Accounting and consulting firm “Elan Consulting” offers a comprehensive guide for registration of a branch or representative office of a foreign company in Bulgaria in 2024. In connection with the interest of our clients, we want to present some of the most frequently asked questions and aspects related to this procedure.
Very often our clients ask themselves “What are the requirements for registering a branch of a foreign merchant?” and “Where does the registration of a branch of a foreign legal entity take place?”. We will look at the legal personality of the branch of a foreign trader and how this affects the commercial legal position and accounting of the branch. The process of registering a branch of a foreign company takes place in the Commercial Register, according to the requirements of the Commercial Law (Tz).
Other important questions we get are “How much does it cost to register a branch of a foreign company?” and “What is the difference between a branch and a representative office of a foreign trader?”. We will provide detailed information on the costs associated with registration and explain the legal personality of the branch in the context of its obligations and rights.
Many of our clients are also interested in the process of closing a branch and what are the necessary steps for this. We will discuss the closure process and the associated legal and accounting requirements, emphasizing the importance of properly completing all activities.
In addition, frequently asked questions include “Is it worth it to directly register a Bulgarian company instead of a branch?” and “What are the advantages and disadvantages of registering a branch of a foreign trader in Bulgaria?”. Here we will look at the different scenarios and offer an analysis of the opportunities in front of you, as foreign investors.
“Elan Consulting” is your reliable partner who can provide expert assistance and advice in all aspects of the process of registration and management of a branch of a foreign company. Whether you are in Sofia, Burgas, Pomorie, Karnobat, Sunny Beach, Aytos, Nessebar, Sozopol, Primorsko or any other part of Bulgaria, our professionals are at your disposal to provide you with the most up-to-date and accurate information. With our help, you will go through the entire registration process with ease and confidence, knowing that you are supported by specialists who understand your needs and requirements.
The branch of a foreign company according to Bulgarian legislation is a division of the foreign trader that carries out activities on the territory of Bulgaria. The registration of the branch in the Commercial Register is governed by the Commercial Law and requires compliance with a number of legal requirements.
According to Art. 17a, para. 1 of the Commercial Law, a branch of a foreign person registered with the right to carry out commercial activities under its national law is entered in the commercial register. To do this, a written application is required, which contains data such as the head office and subject of activity of the branch, as well as data on the person who manages the branch and the volume of his representative power.
The application for registration contains additional data such as the legal form, company or name and registered office of the foreign person, the register and number under which the foreign person is registered and the law of the country that applies to the foreign person, if this is not the law of a Member State of the European Union (Article 17a, para. 2).
The application for registration is accompanied by a notarized consent with a sample of the signature of the person who manages the branch (Art. 17, para. 3). The entry in the register includes the details of the legal form, company or name and registered office of the foreign person, the register and number under which the foreign person is registered, as well as the persons representing him (Art. 17a, para. 3).
In addition, data on the termination of the foreign person, commencement of liquidation, continuation of activity, termination and completion of liquidation, as well as on the deletion of the foreign person are entered in the register (Art. 17a, para. 3). A copy of the constituent act, contract or statute of the foreign person is also submitted, which contains all amendments and additions, as well as each annual financial report of the foreign person (Art. 17a, para. 4).
The branch of a foreign company is not an independent legal entity, but part of the structure of the foreign company. He has the right to conduct commercial activities within the framework of the powers granted to him by the main company, but does not have his own legal personality. The branch maintains trade books as an independent trader, but does not draw up a separate balance sheet (art. 19).
The process of closing a branch is also regulated in detail. Closing the branch involves notifying the Commercial Registry and complying with the requirements for the termination of the activity, including the provision of the necessary documents and data.
Branches of foreign companies in Bulgaria must comply with all legal and accounting requirements imposed on local traders. This includes keeping commercial books and complying with the tax and commercial legislation of the Republic of Bulgaria. In addition, when registering the branch, it is important to provide all necessary documents and fulfill all legal requirements in order to ensure the legality and correctness of its activities in Bulgaria.
The difference between the powers and accounting of a branch of a foreign company and the direct registration of a Bulgarian company is significant and is based on the legal status and obligations of both structures.
The branch of a foreign company, as regulated in Art. 17a of the Commercial Law, is not an independent legal entity. It acts on behalf and at the expense of the foreign legal entity. The powers of the branch are determined by the main company and are limited within the scope of the activity specified in the registration in the Commercial Register. The branch cannot have its own assets and liabilities other than those of the foreign firm that created it.
The accounting of the branch is carried out as on an individual trader, but without drawing up a separate balance sheet. Art. 19 of the Commercial Law specifies that branches of legal entities that are not traders within the meaning of this Law and branches of foreign entities also make up a balance sheet. This means that the branch must keep commercial books and submit reports to the Bulgarian tax authorities, but these reports are part of the general accounting documentation of the main company.
On the other hand, the direct registration of a Bulgarian company leads to the creation of an independent legal entity, which has its own powers and obligations, as provided for in Art. 63, para. 3 of the Commercial Law. The Bulgarian company may carry out commercial activities on the territory of the country and have its own assets and liabilities separate from those of its owners. It has full legal personality and can enter into contractual relations, own property and be responsible for its obligations.
The accounting of the Bulgarian company is carried out in accordance with the Law on Accounting and other applicable normative acts. The company is obliged to keep accounts, draw up an annual financial report and certify it by a registered auditor in the cases provided by law. In addition, Art. 53 of the Commercial Law requires each trader to keep accounting, which reflects the movement of the property of his enterprise in chronological order. This includes the preparation of a balance sheet and other necessary financial statements.
The key difference between a branch and a Bulgarian company is the degree of legal personality and autonomy. The branch is dependent on the foreign company and operates within the powers granted to it, while the Bulgarian company is an independent legal entity with its own rights and obligations. This leads to differences in accounting and powers in the management of assets and liabilities.
There are also differences in taxation. A Bulgarian company is subject to corporate income taxation under the Corporate Income Tax Act (CPA), while a branch of a foreign company may be subject to different tax regimes depending on the activity and international conventions for the avoidance of double taxation, if applicable.
Advantages of registering a branch of a foreign company:
Disadvantages of registering a branch of a foreign company:
Advantages of direct registration of a Bulgarian company:
Disadvantages of direct registration of a Bulgarian company:
It is important to note that some forms of Bulgarian companies, such as variable capital companies (LCCs), also do not require the entry of capital in the commercial register.This means that the registration of a Bulgarian company can be just as effective as the registration of a branch, depending on the specific legal form chosen for the company.
The procedure for registering a branch of a foreign company in Bulgaria is regulated in detail by the Commercial Law and the Law on the Commercial Register and the Register of Non-Profit Legal Entities. Registration requires compliance with certain steps and the provision of specific documents.
The first step in the procedure is the submission of an application for registration. According to Art. 17a, para. 1 of the Commercial Law, a branch of a foreign person registered with the right to carry out commercial activities under its national law is entered in the commercial register on the basis of a written application. The application contains data such as the head office and subject of activity of the branch, as well as data on the person who manages the branch and the volume of his representative power.
Several mandatory documents are attached to the application. Art. 17a, paras. 2 and 3 of the Commercial Law stipulates that the application must contain additional data, such as the legal form, company or name and registered office of the foreign person, the register and number under which the foreign person is registered, and the law of the State that applies to the foreign person, if this is not the law of a State - Member of the European Union.
Also, a notarized consent with a sample of the signature of the person who manages the branch is required. These documents must be presented in the original or in notarized copies.
A copy of the constituent act, contract or statute of the foreign person is also submitted, which contains all amendments and additions, as well as each annual financial report of the foreign person (Art. 17a, para. 4). These documents certify the legal status and financial position of the foreign company and serve as the basis for the registration of the branch in the commercial register.
After submitting the application and the attached documents, a registration officer carries out an inspection according to Art. 21 of the Commercial Register Act. The official shall check whether the application has been submitted in the prescribed form and order, whether the circumstance subject to registration has not already been entered and whether the documents submitted comply with the legal requirements.
If the application and documents are in order, the official carries out the entry of the branch in the commercial register. The entry is made by sequentially entering information about the relevant circumstance in the commercial register (Art. 22, para. 2 of the Commercial Register Act). After registration, the branch receives a single identification code (EIC), which serves for its identification and is mandatory for traders and their branches (Art. 23, para. 1).
The commercial representation of a foreign company in Bulgaria is a specific form of presence, which is regulated by the Investment Promotion Act (IPA) and the Law on Foreigners in the Republic of Bulgaria. According to Art. 24, para. 1 of the IPA, foreign persons who have the right to carry out commercial activities under their national legislation may open commercial representative offices in Bulgaria. These representative offices must be registered with the Bulgarian Chamber of Commerce and Industry (BCCI).
The procedure for registration of a commercial representation involves submitting an application to the President of BCCI. The following documents must be attached to the application:
The commercial representation is not a legal entity and does not have the right to carry out business activities (Art. 24, para. 2 of the ZNI). This means that it can only perform representative functions, such as marketing, advertising and market research, but cannot enter into commercial transactions or carry out other business activities. Transactions that the foreign person concludes with local persons for the purposes of the representation are carried out in accordance with the procedure for conducting transactions between residents (Art. 24, para. 3 of the ZNI).
One of the main advantages of a commercial representation is that its representatives can obtain a long-term residence permit in Bulgaria. According to Art. 24, para. 1, item 6 of the Law on Foreigners in the Republic of Bulgaria, foreigners who are representatives of a foreign commercial company with registered commercial representation in Bulgaria may obtain a long-term residence permit after checking and evaluating the submitted documents concerning the economic activity and tax status of the foreign company.
In contrast to the commercial representation, the branch of a foreign company has a greater degree of operational freedom and can carry out business activities in Bulgaria. The branch acts on behalf and at the expense of the foreign company, but is not an independent legal entity. On the other hand, Bulgarian companies are independent legal entities that can carry out any type of business activity and have full legal personality. They can enter into transactions, own property and be responsible for their obligations.
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The taxation of a branch of a foreign company and a Bulgarian company differs significantly, the main difference being based on the legal status and place of tax registration. The branch of a foreign company is subject to taxation in Bulgaria only for the income that originates from its activity in the country. This means that the tax liabilities of the branch are limited to the revenues generated in Bulgaria, while the rest of the foreign company's income is not taxed in Bulgaria. At the same time, the Bulgarian company is subject to taxation on all its income, regardless of where it is generated, in accordance with the Corporate Income Tax Act (CPA). This means that the Bulgarian company pays corporate tax on its global income, which can include both local and international income. In order to avoid double tax payments, international agreements on the avoidance of double taxation are often applied.
The branch of a foreign company in Bulgaria is obliged to keep accounts and prepare financial statements in accordance with the Bulgarian Accounting Standards and the Accounting Act. According to Art. 19 of the Commercial Law, the branch keeps trade books as an independent trader, although it does not draw up a separate balance sheet. This means that the branch must keep all the necessary accounting documents, including logs of purchases and sales, general ledger and other accounting records. In addition, the branch must draw up an annual financial statement to be certified by a registered auditor if required by law. The financial report must be submitted to the Bulgarian tax authorities in accordance with the stipulated deadlines. This ensures transparency and accountability of the financial operations of the branch in Bulgaria, while complying with the requirements of the Bulgarian tax and accounting legislation.
The commercial representation of a foreign company in Bulgaria is not a legal entity within the meaning of the law and does not have the right to carry out business activities, including the conclusion of commercial transactions. According to Art. 24, para. 2 of the Investment Promotion Act, representative offices do not have the authority to carry out any commercial activity, but can only engage in representative functions such as marketing, advertising, market research and other similar activities. Transactions that the foreign person concludes for the needs of the representation must be carried out according to the procedure for conducting transactions between residents, and the representation itself cannot be a party to these transactions. This means that the representative office cannot generate income or carry out business activities, and its main role is to represent the interests of the foreign company in Bulgaria. This limited legal status is intended to ensure a clear boundary between the representative functions of the commercial representation and the commercial activity, which can only be carried out by branches or independent legal entities.
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