Tax Optimization Is an Art

Taxation On Companies With Special Investment Purpose

Investing in companies with special investment purpose (CSIP) is increasing its popularity. CSIPs are on the whole the Bulgarian equivalent of Real Estate Investment trusts. They are joint stock companies that invest funds raised by issuing securities in real estate or in receivables. The company may issue debt securities registered for trading on a regulated market and borrow bank. The CSIP may take bank loans in the amount of 20 percent of book value of assets, if the loan is for a period not exceeding 12 months. The capital of a CSIP may not be less than BGN 500 000.

The main tax advantage is the avoidance of double taxation. The tax regime of the CSIPs in Bulgaria is equivalent to that of the other countries in the European Union. CSIPs do not pay taxes on profits and shareholders pay only 5% tax on dividends received.

Although the CSIPs are established as joint-stock companies, they don`t have their typical structure. They have no employees, offices or branches and can only perform a very narrow range of activities. For everything else they have to use service companies. They cannot hold or reinvest profits – all income generated is automatically redistributed to investors in the form of dividends. This significant difference to joint-stock companies is the reason CSIPs are not taxed on profits.

Mutual funds
Mutual funds are based on a collective investment strategy. By investing into a mutual fund, individuals are actually investing with other people, that enables them to participate in a wider range of investments and to reduce their investment costs. Mutual funds are traditionally composed of stocks, bonds, and other types of securities. That`s why the value of the mutual fund market works in direct correlation with the stock market.

The two main advantages of mutual funds are that they are professionally managed and allow customers to diversify their portfolios.

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