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LEGAL ASPECTS OF THE PRIVATE SECTOR IN BULGARIA
IV. LEGAL FRAMEWORK OF FOREIGN INVESTMENTS AND THEIR ROLE FOR PRIVATE SECTOR DEVELOPMENT
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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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