value Added Tax Act. In certain cases, however, the law requires registration, and the conditions for mandatory registration of foundations do not differ from those applicable to other types of legal persons. Foundations become obliged to register for VAT when taxable turnover from commercial activities reaches BGN 50,000 or more over a period not exceeding 12 consecutive months before the current month (Article 96(1) VATA). In that case, the registration application must be filed within 14 days of the end of the tax period in which the specified turnover was reached. Foundations making intra-Community acquisitions of goods totalling BGN 20,000 or more are also subject to VAT registration; the application must be filed no later than seven days before the taxable event for the acquisition that would exceed the BGN 20,000 threshold. A VAT registration obligation also arises for the supply of services with a place of supply in another EU Member State where the recipient is liable for the tax, and for receiving services where the supplier is a non-resident taxable person and the place of supply is Bulgaria, with the recipient liable for the tax.