Foreign direct investment (FDI) in Bulgaria

FDI in Figures

FDI inflows to Bulgaria maintained a steady course in the early 2000s and reached an all-time high in 2007, at USD 13.88 billion (UNCTAD). According to UNCTAD's World Investment Report 2023, FDI inflows decreased in 2022, reaching USD 2.5 billion, up from USD 1.9 billion one year earlier. The total stock of FDI stood at USD 57.3 billion at the end of 2022, around 64.4% of the country’s GDP. Data from the Central Bank of Bulgaria show that FDI into the country grew by 28.1% on the year to EUR 3.37 billion (US 3.62 billion) in 2023. The largest net FDI inflow into Bulgaria in 2023, of USD 862 million, came from Switzerland, followed by Austria with USD 396 million and Belgium with USD 354 million. The most active sector for inbound foreign investment in Bulgaria remains technology, media, and telecommunications, followed by construction, real estate, and financial services (Investment Monitor).

With one of the lowest corporate tax rates in the area (10%) and its low labor costs, the country is relatively well-placed for foreign investments, which are not subject to screening by the government. There are no legal limits on foreign ownership or control of firms, and foreign entities are formally granted the same treatment as national companies. However, according to the Offshore Company Act, firms with foreign participation of more than 10% cannot do business in 28 specific sectors (including government procurement, exploitation of natural resources, banking, and insurance services, though there are certain exemptions). The Invest Bulgaria Agency (IBA) is the government’s FDIs coordinating body which provides information, administrative services, and incentive assessments to potential foreign investors. Among the challenges investors have to face, there is a shortage of skilled labor, corruption, the unpredictability of the regulatory and legislative framework which is often amended, and concerns about the rule of law. Furthermore, the judicial system is slow and intellectual property rights are not always enforced. Bulgaria ranks 38th among the 132 economies on the Global Innovation Index 2023 and 31st out of 184 countries on the latest Index of Economic Freedom.

What to consider if you invest in Bulgaria

Strong Points

Bulgaria's strong points are:

• An advantageous taxation system for investors
• A sizeable workforce that is skilled and low-cost
• Very low cost of living
• Membership in the European Union, guaranteeing regular reform cycles
• Strong and robust defence against external economic shocks
• Strong political stability
• A positive reputation for the country's prudent tax regulations
• A budget surplus since 2013
• Strategic location enabling easy transportation of cargo (Danube River, 5 Pan-European corridors, 4 key airports) and providing direct access to major markets (CIS, North Africa, Middle East and European Union)

Weak Points

Even though the country has become attractive to investors and especially since its membership in the European Union, Bulgaria still has to tackle a number of challenges:

• Slow progress in the fight against corruption and reforms of the judicial system, despite pressure from the European Union
• Ineffective bureaucracy
• Non-enforcement of intellectual property rights
• A significant portion of the population has limited income (one of the poorest in the region)
• High external debt
• Banking sector particularly vulnerable to Eurozone banking crises
• Poor infrastructure

Government Measures to Motivate or Restrict FDI

The Bulgarian government has established a very advantageous taxation system in order to attract investors, and the costs of starting a company have also been lowered. The government has undertaken the privatisation of a number of companies. Amongst the most attractive measures put in place are:

• Fixed company taxation rate of 10%
• Competitive labour costs
• Skilled active population
• Foreign investors, who are citizens of countries outside the EU, EEA, and Switzerland, are eligible for a Bulgarian permanent residence permit valid for an unlimited period of time if they invest over BGN 1,000,000 (approximately €511,292)
• Foreign entities' investments are not restricted

Finally, the Agency for Investment in Bulgaria (IBA), is at the disposal of investors for their prospection as well as their implantation, and the 2004 law for the Promotion of Investment guarantees the equal treatment of domestic and foreign investments. The industrial production and high-tech sectors have been identified as a priority by the government, which has established a series of incentives for FDI in these sectors: for example, many public-private partnership opportunities exist for land acquisition, infrastructure construction and human resource training.