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Country Commercial Guides
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CHAPTER VII. INVESTMENT CLIMATE STATEMENT
A. Openness to Foreign Investment
Bulgaria has one of the most liberal foreign investment laws in the region. Foreign investment typically assumes one of the following forms: establishing a joint venture with existing companies, state-owned or private; acquiring a company through privatization; setting up a new (green field) venture; or making a portfolio investment. Portfolio investment has been minimal given the relative lack of development and inefficiencies of the capital markets.
The most common type of organization for foreign investors is a limited liability company. Other forms are companies limited by shares (joint stock companies), joint enterprises, business associations, general partnerships, limited partnerships, and sole proprietorships.
The problems most often cited by foreign investors in Bulgaria are: poor infrastructure; little advance notice of new laws or regulations or amendments; a relatively high tax burden; the banking system; the protracted privatization process; and government bureaucracy.
The 1992 Law on Foreign Person's Business Activity and Foreign Investment Protection, (the "Foreign Investment Law"), as amended, establishes the Foreign Investment Agency as the government's coordinating body for foreign investment. The law extends national treatment to foreign investors, guarantees compensation in the event of expropriation, and allows the repatriation of profits. The law explicitly recognizes intellectual property and treasury bonds as a foreign investment.
The law does not limit the extent or amount of foreign participation in companies. Foreign companies have the right to open deposit accounts in hard currency and Bulgarian levs.
Foreign companies are permitted to engage in various forms of business activity including the acquisition of shares in companies, with some restrictions. Foreigners cannot own land (this is a constitutional prohibition which will eventually be changed to comply with European Union accession requirements). However, the Foreign Investment Law removed most restrictions on acquisition of land by locally-registered companies with majority foreign participation. Local companies where foreign partners have controlling interests must obtain prior approval (licenses) to engage in production and export of arms/ammunition; banking and insurance; and acquisition of property in certain geographic areas/zones. Licenses are granted by the Council of Ministers or, in the case of banking, the Bulgarian National Bank (BNB). These institutions have published conditions for licenses which Bulgarian officials assert are nominal and routine.
In the area of arms manufacturing, only firms with over 50 percent Bulgarian participation can be licensed for international trade in arms. In 1998, the government developed a strategy for privatizing the military-industrial complex. The plan allows for the privatization of non-military operations and some defense firms, while ensuring that the government retains a blocking share (34 percent) in strategic arms-producing enterprises to guarantee the country's defense priorities.
The 1992 Law on the Transformation and Privatization of State and Municipal-owned Enterprises, as amended, governs Bulgaria's privatization process. The law permits foreign companies to purchase state-owned firms, and the government has emphasized its openness to foreign capital. However, privatization transaction are often protracted, in part because the Privatization Agency often tries to secure a selling price which the market will not bear. Policies on employee retention, technology transfer and environmental liability are not uniform. In some cases, controversies have ensued in the post-privatization phase regarding the terms and conditions of sale. Under the 1995 Law on Concessions, the state is authorized to give "a particular right of using projects, public and state property, as well as giving permits to carry out activities for which a state monopoly is established by law." Article 4 of the Law lists thirteen sectors in which the state may, on the basis of a concession agreement, grant private investors a partial monopoly in activities normally reserved for the central and/or local governments. These include the construction of roads, ports and airports; power generation and transmission; mining; petroleum exploration/drilling; telecommunications; forests and parks; beaches; and nuclear installations. Concessions are awarded on the basis of a tender and are issued for up to 35 years. Concessions can be extended but shall not exceed 50 years, although the former concession holder can legally be preferred in issuing a new concession for the same project/activity.
The law was amended in July 1997 to permit build-operate-transfer deals, give priority for minerals exploitation to the holders of exploration licenses, and reconcile conflicting procedures for privatization and concession. In 1998 and 1999, Parliament passed framework legislation in telecommunications and mining, respectively, and an analogous bill on the energy sector is currently under consideration.
B. Right to Private Ownership/Establishment
The Constitution (Article 19) states that the Bulgarian economy "shall be based on free economic initiative." The government has created the legal framework in which private entities can establish and own business enterprises engaging in profit-making activities save those expressly prohibited by law. Bulgaria's Commercial Code guarantees and regulates the free establishment, acquisition and disposition of private business enterprises. Competitive equality is the standard applied to private enterprises in competition with public enterprises with respect to access to markets, credit, and other business operations, such as licenses and supplies. The central bank has drafted a new foreign currency law addressing these issues, which must be coordinated with the finance ministry and approved by the council of ministers before submission for parliamentary consideration.
C. Protection of Property Rights
Bulgarian law protects the acquisition and disposition of property rights. In practice, the protection of property rights, is subject to difficulties in varying degrees.
1. Intellectual Property Rights Bulgarian intellectual property legislation is generally adequate, with modern patent and copyright laws and criminal penalties for copyright infringement. Intellectual property legislation has been amended and modernized relatively recently and several amendments to further strengthen protection of these rights are currently pending in Parliament. Until recently, Bulgaria was the largest source of compact-disk and CD-ROM piracy in Europe and was one of the world's leading exporters of pirated goods. For this reason, Bulgaria was placed on the U.S. Trade Representative's Special 301 Priority Watch List in January 1998. In 1998, enforcement improved considerably with the introduction of a CD-production licensing system subject to 24-hour plant surveillance. CD manufacturers must also submit a copy of an agreement with the copyright holder before starting production. There has also been improved coordination between the Ministry of Culture and Bulgarian law enforcement authorities. In recognition of the significant progress made by the Bulgarian government in improving protection of intellectual property, the U.S. Trade Representative removed Bulgaria from all Special 301 Watch Lists in April 1999.
Bulgaria is a member of the World Intellectual Property Organization (WIPO) and a signatory to the following agreements: the Paris Convention for the Protection of Intellectual Property; the Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcast Organizations; the Geneva Phonograms Convention; the Madrid Agreement for the Repression of False or Deceptive Indications of Source of Goods; the Madrid Agreement on the International Classification and Registration of Trademarks; the Patent Cooperation Treaty; the Universal Copyright Convention; the Bern Convention for the Protection of Literary and Artistic Works; the Lisbon Agreement for the Protection of Appellations of Origin and their International Registration; the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purpose of Patent Protection; and the Nairobi Treaty on the Protection of the Olympic Symbol. On acceding to the World Trade Organization (WTO), Bulgaria agreed to implement the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) without a transitional period.
The 1993 Law on Copyright and Neighboring Rights protects literary, artistic and scientific works. Article 3 provides a full listing of protected works including computer programs (which are protected as literary works). The Law distinguishes between moral and economic rights. The use of protected works is prohibited without the authorization of the author except in those instances enumerated in Article 23. Copyright protection is granted during the life of the author plus 50 years. For films and other audio-visual works, copyright protection is granted for 50 years from the date of publication. Part II of the law addresses neighboring rights for performers and producers of sound recordings and radio/television programs. Part III of the Law focuses on enforcement. The Copyright Office of the Ministry of Culture is responsible for copyright matters in Bulgaria. The National Film Center is responsible for enforcing intellectual property rights with regard to films and videos. Remedies for violations are provided in civil law. However, under the Penalty Code, copyright infringement was originally considered only a misdemeanor subject to nominal fines.
Parliament is considering amendments to the law which would enable copyright owners to file civil claims to suspend the activities of pirates; enable confiscation of equipment and pirated materials; enhance border controls over pirated material; and harmonize Bulgarian legislation with the government's Association Agreement with the European Union.
Bulgaria's current Law on Patents (the "Patent Law") dates from 1993. Bulgaria grants the right to exclusive use of inventions and utility models for 20 years and 10 years, respectively, from the dates of patent application filings. Inventions eligible for patent protection must be new as a result of innovation and have industrial applications. Article 6 lists items not considered inventions. Utility models are defined as "objects with structural and technological features relating to an improved construction, form and spatial combination of elements of articles, tools, mechanisms, equipment and parts thereof, materials and other items for industrial or home use."
Although semiconductor chip layout design is not specifically mentioned in current legislation, it should be protected in general under the Patent Law. Parliament is currently considering bills governing the protection of industrial designs and the topology of integrated circuits. A Law for the Protection of New Types of Plants and Animal Breeds was adopted in September 1996.
The independent Patent and Trademark Office is the competent authority with respect to patent matters. Chapter IV of the patent law, Articles 34-53, describe the application procedures and the examination process. Applications are submitted directly to the Patent and Trademark Office. Compulsory licensing may be ordered under certain conditions: the patent has not been used within four years of filing the patent application or three years from the date of issue; the patent holder is unable to offer good justification for failing to sufficiently supply the national market; or declaration of a national emergency.
Patent infringement is punishable with the imposition of fines of up to 1,000 levs (approximately $550). Disputes are reviewed by specialized panels convened by the President of the Patent Office. Parties dissatisfied with the outcome must initiate action in the Sofia Municipal Court within three months of the panel's decision.
The 1967 Law on Trademarks and Industrial Designs, which regulates the establishment, use, cession, suspension and protection of the rights of trademarks, service marks, industrial designs and designation of origin. Foreign enterprises, organizations or persons are permitted to register trademarks. Applications for registration must be submitted to the Patent and Trademark Office under specified procedures. Applicants are notified of incomplete applications. Applications must be completed within three months of receipt of the notice; otherwise, the request is rejected.
Right of priority, with respect to trademarks or industrial designs that do not differ substantially, is determined based upon application first filed in compliance with information required in Article 12(a). Right of priority is also established based on the timing of a request made in one of the member countries of the Union for the Protection of Industrial Property. To exercise the right of priority, the applicant must file a request within six months of the date of original filing. A trademark is normally granted within three months of filing of a complete application. Refusals can be appealed in the Sofia Municipal Court within three months of the notification of the decision. Protection starts as of the time of entry of the trademark in the applicant's name in the Register of Trademarks or the Register of Service Marks. The right of exclusive use of a trademark is granted for 10 years. Requests for extension of protection must be filed during the final year of validity but not less than six months from expiration. The Law in essence automatically protects "marks...already known in the country as world-famous trademarks" by disallowing registration by others. Failure to use a mark during a five-year period results in protection being terminated.
Infringement of trademarks is a problem in Bulgaria for many U.S. manufacturers. While the law allows for confiscation of offending products, infringement is deemed a misdemeanor under the Penal Code and subject to a nominal fine which does not act as a deterrent to illegal activities. However, the Protection of Competition Act provides for fines of up to 500,000 levs(approximately $280,000) for companies which use misleading packaging, trademarks or other signs which injure the interests of competitors. Parliament is currently considering bills governing protection of trademarks and geographic designations as well as industrial designs.
2. Protection of Secured Creditors
Difficulties in recovering collateral are often cited as an impediment to commercial lending. A Collateral Loan Law was enacted in October 1996, with the assistance of IRIS (Institutional Reform and the Informal Sector) and the U.S. Agency for International Development. A warehouse receipts program for agricultural commodities is also being implemented with U.S. Government assistance.
D. Adequacy of Laws and Regulations Governing Commercial Transactions
The 1991 Commercial Code, as amended, defines the various forms of economic associations and regulates their foundation, organization, and termination. Revisions in 1996 to the Commercial Code introduced a chapter on equipment leasing. While the Commercial Code regulates commercial and company law, the 1951 Law on Obligations and Contracts, as amended, regulates civil transactions. These laws are generally deemed adequate for commercial transactions. However, one investment dispute involving the Commercial Code provisions concerning notice of shareholders meetings has endangered a foreign investor's control over its investment.
E. Foreign Trade Zones/Free Ports
The six operational "free zones" in Bulgaria at Ruse, Vidin, Plovdiv, Svilengrad, Dragoman, and Burgas present no investment barrier to U.S. companies.
F. Major Taxation Issues Affecting U.S. Business
The main tax laws govern income and corporate profits taxes, tax administration and tax procedures. The Law on Tax Procedures provides the rules for tax registration as well as the procedures for imposing penalties for violations of tax legislation. The Office of Tax Administration, along with local offices, is vested with the authority to assess liabilities and to collect taxes.
Personal income tax rates increase progressively from 20 to 40 percent. Foreign individuals residing in Bulgaria are subject to Bulgarian income tax rates on their worldwide income. The basic corporate or profit tax rate is 27 percent, except that a tax rate of 20 percent is applied to companies where annual profits do not exceed 150,000 levs. In addition, a municipal tax of 10 percent is levied on profits before the corporate tax is assessed. Individuals and small businesses carrying out certain trades pay a "patent" tax according to a schedule established by Parliament. A withholding tax of 15 percent is assessed on dividends. There is a 15 percent tax on income paid to foreign juridical persons from interest, rent, copyright and license payments, technical services and capital gains, which is levied at the source.
There is no bilateral tax treaty between the United States and Bulgaria.
Employers pay monthly contributions of 37 percent of employees' gross salaries for social security insurance (in addition, employees contribute a further 2 percent). Employers must contribute an additional 20 percent of the gross monthly salary of foreign employees. Companies are also required to contribute 5 percent of the total wage bill to an unemployment fund.
The 20 percent single-rate value-added tax (VAT) was reduced from 22 percent in 1998. All goods and services are subject to VAT except: exports; those involved in international transport; and precious metals supplied to the central bank. VAT payments are generally rebated when goods are resold. Excise taxes are levied on tobacco, alcoholic beverages, and other products.
Foreign investors have asserted that widespread tax evasion combined with the failure of the authorities to enforce collection from large state-owned companies places foreign investors at a disadvantage. Another problem underscored by investors is the frequent revision of tax laws, sometimes without sufficient advance notice. However, in conjunction with its IMF agreement, the government is strengthening tax collections and has committed to limit tax arrears of state-owned enterprises. Government officials have also indicated their long-term intention to lower marginal rates as tax collection improves.
G. Performance Requirements/Incentives
Bulgaria does not impose export performance or local content requirements as a condition for establishing, maintaining or expanding an investment. The law does not specifically restrict hiring of expatriate personnel, but residence permits are often difficult to obtain.
However, a June 1999 law regulating gambling imposes additional requirements on foreigners organizing games of chance. Foreigners can receive a license to establish a casino in a hotel only if they satisfy one of the following conditions: 1) purchase or construction of a hotel rated four-star or higher; or 2) investment of at least $10 million and employment of at least 500 workers in economic activities unrelated to gambling.
H. Transparency of the Regulator System
1. Regulatory Environment
Day-to-day implementation of regulations by the bureaucracy produces frequent impediments to sound commercial practices. Regulations may not make commercial sense, and slow and poor service on applications leads to delays in investments.
Some business decisions seem to be made partly on political grounds, and some courts and law enforcement officers may be susceptible to influence (political or economic).
2. Competition Policy
The 1998 Protection of Competition Act is intended to foster the establishment and maintenance of a competitive market. The Competition Act forbids monopolies, agreements of companies in restraint of competition, trade restrictive practices, abuse of a dominant market position, and unfair competition, and seeks to promote consumer protection.
Companies are under an obligation to notify the Committee on Protection of Competition of prohibited arrangements within 30 days. Arrangements between companies aimed at restricting competition are allowed if the market share of the companies involved does not exceed five percent. The Competition Act presumes that a company has a dominant position, if that company controls 35 percent or more of the relevant market. A company with a dominant market position is prohibited from certain pricing practices, limitation of manufacturing development to the detriment of consumers, discriminatory treatment of competing customers, tying contracts to additional and unrelated obligations, and use of economic coercion to cause mergers.
The Competition Act also sets out strict standards and procedures with regard to government subsidies to private businesses.
The Act provides rules concerning mergers and other concentrations of economic power. Transactions which result in concentrations may proceed only with the prior consent of the committee, if the transaction will result in the control of more than 20 percent of the relevant market or if the consolidated turnover of the relevant companies exceeded 15 million levs (approximately $8.3 million) for the previous year.
The Act prohibits four specific forms of unfair competition: misrepresentation with respect to goods or services; misrepresentation with respect to the origin, manufacturer and other features of goods or services; and the use or disclosure of someone else's trade secrets in violation of good faith commercial practices. The Act also prohibits "unfair solicitation of customers" (promotion through gifts and lotteries), which may create difficulties for some foreign advertisers.
The Committee enforces the Act and may impose penalties on companies up to 500,000 levs (about $300,000) and individuals up to 20,000 levs (about $12,000). The Committee may advise other agencies to correct decisions violating the Act, and may even challenge such decisions in the courts. The Committee is not authorized to consider claims of damages by aggrieved parties, which must be brought to the courts and resolved pursuant to generally applicable rules.
I. Corruption
Bulgaria has laws, regulations, and penalties against corruption, including a 1996 Law for Measures against Money Laundering. Bulgaria was one of the first non-OECD nations to ratify the OECD Anti-Bribery Convention.
Bribery is a criminal act under Bulgarian law for both the giver and the receiver. Penalties range from three to fifteen years imprisonment, depending on the circumstances of the case, with confiscation of property added in more serious cases. In very grave cases, the Penal Code specifies prison terms of 10 to 30 years. The 1996 Money Laundering Law also applies to bribes. Bribing a foreign official is a criminal act. There have been trials and convictions of enterprise managers, prosecutors and law enforcement officials for corruption. While Bulgarian tax legislation does not explicitly disallow the deduction of bribes in the computation of domestic taxes, deductions connected with bribery and other illegal activities are not permitted.
Although the Bulgarian government has achieved some successes in the fight against organized crime and corruption, businesspeople contend that business decisions seem to be made partly on political grounds and that some judges and law enforcement officers are susceptible to political or economic influence. While suspicions of corruption deter some foreign investment, bureaucratic impediments appear to be a more significant barrier to investment than high-level corruption.
J. Labor
Bulgaria's working-age population consists of around 3.1 million highly educated and skilled men (53 percent) and women (47 percent). The literacy rate in Bulgaria is 93 percent. A high percentage of the workforce has completed some form of secondary, technical, or vocational education. Many Bulgarians have strong backgrounds in engineering, medicine, economics and the sciences, but there is a shortage of professionals with Western management skills. The aptitude of workers and the relative low cost of labor are considerable incentives for foreign companies, especially those which are labor intensive, to invest in Bulgaria. Employer tax obligations and benefits (clothing allowance, bonuses, etc.), can add up to nearly 80 percent of the total wage.
Bulgaria's 1991 Constitution (Article 49) recognizes workers' right to join trade unions and organize. In theory, the National Tripartite Cooperation Council (NTCC) provides a forum for dialogue among government, management, and trade unions such as cost-of-living adjustments. The current Labor Minister has attempted to revitalize the Council.
Bulgaria has two large trade union confederations, the Confederation of Independent Trade Unions of Bulgaria (CITUB) and Podkrepa ("Support"). CITUB, the successor to the trade union integrated with the former Communist Party, has long since severed its ties to the Socialists, whereas Podkrepa is an independent confederation. A third confederation, the Community of Free Trade Union Organizations in Bulgaria, was admitted to the NTCC in 1995. A new labor and civic organization called "Promyana" ("Change"), was formed in 1996. There are few restrictions on trade union activity and the confederations operate freely, but the workforce in smaller firms and elsewhere in the emerging private sector is often not represented by trade unions.
Under the 1993 Labor Code, employer and employee relations are regulated by employment contracts which may be agreed upon through collective bargaining. The Code extends what some complain are excessive protections for workers. For instance, maternity and post-natal child care requirements dictate that employers hold positions for nearly three years while the employee continues to receive payments from the social security fund. The Code also addresses worker occupational safety and health issues, establishes a minimum wage (determined by the Council of Ministers) and prevents exploitation of workers, including child labor. The Code clearly delineates employer rights, strengthening management's hand in disciplining the workforce. Unresolved disputes between labor and management can be referred to the courts, but resolution is often subject to delays.
Neither foreign companies nor Bulgarian companies having majority foreign-control are exempt from the requirements of the Labor Code. Article 14 of the Foreign Investment Law covers employment relations and social security contributions for Bulgarian and foreign employees. The Embassy is unaware of significant violations on the part of the Bulgarian Government with respect to ILO Conventions protecting worker rights.
K. Efficiency of Capital Markets and Portfolio Investment
Since October 1997, the Bulgarian Stock Exchange has operated under a license by the Securities and Exchange Commission, pursuant to the 1995 Law on Securities, Stock Exchanges and Investment Companies. Parliament is currently considering draft amendments to the securities law.
Bulgarian capital markets are minuscule and other mechanisms for long-term finance (banks, insurance companies, and pension funds) are weak or underdeveloped. The government seeks to encourage voluntary pension funds as part of larger reform of Bulgaria's social safety net. These funds will help develop the country's capital markets, although their portfolios will initially be limited to investments with minimal risk to principal (such as government securities and demand deposits).
The government does dip into the market to finance government expenditures. On a weekly basis the Ministry of Finance holds an auction of Treasury bills. The bills are typically short-term (3-month, 6-month and 1-year maturities). Commercial banks are the primary purchasers of these instruments. Foreign banks can participate in the treasury market only through a Bulgarian bank or the branch of a foreign bank which is duly licensed in Bulgaria. The foreign bank transfers the money which is then converted into levs to make the purchase. The foreign bank must open a lev account (referred to as a "custody account") for transactions. This lev account cannot be used as a standard deposit bank account. A foreign currency account can be opened but it is not obligatory.
The Foreign Investment Law defines securities, including treasury bills, with maturities over 6 months as investments. The purchase must be registered with the Ministry of Finance. Investments in treasury bills are subject to a 15 percent tax. Repatriation of profits is possible after presenting documentation that the taxes have been paid.
L. CONVERSION AND TRANSFER POLICIES
Under Article 13 of the Foreign Investment Act, there are no restrictions on the transfer of investment-related funds. The U.S. Embassy has received no complaints from U.S. investors pertaining to transfers and remittances.
M. EXPROPRIATION AND COMPENSATION
According to the Foreign Investment Law, property can be expropriated by order of the Finance Ministry "for exceptionally important state purposes." Owners must be compensated with nearby property of equal value at current prices. Monetary compensation is also permitted with the consent of the property's owner. Expropriation actions can be appealed to the Supreme Court with regard to the basis for the expropriation action, property appraisal and method of compensation. There have been no cases of expropriation since enactment of the Foreign Investment Law. In its bilateral investment treaty with the United States, Bulgaria committed itself to international arbitration in the event of expropriation and other investment disputes.
N. DISPUTE SETTLEMENT
1. Investment Disputes
The U.S. Embassy is aware of one dispute involving a U.S. investor, who is the largest single shareholder in a privatized Bulgarian manufacturing enterprise. The American company, with the support of other minority shareholders, has the controlling interest in the Bulgarian firm. The American investor advised that another minority shareholder has attempted to seize control of the company by replacing the board of directors at an illegally-convened shareholders' meeting. The U.S. investor is attempting to overturn that decision in the Bulgarian court system, but fears that his investment and the viability of the company itself are at considerable risk.
2. Bulgaria's Court System
Bulgaria's Constitution (1991) serves as the foundation of the legal system and creates an independent judicial branch. The judicial system consists of three levels of courts. On the first level, 20 regional courts exercise jurisdiction over administrative, civil and criminal cases. Cases are brought before one judge and two jurors. The 22 district courts are the next higher level, and have original jurisdiction in civil cases where claims exceed 100 levs (about $55) or in serious criminal cases. The district courts are also vested with the authority of appellate review for regional court decisions. District courts are presided over by three judges. On the highest level are the Supreme Court of Cassation and the Supreme Administrative Court. The Supreme Court of Cassation has jurisdiction over all civil and criminal cases, and hears appeals on issues of law. The Supreme Administrative Court rules on the legality of acts by the Council of Ministers and the ministries. Decisions by the Supreme Courts are final and binding.
The Law on the Judicial System established an independent Supreme Judicial Council to determine the composition and organization of the judicial branch. The Council has 22 members, who are nominated by the Parliament and other judicial branch bodies, plus three ex-officio members -- the two chairmen of the supreme courts and the Chief Prosecutor.
The Constitution also established the Constitutional Court which stands apart from the Supreme Courts. This court issues binding interpretations of the constitution; rules on challenges regarding the constitutionality of laws and acts; rules on international agreements prior to Parliamentary ratification; and reviews domestic laws to determine consistency with international legal norms. Any law or act found unconstitutional ceases to apply as of the date the ruling comes into force. The Constitutional Court consists of 12 judges: one-third elected by Parliament; one-third, appointed by the President; and one-third appointed by judges in the supreme courts.
3. Execution of Judgments
To execute judgments, a final judgment must be obtained so that the court can order payment; make a judicial request to perform an act or abstain from acting; or order the surrender of possession of property/goods. To obtain payment, complicated foreclosure proceedings must be initiated. The court of first instance must be petitioned for a writ of execution (based on the judgment). The issuance of a writ enables seizure of assets. If the party is seeking a judicial request to act or abstain from acting, the final judgment must be brought before an executive judge (head of a district court). The executive judge has the authority to issue fines of up to 400 levs approximately $220). The judge possesses the authority to resort to the police in instances such as the vacating of property and, possibly, for the surrendering of possessions.
Foreign judgments can be executed in Bulgaria. Execution depends on reciprocity -- whether Bulgarian judgments may be executed upon in a particular country. All foreign judgments are handled by the Sofia Municipal Court. If the court determines that the court system of the country in question recognizes Bulgarian decisions, the judgment can be executed. If the foreign court does not recognize Bulgarian judgments, the Sofia Municipal Court must determine if the judgment violates public decrees, standards or morals before the foreign judgment can be executed.
In practice, execution of judgments is a subject to delays, sometimes resulting from corruption in the judicial system.
4. Bankruptcy Law
The Law on Bankruptcy was passed in 1994 and incorporated into Part IV of the Commercial Code. The law provides for reorganization or rehabilitation of the company, attempts to maximize asset recovery, and provides for fair and equal distribution among all creditors. The law applies to all commercial entities, except banks, insurance companies, public monopolies or state-owned companies established by a special act of government. However, Chapter 14 of the Law on Banks and Credit Activity regulates bank bankruptcies.
Under Part IV of the Commercial Code, bankruptcy proceedings can be initiated by the debtor or by creditors. The debtor is obliged to declare bankruptcy within 15 days of becoming insolvent. Where insolvency is determined, the court appoints an interim trustee. The trustee is responsible for representing and managing the company, taking inventory of property and assets, identifying the creditors, convening the creditors and developing a recovery plan. At the first meeting of the creditors, a trustee is nominated; in most cases this is simply a reaffirmation by the creditors of the court appointed trustee. Creditors must declare the debts owed to them within one month of the start of bankruptcy proceedings. The trustee then has 14 days to compile a list of debts. A rehabilitation plan(s) or a scheme of distribution (in cases of liquidation) must be proposed no later than the date the court approves the list of debts. Article 700 specifies the content of proposed plans. The court must rule on admittance of the plan within seven days. If the plan does not comply with Article 700, the proposing party has seven days to modify the plan.
The law establishes the priorities of claims (classes) accorded to creditors in the following older: debts secured by pledge or mortgage; debts subject to foreclosure rights; bankruptcy costs; debts involving employment; social security obligations; tax and other charges and obligations to government; unsecured debts; and other debts. The plan is deemed accepted if approved by a simple majority in each creditor class. A court confirmation of the accepted plan is required. In cases where partial payment is being proposed, the plan must have been accepted by at least two creditor classes. If agreement is not reached in cases of rehabilitation, the court can order liquidation.
Until 1996, Part IV of the Commercial Code was not widely applied and few reorganizations or liquidations under the new law have been completed. Given the interwoven relationships between banks and many large state-owned companies, banks were hesitant to initiate proceedings against these companies; the value of the banks' loans could have been impaired with significant adverse impacts on their balance sheets. The probability of a domino effect on other companies was also high. There has also been an absence of trained professional trustees. The courts have often been unwilling to supervise trustees.
However, the Government of Bulgaria has instituted a number of bankruptcy procedures under Part IV of the Commercial Code in conjunction with IMF- and World Bank-sponsored structural reforms. At the same time, the Bulgarian National Bank has required undercapitalized commercial banks to use aggressive measures to collect non-performing loans. This means that the courts must now apply the law and that trustees are being appointed. Judges and trustees have been trained in implementation of the processes required under Part IV of the Commercial Code through international assistance programs. As a result, there is likely to be more widespread acceptance and utilization of these procedures.
In addition, the American Bar Association's Central and Eastern European Law Initiative (CEELI) has worked with the legal system on application of the law, development of standard forms for initiating bankruptcy proceedings, and organization of seminars with the Bulgarian Trustees Association and the Bulgarian Bar Association.
After some lengthy delays, the courts have also begun to pronounce on bank bankruptcies. The process has taken over two years in some cases, with few assets have been liquidated and no disbursements to creditors. In June 1999, Parliament approved amendments to the banking law which would strengthen the bankruptcy regime through streamlined liquidation procedures.
5. International Arbitration
Pursuant to its Bilateral Investment Treaty with the United States, Bulgaria has committed to a range of dispute settlement procedures starting with notification and consultations. Bulgaria accepts binding international arbitration in disputes with foreign investors.
In 1990, the Bulgarian Chamber of Commerce and Industry (BCCI) established the Court of Arbitration (Regulations for the Application of Decree 56 on Business Activity, Articles 144-151). Arbitration is voluntary and regulated by the 1988 Law on International Commercial Arbitration which essentially conforms to the U.N. Commission on International Trade Law (UNCITRAL) Model Law. Contracts with Bulgarian companies typically call for dispute settlement at the Court, although arbitration in a third country is also possible.
Arbitral decisions may also be executed through the judicial system. The party must petition the Sofia Municipal Court for a writ of execution. Foreclosure proceedings may also be initiated.
Bulgaria is a member of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the 1961 European Convention on International Commercial Arbitration. Bulgaria is not a party to the Washington Convention (the International Center for the Settlement of Investment Disputes (ICSID)).
The American Bar Association's Central and East European Law Initiative is working with the Bulgarian Judges Association to introduce Alternate Dispute Resolution (ADR) to the court system. An ADR center for domestic business disputes has been established through the Bulgarian Industrial Association.
6. Laws and Regulations Governing Commercial Transactions
The 1991 Commercial Code, as amended, defines the various forms of economic associations and regulates their foundation, organization, and termination. Revisions in 1996 to the Commercial Code introduced a chapter on equipment leasing. While the Commercial Code regulates commercial and company law, the 1951 Law on Obligations and Contracts, as amended, regulates civil ransactions. These laws are generally deemed adequate for commercial transactions.
O. Political Violence
There have been no incidents in recent years involving politically motivated damage to projects or installations. Rather, violence in Bulgaria is primarily criminally motivated.
However, in January 1997 a political demonstration in front of Parliament briefly got out of control and part of the crowd broke into the building. Largely peaceful strikes and street blockades in subsequent weeks led the Bulgarian Socialist Party to voluntarily relinquish power to a caretaker government while new elections took place.
P. Bilateral Investment Agreements
As of April 1999, Bulgaria has investment protection treaties/agreements with:
Albania, Austria, Argentina, Armenia, Belarus, Belgium, China, Croatia, Cyprus, Denmark, France, Germany, Greece, Hungary, Israel, Italy, Kuwait, Malta, Moldova, Netherlands, Poland, Romania, Slovakia, Spain, Sweden, Switzerland, Turkey, Uzbekistan, Ukraine, Vietnam, United Kingdom, United States, and Yugoslavia.
Bulgaria's 1994 Bilateral Investment Treaty (BIT) with the United States guarantees national treatment for U.S. investments and creates a dispute settlement process. The BIT also includes a side letter on protections for intellectual property rights.
Q. OPIC and Other Investment Insurance
In 1991, the Overseas Private Investment Corporation (OPIC) and the Government of Bulgaria signed an Investment Incentive Agreement, which governs OPIC's operations in Bulgaria. OPIC provides project financing and political risk insurance to U.S. investors making long term investments in emerging markets. OPIC also supports a number of privately owned and managed private equity funds. OPIC provides project financing through direct loans and loan guaranties that provide medium- to long-term financing to ventures involving significant equity and/or management participation by U.S. businesses.
OPIC offers American investors insurance against currency inconvertibility, expropriation and political violence. OPIC began offering currency inconvertibility coverage in January 1999. During the introductory period, the amount of currency inconvertibility coverage available is limited. OPIC can provide further details. OPIC also has specialized insurance programs for financial institutions, leasing arrangements, oil and gas projects, natural resource projects and contractors and exporters projects undertaken by U.S. investors in Bulgaria. Political risk insurance is also available from the Multilateral Investment Guarantee Agency (MIGA), which is a World Bank affiliate, as well as from a number of private U.S. companies. In the event of an inconvertibility claim made by an OPIC insured investor, OPIC may elect to accept Bulgarian currency to be made available to the U.S. Embassy in Bulgaria. The U.S. Embassy and other U.S. institutions could use up to $3.4 million annually. The Embassy purchases Bulgarian levsat the current market rate. The Currency Board Arrangement fixes the Bulgarian lev to the euro, excluding the possibility of depreciation. A devaluation of the exchange rate over the next year is extremely unlikely.
R. Capital Outflow Policy
Bulgaria's capital outflow policy is related to its conversion and transfer policies. For current information on Bulgaria's current capital outflow policy, potential investors should consult with the U.S. Embassy in Sofia.
S. Major Foreign Investors
1. Major U.S. Investments in Bulgaria as of December 31, 1998
INVESTOR INVESTMENT Amount (U.S. Dollars) American Standard Ideal Standard, Vidima AD 52,133,780 Alico Bulgarian Post Bank 38,000,000 McDonald's McDonald's Bulgaria 17,300,000 Seaboard Overseas Vinprom Ruse 15,000,000 Kraft Foods Int'l Kraft Jacobs Suchard Bulgaria 12,052,000 World Trade Company Sofia Hotel 7,100,000 Bulgarian American Festinvest, Bulgarian American Enterprise Fund Credit Bank, Storks 5,668,561 DTS Superabraziv 5,307,248 Interinvestments Corp. Buhal 5,000,000 Eurotech Pirinska Moura 4,845,851 Caresbac Caresbac Bulgaria 2,757,723 Kontrako Ilinden 1,587,582 Eagle Original 1,479,170 Parman Capital Bank for Investment and 1,443,526 Investments Development International
Source: Foreign Investment Agency
2. Selected 1998 Foreign Direct Investments
(Investor, Country, Sector, Bulgarian firm, Location, Amount in U.S. Dollars)
INICIATIVAS ESTRATEGICAS, SPAIN, cement industry, MARVEX, DEVNYA, 43,112,000EBRD, International, DOMAINE BOYAR, BLACK SEA FUND, CELHART, 39,734,370ALICO/CEN, CYPRUS, banking, POSHTENSKA BANKA, SOFIA 38,000,000KNAUF, AUSTRIA, construction materials, KNAUF GIPSFAZER Inc, VIDIN 35,040,964
SHELL OVERSEAS, UK, petrochemicals, SHELL BULGARIA Inc., SOFIA, 34,000,000
HOLDINGS, GLASINVEST LTD., GREECE, CYPRUS, glass industry, STIND, SOFIA, 28,625,000
METRO, GERMANY, wholesale, METRO BULGARIA, SOFIA, 27,000,000
SOLVAY, BELGIUM, chemical industry, SOLVAY SODI Inc., DEVNYA, 24,600,000
EASTERN MARKET TELECOM FUND LTD., BAHAMAS, communications, MOBILTEL Inc., SOFIA, 22,756,000
BAREK OVERSEAS, CYPRUS, glass industry, DRUZHBA Inc., PLOVDIV, 20,000,000
REGENT PACIFIC GROUP, UK, wholesale, ZUM, SOFIA, 16,678,000
SEABOARD OVERSEAS, USA, wine-making, VINPROM ROUSSE, ROUSSE, 15,,000,000
GAZPROM, RUSSIA, gas industry, OVERGAZ, 14,823,000
KUDRETMEHDY ADGAR, TURKEY, hotelier business, NOVOTEL EVROPA, SOFIA, 12,050,000
UKOS FINCONSULT, CYPRUS, petrochemicals, UKOS PETROLEUM, 9,459,000
WHITE BEEM HOLDING, MALTA, chemical industry, ORGAHIM, ROUSSE 8,900,000
AMERICAN STANDARD, USA, sanitary fittings, VIDIMA IDEAL STANDARD, SEVLIEVO, 8,200,000
WORLD TRADE COMPANY, USA, hotelier business, SOFIA HOTEL, SOFIA, 7,100,000
WILLI BETZ, GERMANY, transport, SOMAT, SOFIA, 5,781,880
TC ZIRAAT BANK, TURKEY, banking, BANK BRANCH, SOFIA, 5,560,000
UNION MINIERE, BELGIUM, non-ferrous industry, MDK, PIRDOP, 5,103,000
EUROPAC, AUSTRIA, pulp & paper industry, RULON ISKAR, SOFIA, 5,046,000
DELTA, GREECE, food industry, DELVI, 4,925,000
PLANZEE TIZIT, AUSTRIA, machine-building, INSTRUMENT Inc., GABROVO, 4,678,000
BNP-DRESDNER BANK, BULGARIA AD, GERMANY, banking, BNP-DRESDNER BANK, FRANCE, BULGARIA Inc., SOFIA, 3,600,000
HELIAN COMMODITIES, NETHERLANDS, food industry, PRIMA M, POLSKI TRAMBESH, 3,315,000
ISIKLAR HOLDING, TURKEY, pulp & paper industry, TZELHART, STAMBOLIISKI, 2,424,000
Source: Foreign Investment Agency
T. Host Country Contact Information for Investment-Related Inquiries
U.S. companies may obtain information on investing in Bulgaria from the following:
Foreign Investment Agency
President: Mr. Ilian Vassilev
3, Sveta Sofia Street
1000 Sofia
Phone: (359)(2) 980-0918
Fax: (359)(2) 980-1320
E-mail: vassilev@bfia.org
Website: www.bfia.org
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[end of document] Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title17, United States Code.
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