Real estate deals for the sale of a property are one of the most common practices in our country. As you may know, this type of deal usually involves taxation and deadlines. Taxes are determined in accordance with the following two regulations:

1. The Personal Income Tax Act (PITA) - in respect of the people who acquire income from the sale of a real estate;
   
   
2. The Local Taxes and Fees Act (LTFA) - in respect of people who acquire property as a result of the purchase of the property.

In the same normative acts are also considered the circumstances in which certain taxes may not be owed or certain tax reliefs may be used.

In case you are planning to buy or sell a property, as a physical person (PP), it would be good if you get acquainted in advance with the types of the owed taxes, the legal framework, and their terms for payment. Here we want to draw attention to these important issues concerning the PP, which are about to make a similar deal. 

The LTFA regulates the conditions for charging local tax on the purchase or sale of a property

•     What kind of tax do I owe if I acquire a property?

According to the LTFA, the buyer owes a one-time local tax for the acquisition of the property. Acquisition of a property means property that has been acquired as a result of a deal for sale-purchase. This tax is paid to the respective municipality which depends on the location of the property and is owned by the buyer.

•     At what tax rate the tax is being charged?

The tax rate could be different in the different municipalities, as it is voted by the local municipal council, therefore – the due tax for the acquisition of a property may be different in the different municipalities, with a limit of up to 3%.

•     What is the amount of tax I owe and when it should be paid?

The basis on which the tax rate is charged is the higher price between the sale price of the property, written in the notary deed, and the tax assessment of the property according to the Certificate for tax assessment of the property, subject of sale.

The tax should be paid to the respective municipality on the same day the notary deed of the real estate deal has been signed.

PITA regulates the conditions of taxation upon acquisition of income from the sale

• What tax do I owe if I earn income as a result of selling a property?

According to the PITA, the income (PP) from the sale of real estate is also subject to taxation. In other words, individuals owe tax on their income from the sale of a property.

• How the tax on income from the sale of real estate is being calculated?

The law defines as a real income from the sale of a property the positive difference between the sale and the purchase price. Therefore, the amount that is being taxed is exactly this positive difference minus the amount of the statutory eligible costs (SEC) - 10%. In other words, the tax base (the amount on which the tax will be charged) is formed when from the selling price (SP) is deducted the purchase price (PP) or vice versa - depending on which is higher / lower. After deducting the mentioned 10% SEC from the obtained result, you will receive the amount that will be taxed.

Here is a clear example of the tax formation on income from the sale of real estate:

You bought a property worth BGN 20,000 (PP) but then decided to sell it at a higher price - BGN 30,000 (SP), for example. The difference between PP SP is BGN 10,000. From this amount you take out 10% (BGN 1,000) and receive BGN 9,000. In reality, the tax you owe will be taxed in the amount of BGN 9,000.

•     What is the amount of tax I owe and when it should be paid?

The amount of the due tax is 10%. Therefore, in continuation of the above example, the tax you owe on a sold property worth BGN 30,000 is BGN 900. It should be paid no later than 30th of April of the year following the tax event. In other words, if you sold a property in 2020, you should pay your tax by the 30th April 2021 to the bank account of the NRA (National Revenue Agency)

• When can I be exempt from paying a property income tax?

There are several options in which you can be exempt from paying income tax on the sale of a property:

-        in case you are selling a residential property that you acquired more than 3 years ago (there is no requirement to have lived in the same);

-        in case you have sold up to two real estates that have been your own for more than 5 years (the number of properties does not matter, with the condition that they are agricultural and forest properties);

-        in case the sold property is your inheritance or was received as a result of restitution procedures;

-        when the SP is equal or lower than the PP.

The Atlantis team is here to help with all types of legal and accounting advice that you may need during the process of buying or selling real estate.