Bulgaria: Constitutional Regime

1. Introduction. Background

The 7th Grand National Assembly enacted the current constitution of the Republic of Bulgaria on 12 July 1991 (the "Constitution").

According to the fundamental principles embodies in the Constitution, Bulgaria is a republic with parliamentary governing system. It is a unitary (centralised) state with local selfgoverning authorities whereas no autonomous territorial formations exist. The principle of supremacy of law is flagged out as a cornerstone of Bulgaria's new constitutional regime. This principle is further supplemented by the rule that the provisions of the Constitution have direct applicability. The Constitution also sets out the principle of liability of the state for damages caused by unlawful acts of its institutions and officers.

The political life in Bulgaria is based on the principle of political plurality. The political parties assist in the process of formation and expression of the political interests of the people. The foreign policy of Bulgaria is based on the principles and rules of international law. Among the main objectives of Bulgaria's foreign policy are (i) the preservation of national security and independence, (ii) the guarantee of the major rights and freedoms of Bulgarian citizens and (iii) the promotion of just international order.

The economy of Bulgaria is based on the free economic initiative. The laws of the country aim to provide and guarantee equal statutory conditions for investment and commercial activity, to prevent abuse of monopoly and unfair competition, and to protect the consumers. There are two constitutional principles that are worth mentioning in relation to the legal environment for conducting economic activity by domestic and foreign investors: (i) the principle of equal treatment of foreign and local investors and (ii) the principle of priority of international treaties over domestic legislation. These two principles alone provide enough protection that the overall approach of the legislator towards foreign investments might not result in a discriminatory regulatory regime.

The right of ownership is guaranteed and protected by law. Expropriation of private ownership for satisfaction of state or municipal needs might be effectuated only by virtue of law (passed by Parliament) provided that said needs could not be satisfied through other means. Expropriation is subject to prior and equal compensation.

Further to the recently adopted amendment of the Bulgarian Constitution foreign entities to buy land in the country. The Bulgarian Parliament on February 16th approved a set of amendments to the Bulgarian Constitution.

Foreigners and foreign entities could buy land under 3 conditions:

1. according to the engagements pursuant to the membership in the EU
2. under an international treaty agreement, ratified by the Parliament
3. on the ground of legal inheritance.

International treaties will regulate the right for buying land by citizens of non-EU states. The bill of ratification for the respective international agreements must be backed by at least twothirds of all of the members of the Parliament, and the status of the land will be defined by a law.

Despite the fact that land can be sold to foreigners after 2007 when Bulgaria is expected to become a member of the European Union, the constitutional prohibition will stay effective until 2014 when the 7 years gratis period for full liberalization of the land market in Bulgaria ends. According to the engagements with the European Union, after 2007 only European farmers who will settle down permanently in Bulgaria in order to develop agriculture will be able to buy land. For all others the prohibition to buy land will be effective until 2014. The same right can be offered to other farmers from non-EU countries but only under an international treaty ratified by the Parliament.

All the restrictions for purchase of Bulgarian land shall be abolished after the end of the 7 years gratis period, that is in 2014. In accordance with the treaty obligations with Brussels, the period cited could be reconsidered in the third year of the Bulgarian membership, when eventually the prohibition can be removed.

Under the current regime, foreign persons (individuals or entities) may not own land directly. However, foreign persons might become the owners of buildings without owning the land on which a building is constructed. Foreign persons also might acquire the "right to use" land or buildings, which is similar to leasehold, for a limited term or as long as the "user" exists as an individual or entity. Such right to use, however, is non-transferable and does not entitle its beneficiary to develop the "used" property. A foreign person might also acquire the right to develop land and thus become the owner of buildings constructed in exercising its right, without receiving title to the underlying land. The right to develop is transferable. The title to the building, acquired by exercising the right to develop, is also transferable.

An entirely different concept governs indirect holding of real estate rights by a foreign person. A foreign person might become the sole, majority or minority owner of a locally registered company. Regardless of whether a foreign person is the sole, majority or minority shareholder in a local company, such a company is not in any way restricted in acquiring and transferring title to land or buildings or rights to use or develop real estate. The underlying rationale is that the constitutional and other legal restrictions apply only to foreign persons, which a local subsidiary of a foreign person is not. As a consequence, no permissions are needed for a local company owned by foreigners to engage in any real estate transactions.

Amendments to the Constitution The most important amendments in the Constitution. which as already mentioned has been recently adopted, foregoing the expected accession of Bulgaria to the European Union concern the revocation of the restriction for direct ownership of land by foreign individuals and legal entities. The abolishment of said rule is related to the obligation that Bulgaria undertook under Chapter "Free Movement of Capital" as part of the negotiations with the European Union. Another significant potential amendment concerns the privilege of all interested individuals and legal entities to appeal all acts of the administration in Bulgaria.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.