Published on and written by Cyril Jarnias
At a time when financial transparency is a crucial issue on the international stage, Bulgaria finds itself at a decisive crossroads in its economic reforms. Faced with the need to align its standards with those of the European Union, the country has undertaken efforts to strengthen transparency obligations in several key sectors. This article explores how these reforms impact not only local businesses but also the Bulgarian economy as a whole, while examining the challenges they pose to an evolving economic landscape.
Legal Reporting Requirements in Bulgaria
Regulatory Framework for Financial Reporting in Bulgaria
Financial reporting in Bulgaria is primarily governed by the Accounting Act and the Commercial Code. These fundamental texts establish the basic requirements for bookkeeping and publishing financial statements for companies operating in the country.
The Bulgarian Accounting Act, updated in 2024, defines the generally accepted accounting principles and reporting obligations for different categories of companies. It notably mandates the use of International Financial Reporting Standards (IFRS) for certain entities, thereby aligning Bulgarian practices with international standards.
Application of IFRS Standards
Since January 1, 2024, all public interest entities in Bulgaria are required to apply IFRS as adopted by the European Union for the preparation of their financial statements. This category includes:
- Companies listed on a regulated EU market
- Credit institutions
- Insurance companies
- Pension fund management companies
- National railway companies
- Water supply and sanitation companies
Other entities may choose to apply IFRS or the National Accounting Standards established by the Bulgarian Ministry of Finance.
Mandatory Audit Thresholds
The Accounting Act also defines the thresholds beyond which companies are subject to mandatory audits of their financial statements. Currently, this applies to:
- Small entities exceeding at least two of the following criteria: total assets of 2 million BGN, revenue of 4 million BGN, average of 50 employees
- Medium and large entities
- Public interest entities
- Medium and large groups, as well as those including a public interest entity
- Joint-stock companies and limited partnerships by shares, with exceptions
Role of the Financial Supervision Commission
The Bulgarian Financial Supervision Commission plays a crucial role in overseeing compliance with financial reporting standards. It is responsible for monitoring the compliance of financial statements published by public interest entities and imposing sanctions in case of non-compliance with legal requirements.
Recent Reforms and EU Alignment
Bulgaria has recently undertaken significant efforts to align its financial reporting practices with European Union standards. In 2024, the country transposed the Corporate Sustainability Reporting Directive (CSRD) into its national legislation, thereby strengthening non-financial information disclosure obligations for large companies.
Additionally, Bulgaria plans to introduce the Standard Audit File for Tax (SAF-T) system starting in 2026, beginning with large companies. This initiative aims to improve tax transparency and combat fraud by standardizing the format of accounting and tax data submitted to authorities.
Publication Obligations
Bulgarian companies are required to file their annual financial statements with the Commercial Register within one month of the accounts being approved by the general meeting. These documents are then made public, thereby contributing to market transparency and investor confidence.
Good to know:
In Bulgaria, legal reporting requirements are primarily based on the Bulgarian Accounting Act and the Commercial Code, which stipulate that companies must publish financial statements in accordance with International Financial Reporting Standards (IFRS). Companies exceeding certain revenue, total asset, or employee number thresholds are required to undergo a mandatory audit. The Bulgarian Financial Supervision Commission plays a key role in overseeing compliance with reporting standards, ensuring the accuracy and transparency of published financial information. In recent years, Bulgaria has undertaken reforms to align its reporting practices with those of the European Union, including enhanced oversight and improved public access to financial information. Companies must remain attentive to legislative updates to ensure compliance with constantly evolving European standards.
Financial Transparency: A Tool Against Corruption
Financial Transparency: A Tool Against Corruption
Bulgaria has undertaken significant efforts to improve financial transparency and combat corruption in recent years. In 2018, the country adopted a major anti-corruption law, which notably created the Commission for Combating Corruption and Illegal Asset Forfeiture (CACIAF). This institution was tasked with preventing corruption, verifying asset declarations of high-ranking officials, and identifying conflicts of interest.
In 2023, Bulgaria took a new step by restructuring CACIAF into two new organizations: the Anti-Corruption Commission (CAC) and the Commission for Illegal Asset Forfeiture (CIAF). The objective was to strengthen their respective mandates and clarify their responsibilities to more effectively combat corruption.
Legal Obligations for Companies and Officials
Bulgarian legislation now imposes strict financial transparency obligations on companies and officials. Companies must publish their annual balance sheets in the commercial register, where they are accessible to the public. Companies have until September 30 of each year to file their balance sheet for the previous year. This balance sheet must be signed by the company director and by a certified accountant or chartered accountant.
For high-ranking officials, the law requires them to submit detailed asset declarations, which are then verified by the Anti-Corruption Commission. This measure aims to detect any unexplained enrichment or potential conflicts of interest.
Results and Persistent Challenges
Although these reforms have improved transparency, significant challenges remain in their effective implementation. Bulgaria’s chronic political instability, with five elections in three years, has hindered the consistent application of new rules. Moreover, the fragmented political landscape has sometimes led to compromises that weakened the effectiveness of anti-corruption institutions.
Nevertheless, tangible progress has been made. In 2023, the EIB Group doubled its support for projects in Bulgaria, reaching €1.11 billion in financial commitments. This significant increase demonstrates growing confidence in the country’s transparency and public fund management.
Concrete Examples of Financial Transparency Impact
An emblematic case illustrates the importance of financial transparency in the fight against corruption. During the preparation of the 2020 EITI report, a fraud case involving collusion between tax officials and a company was discovered. The reconciliation of financial data revealed that the company had paid funds that the government had not received. This discovery led to investigations, recovery of misappropriated funds, and criminal prosecutions.
Bulgaria has also implemented an innovative tool to identify corruption risks related to politically exposed persons (PEPs). This tool cross-references data on beneficial ownership of companies with financial disclosures to flag potential conflicts of interest in licensing and contract awards.
Despite these advances, Bulgaria still faces major challenges in its fight against corruption. The country must continue to strengthen its institutions, improve enforcement of existing laws, and promote a culture of integrity at all levels of society to consolidate the progress made in financial transparency.
Good to know:
Bulgaria has undertaken significant legislative reforms to strengthen financial transparency, notably through laws requiring companies and officials to publicly declare their financial assets, enabling rigorous monitoring to prevent illicit practices. The country has also established dedicated institutions, such as the Commission for Prevention and Combating Corruption, which play a crucial role in enforcing these rules. Despite these advances, effective implementation remains hampered by persistent challenges, such as insufficient financial and human resources for oversight bodies. A notable success example is the corruption case involving a high-ranking official that was revealed through asset declaration monitoring, illustrating the positive impact of financial transparency on reducing corruption. However, the challenge remains to ensure uniform compliance and improve inter-institutional cooperation to maximize the effectiveness of these measures.
Adoption of International Accounting Standards
Adoption of International Accounting Standards in Bulgaria
Bulgaria adopted International Financial Reporting Standards (IFRS) in 2003, marking its commitment to financial transparency and harmonization with international accounting practices. This decision significantly influenced the country’s accounting landscape, imposing new requirements on Bulgarian companies and transforming how financial information is prepared and presented.
Main IFRS Standards Adopted
Bulgarian companies are required to apply a comprehensive set of IFRS standards, including notably:
- IAS 1: Presentation of Financial Statements
- IFRS 9: Financial Instruments
- IFRS 15: Revenue from Contracts with Customers
- IFRS 16: Leases
These standards aim to improve the quality and comparability of financial information, thereby enabling investors and other stakeholders to make informed decisions.
Impact on Financial Transparency
The adoption of IFRS has significantly improved financial transparency in Bulgaria. Companies are now required to provide more detailed and standardized information in their financial statements, which facilitates comparison between companies and strengthens investor confidence. This increased transparency has also helped attract foreign investment, thereby stimulating the Bulgarian economy.
Specific Obligations for Bulgarian Companies
Listed Bulgarian companies and financial institutions are required to fully apply IFRS in their consolidated financial statements. Small and medium-sized enterprises (SMEs) have the option to choose between full IFRS and a simplified version of Bulgarian national standards, aligned with IFRS for SMEs.
Benefits and Challenges of IFRS Implementation
The adoption of IFRS has brought many benefits to Bulgarian companies, including better international comparability, increased transparency, and easier access to foreign capital markets. However, the transition to these standards has also presented challenges, such as:
- High compliance costs
- The need to train accounting staff
- The complexity of certain standards for small businesses
Government Measures to Facilitate Transition
The Bulgarian government has implemented several initiatives to support companies in their transition to IFRS:
- Creation of training programs for accounting professionals
- Establishment of a monitoring body to ensure compliance with standards
- Collaboration with international organizations to obtain advice and support
These measures have helped facilitate the adoption of IFRS and improve the overall quality of financial reporting in Bulgaria.
Good to know:
Bulgaria adopted International Financial Reporting Standards (IFRS) to strengthen financial transparency and integrate its companies into the global accounting system. This requires listed companies and public interest entities to align their financial reports with these standards, thereby providing better comparability and increased reliability of disclosed financial information. However, the application of IFRS in Bulgaria represents a challenge for some companies that must revise their internal accounting systems and train their staff, particularly for SMEs that don’t have the same resources as large companies. The Bulgarian government supports this transition through training and educational resources to facilitate adoption and ensure compliance. This approach aims not only to attract foreign investment through greater transparency but also to improve local investor confidence. The implementation of IFRS has effectively enabled greater clarity in financial statements, although some adjustments are still needed to fully integrate all local market specificities into these pre-established standards.
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Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.
On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.
Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.
