The significance of foreign investments for a country's development is incontestable. That is particularly relevant to Bulgaria, which is now in its fourth year of transition from centralized state command and predominantly state-owned property to market economy. Foreign investments not only bring capitals into the country, but managerial skills and experience and new technologies, they create jobs and outlets in new foreign markets. They also have a favorable impact on the private sector. Last but not least, the presence of foreign investments enhances the competitiveness of the national economy.

In the years of socialist planned economy, as the development of the private sector itself was inadmissible, foreign investments were denied access to the Bulgarian economy. Unless, of course, we consider the joint ventures that were being established between socialist organizations from Bulgaria and the other COMECON member countries.

It was not until the 1980s, with the adoption of Decree N 535, that there appeared opportunities to set up joint ventures with western companies. The legal framework was subsequently extended with the adoption of Decree N 56 on Economic Activity and foreign investors could establish trade representative offices, engage in independent business activities, open branches or establish joint ventures in the country. However, foreign investments were allowed access to the country by a licensing system.

That system was retained even after the adoption of the first Foreign Investment Law in 1991.

The presence of a stable foreign investment legislation framework is the first and foremost precondition for actual investments. Bulgaria has one of the most liberal and up-to-date laws in that respect. The 1992 Law on Economic Activity of Foreign Persons rectified the shortcomings and deficiencies of the existing regulations up to then. It provided for the indispensable preconditions allowing foreign persons to conduct business in the country. The international law principles adopted by the Law provide the necessary guarantees to foreign investments.

The scope of the Law is clear enough - foreign persons are defined as registered abroad legal persons and companies which are not legal persons, as well as individuals who are foreign citizens with permanent residence abroad. Foreign citizens who are permanently resident in Bulgaria are not considered foreign persons under the provisions of the Law and it is consequently the national regime that applies to them, whereas Bulgarian nationals with double citizenship are free to choose the status of Bulgarian or foreign citizens. Similarly, companies with foreign participation registered in Bulgaria are regarded as Bulgarian legal persons and are not considered foreign persons.

All familiar forms of economic activity allowed by Bulgarian legislation are likewise accessible to foreign persons. In this sense, foreign investments may be organized in the forms that the Law on Commerce provides for - sole trader, company, or partnership according to the Law on Obligations and Contracts.

Foreign person may set up and register in the country companies of which they are the sole owners. Foreign persons may form partnerships with Bulgarian legal and private persons with no restrictions on the share of foreign participation.

Foreign investments are not subject to special permits except in the cases specified by the Law (art. 5, par. 3, sec. 3). That provision abolished the former licensing regime.

Foreign persons are entitled to equal treatment under the national legislation except with respect to the ownership of land. Foreign persons may not acquire property rights in land, either through branch offices or as sole traders. As for companies with more than 50% foreign participation, they may only acquire property rights in farm land. Foreign persons may, however, own built-up real estate and acquire mere right of property in land.

In accordance with the provisions of the Constitution, the Law allows expropriation of foreign investments only on account of particularly urgent needs of the state which cannot be met in any other way. Any expropriation and compensation involving a foreign person takes place solely under order by the Minister of Finance. Furthermore, the expropriation can only be carried out after adequate compensation of the owner - in equivalent real property or money. The expropriation order may be appealed against before the Supreme Court, both with respect to its grounds, and concerning the valuation, the manner of compensation, and other elements.

Another important precondition is profit repatriation. The Law guarantees the repatriation of the incomes from the investment received in Leva, of the compensation upon expropriation of the investment object, the liquidation dividend upon termination of the investment, the price upon sale of the investment object, and the obtained sum in Leva following a writ of execution concerning receivables in foreign currency secured by a pledge or mortgage.

The Law also introduces the principle of the priority of international treaties. When an international treaty, ratified by the Republic of Bulgaria, grants more favorable conditions for the carrying out of business activities by foreign persons, the Law provides for the application of the more favorable conditions in accordance with the international treaty. That constitutes an additional safeguard of the interests of foreign investors, who are free to choose between protection by the provisions of the law or those of the international treaty.

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