Protection and promotion of foreign investments

National treatment and most favored nation status

The Bulgarian Constitution stipulates that foreign persons (legal entities, individuals or civil partnerships registered in a foreign country) must enjoy equal rights with local persons when conducting economic activities in the Republic of Bulgaria except where otherwise provided by the law (“national treatment”). This principle covers the entire range of economic and legal forms used for business activity.

The Encouragement of Investment Act (“EIA”) provides for equal treatment of local and foreign investors in the Republic of Bulgaria. Foreign investors in Bulgaria can obtain the same assistance and use the same privileges and opportunities as granted by the law to local investors.

If a bilateral treaty, signed and ratified by the Republic of Bulgaria, provides for more favorable investment terms and conditions for international investors, the citizens or legal entities of the respective contracting country will enjoy preferential investor treatment (“most favored nation status”).

Protection of investments

The Republic of Bulgaria is a party to 61 bilateral agreements for mutual protection and encouragement of foreign investment (please refer to Appendix A hereto). It is also a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. In every Bilateral Investment Treaty there is a standard clause, providing that in the case of a dispute between the Republic of Bulgaria and a potential investor, this dispute shall be submitted before the World Bank’s International Center for Settlement of Investment Disputes. On these grounds, every investor in Bulgaria has the opportunity to protect their investment in case of adverse legislation being adopted.

The EIA envisages different incentive measures and privileges for local and foreign investors that undertake significant investments in certain economic activities within the territory of Bulgaria. The aim of these measures, financed by the state, is to promote large investments and improve the business environment in the country.

The Regulation for application of the EIA contains all detailed conditions, under which the investors may benefit from the incentive measures.

The EIA and the Regulation for its application are the legislative basis for implementing a scheme for awarding national regional state aid in conformity with EU legislation. Since Bulgaria is already an EU member, all encouragement measures may be implemented by the state only in compliance with EU state aid legislation for granting state resources to private entities. Investors must therefore fulfill the conditions stipulated in the respective EU legislative acts in order to be eligible for receiving state financing.

In this regard, the EIA and the Regulation for application of the EIA were amended in 2009 in compliance with the provisions of Commission Regulation (EC) No 800/2008 of 6 August 2008 declaring certain categories of aid compatible with the common market (“EC Regulation 800/2008”) in application of Articles 87 and 88 of the Treaty (General block exemption Regulation).

In order to benefit from the resources under the state aid scheme, investors must apply for a special certificate for class A or class B investment from the Bulgarian Investment Agency. The application and the supporting documents represent an application for granting of aid with incentive effect only if they are in compliance with the provisions of Article 8, paragraphs 2 and 3 of EC Regulation 800/2008.

Generally, the required minimum investment amounts are as follows:

• for class A investments – over BGN 20 million
• for class B investments – over BGN 10 million.

There are exceptions in case of investments in economically disadvantaged regions and in high technology activities in the manufacturing industry, where the minimum investment amounts are BGN 7 million and BGN 4 million, respectively. For investments in high technology activities in the area of computer technologies, research and development, as well as in education and human health care, the minimum investment amounts are over BGN 7 million for class A investments, and over BGN 7 million for class B investments.

The certificates for investment class are issued by the Minister of Economy, Energy and Tourism and entitle the investors to benefit from the following incentive measures, financed by the Sstate:

(a)  Right to purchase state or municipal real estate property or to acquire limited property rights over state or municipal real estate property, located near the investment site, without tender procedures, upon evaluation of the real estate property by at least two licensed independent valuers and upon written consent of the Minster of Economy, Energy and Tourism and the Minister of Regional Development and Public Works  for those real estate properties owned by the State, and approval of the respective Municipality Council for any municipality real estate properties.

In order to take advantage of this incentive measure, the investors must apply to the relevant local authorities by submission of their investment projects and the documents set out in the law. Non-implementation of the investor’s investment project within the implementation term and for the amount of investment, and non-commencing of project works within two years from the date of signing the contract are grounds for termination. The investor may not dispose of the real estate property (or the limited property rights), acquired according to the procedures under the EIA, prior to the expiry of a five-year term as from the date of implementation of the respective investment project.

Buildings and other sites financed with EU funds cannot be subject to the above incentive transactions, unless 10 years have expired from the completion of the construction to submission of the application by the investor.

(b)  Financing of construction of technical infrastructure elements, such as roads, drainage networks and facilities, etc. Investors awarded certificates for class A investment or  at least two or more investors awarded certificates for class investment where the investment is located in an industrial zone are eligible to receive such financing.

This procedure must be executed in accordance with the requirements of the EIA, the Regulation for application of the EIA, the state aid legislation and the EU legislation regarding state aid. The Council of Ministers grants such financing only after a tender is held by the Ministry of Economy, Energy and Tourism for evaluation of all submitted investment projects.

(c)  Financing of professional training of persons, hired by class A and B investors in relation to certified investments, provided that the financing is implemented in accordance with the requirements of the EIA, the Regulation for application of the EIA, and EC Regulation 800/2008. The Council of Ministers grants such financing only after a tender is held by the Ministry of Economy, Energy and Tourism for evaluation of all submitted investment projects.

(d)  Issuance by local or governmental authorities of administrative documents for the realization of the investment project within periods one third shorter than the periods set out in the relevant legislative acts.. The reduced periods for any administrative assistance of the investors contribute to the timely and efficient implementation of their investment projects.

(e)  Individual administrative assistance and service from the Bulgarian Investment Agency, relating to the submission and obtaining of the necessary documents required under Bulgarian legislation for completion of the investment.

Eligibility for investment incentives

According to the EIA, incentive measures and privileges shall be applied to initial foreign and local investments in tangible and non-tangible fixed assets plus new employment.

The investments must cumulatively fulfill the following conditions in order to be promoted under the EIA:

• they must relate to the establishment of a new enterprise, extension of an existing enterprise, diversification of the output from an enterprise into new products, or a material change in the overall production process of an existing enterprise
• they must be implemented in the following economic areas, according to the Statistical Classification of Economic Activities in the European Community (NACE Rev. 2), applicable in Bulgaria as Classification of Economic Activities (in Bulgarian “КИД  2008”), namely:

–      industrial sector: manufacturing; or
–      service sector: high technology activities in computer technology, research and development, education and human health care, as well as storage of goods аnd auxiliary transport services

• at least 80 percent of the future aggregate income must arise from the products produced by the economic activities above, whose products are specified according to the Classification of Products by Economic Activities in the EC (“CPA”) (with PRODCOM/NACE nomenclature or CPA nomenclature for projects in the service sectors), applicable in Bulgaria as Classification of Products by Economic Activities (in Bulgarian “КПИД-2008”)
• the period of project implementation, i.e. the period between the commencement and completion of the project, must not exceed three years
• investment within any single establishment must not be below the minimum amounts specified above (there are incentives for investment in economically disadvantaged regions or high technology activities as cited above)
• at least 40 percent of the eligible costs for the investment must be financed by the investor’s own or borrowed resources (any resources allocated as state aid or involving an element of state aid, including retained corporation tax, are not considered own or borrowed resources)
• the jobs created in relation to the investment must be maintained in the relevant region for at least five years in the case of large enterprises and three years in the case of small and medium-sized enterprisesthe investment must be maintained in the relevant region for at least five years in the case of large enterprises and three years in the case of small and medium-sized enterprises, calculated from the date of completion of the investment project. Any other requirements under the effective state aid legislation and EU aid legislation must be met.

Profit and capital repatriation

Foreign investors can freely transfer, and purchase to transfer, foreign currency abroad after the corporate taxes due, including withholding taxes, have been duly paid. The following may be transferred:

• income generated through an investment
• compensation against expropriation of investments for state needs
• liquidation quotas upon termination of the investment
• proceeds from the sale of an investment
• sums received as a result of enforcement proceedings.

This right may also be exercised by foreign individuals working in the country with respect to their remuneration, as well as those who have obtained a permanent residence permit and are registered as sole traders or participate in a co-operative, in an unlimited partnership or as unlimited partners in a limited partnership, after the payment of all taxes due.

Establishment of new business entities or acquisition of shares in existing entities

Bulgarian law provides for the establishment of entities with foreign participation or for the acquisition of shares in existing local entities. Such companies must take the  form of entities under the Bulgarian Commercial Act. There is no limitation on the share participation of foreign legal entities and individuals.

Under the Bulgarian Commercial Act, the following entities can be set up and have foreign investor participation:

• unlimited partnerships
• limited partnership
• limited liability companies (solely-owned limited liability companies)
• joint-stock companies (solely-owned joint-stock companies)
• limited partnerships with shares
• sole traders.

Generally, no prior permission from governmental institutions is required for the establishment of an entity of the above types, except for cases involving banking or insurance activities, investment funds, management companies or investment intermediaries, or special concession rights, etc.

Branches

Foreign legal entities or unincorporated entities may register branches in the Republic of Bulgaria, if they have received permission to conduct business activities under the terms and conditions of the laws of their home country. Branches are entered in the Commercial Register at the Registry Agency.

Though part of a foreign company, branches are considered independent and therefore must keep separate accounting books and prepare balance sheets. However, registered capital is not required for the establishment of a branch.

Representative offices

Foreign legal entities and individuals who have received permission to conduct business activities under the terms and conditions of the laws of their home country are allowed to establish representative offices in the Republic of Bulgaria. They are not treated as separate legal entities and are not entitled to conduct business activities as defined in Bulgarian law.

Representative offices are registered at the Bulgarian Chamber of Commerce and Industry and may engage in marketing, informational and promotional activities.

Capital markets

The emergence of capital markets in Bulgaria is a direct result of the structural, economic and social changes in the country since 1989. The legislative basis of the capital market was established in 1991 with the adoption of the Commercial Act. Currently, the legislation comprises numerous laws and regulations, the most important of which are the Markets  in Financial Instruments Act, the Public Offering of Securities Act, the Commercial Act, and ordinances on the activities of investment companies, management companies, investment intermediaries, etc.

Bulgarian stock exchange

The first trading session on the Bulgarian Stock Exchange took place on 21 October 1997 with shares in companies privatized as part of the mass privatization program.

The Bulgarian Stock Exchange (“BSE”) is a joint-stock company. The majority of its shareholders are private local or foreign legal entities and individuals. Its shareholders elect the Board of Directors, which is responsible for the day-to-day operations of the

Market supervision

The Financial Supervision Commission (“FSC”) is responsible for stock market supervision. The Commission is an independent state authority whose mission is to protect investors’ rights and to enhance the development of a transparent and efficient capital market.

The FSC has the exclusive right of approval in respect of prospectuses for public offerings of securities or take-over announcements. Issuers are obliged to file prospectuses and to register them with the FSC before going public. Once registered, they are required to periodically disclose information about their activities and financial status.

Trading procedures

The BSE operates a continuous order-driven trading system. Orders are matched automatically according to time and price priority. The minimum lot size is currently one share. There are daily limits on share price movements for both the official and the free market.

The BSE’s fully automated trading system is designed to provide market transparency, liquidity and reflect price announcements. The system, launched in 1991, was originally developed by NASDAQ, and has been upgraded continuously since then by RTS-TC (Russian Trading System). The official trading times are Monday to Friday between 9:30am to 1:45pm.

Concessions

The Constitution of the Republic of Bulgaria, promulgated in 1991, states that under the conditions of a separate law the state can grant concessions for certain objects or activities that are exclusive state property or subject to sovereign state rights. These conditions are prescribed in the Concessions Act, effective from 1 July 2006.

The Concessions Act regulates the common terms for granting concessions. There are special rules set out in the Underground Resources Act, governing the terms for granting concessions for mining of underground resources, and the Waters Act, governing the terms for granting concessions for mining of mineral water.

Licensing

Licensing regime in electronic communications

Тhe Electronic Communications Act, effective from 22 May 2007, reflects the need to establish unified rules for regulation of the common European electronic communications market, part of which is Bulgaria.

Public electronic communications may be provided by any legal entity or individual who meets the general requirements set out in the law, after first notifying the Communications Regulation Commission.

Where legal entities want to use limited resource for the purposes of carrying out electronic communications, they have to obtain permission from the Communications Regulation Commission.

The Communications Regulation Commission may decide to hold a tender procedure for issuing permission for certain cases of use of limited resources.

Permissions may be issued for a period of up to 20 years, which can be extended to a maximum period of 30 years.

Radio and TV broadcasting activities require an individual license. Such licenses are issued by the Media Council, a special body designated under the Radio and Television Act.

The Radio and Television Act also regulates radio and television operators. The Media Council issues licenses to legal entities and individuals registered to perform terrestrial broadcasting. Licenses are issued after a tender process. The license term is up to 15 years and can be extended to a maximum period of 25 years.

Persons intending to create radio and television programs should register with the Media Council.

Licensing regime in the energy sector

The amendments to the Energy Act, effective from 2007, provide the legal conditions for liberalization of the Bulgarian energy market in compliance with the aim of the European Community to create a common liberalized European energy market.

The main regulatory body in the energy and water supply sector is the State Energy and Water Regulatory Commission, which is responsible for the issuance, amendment and withdrawal of licenses for activities in the energy sector.

In general, the law requires an individual license for the specific energy activity, such as generation of electricity and/or heat, transmission of electricity, heat or natural gas, trading of electricity, organization of an electricity market, public supply of electricity, and distribution of electricity or natural gas.

No license is required for generating electricity or heat from persons owning plants with a total installed capacity not exceeding 5 MW, or generating heat for own use.

There are restrictions placed on those entities which have already received licenses for distribution of energy and distribution of natural gas to also be granted licenses for other energy activities.

Such license may also be granted to an entity registered under the legislation of one of the Member States or country that is party to the European Economic Area Agreement.

For the purposes of issuance of a license, there is no formal requirement for foreign entities to be registered under the Bulgarian Commercial Act.

Licenses are issued for a period up to 35 years. The term may be extended for an additional 35-year period where the licensee performs all obligations and requirements under the license, and has applied for an extension at least one year prior to the expiration of the initial license term.

Renewable energy

Pursuant to Directive 2009/28/EC on the promotion of the use of energy from renewable sources, Bulgaria is required to achieve a 16 percent share of renewable energy of total internal energy consumption by 2020.

Until 3 May 2011, the Energy Act and the Renewable and Alternative Energy Sources and Biofuels Act (“RAESBA”) regulated the production and promotion of renewable energy in Bulgaria. RAESBA did not implement the provisions of Directive 2009/28/EC. In order to implement the provisions of Directive 2009/28/EC on the promotion of the use of energy from renewable sources a new Renewable Energy Act (“REA”) was adopted by the Bulgarian Parliament, promulgated in the State gazette and entered into force on 3 May 2011.

The REA revoked RAESBA.The official purpose of the new REA was to implement the provisions of the new Directive 2009/28/EC. The legislator introduced certain restrictions to the development of renewable projects, in order to restrict the overwhelming development of such projects in the territory of Bulgaria over recent years and to ensure that the new electricity production capacities being built are adequate for the existing grid capacity of the country.

Licensing of renewable energy producers

No electricity production license is required for renewable energy plants with a total installed capacity of up to 5 MW.

National support measures for renewable energy producers

The major part of the REA regulates the development of projects for generation of electricity from renewable sources.

Pursuant to the REA, producers of electricity from renewable energy sources (“RES”) are entitled to the following incentive measures:

• Privileged connection of the renewable energy plants to the electricity grids
• Purchase of electricity produced by renewable energy sources at preferential prices, as determined in a feed-in-tariff.

Privileged connection to the electricity grids

The unconditional obligation of grid operators (transmission system operator and distribution system operators) to connect facilities for production of renewable electricity to the grid, as stated in the previously effective legislation (RAESBA), is no longer applicable. The REA introduced mechanisms for limiting the previously uncontrolled grid capacity of new renewable projects, thus attempting to resolve the insufficient grid capacity.

SEWRC should announce annually, by 30 June, on the basis of information provided by the grid operators, the maximum existing grid capacity for connecting new production facilities of electricity from renewable sources for the following twelve-month period. The maximum connection capacities shall be divided by: (a) areas of connection and (b) levels of voltage.

The developers should apply to the respective grid operator for connection to the grid in the area of development of the project. The grid operator shall estimate the admissibility of the relevant application. In general, the principle “first come – first served” shall be applied. If the application is approved (i.e. assessed as admissible), the grid operator should issue a statement on the terms and conditions for connection of the respective project to the grid.

Once the maximum capacity is reached (i.e. the total amount of requested capacity, as per the submitted and approved applications, exceeds the maximum capacity as announced  by the Regulator), any further applications for the respective year shall be rejected.

Upon submission of the application for connection to the grid the applicant should provide participation guarantee at the amount of BGN 5,000 for each MW of intended installed capacity. Another financial filter introduced with the new REA is the requirement that investors should pay, as an advance payment, part of the fee for connection to the grid at an early stage of development of the project, namely upon signing the preliminary agreement for connection to the electricity grid. The amount of the advance is fixed, regardless of the specific conditions for connection of each project, and is as follows: (i) BGN 50,000 for each MW of intended installed capacity for projects with installed capacity above 5 MW, and (ii) BGN 25,000 for each MW of intended installed capacity for projects with installed capacity 5 MW and below.

According to the last amendments of the REA, effective as of 10 April 2012, a new connection procedure shall apply for renewable projects that have reached the stage of signed preliminary grid connection agreement, but do not have a signed final grid connection agreement as at 10 April 2012.

When the time schedules are ready, the grid operators shall notify the investors of renewable projects of the feasible timetable for connection of each renewable project to the grid. Within one month as of receipt of the above notification, each investor should accept or disagree in writing with the proposed term. If the investor does not grant its explicit written consent or disagree with the proposed term for connection of its projects, the signed preliminary grid connection agreement shall be deemed terminated.

The above schedules for grid connection shall not apply to renewable projects for production of electricity from biomass, which as at 10 April 2012 have reached the stage of signed preliminary grid connection agreement, but do not have a signed final grid connection agreement.

Feed-in-tariff (FIT)

REA retained the feed-in tariff (FIT) as the main operating subsidy for production of electricity from renewable sources. The principle of mandatory off-take of electricity produced from renewable sources on the basis of long-term power purchase agreements has been maintained. The persons obliged to purchase the electricity are the public supplier (National Electricity Company) and the end suppliers of electricity.

The FIT is fixed for the entire period of mandatory off-take of the electricity produced from renewable sources. The Regulator shall determine the FIT levels annually but the new prices shall be applicable to new projects only.

The REA introduced several modifications to the FIT design when compared to the previous regulations, which leads to increased investment risk.

According to the amendments of REA, effective as of 10 April 2012, the FIT shall be fixed not as at the time of signing Act 15 (establishing completion of construction works) for a renewable energy project, but at a later time – as at the date of entry into exploitation of the renewable energy project, i.e. the date of issuance of the permit for use.

This rule shall apply to all renewable energy projects which as at 10 April 2012 have not been entered into exploitation.

When a renewable project is entered into exploitation in stages, the off-take price for electricity produced shall be amended as at the date of entry into exploitation of each subsequent stage (unit). This off-take price shall be calculated as an average price between the FIT applied until the entry into exploitation of the respective stage (unit) and the FIT which applies as of the date of entry into exploitation of this unit, in accordance with a methodology to be adopted by the SEWRC.

REA does not specify a formula according to which the FIT should be calculated. It is at the discretion of the Regulator to decide on the amount of the FIT for electricity produced from different sources and technologies. The REA only specifies the general criteria, which should be considered by the Regulator when determining the FIT. Additional criteria are specified in the Ordinance on regulation of the electricity prices.

The period for mandatory off-take of electricity to be produced from new projects or projects in development was decreased from 25 to 20 years (for solar and geothermal projects) and from 15 to 12 years (for wind projects). Producers of renewable electricity, which are operating and have effective power purchase agreements (PPA) as at the date of entering into force of the REA, shall maintain the validity terms of their PPAs (i.e. 25 years for solar plants and 15 years for wind projects).

Promotion of renewable energy for heating and cooling

RAESBA did not contain specific provisions regarding the promotion of renewable energy produced for heating and cooling purposes, since it implemented Directive 2001/77 on promotion of electricity produced from renewable energy sources.

The REA mentions the promotion of renewable energy for cooling and heating but does not specify the exact measures for promotion. The few provisions regarding the promotion of renewable energy for heating and cooling are of a general nature and do not contain specific requirements or steps to be performed by investors.

Projects for development of local heating distribution networks and small decentralized heating and/or cooling systems shall be subject to incentive measures which are not yet determined in the legislation.

The REA proclaims that in the case of construction of new buildings or basic reconstruction of existing buildings, if technically possible and economically viable, at least 15% of the energy for heating and cooling necessary for the respective building should be produced from renewable sources.

Financing of RES projects

Currently, RES projects are financed predominantly by private investors and commercial banks.

In order to promote RES, the country has implemented the Bulgarian Energy Efficiency and Renewable Energy Credit Line (BEERECL), which has been established to support industrial energy efficiency and small renewable energy projects in the private sector by using funding from the Kozloduy International Fund, created by the EBRD in May 2002.

BEERECL provides funding for small renewable energy projects:

• Small hydro power plants – up to 10 MW
• Wind projects – up to 5 MW, and
• Biomass projects – up to 10 MW.

BEERECL provides grants of up to 15 percent of the disbursed loan principle for RES projects, upon their completion and on the basis of verification by an independent energy expert.

RES projects could alternatively be financed under EU operational programs.

Banking and finance

The commercial activities of credit and financial institutions in Bulgaria are regulated by the Credit Institutions Act (“CIA”), effective from 1 January 2007.

As per the CIA, a Bulgarian bank must be established in the legal form of a joint-stock company, issuing only dematerialized shares and with a fully paid-up minimum registered capital of BGN 10,000,000. Banking activities in Bulgaria may be performed only upon obtaining a bank license, issued by the Bulgarian National Bank (“BNB”).

The CIA envisages two possibilities for a bank, licensed in a Member State or in a country that is part of the European Economic Area (EEA), to carry out banking activities on the territory of the Republic of Bulgaria:

• through a branch, of which no more than one may be on the territory of Bulgaria, i.e. freedom of establishment
• directly, after specifying the names and addresses of the persons who will represent it before the BNB, i.e. freedom to provide services.

Member State banks, including banks from the EEA may perform only those activities that are specified in their licenses. Activity can commence upon notification to the BNB by the competent bodies which have issued the license of the bank.

A foreign bank registered in a third country (i.e. not in a Member State or EEA) may perform banking activities in Bulgaria only upon opening a branch in Bulgaria and obtaining a license issued by the BNB.

In addition to banks, electronic money may be issued by companies which have obtained a license by the BNB, or have been granted a license by the competent authorities of a Member State or a country that is part of the EEA, and provide services, directly or through a branch, within the territory of the Republic of Bulgaria.

Financial institutions are legal entities other than credit institutions, for which the main scope of business is carrying out one or more banking activities and/or granting credits with funds which have not been raised from receiving deposits or other repayable funds from the public. Following amendments to the CIA from March 2009, financial institutions are subject to registration in a special register kept by the BNB provided that certain requirements have been met. The financial institution could take the form of a joint stock company, limited liability company or limited partnership with shares. The minimum share capital of the financial institution depends on the services to be carried out and is set at BGN 50,000 or BGN 250,000 for leasing and other services.

Financial institutions having their registered address in a Member State or a country that is part of the EEA are also entitled to carry out commercial activities on the territory of the Republic of Bulgaria directly or through a branch provided that they:

• are subsidiaries of a bank licensed in a Member State, or
• are jointly owned by two or more banks, all of which are licensed in a Member State, and
• meet all requirements explicitly envisaged by the CIA.

The representative office of any bank in the Republic of Bulgaria is obliged to submit to the BNB a copy of the act for its registration with the Bulgarian Chamber of Commerce and Industry within 14 days after the date of issue of the act. Such representative office may not carry out commercial activity in Bulgaria.

International private law

International Private Law Code (“IPLC”)

The rules of the IPLC regulate the terms and conditions concerning the choice of applicable law in private legal relations, which have an international element as well as the recognition and enforcement of foreign court decisions and other official acts in Bulgaria.

Competence of Bulgarian courts and other authorities

The international competence of Bulgarian courts and other authorities is exclusive only if it is explicitly provided for. For example, Bulgarian courts have exclusive competence on lawsuits concerning:

–      ownership title and property rights over real estates situated in Bulgaria

–      legal status of legal entities registered in the Republic of Bulgaria

–      claims regarding industrial property, where the patent has been issued or the registration made in the Republic of Bulgaria.

Where the dispute is outside the exclusive competence of the Bulgarian courts, any such action may be submitted to a foreign court or arbitration by an agreement in writing between the parties.

The Bulgarian enforcement authorities have exclusive competence to take action for compulsory enforcement against entities, individuals and assets located in Bulgaria.

The legal status of legal entities and branches of foreign companies is regulated by the law of the state in which they are registered. Therefore, the legal status of legal entities and branches of foreign companies registered in Bulgaria shall be subject to Bulgarian law.

Since ownership rights over movable and immovable property are regulated by the law of the state within whose territory they are located, Bulgarian law shall be applicable to property located within Bulgaria.

Contracts, including employment contracts, are regulated under the law chosen by the parties.

However, the choice of applicable law for an employment contract must not deprive the employee of the protection under the mandatory rules of the law, which would be applicable in the absence of choice of applicable law. In the absence of choice of applicable law, the employment contract is governed by the law of the state in which the employee usually works, even if he or she is temporarily employed in another state.

Unfair competition and the restriction of competition are regulated by the law of the state in whose territory the interests of competitors or consumers are damaged or may be damaged.

Recognition and enforcement of foreign awards in Bulgaria

Decisions and other acts of foreign courts and authorities, including courts of arbitration, can take legal effect in Bulgaria through their recognition and/or enforcement subject to the terms and conditions of the Bulgarian International Private Law Code (“IPLC”) and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

According to the IPLC, decisions and other acts of the foreign courts and authorities can be recognized and enforced if the foreign court or authority has been competent according to the Bulgarian law to issue the act subject to enforcement, and its recognition and enforcement does not contradict public policy in Bulgaria.

The New York Convention, to which Bulgaria is a party, provides rules for enforcement of foreign arbitration awards in contracting states.

Procedure for enforcement of foreign court decisions and arbitration awards

The procedure for enforcement of a foreign court decision or an arbitration award starts upon the filing of a claim with the Sofia City Court. Attached to the claim must be a copy of the foreign act verified by the court or by the arbitration which has issued it and a certificate of the foreign court or arbitration that the decision has entered into force. These documents must be translated into Bulgarian by a sworn translator and certified by the Consular Department of the Bulgarian Ministry of Foreign Affairs.

The local court examines whether all pre-conditions for recognition and enforcement of the foreign act are fulfilled. However, the Bulgarian court does not review the case on the merits. As an exception, a debtor can make an objection before the Bulgarian court against subsequent payment of the debt after the foreign court decision or arbitration award has entered into force abroad and, in this case, the Bulgarian court will have to consider this fact before enforcement of the act.