Britons living in Bulgaria. Guide to Bulgaria, Sofia and Varna

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Any rental income derived from Bulgaria will therefore be subject to corporation tax in the UK as will any capital gain made on the ultimate sale of the property. Article 12 provides that a capital gain made on a Bulgarian property can potentially be taxed in Bulgaria as well as in the UK. As a UK resident company, your Pco has to pay UK corporation tax on its total worldwide profits and income. Can you clarify what these taxes will mean to any profit made, can we claim back/offset tax and will we have to pay tax in both countries. Firstly, that your property investment company (Pco) is resident for tax purposes in the UK. I have been informed that we must pay VAT when we purchase and capital gains when we sell. I have reviewed this DTT to look for any provisions within it which are likely to be of relevance to you. In any event, any tax paid in Bulgaria can be offset against any UK corporation tax payable although only up to the amount of the UK corporation tax liability on the income or gains concerned. In terms of computing any capital gain, the Pco can deduct indexation relief that serves to increase the cost of the property for tax purposes by the movement on the Retail Prices Index between the date of acquisition of the property and the date of the sale. In terms of seeking Bulgarian advice, you might ask your Bulgarian real estate or legal adviser for a contact. It will also be necessary to consider the provisions of the 1987 double tax treaty (DTT) between the UK and Bulgaria. Maurice Fitzpatrick at accountants Numerica says: I am assuming two things. Secondly, that the Pco will invest in property in Bulgaria with a view to renting the property out and possibly selling at a profit at some stage in the future - ie it will have a property investment activity in Bulgaria and not a property building/development activity. The number of foreign visitors to Bulgaria went up by 8.3 % last year, bringing the total in 2006 to 1.5 million, while visitors to Romania went up from 800,000 in 2000 to 1.4 million in 2004, the study by MRI Overseas Property found out. With regard to rental income, Article 21 of the DTT appears to provide that this can only be taxed in the UK in Pco's hands and cannot be taxed in Bulgaria.