Required Disclosures in Bulgarian Commercial Leases: VAT and Tax

Unlike residential property regulations, which focus on consumer protection and habitability disclosures, the Bulgarian commercial real estate framework views both the landlord and tenant as professional corporate entities (EOOD, OOD, AD).

Governed fundamentally by the Obligations and Contracts Act (effective 1 January 1951) and the Commerce Act (effective 1 July 1991), "disclosures" in a Bulgarian commercial lease are almost entirely financial and focused on strict tax compliance. This specifically concerns the handling of Value Added Tax (VAT / ДДС) under the Value Added Tax Act (effective 1 January 2007) and the filing of corporate revenues with the National Revenue Agency (NRA) under the Corporate Income Tax Act (effective 1 January 2007).

1. VAT (ДДС) Disclosure and Application

The most crucial financial disclosure in a Bulgarian commercial lease relates to Value Added Tax (VAT or ДДС - Данък добавена стойност).

Under Art. 45(1) of the Value Added Tax Act (VATA), the letting or leasing of land or a building (or part thereof) is legally defined as an exempt supply. This differs from residential leases to individuals (natural persons), which are exempt under Art. 45(4) VATA without an option to tax. For commercial property, or residential property leased to legal entities, the tax treatment depends on the landlord's election.

The Option to Tax (20% VAT)

While the supply is exempt by default, the landlord (supplier) may exercise a "right of choice" under Art. 45(7) VATA to make the supply taxable.

• If the landlord chooses to tax the supply, the standard VAT rate of 20% applies (VATA Art. 66(1)).
• The Lease Clause: A legally sound commercial lease must explicitly state whether the landlord has exercised this option and whether the negotiated base rent is exclusive of VAT or inclusive of VAT.
• The market standard is to quote rents excluding VAT (bez DDS / без ДДС). Therefore, if the option to tax is exercised, a €5,000 lease requires the tenant to pay €6,000 total (€5,000 rent + €1,000 VAT).

Tenant VAT Registration Status

To ensure smooth financial operations, the landlord will require the commercial tenant to formally disclose their VAT Registration status (usually represented by an active BG preceding their corporate UIC number) prior to signing. If the landlord opts to tax the lease and the tenant is VAT-registered, the tenant can reclaim the 20% VAT paid on the rent as input tax. However, if the tenant is a non-registered entity, the 20% VAT becomes a hard, unrecoverable cost.

2. Corporate Tax Disclosures (NRA / НАП)

A commercial lease is a revenue-generating vehicle for the landlord and a recognized operational expense for the tenant. Both parties have strict disclosure obligations to the National Revenue Agency (NRA or NAP / НАП).

Landlord Obligations (CITA)

If the landlord is a registered company, the rental income falls under the Corporate Income Tax Act (CITA).

• The landlord must declare the totality of their rental income combined with their other business revenues.
• Bulgaria’s Corporate Tax rate is a flat 10% on net corporate profits (CITA Art. 9(1)).
• The landlord is legally required to issue a compliant Tax Invoice (Данъчна фактура) to the commercial tenant no later than 5 days from the date of the taxable event or the receipt of advance payment (VATA Art. 113(4)).

Withholding Tax (Non-Resident Corporate Landlords)

A critical disclosure requirement arises if the commercial property is owned by a foreign legal entity that is not registered for tax purposes in Bulgaria.

• Under Art. 195(1) CITA, income of foreign legal entities from a source in Bulgaria (including rent) is subject to withholding tax.
• The Bulgarian corporate tenant is legally required to withhold tax at a rate of 10% (CITA Art. 200(1)), declare it, and remit it directly to the Bulgarian NRA, unless a Double Taxation Treaty specifies a lower rate.

3. Commercial Registration and The Property Register

To validate the legitimacy of the contract, both parties must disclose their corporate standing.

The Commercial Register (Търговски регистър)

Before signing, both parties will extract and attach a current Certificate of Good Standing (Удостоверение за актуално състояние) from the Bulgarian Commercial Register and Register of Non-Profit Legal Entities. This publicly available data proves:

1. The company legally exists and is not currently engaged in bankruptcy proceedings.
2. The specific individual signing the lease (the Manager/Director) actually holds the legal representative power to bind the company to a multi-year financial commitment.

Registration in the Property Register (Имотен регистър)

For long-term commercial leases, the tenant often demands the right to register the lease to protect their tenure.

• Registered Leases: Pursuant to Art. 237(1) of the Obligations and Contracts Act, if the lease contract is entered in the Property Register, it remains valid and binding for any new owner (transferee) of the property for the full duration of the term.
• Notarized but Unregistered Leases: Under Art. 237(2), a lease contract with a "verifiable date" (notarized) that is not registered in the Property Register is binding on a new owner, but only for the term provided in the contract and for no more than one year from the transfer of the property.

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