The Bulgarian citizenship by investment (CBI) program is currently one of three EU programs, alongside those of Malta and Cyprus that enables qualifying candidates to obtain fast-track citizenship by making an investment. The Bulgarian program, like its other two rivals, doesn’t require the candidate to pass a language test or to surrender its existing citizenship. Unlike the other two EU CBI programs however, the Bulgarian program neither requires an irrevocable donation nor purchase of real estate. The Bulgarian program allows investment in Eurobonds, which are stock-listed shares, as well as in some other, less frequently utilized investment products. As more than 99% of the applicants are opting for the secure Eurobonds, we will focus on that option in this article.
Current conditions of the Bulgarian program
The Bulgarian CBI program is a two-staged process. At the start, the applicant has to invest at least 1 million Bulgarian Lev (about 555,000 US dollars) in Bulgarian Eurobonds. The investment is held in the applicant’s personal bank account as the bonds are at the investor’s disposal at all times. Once the bonds are purchased, the applicant can obtain Bulgarian permanent residency immediately. This procedure is legally backed in Art.5(1), p.6 of the “Law for the foreigners in the Republic of Bulgaria”.
After the applicant has obtained his permanent residency permit, there are two options in another Bulgarian law, namely the “Law for the Bulgarian citizenship.” The so called “semi-fast-track” option enables the applicant, without any further investments, to obtain Bulgarian citizenship, after a waiting period of 5 years. No actual residency or language test is required.
The other option, the core “fast-track” route, enables the citizenship candidate to increase its investment in bonds to a total amount of 2 million Bulgarian Lev and obtain Bulgarian citizenship in only 12 months after the permanent residency status has been granted.
At the moment, the vast majority of all applicants for Bulgarian citizenship use of the core fast-track option, as the investment threshold requirements in Bulgaria are lower than in the other two EU CBI programs. The difference in time-frame for obtaining citizenship is also quite significant - one year for the fast-track and 5 years for the semi-fast-track option.
Too good to be true (or how the Bulgarian authorities realized that the CBI program needs a “facelift”)
While virtually all CBI programs are intended to pump new money into its countries’ economies, the core idea behind the Bulgarian program was to give a boost to the country’s poor demographic numbers. Bulgaria is one of the least populated (compared to its territory) countries in the EU. Therefore, Bojidar Dimitrov - the ex-minister and responsible person for the “State Agency for Bulgarians abroad” - initially launched the idea that an “affordable” CBI program may help to improve Bulgaria’s population.
While the Bulgarian CBI program has indeed provided favorable conditions, it lacked something very important – a suitable budget for the government to market its own program. In other words, the Bulgarian CBI program was (and still is) so favorable for the applicants that there is simply nothing left for the government to market it or to profit from it.
This has led to two unfortunate results. First, due to lack of state marketing, the number of candidates for the Bulgarian CBI program remains relatively low. And secondly, the general perception within Bulgaria, mainly on a government level, became negative. The officials were enviously looking at the amounts Cyprus and Malta poured into their economies in form of donations, taxes, VAT, fees, etc. The authorities in Bulgaria realized that selling Eurobonds doesn’t provide anything to the Bulgarian budget as the demand for Bulgarian bonds on the financial markets outpaced the supply.
Not only was there nothing for the Bulgarian government, but in fact, many citizenship candidates made generous profits from their Bulgarian bonds. The Eurobonds rose steadily in 2018-19, fueled by the falling interest rates (bond prices rise when interest rates fall and vice-versa). Many investors pocketed 10% to 20% returns on their bond investments in Bulgaria and at the same time became eligible for citizenship. On top of everything, the returns from the bonds are completely tax-free by the Bulgarian tax codes.
The critics from the EU Commission
Then, in January 2019, the European Commission (EC) published its “Investor Citizenship and Residence Schemes in the European Union”
In its report, the EC sharply criticized all EU investor residency and citizenship schemes. Bulgaria, luckily, was one of the least criticized countries, but to the authorities in Sofia, this was a serious red flag.
Since the publishing of the report of the EC, all concerned countries took serious steps into strengthening the conditions of their programs. Bulgaria, although it has declared strong commitment to follow, has proven so far to be the slowest one.
However, the Bulgarian government declared its intention to strengthen the conditions of its CBI program. During the second half of 2019, the critics from the EC against the EU investment citizenship and residency programs intensified. Malta and Cyprus took measures and strengthened their CBI programs. Bulgaria was also pushed into the corner so the Bulgarian Council of Ministers lodged its version of the Bill for amendment of the CBI program with the Parliament on Oct.. 8, 2019.
The Bill for amendment of the “Law for the Bulgarian citizenship”
The Bill consist of many different texts, some of which are basically placing some legal constraints on the administration and are thereby guaranteeing faster processing of the citizenship applications.
The main proposed amendment, which is basically the most important for all future candidates for fast-track Bulgarian citizenship by investment, is the proposal to cancel Art. 14a (1), p.1 (a) of the “Law for the Bulgarian citizenship.” This means that the applicant will not be allowed to make the second investment of 1 million Bulgarian Lev in Bulgarian Eurobonds. It will still be possible however to invest the same amount in a Bulgarian priority project, certified according to the Investment Promotion Act.
What are Bulgarian certified investment projects?
Bulgarian certified investment projects are large-scale projects, mostly real estate, that are certified by the government as being compliant by the norms of the Bulgarian Investment Promotion Act. These are projects that are being managed by the highest standards and are guaranteeing the financial interests of its stakeholders. These projects, in return for their sheer size, management transparency and legal compliance, are rewarded by the government by providing them preferential administrative treatment, as well as other benefits.
In short, the certified investment projects are probably the second best to the money market and bond investments in terms of transparency. Of course, the proposed new investment option is less known to the international community and is therefore still being viewed with some degree of fear. In terms of liquidity, bonds are of course better, as they are traded daily on most major financial floors. The investment projects however, have the potential of delivering a much higher returns than the close to zero (and even negative) returns of the EU sovereign bonds in 2020.
The outlook of the Bulgarian CBI program
It is still very uncertain whether the Bill for the amendment of the CBI program will ever pass through the parliament. There are many organizations, business communities, the chamber of commerce, just to name a few, who strongly oppose the proposed changes.
But even if the Bill is approved in the form as it has been drafted, this won’t change much for the candidates for Bulgarian citizenship by investment. The investment threshold requirement, the timeframe for obtaining citizenship and even the possibility to invest in bonds for the permanent residency stage will remain unchanged. The only thing that will be different is that the applicants will need to cope (for the second stage of the CBI program only) with the new, less known, but still secure form of investment – the Bulgarian certified priority projects. For the existing candidates for Bulgarian CBI, there should be no changes whatsoever, as the Bill points out that “all existing applications will be processed by the existing conditions.”
At the same time, in the realms of all EU CBI programs being under fire by the European authorities, it is certain that the good old days of “affordable EU citizenship” are, or will soon be, over. The officials in Brussels are certainly trying to make the EU investment citizenship accessible only to the most determined ones. Those, who are able to show ultimate legal compliance and (at least) certain bond with the country of their future citizenship, will be the ones who will be successful with their applications. European Union citizenship by investment is certainly going to evolve in the future, but it will definitely require more resources from the investors. Those who have already applied for Bulgarian citizenship will soon realize how profitable their choice has been.
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