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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