A T Kearney’s 2014 Global Services Location Index designates Bulgaria world’s ninth “most preferred” outsourcing destination in consultancy. After a timid start 15 years ago, the Balkan country has become a hub for information technology and back-office outsourcing. In recent years, the sector has grown up to 25% annually. Call centres and firms offering software and web development, technical support and data services attract subcontracting from foreign companies. This new boom has propped up the economy of the EU’s poorest country with a 0.9 percent growth in 2013 and 1.5 percent in 2014 after shrinking 5.0% in 2009. The country’s appeal is so strong on account of very attractive taxation (1) as well as relatively low wages for outsourcing employees (2), a flexible and adapted corporate law (3) all of this in the context of a burgeoning industry (4).
1. Attractive Taxation System
In Bulgaria, income of any individual is subject to a flat income tax rate of 10% in 2015, whether as an employee as well as a self-employed person. In the case of an individual who answers the test of a “permanent resident” of Bulgaria, tax is calculated both on his income earned in Bulgaria and abroad. To be considered a Bulgarian resident, the requirements must be met of residency in Bulgaria of at least 183 days or of main residence address in the country. Besides, employers are obligated to deduct the income tax payable as well as national insurance, immediately each month from a salary paid to an employee. Concerning non-residents, tax must be deducted at source from the following received payments as follows :
Dividend : The standard deduction is 5% (0% from dividend paid to EU/EEA companies).
Interest : the standard rate of tax deducted at source – 10%.
Royalties : the standard rate of tax deducted at source – 10%.
Similarly, the standard corporate tax in Bulgaria is 10%. A special tax rate may be applicable for companies which deal in shipping as well as companies engaged in games of chance and gambling.
2. Flexible Corporate Law
The following forms of incorporation are accepted :
• Limited liability company (with the suffix OOD) : at least 1 shareholder or more is required to set up the company. The shareholders may be individuals or companies and must organize a meeting at least once a year. The minimum share capital is BGL 5000 (EUR 2550), with the minimum nominal value of BGL 10 a share (EUR 5,10). The owners are liable only for the amount of capital invested and a director must be appointed.
• Liability company with a single shareholder (with the suffix EOOD) : private company limited by shares and owned by one individual, who may be a foreign resident. A single shareholder may serve also as a director of the company.
• Consolidated company (with the suffix AD) : at least one shareholder is required to set up the company. It must have a minimum registered capital of BGL 50000 (EUR 25500). A board of management must be settled with possibly a supervisory board.
• Consolidated company with a single shareholder (with the suffix EAD) : company owned and controlled by a single shareholder who has to file an annual balance sheet with the tax authorities.
3. Low Labor Costs
Bulgaria turns out to have the cheapest labor costs in the EU : €3.70 for one hour of labour and around €184 a month for unqualified staff and circa €500-600 for university graduates with particular language skills. This amount is less than a sixth of the EU average, according to a Eurostat survey conducted in 2014. Outsourcing employees’ wages are low compared with western Europe but provide a better quality of life than most activity sectors. Productivity is not undermined since the industry profits from top-quality IT specialists, as well as the wide range of over 20 languages other than English taught in Bulgarian high schools and universities. Bulgaria even ranks third worldwide in the number of certified software engineers and first in the number of IT specialists per capita.
4. Burgeoning industry
The outsourcing industry in Bulgaria has a great development potential. Low taxation and labor costs are not the only explanation : outstanding Internet and telecommunication services, pre-crisis surge in high-quality office real estate (e.g Business Park Sofia, European Trade Center, Sopharma Business Towers) are also responsible for the boom. The Plovdiv area has attracted several foreign investors enticed by comprehensive infrastructure and fast-track procedures. The Bulgarian State supports a public-private partnership that comprises six industrial zones clustered in and around the city. According to Stefan Bumov, Bulgarian outsourcing association Chairman, the industry has the potential to employ two or even three times more people. This statement is a promising prospect for a country where more than a quarter of youngsters are unemployed. His company Sofica Group used to employ 30 people in 2007 and has grown to become the biggest home-grown player in the sector with more than 900 employees.
Starting Business in Bulgaria
A lot of investors, most from Europe, have been drawn by Bulgarian business-friendly legislation, low labour costs and the 10 per cent flat tax that Bulgaria offers foreign companies. For instance ABB, the Swiss power and automation group and German supermarket group Kaufland. Hance Law shall be delighted to assist you to realize your outsourcing project in Bulgaria. Our team together with our associate law firm in Bulgaria shall assist you from the structuring and launch of your company :
• Drafting of the incorporation documents (articles of incorporation, constituting general meetings of shareholders and attached documents) of the company
• Interacting with the Financial Authorities
• Registering the company with all tax authorities and notables VAT
• Accounting services
• Nominee shareholders and nominee director services
• Domiciliation services
• Staffing and Recruitment services
Contact us for more information :
Hance Law Avocats, 3A, Sentier de l’Espérance – L-1474 Luxembourg
www.hance-law.com – Tel: +352 274 404 – [email protected]