The Legislative Landscape of Cryptocurrencies in Bulgaria Prior to 2024

Bulgaria’s approach to cryptocurrency regulation prior to 2024 was marked by a lack of explicit legal definitions and specific regulatory frameworks, reflecting a cautious yet open approach to this emerging technology.

Regulatory Stance and Compliance Requirements

While Bulgaria did not have official legal definitions of cryptocurrencies as of 2023, the country followed the European Union’s policy for its legal approach to digital currencies. Despite the absence of a crypto-specific regulatory framework, Bulgaria imposed certain compliance requirements on cryptocurrency companies. These included internal policies for Anti-Money Laundering (AML) and Know Your Customer (KYC), as well as obligations to inform any suspicious transactions and specific operations. Cryptocurrency companies were also expected to maintain a credible business reputation and comply with international sanctions regimes​​.

In 2020, the Council of Ministers of Bulgaria established a regulation for forming a special register of companies providing cryptocurrency services, underscoring the importance of AML compliance. Companies listed in this registry were subject to strict customer due diligence measures, including establishing a business relationship, executing single transactions over a certain threshold, and reporting suspicious activities​​.

Taxation and Financial Supervision

Despite the lack of a specific regulatory framework, cryptocurrency activities were subject to taxation in Bulgaria. The National Revenue Agency (NRA) treated income from cryptocurrency transactions as income from the sale of financial assets, requiring both individuals and legal entities to pay taxes on profits gained from these transactions. The tax rate for individuals was set at 10% of the income received within a calendar year, while legal entities were liable to pay corporate tax at the same rate. Additionally, cryptocurrency activities could be classified as a service falling under the payment of VAT if the transaction was directly related to payment​​​​.

The Financial Supervision Commission (FSC) in Bulgaria, however, had not issued explicit legal guidance on cryptocurrencies as of 2023. The National Bank of Bulgaria, aligning with European supervisory authorities, had warned about the risks associated with buying virtual currencies, highlighting their extreme price volatility and the potential for price bubbles. Despite this, Bulgarian tax authorities required individuals to pay taxes on gains from selling cryptocurrencies, and a Bulgarian court concluded that activities associated with buying, selling, and paying with cryptocurrencies were not subject to licensing requirements​​​​.

Legal and Business Environment

Bulgaria’s regulatory environment for cryptocurrency was characterized by its non-prohibitive nature. The country did not have specific laws for monitoring and regulating cryptocurrency activities, allowing both natural persons and legal entities to conduct crypto activities, provided they complied with AML laws and met all requirements of Bulgarian legislation. As such, no cryptocurrency license was required in Bulgaria to provide virtual currency services​​.

In conclusion, prior to 2024, Bulgaria’s legislative landscape for cryptocurrencies was defined by a lack of specific legal frameworks and regulatory clarity, combined with compliance requirements centered around AML and KYC policies. The taxation of cryptocurrency transactions as financial asset sales and the absence of licensing requirements for cryptocurrency activities reflected a cautiously open approach to the emerging digital currency market. This landscape provided a broad scope for the growth and operation of cryptocurrency businesses within the country, albeit with a need for careful navigation of the existing legal and tax obligations.