Crypto Regulations in Bulgaria
Bulgaria stands out as the EU's top destination for crypto businesses due to its unique approach where profit size does not impact the tax rate. This favorable environment has attracted numerous digital companies to register their operations in the country.
How are cryptocurrencies defined in Bulgarian legislation?
Although cryptocurrencies are not officially recognized as legal tender in Bulgaria, they are not prohibited. The year 2022 saw the introduction of a comprehensive law aimed at regulating virtual asset transactions, deemed by regulators as well-rounded and requiring no further modifications in line with the MiCA regulations.
Under this framework, cryptocurrencies are classified as financial instruments, overseen by the Bulgarian Financial Supervision Commission, which has the authority to register cryptocurrency exchanges and businesses dealing in digital assets.
The legislation mandates that any individual or legal entity engaging in cryptocurrency transactions exceeding €5000 in value must report these transactions to the regulatory authority.
Notably, the current legislation does not distinguish between different types of tokens, such as fungible tokens versus NFTs, or security tokens versus utility tokens. All are uniformly recognized as financial assets.
How to obtain a Bulgarian license for a crypto business?
For a company to legally trade or exchange digital assets in Bulgaria, it must fulfill several criteria, including:
- A minimum capital requirement of 200,000 BGN (approximately €100,000);
- A proven track record of at least five years in financial services;
- A Bulgarian SEC-compliant risk management system;
- An adequate internal control system and an accounting mechanism for client assets.
Bulgaria already hosts successful national crypto projects:
- Crypto.bg, a cryptocurrency trading platform;
- Bitcoin.bg, offering services for cryptocurrency storage and exchange;
- Blockchain.bg, specializing in blockchain software development.
Moreover, Bulgarian citizens have access to services from nearly all major crypto exchanges in Europe, America, and Asia.
Crypto Taxes in Bulgaria
In Bulgaria, cryptocurrency transactions are exclusively subject to income tax, without specific definitions for "virtual currency" (or cryptocurrency) in the Income Tax Act, VAT Act, or any other legislative documents.
- Revenue from selling digital assets, including exchanges, gifts, and inheritances, incurs a tax rate of 10%.
- Earnings from mining and staking are taxed at a rate of 15%, applicable upon the sale of the acquired assets.
- Services related to cryptocurrencies, such as brokerage, consulting, or crypto lending, also attract a 15% tax rate.
The taxable base is calculated as the yearly income minus the payable tax. Therefore, a profit of €2000, with a 10% rate, results in an annual tax of €180.
Notably, there are beneficial exceptions targeted at small entrepreneurs:
- Tax on sales profits applies only if annual earnings exceed 1000 BGN (around €500).
- Mining profits are taxed only when surpassing 5000 BGN (approximately €2500).
- Income from cryptocurrency-related services faces taxation only if it exceeds 10,000 BGN (about €5000).
- Earnings from crypto casino wins are exempt from declaration if they do not exceed 100 BGN (about €50), being deemed as minor.
Moreover, the legislation discerns between primary crypto activities and those considered hobbies. If an individual trading on the exchange is also under a full-time contract with a non-digital entity, it's almost unfeasible to argue that their cryptocurrency income qualifies them as professional investors subject to additional corporate tax.
Non-compliance or delayed tax declarations can lead to fines ranging from 10% to 30% of the due amount to the government.
This clear and straightforward taxation framework facilitates the easy registration and smooth running of crypto businesses in Bulgaria.
However, this does not ensure immunity from complications with local law enforcement, as exemplified by the Nexo case.