From emb@interport.net Mon Jul 3 10:06:19 EDT 1995 Article: 21097 of soc.culture.bulgaria Path: news.cs.columbia.edu!sol.ctr.columbia.edu!news.kei.com!simtel!news.sprintlink.net!news.interport.net!emb.port.net!user From: emb@interport.net (rb) Newsgroups: soc.culture.bulgaria Subject: Bulgarian Regulatory Developments Date: 3 Jul 1995 12:56:39 GMT Organization: eb Lines: 85 Message-ID: NNTP-Posting-Host: emb.port.net Status: RO Following are excerpts related to current regulatory developments in Bulgaria from Business - Eastern Europe (June 5, 1995). It may be old news to some, but I thought it may still be of interest to others, particularly the developments with respect to the Land Tenure Act. It appears that at least some of the new and proposed legislation will serve to further discourage the already meager interest on part of foreign investors. I guess that's too bad for Bulgaria, but the lack of foreign competition will certainly benefit those already (or still?) entrenched. On the other hand, political stability is also important to investors and bad laws are sometimes better than no laws at all. (Hm, we kind of had this for 45 years, didn't we :-( Anyway, here are the excerpts. (The author of the original article is Ventzislav Dimitrov). The author of this introduction is Ryan Botev ;-) INSURANCE: The government has approved the final draft of an insurance law. Insurance companies (which now number over 50) have operated without any legal guidelines for four years. The new law will require insurance companies to have a minimum capital of Lv200m ($3m) and a licence from the Ministry of Finance. A special agency will be formed to monitor their operations. Foreign insurers will have to wait ten years after the law has taken effect to operate freely in Bulgaria; until then they will be permitted to hold equity stakes of up to 49% in local insurance companies. SECURITIES: A new law on securities, stock exchanges and investment funds is now making its way through parliament. The law sets the minimum capital requirement to found a stock exchange at LvlOOm; financial institutions must supply twothirds of this sum. A parliamentary or government commission will licence investment funds and the emission of securities. The government seems to prefer the creation of a single stable stock exchange with possible state capital participation; 12 small exchanges currently function in Bulgaria. RESTITUTION: The contested amendment to the Land Tenure Act was adopted by the parliament despite a vehement presidential veto. It stipulates that owners wishing to sell land must first offer it to the state or municipal authorities, which can buy it in accordance with land pricing rules set by the government. If the state is not interested, the land is sold at a price settled between the buyer and seller. But the law still determines the order in which potential buyers are to be offered the land. Foreign legal entities and joint ventures are not permitted to buy land. This point clashes with the law on foreign investment, which allows registered companies with foreign participation of less than 50% to own agricultural land. Although foreign citizens may acquire agricultural land by inheritance, they must transfer it to eligible owners within three years. PHARMACEUTICALS: Under the new law on medicines and pharmacies passed in April, all producers, importers, exporters, wholesalers and retailers must have a licence from the Ministry of Finance. Foreign producers may apply for registration (which is valid for five years) if they have a commercial representative in the country. Wholesalers may not own or run pharmacies; these may be operated only by persons with a pharmaceutical training. Violations of licensing, registration and pricing rules are subject to fines of up to Lv500,000 ($7,600). The Bulgarian pharmaceutical market is estimated at $120m-160m. The new regulations are expected to lead to a reduction in medicine and pharmaceutical imports. CUSTOMS: The government has reduced the customs processing fee from 3% to 1% of the value of dutiable goods. The minimum customs fee remains at its old level of the Lev equivalent of $100; the maximum fee is reduced from $ 1,000 to $ 700. TAXATION: The govemment has adopted new incremental income tax brackets (ranging from 18% to 44%), which the parliament is expected to approve at mid-year. Monthly income below Lv2,500 is tax-exempt. The highest rate, of 44%, applies to income of more than Lv450,000. Amendments to Decree 56 on economic activity have abolished the existing tax exemption on state securities. Previously, legal persons could exempt >from the profit tax 50% of interest income from state bonds and Treasury bills. In a ruling likely to impose new costs on joint ventures, the Ministry of Finance has instructed that in-kind contributions to commercial companies are liable to value-added tax at the current 18% rate. Foreign in-kind contributions will now also be subject to customs duties. PENAL LAW: Recent amendments have imposed new (or stiffer) penalties for many economic crimes. Tax evaders now risk a six-year prison sentence. The courts can impose a fiveyear sentence for the export of foreign currency without the Bulgarian National Bank's permission (including bank transfers using forged documents or through dummy persons or firms). Unlicensed currency operations warrant imprisonment for up to three years. Commercial banks are required to keep records of clients' large transactions. Audio and video piracy and misuse of intellectual property are subject to fines of up to Lvlm as well as imprisonment for up to three years.