Bulgaria debates introducing 20% VAT on the sale of new-build properties by private individuals: what does this mean for the property market?

Bulgaria is actively debating a draft amendment to the Value Added Tax (VAT) Act that could significantly change the rules of the game in the property market. The country's Ministry of Finance has proposed introducing a 20% VAT rate on the sale of new-build properties by private individuals, which has already sparked lively debate among experts, developers and buyers.  

Under the new draft, a 20% tax will apply to the sale of new housing if the transaction takes place within five years of the issuance of the occupancy permit. In addition, the changes will affect the sale of regulated land plots owned by private individuals, as well as by persons holding construction rights.  

It is worth noting that the obligation to pay VAT will arise only if the private individual has carried out at least three property transactions within 12 months. 

Before selling, the private individual must register as a VAT payer.  

Thus, the tax will not affect people who sell property occasionally or use it exclusively for personal needs.  

According to representatives of the Ministry of Finance, the main objective of introducing 20% VAT is to combat fraud and tax evasion by private individuals. In particular, this concerns cases in which persons sell new-build properties in significant volumes, effectively conducting commercial activity, but without registering as legal entities.  

Additionally, the initiative is aimed at increasing revenues to the state budget and equalising the taxation conditions between private individuals and legal entities.  

Possible consequences for the property market 

Experts assess the initiative in mixed terms, noting both its benefits and its risks.  

Positive aspects: 

• tackling the shadow economy: the introduction of VAT will help prevent tax evasion.  
• replenishing the budget: additional revenues will make it possible to fund important state programmes.  

Risks and challenges:

• Rising property prices:
• The new taxes may lead to a rise in prices of new-build properties, as developers and investors will factor the additional costs into the value of the properties.  
• Reduced market activity:
• Tightening the rules may cool private investors' interest in the construction and sale of housing.  
• Difficulties for buyers. The introduction of VAT may complicate the purchase of housing for end consumers, especially in the context of the mortgage lending restrictions introduced in 2024 by the Bulgarian National Bank (BNB).  

As a reminder, in October 2024 new mortgage lending rules came into force in Bulgaria, tightening the requirements for borrowers. The main changes concern:  

• the loan-to-collateral value ratio.  
• the debt-to-income ratio of the client.  
• the maximum loan repayment term.  

Despite the new restrictions, mortgage lending volumes have so far remained stable, which indicates continued interest in property. However, the adoption of amendments to the VAT Act could change this dynamic, especially for buyers focused on new-build properties.  

Many specialists note that the new rules could deal a blow to a market that has only just begun to stabilise after the pandemic and economic upheavals. Some experts believe that the changes will create additional pressure on buyers, which in the long term could lead to a reduction in the overall number of transactions.  

In addition, questions remain as to how the registration of private individuals as VAT payers will be implemented, and what support measures may be offered to ease the transition period.