On Friday, 22 March 2019, the Bulgarian Government published a draft Bill with proposed changes relating to Bulgarian citizenship by investment (CBI).
The draft may change significantly before it is finally law, or may indeed be rejected, leaving the law as is. Legislating in Bulgaria takes up to several months, and as above, some bills are ultimately turned down.
Our view is that the Government proposal is very likely to pass but at least some of the routes to citizenship slated for removal may be added back in.
Fast track citizenship by investment to stay
The draft Bill concerns citizenship and not permanent residence applications. It also retains the concepts of a “fast track” and a “standard track” to citizenship. Investors will still be able to obtain permanent residence by making an investment in bonds or shares in a listed company.
Should investors be interested in Fast Track Bulgarian citizenship – which, in our view, will virtually always be the only suitable option – they will now need to make their second investment in a “priority investment project” as defined by the Encouragement of Investments Act (EIA).
Proposed eligible investments
Broadly, the investments proposed to be eligible for the Fast Track will make a Bulgarian CBI programme somewhat similar to the US EB-5 programme.
Fast Track Option 1
Investors can still choose to make the first investment of €513,000 in government bonds or shares of a listed company. However, the second investment (i.e., post permanent residence) will need to be made “in the capital” of a company running a “priority investment project”. The projects may be either existing ones previously approved under the EIA, or new ones, perhaps even set up by the investor him- or herself.
Fast Track Option 2
Investors can apply for permanent residence,
What do the projects certified under the EIA look like?
Since 2004, more than 130 projects have been certified by the Bulgarian Government under the EIA. Sectorally, the majority are industrial, but there are also real estate projects, technology, and trading businesses. Only seven are certified priority investment projects.
Of these, three are real estate-related and the remainder industrial and technology-related. New project certification applications are currently proposed or awaiting approval.
The risk profile of these projects is likely to be similar to investments in equity or private companies, which have been an eligible investment class to date, but they are naturally likely to be seen as much riskier than investing in government bonds.
Bulgarian CBI-investors have historically overwhelmingly preferred the low-risk bonds, but there has also been an appetite for higher returns, which such certified investment projects are more likely to give a chance of in comparison to the modest returns sovereign fixed income instruments generate.
EB-5 projects in the U.S. have been very popular with investors despite their higher risk, and they may have indeed accumulated considerable productive capital stock and created employment.
Investors who have held a permanent residence for more than a year and apply before any change in the law will be dealt with under the old law.
Investors who have already obtained permanent residence status, but who have not submitted their citizenship applications, would need to carefully consider the proposed changes.
More generally, whether and when the new provisions are successful will continue to depend on the free market. Unlike Malta and Cyprus, the Bulgarian government does not directly support its CBI programme with resources and promotion. The founders of the certified investment projects and professional service providers will need to do that job. However, letting a thousand certified investment flowers bloom will be relatively unique in the EU in our understanding and will be a direct analog to the U.S. EB-5 but without the limits on the nationality of origin of the applicants which that programme has.