Crypto Regulations in Bulgaria

Bulgaria, on the other hand, offers a number of advantages that could turn it into an interesting option for entrepreneurs requiring greater freedom to develop a new crypto project and fine-tune their internal structure while in motion. Namely, the Bulgarian authorities, like The Bulgarian National Bank (BNB) and Financial Supervision Commission (FSC), follow a very liberal approach toward crypto businesses, allowing them to develop within the frames of the existing general regulatory framework. Nowadays, main applicable regulations refer to anti-money laundering directives imposed by the EU; nevertheless, it is expected that soon Bulgaria will adopt more comprehensive EU-wide crypto regulations in synchrony with the other member states.

For example, the newly adopted regulation of Markets in Crypto-Assets is expected to enter into force as early as 2023 or 2024 and is intended to provide legal certainty and consistency throughout the EU. In a nutshell, MiCA is designed with the view to prevent the misuse of crypto assets and services. For this reason, it covers subjects such as environmental responsibilities, insider trading, the stricter supervision of stablecoins and non-compliant crypto asset service providers, to name just a few areas.

Another important change introduced in 2022 is the directive for the Pilot DLT Market Infrastructure Regulation (PDMIR). The DLT Pilot will be available from March 2023 and will provide a legal framework for the trading and settlement of transactions in cryptoassets that under Markets in Financial Instruments Directive 2 (MiFID 2) are classified as financial instruments. The DLT Pilot will work as a regulatory sandbox and will present opportunities for eligible businesses to experiment with blockchain-based trading facilities and settlement systems for financial instruments.

Although EU regulations are not enforced yet in Bulgaria, crypto-entrepreneurs can gain access to the Bulgarian market using relaxed rules, taking their time to build their companies up to a global standard, including the installation of mechanisms for internal control and safety, which sooner or later will become mandatory across the majority of reputable jurisdictions.

Bulgarian Jurisdiction Benefits

That means developing a crypto business within a jurisdiction that lacks a set of crypto-specific regulations, so much of the already existing legislation will have to be interpreted by such qualified lawyers as our team here at Regulated United Europe who can help a new entrepreneur make out which rules are specifically applicable to the planned crypto project. Having said that, of course, its advantages are pretty visible at once.

Following are the benefits provided to Bulgarian crypto business:

• The entire process of company formation and licensing is quicker; it saves money and time to be invested in business development.
• The entire licensing process can be carried out remotely, and it is not necessary to invest time in visiting the country for this very purpose.
• Very nominal initial capital requirement, which in turn means that a new entrepreneur can start a project without large capital-raising efforts.
• No need to open a local office and hire local employees – a new company can work remotely.
• Lack of high crypto application and supervisory fees give a chance for a company to invest more in the development of a new project.
• Bulgaria is an EU jurisdiction with a good reputation; it is known as one of the most fiscally disciplined EU members.
• Being part of the EU, a Bulgarian license opens up the rest of the 27 country markets that compose the EU.
• Innovation and open to technological experimentation in the absence of government-backed regulatory sandboxes or nation-wide supportive initiatives.

Measures Against Money Laundering Act (MAMLA)

The main law regulating crypto businesses in Bulgaria is the Measures Against Money Laundering Act (MAMLA) regulates the measures for prevention and detection of actions related to the laundering of money acquired through, or in connection with, a criminal activity. It partly transposed the provisions of the 5th EU Anti-Money Laundering Directive, which introduced further rules with the purpose of preventing the use of the financial systems for the purpose of money laundering, terrorist financing, and other financial crimes.

MAMLA defines, for the first time, virtual currencies, which is proof of widespread adoption of innovative payment solutions. According to the above definition of the 5AMLD, a virtual currency is a digital representation of value, not issued or guaranteed by a central bank or public body, not necessarily attached to a legal tender, without having the legal status of currency, but is accepted by natural persons or legal entities as a means of exchange and can be transferred, stored, and traded electronically. Also, a crypto wallet provider means any natural or legal person that provides services of protection of private crypto keys for its customers in order to own, store, and transfer virtual currencies.

One of the general obligations of all companies registered in Bulgaria, also applied to crypto businesses, is declaring their ultimate beneficial owner and structure of control. A beneficial owner is identified as a physical person who ultimately owns or controls a legal person or another entity, or a person or persons on whose behalf a transaction or an activity is carried out.

MAMLA prescribes regulations on client identification, data collection, storage, and disclosure. It mandates crypto companies to design and implement customer due diligence and know-your-customer processes. Customer due diligence procedures can be performed at the level of simplification, advancement, and complication, depending on the amounts within transactions. However, complex due diligence shall be carried out when a transaction exceeds 30,000 BGN, approximately 15,000 EUR, regardless of whether the said transaction is performed in a single operation, or when available data suggests that several operations/transactions are related.

A crypto company should identify every customer by obtaining proof, and where an operation or transaction is implemented through a representative, the crypto company shall be obliged to request evidence for the representative powers and to identify the person represented. The procedure of identification differs according to the type of customer. The identification document shall be represented, and type, number, and issuer of the document, as well as the name, address, civil number, and date of birth of the natural person, shall be recorded. It shall ask the legal persons to present an official statement from the respective register and, in case such person isn’t subject to registration, to present a copy of the document of incorporation and to record the name, residence, address, and representative.

The information gathered in this respect shall be preserved and recorded in pursuance of the internal policies. It should be used for the purpose of monitoring clients and transactions to identify and avoid money laundering and terrorist financing. Such suspicious activities, customers, and transactions are to be reported in due time to the Financial Intelligence Directorate of the State Agency for National Security. Anyhow, any payment over 30,000 BGN – around 15,000 EUR – shall be notified to the relevant authority.

In this regard, a crypto company shall be able to adopt internal rules, provide effective internal processes that could be presented during the licensing procedure, as well as while providing services. If that happens, an AML/CFT Compliance Department could be established, but also through the managing directors, managers, and representatives, other forms of internal controls can be exercised in order to comply with the law. Our legal consultants will advise you on the best solutions in the case of your crypto business.

Legislation for Consumer Protection

The relations between a trader and a consumer are highly regulated in Bulgaria; however, it should be underlined that the Consumer Protection Act applies only insofar as cryptoassets are not acquired for investment purposes, namely trading with a view to making a profit. Be that as it may, any crypto business shall be obliged to comply with the following principles: truthfulness, completeness, clarity, and comprehensiveness of information.

The key regulations, which protect Bulgarian consumers, are the following:

• The crypto company is bound to provide this initial information online and in writing to the clients before the offering of any services in a manner which is appropriate for them to understand.
• Unfair Terms and Misleading Practices are also prohibited, and in this respect, the business has the duty to avoid and prevent such scenarios, for instance: having a contract containing a clause allowing only the provider to terminate the contract without cause, is unfair, or stating that a company has a crypto license, when in fact it does not.
• Any form of advertisement or other promotional message must be clearly recognizable as such, must be clear and truthful, and identify the operator; unsolicited advertising requires prior agreement of the subscriber/consumer.
• Consumers shall have the right to withdraw from the contract without giving any reason and without any compensation or penalty, and without bearing any costs within 14 days from the conclusion of the contract, the right to which has to be clearly communicated by the crypto service provider prior to concluding the contract.
• The crypto service provider shall, in due time, inform the consumer about every change of the general terms and conditions seven days from the date on which the amendment will be in force, asking him either to express his agreement or disagreement, which entitles the customer, at any time, to withdraw from the contract without penalty by remaining with the old general terms and conditions.
• A consumer shall be entitled to submit an objection before the Bulgarian Commission for Consumer Protection and its conciliation commissions or to seek another order for out-of-court settlement of a dispute – this right, as well as the contact details of the dispute resolution bodies, shall be pointed out by the crypto service provider clearly before the conclusion of the contract.

Other Relevant National Legislation

In Bulgaria, under the Markets in Financial Instruments Act, cryptoassets are not considered financial instruments, but rather commodities, and their trades thus flow under the Obligations and Contracts Act and the Commerce Act. The main applicable rule is that by the contract of a sale transaction, the seller is obliged to transfer to the buyer ownership or possession, or a right of another kind, for an agreed price.

Pursuant to the Commerce Act, if a natural person purchases cryptocurrencies, their disposal is not a commercial transaction. Thus, disputes arising from cryptoasset transactions are handled in accordance with the General Claims Procedure, and not under the Commercial Disputes Procedure under the Bulgarian Civil Procedure Code.

The general advertising regulations protect the customers and the competitors as well. A crypto company is obliged to follow the general relevant legislation, for instance, the Protection of Competition Act, which means that misleading messages or comparative advertising causing damage to competitors is strictly prohibited for cryptoasset companies, among others. The Act also bans agreements between the participants in the market or practices capable of distorting or restricting the fair competition in either crypto or the whole financial market.

The Bulgarian crypto firms, which are processing the clients’ data, are also subjected to the provisions under the Bulgarian Personal Data Protection Act. It sets out various regulations regarding obtaining and keeping copies of identity documents of individuals, data processing on a large scale, collection of data regarding persons below 14 years, and many more. The Commission for Personal Data Protection is a supervisory authority entrusted with the task of enforcing the provisions of personal data protection and, while doing so, averting threats to public order and security. It has also to be underlined that the PDPA rules cannot derogate from the EU-wide General Data Protection Regulation rules.

Bulgaria

Capital	Population	Currency	GDP
Sofia	6,520,314	BGN	$12,505

Crypto License in Bulgaria

The Bulgarian legislation does not provide for a crypto license and corresponding restrictions, but under the MAMLA certain authorization is still required and acting without it is considered illegal activity. Any crypto business, including a foreign natural or legal person, intended to enter the Bulgarian market, is under an obligation to obtain a licence from the National Revenue Agency (NRA), which inter alia governs taxes and social security contributions, as well as collects other public and private state receivables.

Crypto businesses with the following services provided are subject to authorization from the NRA:

• Exchange of cryptoassets into another type of cryptoassets
• Cryptoasset exchange against fiat money and vice versa
• Custodian wallet services – safekeeping of private crypto keys on customers’ behalf
• Custody and management services holding, storing, and transferring cryptoassets

As concerns the documentation, the natural and legal persons, depending on their status, are asked to provide slightly different identification documents; however, the following business-related documentation is obligatory in every case:

• Detailed description of the crypto business website and software, including a mobile application that will be used for the offered crypto products and services.
• Provide a detailed description of what crypto-related products and/or services shall be provided.
• List countries where it is planned to provide the crypto-related services.
• Information whether the applicant is engaged in cross-border activities or is part of a cross-border enterprise within the meaning of the EU legislation.

The following steps are to be performed in order to obtain a crypto license in Bulgaria:

• Registration of a company in Bulgaria;
• Preparation of a detailed description of the planned crypto services;
• Introduce internal AML/CFT procedures in accordance with EU directives;
• The establishment of a compliant business website and, if the case is such, a mobile application, too;
• Payment of 50 BGN (approximately 25 EUR) registration fee to the NRA;
• Submitting an electronic application form that needs to be signed with a qualified electronic signature, together with the relevant documentation.

In case of approval, a crypto company is included in the public register provided by the NRA and given a Certificate of Registration within a month, which is really fast compared to other European jurisdictions. In fact, the certificate is an analogue to a crypto license, with the help of which the licensed company or natural person can begin to provide crypto services on the territory of Bulgaria under the general legislation. Each applicant is notified by the NRA with confirmation of the issuance of a certificate. The issuance of the certificate is delivered electronically and signed with a qualified electronic signature.

It is very important to underline that after the issuance of the certificate, all processes and procedures, as requested by law, are kept up to the standard. Changes or challenges should be sent to the authority. Also, a crypto company is obliged to send information to the NRA about any relevant information changed, like name, website, residential or business address, in order for the authority to update its records and also the public register accordingly.

How to Open a Bulgarian Company

In general, Bulgarian companies fall under the scope of the Bulgarian Commercial Act, which covers types of business legal structure, incorporation, capital requirements, and more. Depending on your business model, scope, and initial capital you possess, one may choose between such legal structures as a Limited Liability Company, Closed Joint Stock Company, or a Limited Partnership.

It is one of the most convenient options since it holds a lot of advantages. First of all, the initial share capital is only 2 BGN (approx. 1 EUR). It can be incorporated by any foreign natural or legal person, while a registered address in Bulgaria is required and a virtual office is a viable solution. In running the company, it has to be done by at least one managing director who could be the same as the shareholder. No requirement as regards the citizenship or residency is required. All these documents will need to be collected and verified for as long as two months, plus their registration in the Commercial Register of the Registry Agency.

During the filling of the application for the registration of the company, it will be required that you attach such documents as the certificate of the name of the company, photocopies of the owners and managing directors, Articles of Association, and a local bank statement showing deposited initial capital. We can assist in preparing all necessary documents, including notarization and certified translation, and sending the application to relevant authorities.

The state fee for company registration is 55 BGN (approx. 28 EUR) payable to the Commercial Register of the Registry Agency. You will also be asked to settle the fees for such services as the reservation of the compliant company name, but all of these costs are easy to absorb compared to other European jurisdictions. Overall, a Bulgarian company is among the most inexpensive business forms in Europe.

Taxes on Crypto Businesses

Crypto companies have to be registered as taxpayers, paying general taxes. The Corporate Income Tax is no more than 10% and, for resident companies, it is levied in respect of the profits sourced from commercial activities—which in the present context would include trading or exchange of cryptoassets or mining—carried out in Bulgaria and/or abroad. The Withholding Tax is 5% and is levied on dividends distributed to shareholders of the company.

As a crypto company also employs people, it is obligatory to register them as social insurance payers. The rate of the Social Security Contribution is 24.3%, where 13.72% is paid by employers and 10.58% is paid by employees. The rate of the National Health Insurance is 8% where 4.8% is paid by employers and 3.2% is paid by employees.

Bulgarian companies with a turnover of over 50,000 BGN (around 25,600 EUR) for 12 consecutive reporting periods have an obligation to register as a VAT payer. Most crypto-related business activities are in the scope of the standard 20% VAT. The only exception across the EU for value-added tax is cryptocurrencies because they are equated with providing financial services.

Other tax allowances and reliefs are also available for the crypto companies in Bulgaria. For example, Bulgaria has about 70 international agreements on the elimination of double taxation, which allows the prevention of double taxation and optimization of business taxes.

CRYPTO REGULATION IN BULGARIA

Reporting Requirements

Bulgarian companies are obliged to follow the statutory provisions of financial reporting according to the Accountancy Act of 2015 and the Independent Financial Audit Act 2016. In addition, though cryptoassets are not subject to a declaration in a tax return, each company is obliged to declare such assets in its annual financial statement.

The audit exemption is given to those companies that do not exceed at least two of the following parameters:

• Total assets – 2 mill. BGN approx. 1 mill. EUR
• Total revenue – 4 mill. BGN approx. 2 mill. EUR
• The average annual number of employees – 50

Should Bulgaria sound to you as a favourable jurisdiction, and you want to get closer insight into national regulations, then our highly qualified and experienced consultants here at Regulated United Europe will be happy to serve you efficiently. We are well aware of and closely follow the legislation related to cryptocurrency in Bulgaria and the rest of the EU. Therefore, we can assist you through the Bulgarian and European regulations applicable to your crypto business. Moreover, we are more than happy to advise on the development of AML/CFT policies, the application for a license, and company formation. We also specialize in financial accounting and tax optimization. Book a personalized consultation now and start your brand-new journey into the cryptocurrency industry.