Debt Financing
Bulgaria has had its fair share of both good and bad press over the past couple of years, but it is still an area which has proven very popular with Irish property investors. Bulgaria is a politically stable country, and the introduction of a currency board in 1997 stabilized the country's economy. A foreign investor can invest in properties in Bulgaria either directly or through a local entity. The various tax treaties entered into by Bulgaria usually contain a narrower definition of permanent establishment. The basis of the taxable income of a company, investing in Bulgarian real property is the gross income derived from the property less tax-deductible, property-related expenses and depreciation. Such expenses include repairs, maintenance, renovation and similar costs and interest on loans used for the acquisition of the property. Where the debt financing exceeds the equity financing, deductibility of interest is subject to limitation, which is determined by a particular formula. The interest costs not deducted in a given year can be deducted in the subsequent tax period. Interest paid to a foreign lender is subject to a withholding tax of 15%, unless a lower rate is available under a double tax treaty. The positive or negative differences are accounted for as current financial income or expenses.
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