Commerciaal Security Deposits in Bulgaria: Limits and Guarantees

Residential lease agreements in Bulgaria are governed by the Obligations and Contracts Act (Закон за задълженията и договорите - ZZD), specifically Articles 228 to 239. The Commerce Act applies only to transactions between traders and is not the authority for residential housing.

Therefore, in Bulgaria, the lease agreement and the ZZD are the primary authorities governing the deposit.

Deposit Limits and Market Practice

Because residential deposits are not capped by a specific statutory maximum, parties are free to negotiate the amount under the principle of freedom of contract.

Standard Market Amounts

• Standard Residential: The market standard for residential leases in Bulgaria is one month's rent.
• High-End / Furnished Properties: For luxury properties or those with expensive furnishings, landlords frequently request two months' rent as security.

Deposit Management and Interest

Bulgarian law does not require residential landlords to place cash deposits into separate escrow accounts or government-backed tenancy schemes. The landlord typically receives the funds into their personal bank account.

• Interest: Under Articles 230-233 of the ZZD, there is no statutory obligation for a landlord to pay interest on a security deposit. Interest is only due if explicitly stipulated in the written lease agreement (which is rare in residential practice).

Taxation and VAT

The financial treatment of residential deposits is distinct from commercial transactions:

• VAT Exemption: According to Art. 45, para. 4 of the VAT Act (ЗДДС), the leasing of residential property to individuals is an exempt supply. Security deposits are considered a guarantee and do not trigger VAT.
• Income Tax: Landlords who are physical persons are subject to a 10% income tax on 90% of the gross rent (allowing for a 10% statutory expense deduction) under Art. 31 of the Personal Income Tax Act.

Allowable Deductions & Handover Protocols

Art. 232, para. 2 of the ZZD stipulates that the tenant must pay the costs related to the use of the property. If holding a standard cash deposit, the lease agreement should detail what the landlord can deduct. Standard residential deductions include:

1. Unpaid Rent.
2. Unpaid Utilities (Electricity, water, heating, building maintenance fees).
3. Property Damage (Beyond "normal wear and tear").

The Essential Protocol: The Handover Protocol (Приемо-предавателен протокол) is the essential legal document for verifying the condition of the property at the start and end of the lease. It serves as the primary evidence to justify deposit retentions. If the landlord wishes to deduct funds for damages, they must have a signed Day-1 protocol to prove the condition of the property upon handover.

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