Published on and written by Cyril Jarnias
Bulgaria, as a dynamic member of the European Union, is playing an increasingly important role in the private equity landscape, attracting attention from international investors. However, the investment ecosystem is governed by specific regulations that oversee the operations of private equity firms in the country. Understanding these rules and regulations is crucial for anyone looking to effectively navigate the Bulgarian market, as they impact various aspects such as fundraising, taxation, and reporting obligations. In this context, this article explores the key dimensions of this legislative framework, shedding light on both the opportunities and challenges facing the sector in its contribution to the local economy.
Legal Framework for Private Equity Firms in Bulgaria
Legal Framework for Private Equity Firms in Bulgaria
The legal framework governing private equity firms in Bulgaria is based on a set of national laws and regulations, aligned with European Union directives. The Investment Promotion Act serves as the central pillar of this framework, defining the conditions and procedures for encouraging investments in Bulgarian territory.
Key Legal and Regulatory Standards
Private equity firms in Bulgaria must comply with several key legislative texts:
- The Commercial Companies Act, which governs the establishment and operation of businesses
- The Markets in Financial Instruments Act, regulating investment activities
- The Collective Investment Schemes and Other Investment Enterprises Act, specific to investment funds
These laws define requirements regarding organizational structure, corporate governance, and financial transparency for private equity firms.
Role of the Financial Supervision Commission
The Financial Supervision Commission (FSC) plays a crucial role in overseeing Bulgaria’s private equity sector. It is responsible for:
- Issuing licenses to private equity firms
- Monitoring market participants’ compliance with regulations
- Imposing sanctions for non-compliance
- Developing secondary regulations for the sector
The FSC closely collaborates with European authorities to ensure harmonization of supervisory practices.
Establishment and Registration Requirements
To operate in Bulgaria, private equity firms must meet several criteria:
- Minimum share capital of 1.5 million leva (approximately €767,000)
- A governance structure including at least two full-time directors
- Robust risk management and internal control systems
- Regular submission of financial and operational reports to the FSC
Registration with the FSC is mandatory and involves a thorough examination procedure of the company’s founding documents and business plans.
Recent Legislative Changes
In March 2024, Bulgaria introduced a foreign direct investment screening mechanism, potentially impacting foreign private equity firms operating in the country. This new framework requires prior approval for certain investments exceeding €2 million or targeting strategic sectors.
Alignment with European Framework
The Bulgarian legal framework largely aligns with European directives, particularly:
- The AIFM (Alternative Investment Fund Managers) Directive
- The ELTIF (European Long-Term Investment Funds) Regulation
- EU financial reporting and transparency rules
This harmonization facilitates cross-border operations and enhances the Bulgarian market’s attractiveness to international investors.
Challenges and Opportunities for the Sector
The current regulatory framework presents both challenges and opportunities for private equity players in Bulgaria:
- Increased complexity of compliance requirements
- Higher operational costs related to reporting obligations
- Necessary adaptation to new foreign investment screening rules
- Strengthened investor confidence through a robust regulatory framework
- Facilitated access to European markets through rule harmonization
- Sector growth potential supported by government incentives
Bulgaria’s legal framework for private equity firms continues to evolve, striving to balance investor protection, market stability, and foreign capital attraction.
Good to Know:
Private equity firms in Bulgaria operate under a legal framework primarily regulated by the Companies Act and sector-specific regulations. The Financial Supervision Commission (FSC) plays a crucial role in supervising these entities, ensuring their compliance with transparency standards, minimum capital requirements, and reporting obligations. Establishment and registration require specific startup capital and adherence to strict financial disclosure rules. Recently, legislative amendments have harmonized the Bulgarian framework with European Union directives, increasing the market’s international competitiveness. However, these rules can also pose challenges in terms of administrative complexity, creating opportunities for savvy players who can navigate this dense and dynamic regulatory environment.
Evolution of Private Equity Regulations
Evolution of Private Equity Regulations in Bulgaria
The history of private equity regulations in Bulgaria dates back to the 1990s, when the country began its transition to a market economy. The first laws governing foreign investments were adopted in 1992, laying the foundation for a more favorable environment for private capital. However, it wasn’t until 1997 that the country’s political and economic stabilization truly fostered investment development.
Key Recent Legislative Changes
In recent years, Bulgaria has significantly modernized its regulatory framework for private equity. In 2024, the country reached a major milestone by introducing a new foreign direct investment (FDI) screening regime in accordance with European Regulation 2019/452. This law, which came into effect on March 12, 2024, now requires prior review of FDI in certain strategic sectors.
Key Players in Regulatory Developments
The Bulgarian Ministry of Economy played a central role in developing these new regulations, in close collaboration with the Bulgarian Investment Agency. The Interministerial Council for Foreign Direct Investment Screening, established in 2025, is now the key decision-making body for FDI review. International law firms have also contributed to shaping these regulations, bringing their expertise in compliance with European standards.
Motivations for Regulatory Evolution
These regulatory changes were motivated by several factors. On one hand, Bulgaria’s desire to align with European Union practices regarding foreign investment screening. On the other hand, the need to protect national strategic sectors while maintaining an attractive environment for investors. The economic crisis related to the COVID-19 pandemic also accelerated the implementation of these new regulations.
Impact on Investment Practices
The new regulations have had a significant impact on private equity firms’ practices in Bulgaria. Non-EU investors must now obtain prior authorization for investments exceeding €2 million or involving the acquisition of at least 10% of the capital of a Bulgarian company in strategic sectors. This procedure has extended transaction completion times and increased compliance costs for investors.
Regional Comparison
Regulatory evolution in Bulgaria is part of a broader trend observed in the region. Neighboring countries like Romania and Hungary have also strengthened their FDI screening mechanisms in recent years. However, Bulgaria stands out for its balanced approach, seeking to maintain an investment-friendly environment while protecting its strategic interests.
Future Outlook
The Bulgarian government plans to complete full implementation of its FDI screening regime by early 2025. Amendments to the implementing rules of the Investment Promotion Act are expected later in the year, which should provide more clarity to investors regarding FDI application submission and processing procedures.
Good to Know:
Bulgarian private equity regulations emerged in the 1990s, initially focusing on investment transparency and financial security, and have evolved significantly since. A notable turning point was the 2007 law aligned with European standards, facilitating foreign investor entry. Since 2020, key reforms include increased disclosure and compliance requirements, driven by the Ministry of Finance and professional associations, in response to financial scandals and social pressures for greater transparency. These developments, motivated by the need to protect investors and boost market confidence, have led to increased sector professionalization while encouraging more rigorous practices among private equity firms. Comparatively, Romania and Serbia have adopted similar measures, thereby strengthening regional competitiveness.
Compliance Obligations for Bulgarian Private Funds
Regulatory Framework for Private Funds in Bulgaria
In Bulgaria, private funds are subject to a strict regulatory framework supervised by the Financial Supervision Commission (FSC). This framework aims to ensure financial system stability and investor protection.
Registration Procedure
To operate legally, private funds must obtain a license from the FSC. This procedure involves a thorough assessment of the fund’s organizational structure, governance, and financial soundness. Managers must demonstrate their expertise and integrity to obtain authorization.
Capital Requirements
Regulations impose strict capital requirements. Funds must maintain sufficient reserves to guarantee their financial obligations and protect investor assets. The exact amount depends on the fund’s size and type of activities.
Disclosure and Reporting Obligations
Private funds are required to provide regular reports to the FSC, including:
- Annually audited financial statements
- Quarterly reports on portfolio composition
- Information on significant changes in fund structure or strategy
Transparency is essential to maintain investor confidence and enable effective supervision.
External Audits
An annual audit by an independent licensed firm is mandatory. This audit aims to ensure the accuracy of financial information and compliance with accounting standards.
Anti-Money Laundering and Counter-Terrorist Financing
Private funds must implement robust procedures to prevent money laundering and terrorist financing, including:
- Investor identity verification (KYC)
- Monitoring of suspicious transactions
- Staff training on money laundering risks
These measures are essential to preserve the integrity of the Bulgarian financial system.
Risk Management and Corporate Governance
Regulations require the implementation of effective risk management systems and a solid governance structure. This includes the appointment of independent directors and the creation of oversight committees.
Funds must also:
- Develop conflict of interest management policies
- Implement rigorous internal controls
- Ensure adequate separation of functions
Sanctions for Non-Compliance
Failure to meet regulatory requirements can result in severe sanctions, ranging from substantial fines to suspension or revocation of operating licenses. In the most serious cases, criminal proceedings may be initiated against managers.
Regulatory Monitoring
The Bulgarian regulatory framework evolves regularly to adapt to international standards and European Union directives. Private funds must therefore remain vigilant and quickly adapt to legislative changes to maintain their compliance.
Good to Know:
Bulgarian private funds must comply with several requirements imposed by the Bulgarian Financial Supervision Commission, including mandatory registration to ensure their legitimacy. They must regularly submit detailed financial reports and undergo external audits to ensure transparency and information accuracy. Regarding anti-money laundering and counter-terrorist financing, they must implement rigorous compliance programs including customer identity verification and suspicious activity reporting. Risk management and governance obligations require the establishment of strong internal policies, in line with international best practices. Sanctions for non-compliance can include heavy fines and revocation of operating licenses, highlighting the importance of staying informed about legislative developments to avoid potential penalties.
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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.
