Bulgaria Investment climate and business opportunities June 2014

• Investments and economic relations • Why invest in Bulgaria? • Government incentives

Investments and economic relations FDI Inflow: In million euro 9052 10000 9000 8000 7000 6728 6222 6000 5000 4000 2437 3000 1151 2000 1330 1070 1092 1000 0 2006 2007 Source: Bulgarian National Bank 2008 2009 2010 2011 2012 2013

Investments and economic relations FDI Inflow: FDI by Host Country, 1996 -2013 (€ mln. ) FDI flows by industry, 1996 -2013 (€ mln. ) Switzerland 1347, 2 Other Italy 1401, 6 Telecom 1439, 7 Construction USA Russia 1855, 3 Cyprus Energy 2089, 4 UK Manufacturing 2383, 6 Germany Trade 2745, 4 Greece 3560, 1 Austria Finance 5750, 9 Netherlands Real Estate 6306, 2 0 1000 2000 3000 Source: Bulgarian National Bank 4000 5000 6000 7000 3207, 8 2647, 4 2948, 3 3490, 6 7056, 2 7059, 5 7479, 3 7936, 9 0 1000 2000 30004000 5000 6000 7000 8000

Investments and economic relations The role of Italy as a trade partner for Bulgaria: 1981, 4 1760, 8 1800 1763, 8 1626, 3 1511, 2 1600 1318, 4 1400 1141, 6 1392, 2 1271, 9 1216, 5 1892, 8 1695, 9 1334, 4 1092, 6 1200 1675, 2 1458 1132, 5 1000 800 1925, 9 1872, 3 2000 1043, 2 600 400 2004 2005 2006 2007 2008 Export 2009 Import 2010 2011 2012 2013

………. . – Bulgarian trade relations Why invest in Bulgaria?

WHY INVEST IN BULGARIA? Ø Ø Political and business stability − EU and NATO member − Currency board − Low budget deficit and government debt Low cost of doing business − 10% corporate tax rate (0% in high unemployment areas) − 10% personal income tax − Lowest cost of labor within EU − Favorable office rents and low cost of utilities Access to markets − European Union / EFTA − Russia − Turkey / Middle East Educated and skilled workforce

Why invest in Bulgaria? Real GDP Growth: 8 6, 5 6, 4 6, 2 6 4 3, 2 2 2 0, 4 1, 7 1, 8 0, 6 0, 4 -0, 4 0 2006 2007 2008 2009 2010 -2 -4 -6 -4, 5 -5, 5 EU Source: Eurostat Bulgaria 2011 2012 0, 9 0, 1 2013

Why invest in Bulgaria? Taxation in Bulgaria: Country Bulgaria Serbia Romania Hungary Czech Rep. Poland Turkey Slovakia UK Italy Spain Germany France Income Tax (%) Corporate Individual 10 10 15 10 -20 16 16 10/19 16 19 22 19 18/32 20 15 -35 23 19 -25 23 0 -45 27. 5 23 -43 30 24, 75 -52 30 -33 14 -45 (effective) 33. 33 5. 5 -41 Source: Worldwide - tax Social Security (%) Employer Employee 17. 9 -18. 5 12. 9 16. 9 28. 45 16. 5 28. 5 18. 5 34 11 22. 14 13. 7 27 15 34. 8 13. 4 13. 8 12 30 10 29. 9 6. 35 VAT (%) 20 20 24 27 21 23 18 20 20 21 21 19. 7 20. 6 19 50 20 19. 6

Why invest in Bulgaria? Business costs in Bulgaria: Location Price Q 1 2013, EUR/sq m/month Office prime rent in Sofia CBD Class A 10 -12 Office prime rent in Sofia non CBD Class A 8 – 11 Office rent in Sofia Class B 5 – 8 Office prime rent in Plovdiv Class A 4 - 6 Office prime rent in Varna Class A 3 – 6 Office prime rent in Burgas Class A 3 - 5 Prime rent for contemporary industrial space 3 -5 Industrial construction Prime industrial and logistics, Sofia region EUR/sq m/ 350 -450

Why invest in Bulgaria? Business costs in Bulgaria: €/k. Wh, 2013 €/GJ, 2013 Gas prices for industrial users in Europe Germany Electricity prices for industrial users in Europe 12, 23 France 11, 03 Slovakia 0, 124 Czech Rep. 0, 101 Spain 10, 65 EU Average 10, 56 Hungary 0, 090 Italy 10, 53 Romania 0, 090 Austria 10, 70 Turkey 0, 089 Germany 0, 086 Estonia 0, 084 Poland 10, 06 Bulgaria 9, 89 Czech Rep. 9, 00 0, 00 2, 00 4, 00 6, 00 8, 00 10, 00 12, 00 14, 00 Source: Eurostat Bulgaria 0, 094 0, 080 0, 000 0, 020 0, 040 0, 060 0, 080 0, 100 0, 120 0, 140

Why invest in Bulgaria? Potential fields of collaboration Services: • Transport and Logistics • Information technologies • Outsourcing of business processes • Health and tourism related to healthy lifestyle Industry: • Transport equipment and machine building • Electronics and Electrical engineering • Chemical industry • Food and Agriculture Resources: • Mineral bottled water • Sea and winter resorts • Balneology

Government incentives

Government incentives Legal framework for investing in Bulgaria: • Equal treatment of Bulgarian and foreign investors • Thresholds of investments that need to be covered in order to apply for investment certificate Class A, B and Priority investment projects • Business plan and several standard documents required

Government incentives Investment incentives under the Investment Promotion Act: • Acquiring state or municipal land without a tender procedure (investments Class A and B) • Financial support for construction of technical infrastructure elements (only for class A) • Acquiring state or municipal land without a tender procedure on a lower cost, but not lower than the price evaluation for tax purposes (Priority investments) • Lower tax rate on changing the status of the acquired land (Priority investments)

Government incentives Investment incentives under the Investment Promotion Act: The incentives for class A and B could be: • Shortened administrative procedures • Reimbursement of labor costs paid by the employer • Financial support of up to 25% of the entire costs for specific training of minimum 50 employees The incentives for Priority investment projects could be: • All the incentives for Class A and B • Financial grants of up to 50% for education and R&D projects; • and up to 10% for manufacturing projects

Government incentives Legal framework for investing in Bulgaria: Tax incentives: • 10 % corporate tax (flat rate) • 0 % corporate tax in areas with high unemployment rate • 10 % personal income tax rate (flat rate) • VAT exempt for import of equipment for investment projects

Thank you for your attention! Sofia 1000, 31 Aksakov Str. Phone: (+359 2) 985 5500 Fax: (+359 2) 980 1320 E-mail: iba@investbg. government. bg Web: www. investbg. government. bg