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What Should IT Companies Know About Doing Business in Bulgaria in 2023?

Doing Business in Bulgaria
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Access to capital. Access to talent. Good conditions for doing business. These factors are essential for the digital transformation of any economy to the new realities. Even though government policies and regulations on doing business may not spark as much interest as the closing of new funds, they matter just as much for the growth of high-value-added businesses.

In 2022, Bulgaria officially adopted the new Startup Visa legislation, which opened the doors of the local market to foreign entrepreneurs who want to develop high-tech or innovative projects in the country. Recently, Bulgaria also started issuing “Blue Cards”, which make it easier for qualified foreigners from outside the European Union to work for Bulgaria. 

“Our efforts to support the development of the startup environment in Bulgaria will continue in 2023. We are currently working on introducing bills for improving the access to capital and talent, as well as for improving the national framework for doing business. One of these bills aims to provide Bulgarian entrepreneurs with greater flexibility in the creation and management of startup businesses,” says Dobromir Ivanov, Executive Director of the Bulgarian Startup Association (BESCO).

The unstable political context in which Bulgaria finds itself at the moment (the country is heading towards its second election in 6 months in April – ed.note) and the inability of the political parties to form a working government create a lot of uncertainty for businesses. The prioritization of the legislative changes that the ecosystem needs depends on the ability of the Parliament to form a stable majority. 

Part of the reason why unicorn founders decide to move their company’s HQs to Western countries is connected with the lack of attractive business legislation. 

“It’s our responsibility to create the right legal conditions for scaling founders to continue writing their success stories locally. This means building a business framework that reverses the brain drain and assures international investors that there are no legal risks or uncertainties in supporting regionally-headquartered startups,” Momchil Vassilev, Managing Partner of Endeavor Bulgaria, states in a previous interview. 

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What are the other national and European legislative changes that will affect the framework for doing business in Bulgaria in 2023? Find out in the story. 

What policies does the Bulgarian IT sector want?

Ilia Krastev, Chairman of the Association for Innovation, Business Excellence, Services and Technology (AIBEST) expects that the technology sector will continue to be the engine of the Bulgarian economy, which pushes the country to be the most developed center for high-tech services in South-Eastern Europe and an established European digital center.

“The Bulgarian knowledge industry has the potential for further growth, but this requires a government strategy for the development of high-tech business, especially one for the benefits of research and development, the sustainability and predictability of legislative initiatives and tax policies,” says Ilia Krastev.

He adds that AIBEST has an important role in retaining and attracting young professionals and specialists in Bulgaria. “That’s why we need consistent, well-targeted communication in order to position Bulgaria as an attractive destination for living and doing business here. However, this requires amendments to the Labor Code to regulate work from home, the hybrid work model, and the quick issue of Blue cards. Over the past year, the process for issuing Blue cards accelerated but their number is still significantly small – around 700. In order to be effective, we need to have 5,000-7 000 Blue cards issued per year. All other countries in the region have established policies to attract highly-qualified and experienced specialists who contribute to the local economies. Last but not least, the increase of the Added Value Taxation registration threshold from BGN 50K to BGN 100K would allow small and micro enterprises, including startups, to become more competitive and reduce their administrative costs,” Ilia Krastev concludes. 

Dobromir Ivanov adds that in 2023 BESCO will also aim to introduce a mechanism that promotes angel investments, as well as a mechanism that allows pension funds to invest in venture capital funds.

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The EU policies in the making

“There are a number of European legislative initiatives that are likely to have a significant impact on the framework for tech businesses. The same was the case with the General Data Protection Regulation (GDPR), and the Digital Single Market Strategy, which aimed to create a more integrated and competitive digital economy within the EU. The initiatives that may have a significant impact on the framework for tech businesses include the ePrivacy Regulation, which aims to protect the privacy of individuals’ online communications, and the Copyright Directive, which sets rules for the use of copyrighted material online,” Ivan Vasiliev, Director of “Policies and Strategic Planning” at BESCO, explains. 

He also shares that the already approved Digital Services Act (DSA) and Digital Market Act (DMA) are expected to establish new rules and guidelines for the digital economy, including requirements for transparent algorithms and the use of personal data, and mechanisms for the enforcement of these rules. The DSA regulation would be directly applicable across the EU from 17 February 2024. 

“There are currently discussions in the EU about the upcoming AI Act, Data Act, the Chip Act, and also for the MiCA regulation. Overall, these legislative initiatives are likely to have a significant impact on the framework for tech businesses in the European Union, and companies operating in this sector will need to ensure that they are compliant with these rules and regulations in order to operate successfully within the EU. In my opinion, those regulations will not make the life of the founders and tech entrepreneurs across the EU easier,” Vassilev adds.

The implications for Bulgarian entrepreneurs

According to Ivan Vasilev, the implications of these legislative changes for startup founders will depend on a variety of factors, including the specific details of the laws and regulations that are being implemented, the nature of the startups’ business models and operations, and their ability to adapt to these changes. This means that the upcoming legislative changes are likely to affect, both positively and negatively, local entrepreneurs.

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“On the positive side, these legislative initiatives may create a more predictable legal and regulatory environment for tech startups, which could make it easier for them to operate and grow. For example, the Digital Single Market Strategy is intended to promote fair and open competition within the EU, which could benefit startups by providing them with more opportunities to access markets and customers. On the negative side, these legislative changes may also impose new costs and compliance requirements on startups, which could make it more challenging for them to operate and compete. For example, the GDPR and the ePrivacy Regulation impose new rules for the collection, use, and protection of personal data, which may require startups to invest in new technologies and processes to comply with these regulations,” he concludes.

This article is part of a joint project between The Recursive and DEV.BG

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Elena is an Innovation Reporter at The Recursive, an online media dedicated to the emerging tech and startup ecosystems in Southeast Europe. She is keen on sharing the innovation stories that shape the regional ecosystem and has a great interest in fintech, IoT, and biotech startups. Elena is currently finishing her Bachelor's Degree in Business Administration and Political Science at the American University in Bulgaria.