Motives to the Draft Law for Amendment and Supplement of the Investment Promotion Act (Startup Visa)

MOTIVES

to the Draft Law for Amendment and Supplement of the Investment Promotion Act

The policy of the Republic of Bulgaria for promoting foreign investments in the country is aimed at achieving the following objectives, explicitly regulated in Article 1 of the Investment Promotion Act:

1. Increasing the competitiveness of the Bulgarian economy through growth in investments in research, innovation, and technological development in high value-added production and services, while observing the principles of sustainable development;
2. Improving the investment climate and overcoming regional disparities in socio-economic development;
3. Creating new and highly productive jobs.

Under the current Investment Promotion Act, the achievement of these objectives is envisaged through the promotion of investments in tangible and intangible fixed assets and the related new jobs created on the territory of the Republic of Bulgaria. The law specifies the types of investment classes (Class A and Class B), the minimum thresholds for applying for an investment class certificate, the economic sectors that are supported, and the required documentation. Incentive measures supporting certified projects are also outlined, along with minimum investment thresholds.

These characteristics of the current regulatory framework show that it is primarily aimed at attracting investors with significant financial capacity, whether natural or legal persons.

At the same time, in a number of European countries, the achievement of the above-mentioned objectives is also pursued through the encouragement of so-called indirect investment by third-country nationals. This is implemented by creating opportunities and conditions for the establishment and development of high-tech and/or innovative companies (startup companies) by third-country nationals within the respective country, as well as by facilitating procedures for starting business activities and obtaining residence.

The investment is considered indirect because it is realized through the spending of funds by third-country nationals in connection with their high-tech and/or innovative activity within the country — including payment of taxes and social contributions, purchase of goods and services from local markets, payment of salaries to employees, and others.

Startup companies are non-public companies established by entrepreneurs and financially supported by third-party investors, whose primary goal is to create or develop an innovative product and/or service with the potential for rapid growth. Startups are an essential part of modern economic relations, shaped by rapid technological development, and they contribute to a new type of economy characterized by the following levels and interconnections:

1. Education prepares the necessary workforce;
2. Science is where the initial stage of innovation is achieved;
3. Technology transfer connects business and science, commercializing innovations and guiding scientific research toward market-relevant developments;
4. Startup companies are fast and flexible enough to quickly validate whether a given scientific development has real market potential. Large corporations cannot develop and test products at such speed. In developed economies, there are tens or hundreds of thousands of startups continuously validating innovations. Large corporations monitor their activity, invest in them, and acquire successful developments;
5. Scale-up companies are successful startups that grow rapidly. These companies have specific needs related to entering new markets, managing growth, and attracting further investment. They frequently raise capital by selling equity. Startups and scale-ups carry out significant research and development activities and incur high R&D costs over extended periods. They attract equity investors at different stages to support innovation development and commercialization;
6. Corporations monitor startups and either invest in them or acquire successful ones. Corporations may themselves be former startups or traditional large companies seeking innovation. They have the capacity to transform innovations into mass-market products or services.

The proposed draft law aims to address the identified gap and to transform Bulgaria into a competitive destination for the establishment and development of high-tech and/or innovative startup companies by third-country nationals. This is achieved by introducing a new item 10 in Article 2 of the Investment Promotion Act, expanding the scope of activities for promoting investments.

The proposed amendments to Article 11b regulate the powers of the Bulgarian Investment Agency in implementing policies for encouraging indirect investment through the evaluation and approval of project applications and the subsequent monitoring of approved projects.

The draft introduces a new Chapter Six “a”, which details the procedures for application, evaluation, approval or rejection of projects for launching high-tech and/or innovative activities by third-country nationals, as well as their continuation or modification. Only projects for high-tech and/or innovative activities will be eligible for approval and access to the new incentives, certified through the issuance of a certificate.

Under the draft law, an activity is considered innovative if:

• the product and/or service is new or significantly improved for the Bulgarian market; and/or
• a new technology for production, distribution, or marketing of existing goods/services is introduced; and/or
• a new or improved organizational process is created.

The assessment of whether an activity qualifies as innovative or high-tech requires specialized knowledge. Therefore, the draft provides for the establishment of an Expert Council under Article 27b as an advisory body to the Bulgarian Investment Agency. The Council will include representatives of the Agency and of non-governmental organizations such as incubators, accelerators, venture capital funds, and financial institutions, meeting criteria defined in the Council’s rules of operation. These stakeholders possess the necessary expertise to evaluate early-stage innovative projects.

Incubators provide logistical, managerial, and technological support to entrepreneurs developing innovative ideas. Accelerators support startups by providing funding, mentorship, and market access in exchange for minority equity or future rights. Venture capital funds are professional investors managing pooled funds from entities such as pension funds, insurance companies, foundations, and banks. Credit and financial institutions are defined under the Credit Institutions Act.

The involvement of such organizations in project evaluation is consistent with practices in other EU Member States, such as the French French Tech Ticket program.

For indirect investment to take place, third-country nationals must be able to reside in Bulgaria. The Foreigners in the Republic of Bulgaria Act currently regulates the conditions under which non-EU citizens may reside and conduct economic activity. However, existing provisions do not allow third-country nationals to establish and develop a startup without meeting requirements such as employing a minimum number of staff or making a minimum investment.

The proposed measure targets startups, which typically consist of small teams (up to 5 people, including founders). Therefore, the current legal provisions are not applicable, and the issue cannot be resolved through administrative or technological changes alone. A new legal ground for residence must be created for individuals whose innovative projects have been approved. This is addressed through the proposed amendments to the Foreigners Act.

The proposed changes will create a legal framework allowing third-country nationals to establish high-tech and/or innovative companies in Bulgaria. This will contribute to the country’s economic and demographic development and position Bulgaria as a technological and innovation hub in Europe.