70% of home repair contractors work “off the books”. What is the solution?

Bulgaria now has its third draft state budget, in which the fight against the shadow economy is identified as a key measure for generating more revenue for the treasury. According to the budget proposal by Finance Minister Galab Donev,

reducing informal economic activity is among the key prerequisites for improving fiscal sustainability and increasing the effectiveness of public policies.”

It is an open secret that one such sector is that of home repair contractors. And despite tax breaks for home repairs – under which citizens can receive up to 102.26 euros in tax rebates upon presentation of all required documents – it appears that efforts to bring this sector into the open are not going well.

About 60 – 70% of people in the sector work off the books,” Tsvetan Vladov, managing director at Fix – an innovative Bulgarian platform for finding quality contractors – told Economic.bg.

According to him, the app guarantees that 100% of the tradespeople hired through it will work “legally.” This assurance stems from the technical requirements built into the app’s operation – mandatory identity verification before any transactions are made.

Vladov explained that this way, “the contractor himself can rest assured that there will be no inspections or fines,” and that 5 to 10 new people register every day.

The Anatomy of the Scam

When asked how the home repair scam works, Vladov explained that it usually involves some kind of omission—such as the absence of a written quote, a warranty, a contract, or a payment system that would guarantee that the payment and the quote are legitimate.

Often, there’s no traceability or guarantee that the money for the repair has actually reached its destination; no one can prove whether it was delivered or taken,” he added.

The app, however, according to him, addresses this shortcoming – it allows individuals, the self-employed, companies, and organizations to register, and every transaction is submitted monthly as a report to the National Revenue Agency (NRA).

Editor’s note: The data is only for the first half of 2025, as the NRA did not provide up-to-date information on inspections of contractors.

According to the NRA, the exact number of contractors inspected cannot be determined because the “home contractor” category encompasses a wide variety of services. Last year, however, the NRA provided data on inspections conducted by year. An important detail is that a single inspection may involve several tradespeople, or one person may have been inspected multiple times; therefore, the table does not reflect the number of home repair professionals inspected, but rather the number of inspections conducted.

What’s Lacking in Bulgaria’s Regulation

The Fix app is already recruiting contractors in Italy, France, Greece, and Spain. Vladov cited Spain as a good example of effective regulation and efficiency, while Germany appears to face quality issues similar to those in Bulgaria.

When asked what Spain is doing right that Germany and Bulgaria are missing, the managing director stated that each country has its own specificities in terms of local legal requirements.

In Germany, for example, unlike some other European jurisdictions, the local financial regulator does not allow marketplaces to process payments without a license or without a partnership with a licensed payment service provider – which is precisely why the model using Stripe as a licensed third party is applicable and complies with the requirements there,” he says.

As a platform operating in the EU, Fix also fulfills its tax transparency obligations under the European DAC7 Directive, which requires digital platforms to report annually to tax authorities the income data of creators generated through their platforms. In addition, the platform complies with the EU’s General Data Protection Regulation (GDPR) and anti-money laundering requirements.

Some may opt out

The profile of the most active freelancers typically includes young people between the ages of 25 and 35, and stricter regulation creates the risk that some may opt out of the platform.

At this stage, some may leave, but this will be a temporary phenomenon, as requests within the app itself – as a percentage – are growing every day, and more and more of today’s renovation projects in Bulgaria are beginning to go through the app. At some point, those who have left will return, and the reason will be that they want to work and earn money. “And it’s better to earn something and pay your taxes,” Vladov commented.

According to him, the app offers many opportunities, so young people don’t have to go looking for them on their own. For example, if there’s a request for a major renovation with 10 different tasks—including tiling a bathroom, laying flooring, and installing laminate—the contractor won’t take on all of them. Instead, the app divides the job among individual contractors into smaller tasks, so “there’s time and profit for everyone.”

The Capabilities of Artificial Intelligence

The platform relies on artificial intelligence, but not entirely—human intervention remains an essential part of the process. Vladov gives the example of portfolio verification: if a contractor presents themselves as a roofing specialist but has uploaded a photo of a house where the roof isn’t visible, AI can’t always detect the discrepancy.

At least at this stage, we don’t want to leave all these subjective matters solely to AI. In the future, we’ll work on improving the AI, but we won’t rule out the human factor,” he said.

As for the idea of using artificial intelligence to assess the quality of work performed—for example, through computer vision that detects defects before the customer pays – Vladov acknowledges that the platform isn’t quite there yet.

I’ve thought about this many times, and in the near future we may reach that level. But for now, we rely on our own assessment, the customer’s, and the specialist’s. The idea is very good and could be implemented at some point,” he explained, adding that such a feature could be a future upgrade to the app; however, he noted that, to his knowledge, such a solution is hardly being used anywhere in the world at this stage.

As for the idea of AI acting as a mediator and drafting digital contracts between the two parties, Vladov believes the platform doesn’t need that. “Everything goes through a payment system that has everything necessary. And that’s an automated process,” he explains.

According to him, the app is designed so that everyone can make a personal, informed choice – the customer calculates the time and price, selects a professional from among those the AI auction presents based on merit, verified certifications, and the number of satisfied customers, and pays upon receipt of a high-quality service.

The monetization model?

Vladov also explained how the monetization model works if a service provider decides to register on the app.

We use a payment mechanism in which the customer’s payment does not go directly to the service provider at the time of the order, but is temporarily held by an independent third party – in this case, a licensed payment partner – until pre-agreed conditions are met. Only then are the funds released to the service provider,” he explained.

According to him, “this model protects both parties in the transaction: the client does not risk paying for work that has not been completed (or has not been completed properly), and the contractor has a guarantee that the funds have already been set aside and secured before starting work.”

He explained that payments on the platform are processed entirely through Stripe, which is a licensed non-bank financial institution operating as an electronic payment institution under the supervision of the Central Bank of Ireland.

Fix does not store or directly handle customers’ funds – they are held by Stripe until they are released, and Fix merely manages the logic of when and how this release occurs,” Vladov noted.

Payments to contractors are made exclusively via bank transfer, directly to the bank account they have declared, and only after the identity verification process has been successfully completed – which includes a valid ID, confirmation of address and ownership of the bank account, and, for businesses, registration details and information on the beneficial owner. Until this verification is complete, the profile cannot receive payments, which in practice serves as an additional safeguard against fraud and benefits customers.

Translated with DeepL.