It’s a publicly known secret that most of the real estate deals in Bulgaria are certified before a notary public at a certain negotiated price, different than the one actually paid and also a lot lower than it.
Usually the actual price is registered in a Preliminary Sale and Purchase Contract of the real estate and in the title deed entered is a lowered price. The amount stated in the title deed is transferred by bank wire from the buyer to the seller when the deal is certified if the property costs over BGN 10,000, the remaining amount is paid “cash in hand” – with or without a document.
What are the risks of this circumvention of the law?
- In case of eventual removal of the buyer from the property he is entitled to claim by court order the amount registered as sale price in the title deed. Possible penalties listed in the deed through which the price is usually “complemented” to the actually paid one are very hard to be gained. There is a limitation on the penalties – the court order limits them to three times the amount registered in the title deed.
- According to art. 25, par. 9 of the Notaries and Notarial Practice Act /promulgated State Gazette issue No 104 dated 6 December 1996/: “Upon executing paid deals which establish, transfer, amend or terminate property rights on the real estate, the participants in the notarial proceeding declare in the executed deed that the amount in it is the actual settled payment for the deal”. This means that the buyer and the seller bear criminal responsibility for declaring false data if they enter in the title deed price, different than the one actually paid for the property. This responsibility is expressed in art. 313, par. 2 of the Penal Code /promulgated State Gazette issue No 26 dated 02 April 1968/ and it states that when the act is purposeful in order to avoid payment of due taxes the punishment is imprisonment up to three years and a fine of up to a thousand BGN.
- The Limitation of Cash Payments Act /promulgated State Gazette issue No 16 dated 22 February 2011/ regards to all payments between individuals, between entities and between individuals and entities as an amount is expressly set to be BGN 10,000 above which all payments shall be made only and solely by bank wire. If the payment regards to a real estate the limit is BGN 10,000. When the deal for property with price of above 10,000 BGN is certified before a notary public at price lower than the actual one, the buyer pays part of the price in cash which is a violation of the aforementioned law. Pursuant to art. 5, par. 1 of the Limitation of Cash Payments Act the violators-individuals are penalized with a fine in the amount of 25% of the payment’s total amount and the violators-entities are penalized with a fine in the amount of 50% of the payment’s total amount.
- In art. 125 of the Local Taxes and Fees Act /promulgated State Gazette issue No 117 dated 10 December 1997/ stated is that upon concealment of part of the price when obtaining donated or paid property the parties are penalized with double of the due tax on the concealed part. When the deal is certified before a notary public at price lower than the actually paid one this leads to charging lower local tax amount when transferring estate which is paid on the day of the deal. For Sandanski Municipality as at 2024 the local tax is in the amount of 2% of the estate’s sale price registered in the title deed.
- If the buyer agrees price lower than the actual one to be registered in the title deed, in case of resale of the real estate within a three-year term of acquisition he will owe tax pursuant to Personal Income Tax Act /promulgated State Gazette issue No 95 dated 24 November 2006/. This tax is in the amount of 10% of the difference between the acquisition price and the sale price as deducted are 10% normative costs. Foreign buyers who are not citizens of member states of EU and EEA always pay this tax regardless of the period for which they had owned the property. If they obtain property with lowered price in the title deed in case of resale at an actual price they will pay a much higher tax – for example when registered is a purchase price of EUR 10,200 and after 4 years the actual sale price is in the amount of EUR 40,000 euro the income tax due will be in the amount of EUR 2,682.
The fair deal with actual price registered in the title deed protects the interests not only of the buyer but the seller as well who is able to prove the origin of his funds if he repays a loan or makes an expensive purchase after selling the property.
Think before you buy or sell. Guarantee your peace – state the actual price!