Archive for December, 2004

Promulgation of the Mediation Act

Monday, December 20th, 2004

The Mediation Act was promulgated in the State Gazette Issue No. 110 of December 17, 2004. The new statute, effective as of December 21, 2004, is expected to reinforce the mediation as a method for alternative out-of-court dispute resolution. The Mediation Act lays down the principles of the mediation, the rules governing the legal status of the mediators, the mediation procedure including court referred mediation and the mediation agreement. Pursuant to the law a mediator can only be a natural person registered in the United Register of Mediators to the Minister of Justice.

Amendments to the Corporate Income Tax Act

Friday, December 10th, 2004

The Law on amendment and supplementation to the Corporate Income Tax Act was promulgated in the State Gazette Issue No. 107 of December 7, 2004. Pursuant to the amendments, effective as of January 1, 2005, the rate of the corporate tax is reduced from 19.5% to 15%. The rate of the withholding tax chargeable on dividends and liquidation quota accrued by local companies to the benefit of non-residents was decreased from 15% to 7%.

More beneficial treatment is provided to EU-resident shareholders. Dividends and liquidation quotas accrued to their benefit shall be exempt from withholding tax, provided that the following conditions precedent are jointly available: (i) the beneficiary is treated as a resident under the tax laws of the respective EU Member State and is not treated as a EU non-resident under a Double Tax Treaty with a third state; (ii) the beneficiary is charged with corporate or similar profit tax in the respective EU Member State without any option or exemption from such tax; (iii) the beneficiary is the in-fact beneficiary owner of the income (as opposed to an intermediary) and holds at least 20% of the share capital of the Bulgarian company; and (iv) as at the moment of accrual of the dividends or liquidation quotas the beneficiary has held the above mentioned share stake for at least one year without interruption.

The interest accrued on bonds traded on a regulated security market in Bulgaria and/or a EU Member State shall also become exempt from Bulgarian withholding tax. The same applies to interests accrued on affiliated loans extended by EU daughter companies to Bulgarian mother companies, provided that the cash lent was accumulated by the daughter company through emission of stock exchange traded bonds in Bulgaria and/or the EU.

The ad hoc parliamentary commission approved the draft law for amendment of the Constitution

Wednesday, December 1st, 2004

The draft law is aimed at introducing amendments in the Constitution necessary in the context of the country’s accession into the European Union. According to the proposed amendments foreign individuals and legal entities will be permitted to acquire and own land in three hypotheses: (i) the citizens of the EU Member States – in compliance with the terms and conditions of the Accession Treaty which inter alia will provide for a 7-year suspension period; (ii) by virtue of a ratified international treaty and (iii) in case of ex lege inheritance. Citizens of the EU States will be exempted from the 7-year suspension period and will be entitled to acquire land immediately as of the country’s accession in January 2007 provided that they fall into any of the following two categories: if they reside continuously in Bulgaria or if they are self-employed persons having permanent residence in Bulgaria and carry out agricultural activity in the country. In the most optimistic scenario the amendments are expected to be adopted by the Parliament by the end of March next year.

The Bulgarian Competition Authority Cleared the Privatization Deals for the Other Two Pools of Electricity Distribution Companies

Wednesday, December 1st, 2004

The Commission on Protection of the Competition (the “CPC”) authorized the acquisition of a 67% stake in the electricity distribution companies Plovdiv and Stara Zagora (forming the Southeastern pool) by EVN AG and the electricity distribution companies Pleven, Sofia District and Sofia City (forming the Western pool) by CEZ. Thus, one of the major pre-conditions for completing the privatization deals has been satisfied. It is expected that the deals will now be completed prior to the end of 2004 or early next year. Borislav Boyanov & Co. advises the Bulgarian government on the deal as part of an international advisory consortium led by BNP Paribas.