Crypto Regulations in Bulgaria

Bulgaria boasts plenty of advantages that could be of interest to entrepreneurs needing more leeway to implement a new crypto project and improve the internal structure along the way. The Bulgarian authorities, namely The Bulgarian National Bank (BNB) and Financial Supervision Commission (FSC), take a liberal approach toward crypto businesses and allow them to grow within the existing general regulatory framework. Today, the main applicable regulations are related to the EU-imposed anti-money laundering directives but it’s expected that Bulgaria will soon adopt more comprehensive EU-wide crypto regulations in synchrony with the other member states.

As early as 2023 or 2024, the newly approved Markets in Crypto-Assets (MiCA) regulation should come into force across the EU countries which will ensure regulatory clarity and consistency.  In essence, MiCA is designed to prevent the misuse of cryptoassets and services and covers environmental responsibilities, insider trading, stricter supervision of stablecoins and non-compliant crypto asset service providers (CASPs), and more critical 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.

Before the EU rules become applicable in Bulgaria, crypto entrepreneurs can still access the Bulgarian market under the relaxed rules and take the time to build their companies up to a global standard, including the installation of mechanisms for internal control and safety that will sooner or later become mandatory across the majority of reputable jurisdictions.

Benefits of the Bulgarian Jurisdiction

Growing a crypto business within a jurisdiction that doesn’t have a set of crypto-specific rules means that a lot of the existing legislation needs to be interpreted by such qualified lawyers as our team here at Regulated United Europe (RUE) who can help a new entrepreneur understand which rules are specifically applicable to the planned crypto project. That said, it’s fairly easy to see the benefits at a glance.

Bulgarian crypto business can reap the following benefits:

• Speedy company formation and licensing process, which saves money and time that can be dedicated to the business growth
• The whole licensing processes can be completed remotely and there’s no need to dedicate the time to visit the country
• Very low initial capital requirements mean that a new entrepreneur can initiate the project without extensive capital-raising initiatives
• There’s no need to open a local office and hire local staff, which gives a new company the freedom to operate remotely
• No steep crypto application or supervision fees which give the company an opportunity to invest more into the development of the new project
• Bulgaria is a reputable EU jurisdiction, known as one of the most fiscally disciplined members
• Since it’s part of the EU, a Bulgarian licence opens doors to the rest of the EU market, which is made up of 27 countries
• Open to innovation and technological experimentation in spite of the absence of government-backed regulatory sandboxes or nation-wide supporting initiatives

Measures Against Money Laundering Act (MAMLA)

The main law regulating crypto businesses in Bulgaria is the Measures Against Money Laundering Act (MAMLA) which 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 partially transposed the provisions of the 5th EU Anti-Money Laundering Directive (5AMLD), which introduced additional rules for the prevention of the use of financial systems to engage in money laundering, terrorist financing, and other financial crimes.

MAMLA for the first time officially defines virtual currencies which is an indication of the increasing adoption of innovative payment solutions. In line with the 5AMLD, a virtual currency is defined as a digital representation of value that isn’t issued or guaranteed by a central bank or a public body, isn’t necessarily related to legal tender, and has no legal status of currency, but is accepted by natural or legal persons as a means of exchange and can be transferred, stored and traded electronically. A crypto wallet provider also comes into play and is defined as a natural or legal person that provides services for the protection of private cryptographic keys on behalf of its customers for owning, storing, and transferring virtual currencies.

One of the general obligations for all companies registered in Bulgaria which is also applicable to crypto businesses is to declare their ultimate beneficial owner, and structure of control. A beneficial owner is defined 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 specifies rules for the identification of clients, as well as data collection, storage, and disclosure. It requires crypto companies to establish and carry out customer due diligence and know-your-customer procedures. Customer due diligence procedures can be performed at simplified, advanced, and complex levels, depending on the amounts within transactions. However, complex due diligence is standard and must be performed when a transaction exceeds 30,000 BGN (approx. 15,000 EUR) regardless of whether that transaction is carried out in a single operation or when available data suggest that several operations or transactions are related.

A crypto company must identify every customer by obtaining proof and where an operation or transaction is implemented through a representative, the crypto company is obligated to request evidence for the representative powers and to identify the person represented. The procedure of identification varies depending on the type of customer. Natural persons must present an identity document and registration of its type, number, and issuer, as well as the name, address, civil number, and date of birth. Legal persons must be asked to present an official statement from the respective register, and where such person isn’t subject to registration, present a copy of the document of incorporation and registration of the name, residence, address, and representative.

The collected information has to be maintained and documented in accordance with the established internal policies. It should be used to monitor the clients and transactions to detect and prevent money laundering and terrorist financing. Any suspicious activities, customers, and transactions must be reported to the Financial Intelligence Directorate of the State Agency for National Security in a timely manner. In any case, the authority should also be notified of payments above 30,000 BGN (approx. 15,000 EUR).

To be able to meet such requirements, a crypto company must create internal policies and establish effective internal procedures that could be demonstrated during the licensing process, as well as throughout the provision of services. In this case, a dedicated AML/CFT compliance department can be formed but it’s also possible to exercise other forms of internal controls to meet the legal obligations through the managing directors, managers, and representatives. Our legal consultants can advise you on the most suitable solutions for your crypto business.

Consumer Protection Legislation

In Bulgaria, relationships between businesses and customers are thoroughly regulated but it’s important to note that the Consumer Protection Act is applicable only if cryptoassets aren’t acquired for investment purposes (i.e., trading for profit). In any case, every crypto company must abide by such principles as truthfulness, completeness, clarity, and comprehensiveness of information.

The essential rules safeguarding Bulgarian customers are as follows:

• Every crypto company is obligated to publish the preliminary information online, as well as provide it to the consumers prior the provision of the services either in writing or in another suitable way for the consumer to understand it
• Unfair terms and misleading practices are also not allowed and should be avoided and prevented by the business (for instance, a contract can’t include a clause allowing only the provider to terminate the contract without cause as it’s considered unfair, or a company can’t claim to have a crypto licence if it’s not the case)
• Every commercial or other promotional material must be easily identifiable as such, clear and truthful, including the name of the provider; any unsolicited advertising require preliminary consent from the consumers
• Consumers have the right to withdraw from the contract without giving any reason, without compensation or penalty and without bearing any costs, within 14 days from the conclusion of the contract (this right must be communicated clearly by the crypto service provider prior to concluding the contract)
• The crypto service provider is obligated to notify the consumer of each amendment of the terms and conditions within seven days from the date the amendment becomes effective and ask the customer to either agree or disagree (in this case the customer is entitled to cancel the contract without any fees or maintain the old terms and conditions)
• A consumer has the right to file a complaint with the Bulgarian Commission for Consumer Protection and its dispute resolution committees or choose an alternative way to resolve a dispute (this right, including contact information of the dispute resolution bodies must be communicated clearly by the crypto service provider prior to concluding the contract)

Other Relevant National Legislation

In Bulgaria, pursuant to the Markets in Financial Instruments Act (MFIA), cryptoassets aren’t categorised as financial instruments. Instead, they’re treated as commodities and their trades are regulated by the Obligations and Contracts Act and the Commerce Act. The main applicable rule is that the contract of a sale transaction obligates the seller to transfer the ownership of possession or a right of a different kind to the buyer for an agreed price.

Pursuant to the Commerce Act, if a natural person purchases cryptocurrencies, their transfer isn’t considered a commercial transaction. Therefore, disputes concerning cryptoasset transactions are addressed in accordance with the General Claims Procedure instead of the Commercial Disputes Procedure under the Bulgarian Civil Procedure Code.

General advertising regulations protect not only customers but also competitors. A crypto company should comply with general relevant legislation, for instance, the Protection of Competition Act, which means misleading messages or comparative advertising causing damage to competitors is strictly prohibited for cryptoasset and other companies. Moreover, the Act prohibits agreements between market participants or practices that could distort or restrict fair competition in the crypto or the entire financial market.

The provisions of the Bulgarian Personal Data Protection Act (PDPA) apply to Bulgarian crypto companies handling client data. It lays down rules pertaining to obtaining and maintaining copies of personal identity documents, large-scale data processing, collecting data of persons under 14 years of age, and more. The Commission for Personal Data Protection is a supervisory authority responsible for the enforcement of personal data protection rules and by doing so it strives to prevent threats to public order and security. It’s important to note that the PDPA rules can’t repeal the EU-wide General Data Protection Regulation (GDPR) rules.

Crypto Licence in Bulgaria

Bulgaria has no specific crypto licence or pertaining restrictions but pursuant to MAMLA, certain authorisation is still required and acting without it is considered an illegal activity. Every crypto business, including a natural or legal person from abroad, planning to access the Bulgarian market, is obligated to obtain a licence from the National Revenue Agency (NRA), which, among other responsibilities, administers taxes and social security contributions, as well as collects other public and private state receivables.

Crypto businesses providing the below services are obligated to obtain authorisation from the NRA:

• Cryptoasset exchange into another type of cryptoasset
• Cryptoasset exchange into fiat money and vice versa
• Services of safeguarding private cryptographic keys on behalf of customers
• Services of holding, storing and transferring cryptoassets

Regarding the required documentation, 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:

• A detailed description of the crypto business website and software, including a mobile application, used to offer the planned crypto products and services
• A comprehensive description of the intended crypto-related products and services
• A list of countries where the crypto-related services are planned to be provided
• Information on whether the applicant is engaged in cross-border activities or is part of a cross-border enterprise (within the meaning of EU legislation)

To obtain a crypto licence in Bulgaria, the following steps must be taken:

• The registration of a company in Bulgaria
• The preparation of a detailed description of the planned crypto services
• The implementation of internal AML/CFT procedures in line with the EU directives
• The launch of a compliant business website and, if applicable, a mobile application
• The payment of the registration fee of 50 BGN (approx. 25 EUR) to the NRA
• The submission of an electronic application form which must be signed with a qualified electronic signature along with the required documentation

If an application is accepted, a crypto business is included in the public register, maintained by the NRA, and granted a Certificate of Registration within a month which is very fast compared to other European jurisdictions. The certificate is an equivalent of a crypto licence which permits the authorised company or a sole proprietor to offer crypto services in Bulgaria under the general legislation. Each successful applicant is notified of the issuance of the certificate by the NRA officials. The certificate is delivered electronically and signed with a qualified electronic signature.

It’s very important to note that once the certificate is issued, all the legally required processes and procedures must be maintained up to standard. Any changes or challenges must be reported to the authority. Also, a crypto company must notify the NRA of any relevant information that’s been altered (name change, website change, residential or business address, etc.) so that the authority can update its records and the public register accordingly.

How to Open a Bulgarian Company

Bulgarian companies are generally regulated by the Bulgarian Commercial Act which covers types of business legal structure, incorporation, capital requirements, and more. Depending, on your business model, scope, and possessed initial capital, you can choose from such legal structures as a Limited Liability Company, Closed Joint Stock Company, or a Limited Partnership.

A Limited Liability Company is one of the most convenient choices as it boasts plenty 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 and while a registered address in Bulgaria is required, a virtual office is a viable solution. The company should be run by at least one managing director who can be the same as the shareholder. There are no citizenship or residence requirements. It can take up to two months to collect and verify all the required documents, as well as register the company with the Commercial Register of the Registry Agency.

When filling out the application for company registration, you’ll be asked to submit such documents as a certificate of the company name, photocopies of the owners and managing directors, Articles of Association, and a local bank statement showing deposited initial capital. We can help you prepare all the required documentation, including notarisation and certified translation, and ensure that the application is submitted correctly.

The state fee for company registration is 55 BGN (approx. 28 EUR) which is payable to the Commercial Register of the Registry Agency. You’ll also be asked to settle 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 least expensive business forms in Europe.

Taxation of Crypto Businesses

Crypto companies must register as taxpayers in order to pay general taxes. The Corporate Income Tax is only 10% and, in the case of resident companies, is levied on profits sourced from commercial activities (e.g., trading or exchange of cryptoassets, or mining) carried out in Bulgaria and abroad. The rate of the Withholding Tax is 5% and is levied on distributed dividends to the shareholders of the company.

Since a crypto company also employs people, it’s 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 over 50,000 BGN (approx. 25,600 EUR) turnover in 12 consecutive reporting periods must register as VAT payers. Many crypto-related commercial activities are taxed at a standard 20% VAT rate. Only cryptocurrencies are VAT-exempt across the EU as they’re considered equivalent to providing financial services.

Various other tax allowances and reliefs are also available to Bulgarian crypto companies. For instance, Bulgaria has around 70 international agreements on the elimination of double taxation which allows for preventing duplicate taxation and optimising business taxes.

CRYPTO REGULATION IN BULGARIA

Reporting Requirements

Bulgarian companies must adhere to the legal requirements of financial reporting specified in the Accountancy Act of 2015 and the Independent Financial Audit Act of 2016. Although cryptoassets don’t have to be included in tax returns, every company is obligated to report such holdings in their annual financial statement.

Audit exemption applies to companies that don’t 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

If Bulgaria sounds like a favourable jurisdiction to you, and you wish to delve deeper into the national regulations, our highly qualified and experienced consultants here at Regulated United Europe (RUE) will be delighted to assist you in an efficient manner. We very well understand and closely monitor crypto-related legislation in Bulgaria and the rest of the EU, and thus can help you navigate Bulgarian and European regulations applicable to your crypto business. Moreover, we’re more than happy to advise on the development of AML/CFT policies, application for a licence, and company formation. We also specialise in financial accounting and tax optimisation. Book a personalised consultation now to start a new journey in the cryptocurrency industry.