With the growing popularity of virtual currencies such as Bitcoin, Ethereum, and other cryptocurrencies, the need for regulation and taxation of income related to them has also increased. Bulgarian legislation still lacks a specialized legal framework for the tax treatment of cryptocurrencies, but the National Revenue Agency (NRA) has issued official guidelines on their taxation. This article explores how individuals and legal entities are taxed when dealing with virtual currencies, the declaration requirements, and the most common challenges faced by taxpayers.
1. Definition of Virtual Currency
Virtual currency does not have an official legal status in Bulgaria and is not issued or guaranteed by a central bank or public authority. Nevertheless, it can be used as a means of exchange if the parties to a transaction agree on its use.
According to NRA clarifications, virtual currencies are digital assets that can be transferred, stored, and traded electronically. They are not legal tender but can function as a unit of exchange between private parties.
2. Taxation of Virtual Currencies for Individuals
2.1. Sale or Exchange of Virtual Currency
Income earned from the sale or exchange of cryptocurrencies by individuals falls under the category of transfer of rights or property and is subject to taxation under the Personal Income Tax Act (PITA).
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Tax rate: 10% on the realized income
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Tax base: The difference between the sale price and the acquisition price, with a possible deduction of 10% for statutory recognized expenses
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Declaration obligation: The income must be declared in the Annual Tax Return by April 30 of the following year
Example: If an individual buys 1 Bitcoin for BGN 40,000 and sells it for BGN 50,000, the taxable income is BGN 10,000, and the due tax is BGN 1,000.
2.2. Mining of Virtual Currency
Income earned from cryptocurrency mining is treated as income from economic activity. In such cases, the NRA considers the individual a trader under the Commercial Act.
If the mining is carried out regularly for profit, the individual must register as a sole proprietor or establish a company.
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Tax rate: 15% for sole proprietors; 10% for companies (e.g., LLCs)
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VAT: If the turnover exceeds BGN 100,000, VAT registration is mandatory
3. Taxation of Virtual Currencies for Legal Entities
Legal entities engaged in trading or mining of cryptocurrencies are taxed under the Corporate Income Tax Act (CITA).
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Corporate tax rate: 10% on the accounting profit
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Obligations: Proper accounting records, declaration of income in the annual tax return, and, if applicable, VAT registration.
Cryptocurrency transactions must be reflected accurately in financial statements and comply with accounting standards for intangible assets and financial instruments.
4. VAT Treatment of Virtual Currencies
According to a judgment by the Court of Justice of the European Union (Case C-264/14 – Hedqvist), the exchange of traditional currencies for virtual currencies (and vice versa) constitutes a supply of services but is exempt from VAT.
This means that:
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The sale or exchange of virtual currencies is not subject to VAT in Bulgaria;
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However, mining and other related activities may involve taxable supplies depending on the business model;
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The sale of goods or services in exchange for virtual currencies is subject to VAT, calculated based on the value of the cryptocurrency at the time of the transaction.
5. Declaration and Accounting Obligations
Whether you are an individual or a legal entity, it is crucial to properly declare all income from cryptocurrency-related activities. Failure to do so may lead to:
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Tax assessments with penalties and interest;
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Audits and inspections by the NRA;
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Classification of hidden economic activity in cases of regular trading without proper registration.
Proper bookkeeping is essential. Cryptocurrency transactions must be recorded in accordance with Bulgarian accounting standards and include:
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Purchase and sale records;
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Exchange rates on the date of each transaction;
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Mining revenues and costs;
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Wallet addresses and crypto exchange statements.
6. Most Common Problems and Legal Risks
Some of the key challenges related to the taxation of cryptocurrencies in Bulgaria include:
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Lack of clear legal framework – although there are NRA guidelines, there is no dedicated cryptocurrency law;
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Uncertainty about accounting treatment – different accountants may apply different standards;
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Difficulty in tracking transactions – especially when using decentralized exchanges or wallets;
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Legal issues in case of audits – especially for undeclared or misreported income.
7. How Can a Tax Attorney Help?
Given the complexity and the lack of specialized regulations, seeking assistance from a tax attorney or accountant with experience in crypto-assets is highly recommended.
At LegalFrame.bg, we offer:
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Legal consultation on taxation and compliance;
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Assistance in filing tax returns and correcting past omissions;
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Defense during tax audits and administrative proceedings;
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Strategic advice on business structuring involving cryptocurrencies.
Conclusion
Cryptocurrencies offer great opportunities, but also come with legal and tax responsibilities. Whether you are an individual investor, a trader, or a business using digital assets, it is essential to stay compliant with Bulgarian tax law.
If you need legal advice or assistance with the taxation of virtual currencies, don’t hesitate to contact LegalFrame – Law Firm in Sofia, for professional support tailored to your needs.
