What taxes do we pay on crypto asset transactions in Bulgaria?
In my practice as a blockchain lawyer, issues often arise that are more practical than technological in nature and require knowledge of various areas of civil, tax and criminal law. One of these questions is what taxes do we pay on crypto asset transactions? Here we need to make the natural distinction between crypto transactions carried out by individuals and crypto transactions involving legal entities.
1. Taxes payable on crypto asset transactions by natural persons.
The topic is regulated in the Law on Personal Income Taxes. In Article 33, paragraph 4 of the Income Tax Act it is written as follows:
1.1. The taxable income from the sale or exchange of shares, units, compensatory instruments, investment vouchers and other financial assets, including virtual currencies, as well as from foreign currency trading is determined as the sum of the profits realized during the year, determined for each specific transaction , reduced by the amount of losses realized during the year , determined for each specific transaction, is reduced by 10 percent of costs.
The realized profit/loss for each transaction is determined by reducing the sale price by the acquisition price of the financial asset . When financial assets of the same type issued by the same person have different acquisition prices and subsequently a part of them is sold and it cannot be proven which part is sold, the acquisition price of each of them is the weighted average price determined based on the acquisition price of the financial assets of the same type and issuer held at the date of sale.
Conclusion - the tax base for sold crypto assets will be equal to 90% of the profit minus the loss . This result is taxed at 10% .
For example - if you bought one bitcoin for 10 dollars and sell it for 100, taxable will be 81 dollars (because 90% of the profit is 90 dollars is 81 dollars) - 10 dollars = 71 dollars . That is, the tax will be 7.1 dollars, which is 10% of 71 dollars.
However, the income from "staking" (this is a type of financial blockchain operation for staking tokens in the long term, with the aim of acquiring a reward) should not be credited as interest income in the sense of VAT. In this context, natural persons should be taxed only when they dispose of the tokens that were the subject of the financial blockchain operation "staking" and realize as a result of this sale of a crypto asset - income.
1.2. For the income of an individual from the sale or exchange of virtual currency, the following basic assumptions should be made :
- these transactions fall within the scope of income from the transfer of rights or property, which are identified as a separate type of income in Art. 10, para. 1, item 5 of the Income Tax Act;
- these transactions do not fall within the scope of tax-free income listed in Art. 13 of the Income Tax Act;
- these transactions are not exempt from taxation under another law.
Section V of Chapter Five of the Income Tax Act determines the taxable income and the tax base for income from the transfer of rights or property.
The taxable income from the sale or exchange of financial assets is the sum of the profits realized during the year, determined for each specific transaction, reduced by the sum of the losses realized during the year, determined for each specific transaction (Article 33, Paragraph 3 of the Income Tax Act). The realized profit/loss for each transaction is determined by reducing the sales price by the acquisition price of the financial asset (Article 33, Paragraph 4 of the Income Tax Act). Income is taxed on the total annual tax base and declared in the annual tax return.
The annual tax base is the taxable income earned during the tax year. When the taxable income is included in the annual equalization of the insurance income, it is reduced by the contributions that the person is obliged to make for the tax year for his health insurance account (Article 34 of the Personal Income Tax Act).
For the income from the transfer of rights or property, it is not regulated to attach special documents proving the realized income to the declaration. You should keep all documents related to the realized income for 5 years after the expiration of the limitation period for repayment of the public obligation to which they are related (Article 38 of the Code of Civil Procedure). You do not owe advance tax on the income from the sale or exchange of virtual currency .
1.3. Income from mining virtual currencies by natural persons .
These are income from business activities as a registered or unregistered sole trader. These incomes are taxable incomes that must be declared to us by every individual under Art. 50 of the Personal Income Tax, in Appendix No. 2 of the annual tax return.
The provisions of Art. 33 of the Income Tax Act for income from the sale and exchange of financial assets, do not apply to income from the business activity of an individual who is a trader within the meaning of the Commercial Law (TC), including when he is not registered as a sole trader. The definition of a natural person as a trader is not tied solely to the presence or absence of registration under the TK order. When the natural person carries out commercial transactions, it is irrelevant whether or not he manifests his participation in them as a sole trader. The deals define it as such, not the other way around. The objective criterion here is the actions performed, not who performs them and in what capacity.
The purchase of special computer systems or others for the creation (mining) of virtual currency in order to make a profit from its sale on the relevant exchanges is an argument for the fact that the activity will be carried out by occupation, i.e. it is intended to become a permanent source of income. According to Art. 1, para. 3 of the Commercial Code, any person who has formed an enterprise, which by object and volume requires that its affairs be conducted in a commercial manner, is also considered a trader, even if its activity is not specified in para. 1. In these cases, on the basis of Art. 26, para. 7 of the Income Tax Act, the taxable income is determined according to the rules for income from economic activity as a sole trader (in accordance with paras. 1-6), which is the tax profit formed in accordance with the Law on Corporate Income Taxation (art. 26, para. 1) from the Tax and Customs Administration).
2. Taxes payable on crypto asset transactions by legal entities.
All legal entities owe profit tax , regardless of whether they trade in crypto-assets or other goods or services. Profit tax is formed on the basis of the difference between all activity-related income and expenses that are recognized for tax purposes. This means that expenses such as transaction fees (so-called "gaz fees") or those for electricity during "mining" can be deducted from the profit related to blockchain businesses. Registration of companies in the crypto industry concerns activities in the formation of startup companies, crypto exchanges, staking platforms, companies engaged in cryptocurrency mining, etc.
The corporate tax that crypto companies pay in Bulgaria is 10% of the realized profit from the disposal of crypto assets. If this profit is distributed to the partners as an annual dividend or to the sole proprietor of the company (ET), the recipients also owe dividend tax - 5% of the remaining profit after taxes.
The global tax burden for transactions with crypto assets from companies is 14.5 % , to which must be added mandatory insurance for the manager of the crypto company. These are due at least in a minimal amount (to date, an average of BGN 250 per month), unless the manager has already reached the maximum insurance income or is a pensioner. Crypto assets and their value is an extremely volatile quantity, which is why they are subject to revaluation every year. This revaluation on an annual basis does not affect the tax profit, i.e. realized profits, respectively losses from the revaluation of crypto assets are tax differences that do not affect the determination of the tax base for the relevant year.
For companies, income from "staking" is taxed differently. This stems from the fact that as soon as a given issue of tokens is acquired, the same should be recorded as an asset (material stock or intangible asset). This leads to the presumed increase of the financial result and, respectively, of the annual corporate tax. In this context, staking is among the investments that are more appropriate to be made mostly by individuals in their personal capacity.
Author: Мr. Atanas Kostov - blockchain attorney
For more information in the field of crypto asset tax credit, please contact us at the following email: This email address is being protected from spambots. You need JavaScript enabled to view it.