The legal framework of cryptocurrencies in Bulgaria/Summary/

Virtual currencies, the most popular among which is the much debated Bitcoin, continue to gain momentum due to the variety of advantages they offer. The anonymity, the speed of transactions, the overcoming of the need for middle men, the lack of bank fees, etc. – all of this became the reason for the growing popularity of this digital wonder of the 21 century among investors and enthusiasts. Regardless, cryptocurrencies have their dark side as well. The wave of skepticism continues to rise due to the risks of all sorts of misuse – money laundering, tax evasion, financing of terrorism, guns and drugs trading, etc. Those are just some of the reasons why competent authorities in different jurisdictions set a goal to regulate the transactions with cryptocurrencies. Some countries chose a different approach – some more liberal, others – more conservative. But what is the current situation in Bulgaria?

To this moment, the legal status of virtual currencies in Bulgaria remains uncertain. Some people still wonder – what are cryptocurrencies anyway? A good answer to this question is given by the European Banking Authority, according to whom virtual currencies are a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat furrency, but is accepted by natural or legal persons as a means of payment and can be transferred, stored or traded electronically. There is no legal definition of cryptocurrencies in Bulgaria. But the lack of such is just one of the issues that is yet to be solved.

One of the most important aspects of cryptocurrency transactions is their taxation treatment. The Bulgarian National Revenue Agency states that the personal income for physical persons from trading with virtual currencies must be declared with the annual tax return. The tax due is 10% from the annual basis of assessment. The NRA confirms that for the purpose of taxation the income from the sale of cryptocurrencies shall be treated equally as the income from the sale of financial assets.
In case the transactions are carried out by a legal entity - the rules for corporate taxation shall be applicable.
Another issue is whether or not the transactions with virtual currencies are subjected to VAT. According to the Court of Justice of the European Union in its motives for the Skatteverket v. David Hedqvist case, transactions, including negotiation, concerning currency, bank notes and coins used as legal tender, with the exception of collectors’ items, that is to say, gold, silver or other metal coins or bank notes which are not normally used as legal tender or coins of numismatic interest, shall be exempted from VAT. This decision is based on the VAT Directive, which has been implemented in the Bulgarian VAT legislation as well.

An important matter concerning virtual currency is whether a licensed is required for carrying out such transactions. The answer is given by the Court of Appeal in Sofia which requested the opinions of the Bulgarian National Bank and the Commission for Financial Supervision. According to them cryptocurrencies are not to be treated neither as financial instruments, nor electronic money. Therefore, no license, whether issued by the Commission for a financial intermediary, or by the National Bank for the issuing of electronic money respectively, is required. Nevertheless, if a company wishes to trade in financial instruments with underlying assets being bitcoin or other cryptocurrencies, then a license shall be required.
Another legal issue is whether cryptocurrency exchanges should be licensed for carrying out activities of currency exchange offices. The NRA gives a negative answer to this question, based on the fact that virtual currencies are scarcely regulated in Bulgaria. Therefore, those requirement shall not apply to bitcoin and other crypto exchanges.
It is more than obvious that state authorities will not remain idle regarding the matter. It is yet to be decided what approach shall be undertaken by the legislator . And should something which has been created for the purpose to avoid regulation be regulated at all?

If you have any questions regarding cryptocurrencies and ICOs, don’t hesitate contact us, here .

Vassil Kostov

1Legal.Net Blog © 2018

Materials published on this blog are copyrighted. No part of them can be copied or used without the express permission of the author.
Tags: Cryptocurrency