Outsourcing: Bulgaria - a leading destination in Europe

The outsourcing sector in Bulgaria is expected to generate 9.2% of the GDP in 2022. Industry reports also forecast a doubling of last year’s turnover to EUR 4.8 billion.

The sector is developing rapidly and in recent years the country has turned into the IT hub of the EU. Well educated software designers, engineers and IT experts are highly valued along with the multilingual talent pool.

Bulgaria is mostly focused on ITO and BPO. International corporations can set up massive infrastructures offshoring IT operations, back office services and business processes.

What makes Bulgaria an attractive outsourcing destination is its location, good infrastructure, competitive and well educated labour force. The country also boasts a stable economy, a favourable tax system and lower costs.

Development of the outsourcing industry in Bulgaria

Bulgaria became part of the EU in 2007. Between 2008 and 2015 the Bulgarian outsourcing industry achieved an impressive growth of 25% year on year. 

In 2014 the country was the only European nation among the top 10 outsourcing destinations in the world. At the time Bulgaria was an attractive destination for foreign investors looking to outsource mostly services. A number of call centres were built employing staff speaking at least two foreign languages.

Today Bulgarian outsourcing business has entered a mature stage. Its growth has slowed down to 10-15% year on year.

Meanwhile, the focus is gradually moving to outsourcing in a wider range of sectors. The early years were focused on work force speaking 2+ languages. Today investors look for a talent pool with engineering and business skills.

Echoing the dynamic development of the outsourcing industry, the country has created special higher education programmes focused on developing IT skills. Recently, Sofia University, the oldest and most prestigious in the country, set up a special Master’s Programme focused on outsourcing.

Bulgaria is clearly committed to developing further as an offshoring destination and to educating a workforce with the necessary skill set.

Bulgaria: top rankings in the Global services location index (GSLI)

Today Bulgaria is well positioned on the outsourcing map. The last GSLI ranking (2019) by leading advisors AT Kearny placed the country at the top in Southeastern Europe. It ranked 4-th among all European countries and 17-th in the world.

This global offshoring index takes into account four major criteria: financial attractiveness, business environment, people skills and digital resonance.

What makes Bulgaria an attractive outsourcing destination?

• Location

Bulgaria’s strategic location close to Central and Western Europe is greatly valued - both geographically and culturally. Foreign investors know they can rely on good business attitude and work ethics. This also means collaboration in real time for the EU.

• Top-notch infrastructure

Modern office buildings and excellent internet connection. Bulgaria comes 7th in the Netindex Internet coverage and speed index, claims BASSI*.

BASSI - the Bulgarian Association of the Software and Services Industries. 

• Real estate

The country also boasts affordable real estate suitable for the needs of the industry. Most of these facilities are focused in Sofia. Yet in recent years international companies have started opening offices in second tier cities all over Bulgaria.

• Highly educated employees

Over 80% of working age Bulgarians have a secondary or higher education. 30 000 new professionals graduate every year, BASSI data shows. Over 50% of the 4 million workforce speak 2+ languages, with 25 languages spoken overall.

• Suitable tax system

Bulgaria has a 10% flat tax rate and the Bulgarian economy is stable, the currency is pegged to the Euro. Moreover, setting up a company takes 3 days.

• Lower costs

The competitive real estate prices and highly skilled professionals, make Bulgaria a lucrative outsourcing opportunity.

• Well developed secondary cities

With limited office space in Sofia and a growing demand, 2-nd tier cities are developing as new outsourcing centres. In recent years, international companies have opened offshore offices in Plovdiv, Varna, Burgas and Veliko Tarnovo.

• Good coordination between the government, the business and associations

Over 20 years of experience have led to coordinated efforts in support for the outsourcing industry. A number of agencies and associations have been created in the recent years. From the Sofia Investment Agency, through BASSI to AIBEST (former Bulgarian Outsourcing Association).

Support for companies outsourcing in Bulgaria

The Association for Innovation, Business Excellence, Services and Technology (AIBEST) works closely with the outsourcing industry. Its aim is to develop Bulgaria as a globally recognized provider of knowledge based products, services and solutions.

AIBEST provides industry analysis, webinars, they also have their Annual summit and Annual Awards. 

This is an association of companies offering services to:

• BPO - Business Process Outsourcing

This is the practice of subcontracting business related operations to external service vendors.

• ITO - Information Technology Outsourcing

Outsourcing here ranges from infrastructure to software development, maintenance and support. Companies usually outsource only part of their IT services.

• KPO - Knowledge Process Outsourcing

The outsourcing of such information related business activities requires a talent pool with special expertise, analytical and technical skills.

• LPO - Legal Process Outsourcing

Outsourcing legal support is an opportunity for corporations to lower costs and free up resources.

• HRO - Human Resources Outsourcing

Activities like recruiting, training of personnel, tracking goals, payroll, etc. are transferred to an external HR service provider.

Top Outsourcing sectors in Bulgaria

ITO and BPO are the leading outsourcing sectors in Bulgaria. Full-time employees in ITO and BPO combined are expected to reach 80,000 by 2022.

Top outsourcing countries

Bulgaria is the outsourcing destination of choice for France, Germany, Poland, Russia, Spain, the UK and the USA.

Recently the World Bank chose Sofia as its second global outsourcing centre.

Outsourcing Tax Implications

• Corporation tax:  Corporations who have made profit in Bulgaria are subject to corporate tax. It is a 10% flat rate of the amount of their profit. Exception: binding international agreements may provide different rules.

• VAT or sales tax: The customer pays a VAT rate of 20%. It is calculated over the price charged by the supplier for the provided service.

• Service taxes: Services are also subject to 20% VAT.

• Transfer of shares: No tax is due in the event of transferring shares.

• Transfer of real property assets: The tax varies depending on the municipality where the property is located. It ranges from 0.1% to 3% of the purchase price or the tax evaluation of the property (whichever is higher).

Outsourcing: Pros and Cons

Planning to outsource part of your business? Here are the basic advantages and drawbacks to consider first:

Pros

• Reducing costs (either by choosing a destination with lower labour and real estate costs or through economy of scale)

• Access to resources or highly skilled and experienced employees

• Removing non-core business to focus on what’s most important

Cons

• Loss of control over part of your operations

• Communication issues (due to cultural differences, time-zone issues or the unfamiliar business climate)

How to plan your outsourcing

• Set clear goals

First, you need to know what you want to achieve by transferring part of your operations to an external provider.

• Contact the right outsourcing supplier

The external provider needs to have the right business model and work practices for your company.

• Perform due diligence

Check if your contracts allow outsourcing and the use of data by external providers.

• Plan transfer procedures

Communicating with the external provider is vital for the orderly transfer of the product/services.

• Negotiate legal details

All terms relating to the transfer of tasks/services need to be clearly detailed in an outsourcing agreement.

Bulgarian law does not provide for general outsourcing regulation. Hence, outsourcing agreements are based on the commercial legislation and the Contracts and Obligations Act. Outsourcing also involves due diligence of the proposed supplier and compliance with certain additional regulations depending on the sector.

The outsourcing process involves issues related to:

• the transfer or lease of assets

• employee arrangements

• data protection

• customer protection

• tax issues

• warranties

• termination.

If you are planning to outsource part of your operations to Bulgaria, we are here to support you. Our team of legal experts has comprehensive knowledge and experience in a wide range of areas. For further questions, contact us.