Permanent residence permit for investment under the repealed Foreigners Law (effective prior to 2021)
Today, we will be analysing a very important problem for many of our customers. Namely, what will happen with the legal status of the foreigners who have obtained a permanent residence permit under the old law. More precisely, we are referring to the provisions of the Bulgarian Foreigners Law that were repealed in 2021. These are the provisions that were allowing foreigners to obtain permanent residence permit by buying Bulgarian government bonds.
The most important questions that many foreigners are interested in are the following:
- Can the foreigners, who were granted a Bulgarian permanent residence permit, before the changes in the Foreigners Law from 2021, liquidate (sell or transfer to a third party) their investments? Most often these are investments in government bonds;
- Even if the investments (bonds) are not liquidated, is it possible to have their permanent residence permit revoked? This concern is due to the fact that the law does not currently provide for the granting of permanent residence permit on basis of investments in government bonds.
Bulgarian government bonds
The repealed provisions of the Foreigners Law provided for investments in bonds as well as in other instruments. These are for example trust management contracts (agreements). Because all of these provisions were repealed, we may use the term “bonds” in this article to refer to all investment options that were repealed in 2021.
Before going any further we recommend you read our article from 10.05.2022, in which we are answering the same question. The difference with our answer from then and the current article is very important. What has changed is that now we have some case law from the Bulgarian courts. It provides much more clarity on the issues raised.
Decision No. 3093 of 9.05.2022 of the Administrative Court – Sofia
We will first examine Decision No. 3093 of 9.05.2022 of the Administrative Court – Sofia. The decision has subsequently been appealed to the Supreme Administrative Court.
The case file
A compulsory administrative measure “withdrawal of the right of residence in Bulgaria” was imposed on a Pakistani citizen. He was granted a permanent residence permit on the basis of Art. 25, par.1, p. 7 of the Foreigners Law (the version of the law until 2021). For this purpose, the Pakistani citizen has invested BGN 1 000 000 in a licensed credit institution in Bulgaria under a trust management agreement with a term of not less than 5 years. For the same period, the deposit was not used to secure other monetary loans from a credit institution in Bulgaria. From the above, the foreigner has fulfilled all his legal obligations, namely:
- He has concluded a trust management agreement for BGN 1 000 000 and a term of 5 years;
- Has not used the funds to secure loans for a period of 5 years;
- Has not liquidated (withdrawn) the amount for a period of 5 years.
After the expiration of the 5-year statutory period, the foreigner has liquidated his investment. It appears that he has acted in full compliance with the legislation. But why then is his permanent residence permit revoked?
It should be noted that the case is extremely complex. The Pakistani citizen at one point has even acquired Bulgarian citizenship, which has subsequently been revoked as well. However, this is irrelevant for the purposes of this article.
What is the Administrative Court saying
All the facts show that from 2018 until the date of issuance of the contested order on 11.02.2021, the appellant has no longer had an amount of at least BGN 1 000 000 deposited in a Bulgarian licensed credit institution under an trust contract with a term of not less than 5 years, in the presence of which ground under Art. 25, par. 1, p. 7 (the version as of 2012) he has been granted the right of permanent residence, as well as another investment covering such a ground, according to the wording of Art. 25, par. 1, p. 6-8 at the time of the order, which introduced different grounds for granting permanent residence, for investors. And having terminated his trust agreement for a specified sum with a Bulgarian licensed credit institution, the ground for permanent residence is no longer available, it has ceased to exist.
Decision No. 3093 of 9.05.2022 of the Administrative Court – Sofia
It should be noted that the contested order for cancellation of the permanent residence permit is dated 11.02.2021. And the relevant provision of the Foreigners Law, which provides for the possibility of obtaining permanent residence against investment in a trust agreement, was repealed on 12.03.2021. In other words, the revocation of the residence permit cannot be due to the revocation of the statutory ground. As of 12.03.2021, the revocation can only be due to the fact that the foreigner has terminated his trust agreement. But he has terminated it after more than 5 years, thereby fulfilling the condition of the law. Then what is the problem?
The problem is the following conclusion that the court makes, namely:
From the analysis of art. 25, p. 6, 7 and 8, along with art. 40, par. 1, p. 1 of the Foreigners Law, it follows that the investments which have become the basis for granting permanent residence must be maintained throughout the period of residence. As soon as these investments cease to exist, so does the ground which they created; only as long as they exist is there a ground for permanent residence for the foreigner who made them. This is also the case for each of the grounds listed in the provision of Art. 40 para. 1(1), which governs the withdrawal of the right when the grounds for granting it cease to exist – once the ground ceases to exist, the right is withdrawn, from which it follows that that ground must exist at all times for the right based on it to exist. This is because it is precisely these grounds which are the foreigner’s link to the State of residence. And when that link is broken, in this case by an investment in the Republic of Bulgaria, the right conferred on that ground ceases. Since the provision of Art. 40, par. 1, p.1 of the Foreigners Law provide for the withdrawal of the right (separate from the situation where the investment is terminated/transferred before the time limits), it means that the ground should be available at any point in time and not that it is stabilised after the expiry of 5 years and the person is free not to maintain the investment and still be entitled to permanent residence. That is not the purpose of the law.
Decision No. 3093 of 9.05.2022 of the Administrative Court – Sofia
Conclusion from the decision of the Administrative Court
In short, the Administrative Court – Sofia considers that the termination of the investment, at any point in time, constitutes grounds for the revocation of the permanent residence permit. This is so even if the law provides that the required duration for the particular investment in the trust agreement is 5 years. It’s worth noting that for investment in government bonds, a minimum holding period is not even required by the law.
Decision No 114 of 5.01.2023 of the Supreme Administrative Court (the decision is final)
The decision of the administrative court was appealed to the Supreme Court. Let’s see what the Supreme Court judges, whose decision is also final, have decided.
Unlike the court of first instance, the Supreme Court is far more concise and explicit. The decision is short, entirely in line with the decision of the administrative court.
The first instance court was correct in finding that the foreigner had terminated the trust deeds with FIB and that the basis for permanent residence was no longer available because it had lapsed.
There is no ground for the appellant’s objection that the amount invested must be maintained only for a certain period, that period having a fixed maturity and that after that maturity the investment is deemed to have been successfully completed.
In this case, there is no maturity of the investment. Within the period referred to in Article 25 par. 1, p. 7 of the Foreigners Law, the investor must prove by means of the explicitly stipulated official evidentiary documents – an identification document from the Bulgarian Agency for Investments – that he holds the investment for the entire period of his residence.
Decision No 114 of 5.01.2023 of the Supreme Administrative Court
Conclusion of the Supreme Administrative Court decision
The Supreme Administrative Court, like the Sofia Administrative Court, considers that the investment must be maintained for the entire period during which the foreigner enjoys the rights of permanent residence. This applies in this case to an investment in a trust agreement. Of course, by analogy, the same would apply to an investment in government bonds.
Our opinion in the light of the court decisions under consideration and subsequent changes in the legislation
The two court decisions do not discuss whether the basis for the permanent residence permit is considered to be extinguished when the legal provision is changed. Such a change occurred in 2021. Then, the rules allowing to obtain a permanent residence permit for investments in government bonds, trust agreements, etc., were repealed. The court decisions discussed above concern a revocation order that was issued before the legal changes, so such scenario is not addressed.
We are convinced however, after analysing the decisions, that both courts would decide that a change in the legal framework would certainly mean that the residence permit should be revoked. Same as the termination of the investment, at any point in time.
In other words, the courts in Bulgaria would now most likely hold that all permanent residence permits obtained under the old provisions of the Foreigners Law in force until 2021 (bonds, trust agreement, etc.) should be revoked.
Residence will also be revoked if the investment is terminated. Although this does not matter as the possibility of such investments is already abolished in 2021.
Do we agree with such a juridical approach? NO!
Why we believe the courts have improperly interpreted the law and the intent of the law maker
First of all, the Supreme Administrative Court states that:
In this case, there is no maturity of the investment. Within the period referred to in Article 25 par. 1, p. 7 of the Foreigners Law, the investor must prove by means of the explicitly stipulated official evidentiary documents – an identification document from the Bulgarian Agency for Investments – that he holds the investment for the entire period of his residence.
Decision No 114 of 5.01.2023 of the Supreme Administrative Court
We do not understand on what basis the Supreme Administrative Court concluded that the investment has no maturity. On the contrary, the legislature has clearly defined the investor’s obligations. Namely, that the investment must be in:
… an agreement for trust management with a term of not less than 5 years, and for the same term the deposit shall not be used to secure other monetary loans from a credit institution in Bulgaria;
Not only is the maturity of the investment defined (5 years), but an additional condition is set. Namely, that during this period, the investment must not be used to secure loans. In other words, the legislator assumes that after this period, the investment may serve as collateral. If this is not the case, why is this condition even provided for in the Foreigners Law? The same applies to the liquidation of the investment. In our view, the intention of the legislator is clear, namely to bind this investment for one specific period of 5 years.
If the arguments of the Supreme Administrative Court and the Administrative Court were correct that the investment must be maintained for the entire period of the foreigner’s residence, why is there a condition in the law that the trust deed must have a minimum term of 5 years? There is no logic whatsoever for the legislature to set a 5-year term if its intent was that the term be “unlimited.”
Investment in bonds
As we wrote above, there is no time limit for holding investments in government securities. Yes, this is true, but there is an additional condition. Namely, that the bonds (government securities) must have a remaining term to maturity of not less than 6 months. This condition of the now repealed statutory provision stipulates that the foreigner will purchase bonds that carry financial risk as they will have at least 6 months to maturity. It is in this way that the purchase of government securities not immediately before their maturity takes on the characteristics of an “investment”.
Subsequent changes in legislation in support of our position
The subsequent changes in the Foreigners Law also prove our point. The current version of the law, for example, stipulates that investments that give the right to obtain a residence permit must be held for exactly 5 years:
The investments referred to in art. 1, p. 6, 8 and 16 must be maintained in excess of the minimum amount required by law for a period of 5 years from the date on which the right of permanent residence is granted…
Art. 25, par. 11 of the Foreigners Law (the new, current version of the law)
If the Supreme Administrative Court and the Administrative Court – Sofia are right that the investment must be maintained throughout the time the foreigner has a permanent residence permit, then the above-mentioned legal provision would be completely unnecessary. And this lacks any legal logic. The will of the legislator is obvious, namely to link the investment to a 5-year period. After that, the foreigner can dispose freely and liquidate, if he wishes, his investment completely.
In the future, we hope that we will have an interpretative decision of the Supreme Administrative Court on the case. Such a decision will solve the problems of many investors in Bulgaria.
What is the solution and what is happening in practice now?
An interesting point from the Supreme Court’s decision that we have not discussed so far is the following:
Х. X. has not made any other investment covering such ground, according to the wording of Art. 25, par. 1, p. 6-8 of the Foreigners Law, which establishes different grounds for granting the right of permanent residence for investors.
Decision No 114 of 5.01.2023 of the Supreme Administrative Court
In other words, the court implies that if there is “other investment” that meets the law’s requirement, the foreigner’s residence permit might not be revoked.
Current practice in Bulgaria shows that old permanent residence permits are not revoked en masse. On the contrary, the cards of foreign investors are usually extended for another 5-year period. This is reassuring, but foreigners live in the uncertainty that at any moment their permanent residence permit may be cancelled.
Our recommendation
We advise all of our clients who have been granted permanent residence under the old Foreigners Law (for government bonds, etc.), repealed in 2021, to take one of the following steps:
- To obtain prior authorisation (required by law) and invest immediately BGN 1 000 000 in collective investment schemes (ETFs). This investment, if made correctly, could preserve their permanent residence permit. You can read more in our article on the subject.
- To apply for Bulgarian citizenship under § 14. (1) of the Transitional and Final Provisions to the Law on the Amendment and Supplementation of the Law on Bulgarian Citizenship. The reluctance of Bulgarian state bureaucrats to apply this legal norm correctly, however, is huge.
For any questions, comments and suggestions, you can always contact us.