Overseas buyers looking to purchase property in Bulgaria frequently hear that the regular practice is to put a lower price in the deeds to save money. Agents and even lawyers often assure the purchaser that most property transactions in Bulgaria are conducted precisely in this manner.
The overseas buyer often poses no more questions, because they believe this information to be correct.How wrong they are – there are such enormous risks to the buyer; it’s really important that people don’t get tricked with this.Putting a lower price in the deeds during the last stage of the conveyancing process in Bulgaria is generally done because the vendor wishes to avoid taxes and fees which are due on final signing and which depend upon the property price which is declared in the deeds. The higher the value of the property, the higher the taxes and charges. But by declaring a lower price in the deeds than that which is actually being paid is an evasion of Bulgarian law and creates an ‘invalid’ or ‘fake’ deal and can lead to serious consequences.
From a civil law point of view this kind of ‘fake’ deal would be considered null and void anyway. To add to this, if you were found guilty of having been party to such a deal you could be charged with a fine of up to 1,000 pounds and even imprisonment of up to three years.It is also a common practice at the moment with Bulgarian constructors who are trying to avoid VAT which has to be paid on new build or off plan sales. They offer the potential of putting in a low and false price in order that they do not pay all or any of the VAT due.
For the overseas buyer, one can only imagine what any mortgage company might have to say about all of this if at a later date they become aware of the property being under-declared on the deeds! Bulgarian estate agents often say, ‘oh well, don’t worry, you can do the same; just find someone else to pay you part in cash later’, but it’s not that simple. With European entry looking increasingly likely in the immediate term, it won’t be so easy to find a buyer willing to do this and people trying to operate in this way will find it increasingly difficult to do so. Any buyer really has to ask himself whether he would do this in Britain with a similar proposal from an agent, paying in some cases up to 70% of the price in cash and then hoping to find a future buyer who would do the same.
Even if after all this, anyone still thinks it’s a good idea to put a lower price in the final deed, then let’s take a look at the financial implications on just a small scale when it comes to re-sale. :
Firstly, if the full purchase price is declared Price 40,000 Taxes and Notary Fees about 3.5% 1,400 Re-sale Price 60,000 Profit 20,000 Gains Tax at 15% 3,000Secondly, if a lower price is declared (the real price remains at 40,000 as in the first example above)…Price 20,000 Taxes and Notary Fees about 3.5% 700 Re-sale Price 60,000 Profit 40,000 Gains tax at 15% 6,000Initially,it looks good – 700 pounds is saved on the initial taxes and fees when buying.
However, when it comes to re-sale there’s an additional tax burden of 3,000 pounds!.The best advice we can give to anyone is to get your own independent lawyer who will act in your interests. Buyers should not be tempted by those that say this kind of practice in Bulgaria is above board, it’s certainly not and purchasers could end up in real difficulties all round.