Crypto License in Bulgaria

Cryptocurrency regulation in Bulgaria

Bulgaria has no official legal definitions of cryptocurrencies. The country is guided by the European Union policy in its legal approach.

However, unlike other jurisdictions, regulators do not require a crypto license because virtual currencies do not fall under the definition of financial instruments. Moreover, there is currently no law regulating crypto assets.

In 2018, the National Bank of Bulgaria warned of the risk of buying virtual currencies, noting that it was caused by increased volatility and also had signs of a price bubble. According to their statement, cryptocurrency is an unregulated product, not suitable as an investment, savings, or pension plan.

Despite this statement, the government has not appointed financial regulators and has refused to consider crypto-assets as electronic money or financial instruments. On this basis, Bulgaria's cryptocurrency regulation does not apply to cryptocurrency transactions.

However, contrary to the comments of the Bulgarian Central Bank that crypto-assets do not have the status of financial instruments, from the tax side - income from transactions related to cryptocurrency will be treated as income from sales of financial assets. This statement is in the conclusion of the National Revenue Agency. It states that income from the sale/exchange of cryptocurrencies must be declared in the tax return for the current year and paid the appropriate tax.

As of 2018, the policy of regulating cryptocurrencies has not changed significantly but has been indirectly regulated by a regulation of the "Anti-Money Laundering (AML) Act."

Virtual currencies are not issued or guaranteed by the central bank and have no legal financial status, but can be accepted by individuals or legal entities as means of exchange and sale and stored electronically.

Should we expect more regulation in the future?

The regulation of virtual currencies around the world is expanding every year. Many countries adopt special legislation and define a regulator and legal acts regarding cryptocurrency activities. Bulgaria is one of the few countries that has not yet introduced monitoring and cryptocurrency regulation laws in Bulgaria.

However, the FSC published a strategy for cyber business development, which notes 4 key provisions:

• to increase the security of currency trading, it is necessary to introduce cyber business management
• licensing of exchanges and companies dealing with virtual currencies
• creating a special center for innovative testing
• establishment of an oversight mechanism and a regulatory framework

For now, this is at the level of development, but shortly, the government may activate the regulation of virtual currencies and pass a law on obtaining a cryptocurrency license in Bulgaria.

AML/KYC requirements in Bulgaria

In 2020, the Council of Ministers of Bulgaria adopted a regulation containing a provision for the formation of a special register of companies that provide cryptocurrency services. Its main purpose is to separately designate the need to comply with AML regulations.

Later, the Ministry of Finance issued an Order establishing the procedure and conditions for the companies to be included in the public register, which is under the regulation of the National Revenue Agency (NRA). The creation of the registry limits the possibility of sponsorship of terrorism or money laundering.

Sections 10 and 4 of the Anti-Money Laundering Act apply to the activities of a cryptocurrency company.

Under Section 4 of the AML Act, companies must apply customer due diligence measures when:

1. establishing a business relationship, including the opening of an account, if the business relationship is established by opening an account;
2. the execution of a single transaction or the conclusion of a single transaction for an amount equivalent to or over the equivalent of 15,000 euros;
3. A single transaction or conclusion of a single transaction for an amount equivalent to or exceeding the left-hand equivalent of 5,000 euros or an equivalent amount in another currency, if paid in cash;
4. in case of any suspicious activities or transactions.

When violations or suspicious transactions are detected, the company is required to:

1. apply clear internal policies and procedures, including defining activities, internal rules for accountability, control and allocation of functions within the organization, checking key employees for negative public information, full control of bank accounts and financial instruments used, and control of affiliates or associated nonprofit legal entities;
2. apply customer control procedures, documenting in writing to government authorities when a violation is detected;
3. Identify donors and beneficiaries by collecting as much information as possible to make a positive, unambiguous identification;
4. check donors and beneficiaries and partner non profit organizations for negative public information.

Section 10 of the Anti-Money Laundering Act sets forth provisions for customer due diligence and possible penalties.

Taxation of cryptocurrency companies in Bulgaria

According to the NRA Law of 2018, cryptocurrency activities can be classified as a service that falls under the payment of VAT, in case the transaction is directly related to payment and is provided by a person subject to cryptocurrency tax in Bulgaria.

In taxation, all types of tokens are defined as financial assets because the NRA (National Revenue Agency) does not distinguish between types of tokens. From a tax collection perspective, crypto-assets would be treated the same as a gain on the sale of a financial asset. Government agencies in a tax situation do not maintain a distinction between cryptocurrency and financial transactions, which means both categories are subject to tax and should be included in the annual return.

Taxation of individuals. The Income Tax Law states that gains from the exchange/sale of assets are taxable. However, only profits are taxed, and losses and replacement assets are not taxed. The tax rate is 10% of the income received within one calendar year.

Taxation of legal entities. Each legal entity is liable to pay corporate tax at the rate of 10% of the realized income. When income is distributed to owners or partners, they must pay tax on dividends. The rate is 5% of profits after annual tax.

If the company has employees, wages under the employment contract must be paid only in fiat money.

If employees are paid by a foreign company, the company must register as an insured person in Bulgaria and pay all taxes and social security contributions.