Off-plan Apartments: Purchase Price and Profit Tax

Bulgarian Properties Ltd., Customer Services Team, 12th October 2005

When you buy an off-plan apartment in Bulgaria, you will find that it is common practice for a lower value than the actual purchase price to be entered on to the Notary Deed (title deeds) at the time of completion. Buy through Bulgarian Properties, though, and we will ensure that the price written on your Notary Deed is the full price that you have paid for the apartment. Here’s why …
The price written on the Notary Deed is referred to as the Tax Estimation price, which is the baseline used to calculate the State Taxes and Notary fees associated with your purchase. The overall rate for these taxes and fees is approximately 3.5% of the Tax Estimation price - so, if a lower price than you have actually paid for the apartment is entered on to the Notary Deeds, you will save money.

And if a real estate agent is prepared to set this up for you, well … saving tax is always nice and it might all seem to a pretty good idea. However, as with many of the nice things in life, there’s a sting in the tail and, in this case, it’s called profit tax.

This is a tax applicable on any profit that you make when you sell your apartment. The rate is currently 15%, calculated on the difference between the Tax Estimation price on the Notary Deeds and the price paid to you by the new buyer. So, suppose that you buy an apartment for 40000 euro and then sell it later for 60000 euro - consider the two alternatives …

1) If the full purchase price is entered on the Notary Deed
Buying
Price of apartment: 40 000
Tax estimation price on Notary Deed: 40 000
Taxes & Notary Fees - 3.5% : 1 400

Selling
Sale price: 60 000
Actual profit (60 000 - 40 000): 20 000
Profit tax - 15% : 3 000

2) If a lower purchase price of, say, 20 000 euro is entered on the Notary Deed
Buying
Price of property: 40 000
Tax estimation price on Notary Deed: 20 000
Taxes & Notary Fees - 3.5% : 700 /you pay 700 euro less tax/

Selling
Sale price: 60 000
Calculated profit (60 000 - 20 000): 40 000
Profit tax - 15%: 6 000 /you pay extra tax of 3 000 euro/

A further key point to consider is that, as a UK (or EU) taxpayer, you are required to inform your local tax authority about any profit that you make from the sale of your property in Bulgaria. There is a double-taxation agreement in place between Bulgaria and the UK (and most other EU countries), which means that the 15% profit tax you pay in Bulgaria will be recognised. However, depending on the tax rules within your country of domicile, profit (or capital gains) may be taxed at different rates and, therefore, additional tax liabilities on the inflated calculation of your profit may be applicable.

And finally, despite what you might hear to the contrary, you should also be aware that your liability for profit tax in Bulgaria does NOT end after five years. This is a correct timescale … but the 5-year limitation ONLY applies to Bulgarian citizens and foreigners who have been permanently resident here for five years.

This information is brought to you by our Customer Services team …

… another reason why you’re better off with Bulgarian Properties

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