567M BGN is the Philanthropic Potential of the Bulgarian Society

Many initiatives and actions can positively influence the level of social engagement among private and business donors according to a study conducted by Social Impact Alliance for Central & Eastern Europe together with The American Chamber of Commerce in Bulgaria and Djingov, Gouginski, Kyutchukov & Velichkov (DGKV) with support from Google.org.
  • 49% of Bulgarians are already willing to pay more for products and services offered by socially responsible brands;
  • 50% of Bulgarians regularly make financial donations to social causes, with the current annual contribution amounting to around 235 mln BGN (about 140 BGN per donor);
  • However, with proper motivation and the removal of barriers, Bulgarian citizens could donate up to 567 mln BGN for social causes per year – more than double than at present.

The challenges that have impacted the CEE region over the past two years – the global COVID-19 pandemic, the climate crisis, and now the war in Ukraine – have emphasized more than ever the crucial role of philanthropy in building a strong civil society. Nearly 6 out of 10 CEE citizens believe the current challenges require more community engagement. Bulgaria has enormous philanthropic potential, one of the largest in the CEE. Research conducted by Social Impact Alliance for Central & Eastern Europe and partners show that Bulgarian citizens could donate almost twice as much as they currently do. However, various soft, tax and legal barriers continue to hinder the development of social engagement.

Data compiled by the Social Impact Alliance for Central & Eastern Europe shows that as many as 49% of Bulgarians are already willing to pay more for products and services offered by socially responsible brands. Likewise, companies are increasingly adopting responsible and sustainable practices, motivated by the growing awareness among employees, investors, and consumers. Furthermore, 50% of Bulgarians make financial donations to social causes, with the current annual contribution amounting to 235 mln BGN (140 BGN per donor), while 42% donate products such as medicines and food. Additionally, 32% of Bulgarians have been involved in volunteering in the last 12 months.

However, the philanthropic potential of the Bulgarian society is much higher – with proper motivation and removal of barriers, citizens could donate up to 567 mln BGN for social causes per year, more than twice as much as they donate now.

How to strengthen the social impact ecosystem and facilitate more informed, intentional, and impactful giving in Bulgaria? These conclusions are in the latest study “Philanthropy and Corporate Social Responsibility in CEE | BULGARIA” conducted in April and May 2023 by Social Impact Alliance for Central & Eastern Europe together with The American Chamber of Commerce in Bulgaria (AmCham Bulgaria) and Djingov, Gouginski, Kyutchukov & Velichkov (DGKV) with support from Google.org. The report identifies the most important barriers and potential incentives for corporate and individual donors and recommends changes.

Businesses and individuals are increasingly willing to involve their resources – money, time, and skills – to address the most pressing social and environmental challenges. Making it easier for them is in the interest of all of us. We hope that the recommendations prepared in cooperation with organizations shaping the social impact ecosystem in Bulgaria will help to set priorities and take appropriate action.

Anna Korzeniewska, founder of the Social Impact Alliance for Central & Eastern Europe.

Unstable political situation hinders dialogue with the public sector

In Bulgaria, a major roadblock in developing long-term strategies and actions is the lack of stability of the central government. With repeated changes of government in the last 2 years, including ministers responsible for social issues, effective dialogue and implementing changes have proven to be difficult. Hence, fostering a horizontal approach to social issues and a collaborative strategy is a need. It would be beneficial to have a dedicated body or person responsible for it across ministries. The government has taken a step in this direction by establishing a separate department in the Ministry of Labor and Social Policy to facilitate the exchange of knowledge among different stakeholders who already have some but would benefit from a more proactive approach.

Insufficient long-term funding for social goals

As in other countries in the region, project-based and short-term financing is prevalent in Bulgaria. A ‘here and now’ approach also prevails rather than an in-depth analysis of the problem. EU funds, while a potential source of long-term funding, come with challenges such as demanding bureaucracy and reporting. International private foundations were once an important source of long-term funding, but many withdrew after Bulgaria joined the EU, assuming that EU funds would fill the gap. However, it turned out that many organizations started providing social services for the state, thereby becoming dependent on public funding again. The return of international donors would provide stability, while support for EU funds applications and reporting remains a necessity.

“As an organization with a mission to improve the business environment, investment climate and living standards in the country, we see advocating for productive dialogue and partnership as key for the creation of stable long-term support and a shift from short-term project-based financing. With the combined efforts of all stakeholders, we can create a more effective and sustainable system for the benefit of all Bulgarians.”

Ivan Mihaylov, CEO, AmCham Bulgaria.

Lack of consistent definitions and standardized terminology

In the field of social enterprise and impact investing, there is often confusion and lack of clarity. For some, impact investing is a new form of philanthropy rather than a viable alternative to traditional investing. Non-financial reporting is also a new area for many businesses (especially local ones), with clear guidelines currently lacking. Standards should be international and aligned with global supply chain. And while standardization is important, so is expert assistance and guidance to explain how to do it well. Businesses are now creating dedicated teams to deal with it. To address these issues, it would be beneficial to develop unambiguous terminology, impact measurement tools, standardized non-financial reporting, skills, and exchange knowledge in this area.

Lack of promotion and support in the area of impact investing

Investors see that social matters are becoming increasingly important, but they need guidance on what this means for them. It is not clear how to measure impact and what impact investing entails. The topic is new and unclear. Therefore, it would be worthwhile for investors to have a set of simple, clear guidelines and good practices. It is also worth considering support from the public administration to reduce investment risk (e.g. tax incentives).

“We believe that addressing the barriers outlined in collaboration with organizations shaping the Bulgarian social impact ecosystem will help establish priorities and direct further action, positively influencing the level of social engagement among private donors in the coming years.”, saidAnna Korzeniewska.

Lack of an incentivizing tax relief system

Currently, individuals can deduct 5%, 15% or 50% from their tax base for donations and corporate donors can decrease their financial result for donation expenses of 10%, 15% or 50% of their accounting profit but deductions are not that significant given the low amount of tax (10% on revenue and personal income). Additionally, donations to private-benefit non-profit organizations are not recognized for tax purposes and documentation requirements for tax relief are burdensome and may deter potential donors.

“To address this, modifying the mechanism or introducing other types of incentives, such as preferential treatment in tenders, among others, could be considered. Simplifying documentation requirements and expanding the list of recognized beneficiaries would reduce administrative burden and encourage support for a broader range of causes and organizations.”, said Viara Todorova, the tax partner at Djingov, Gouginski, Kyutchukov & Velichkov.

Strict regulations for commercial activity by non-profits

Currently, the Law on Non-Profit Legal Entities allows non-profits to pursue revenue-generating activity, but the revenue is subject to corporate income tax (10%) and has to meet certain conditions and limitations. For example, the economic activity must be supplementary to the main non-profit activity, and the revenue cannot be distributed as dividends, which limits access to external sources of funding. As a result, commercial activities are usually limited to the sale of small items or advertising activities. This could be addressed through clear guidelines and examples which would help non-profits understand the types of economic activities that can be considered complementary to their mission. This will help organizations navigate the requirements and ensure compliance with the law while expanding their revenue-generating potential.

Lack of clarity on VAT on pro bono services

While VAT does not have to be paid on pro bono services related to the company’s activity, the lack of clear guidelines and ambiguity requires individual interpretations. Tax authorities may calculate the cost of the work provided and expect VAT to be paid if they consider that there is no connection. To avoid misinterpretation, it is important to develop clear guidelines that define the circumstances under which pro bono services are exempt from VAT. These guidelines should outline specific criteria that establish a clear connection between the services provided and the company’s activity or objectives.

“To develop sustainable philanthropy, we need reliable data and knowledge sharing. Central and Eastern Europe has a real opportunity to continue building a culture of philanthropy and sustainable social support. It is therefore important to engage all actors in society in a strategic and long-term way.”, added Liza Belozerova, Senior Manager of Europe, Middle East and Africa at Google.org, which supported the research.

The survey “Philanthropy and Corporate Social Responsibility in CEE | BULGARIA” was conducted in April and May 2023 by Social Impact Alliance for Central & Eastern Europe, an independent, apolitical think tank – with financial support from Google.org. Invaluable pro bono support was provided by The American Chamber of Commerce in Bulgaria, Djingov, Gouginski, Kyutchukov & Velichkov (DGKV). In the initial phase, we mapped the Bulgarian ecosystem in order to identify the key players representing various environments and viewpoints. Experts from 20 carefully chosen organizations – mostly umbrella organizations for businesses, investors, nonprofits, academia, as well as public administration and organizations supporting social engagement in Bulgaria – were invited to participate in individual in-depth interviews, carried out online according to a structured scenario.

The report was presented online on June 20th, 2023 before AmCham members, institutions, and partners of the project.

Contact media: Neda Nenkova, [email protected].

Contact AmCham: Daniel Kiryakov, [email protected]