Cryptocurrency Taxation in Bulgaria

Image with Bitcoin and Ethereum logos, illustrating the complexities of cryptocurrency taxation in Bulgaria.

Understanding Your Tax Obligations

Cryptocurrencies like Bitcoin and Ethereum have exploded in popularity in Bulgaria and around the world. But with this increased use comes the need to understand the tax implications. This guide breaks down everything you need to know about cryptocurrency tax in Bulgaria, ensuring you stay compliant with the law. For a comprehensive guide on filing your annual tax return in Bulgaria, including how to declare cryptocurrency income, see our dedicated article: Personal Annual Tax Return in Bulgaria.

1. Income from Selling or Exchanging Cryptocurrency

When you sell or exchange cryptocurrencies in Bulgaria, any profit you make is considered income from the transfer of rights or property (Article 10, Paragraph 1, Item 5 of the Personal Income Tax Act – PITA).

  • Is it Taxable? Yes, this income is taxable. There are no exemptions under Bulgarian law.
  • How is it Calculated? Your taxable income is determined by subtracting your total annual losses from your total annual profits from cryptocurrency transactions. You can then reduce this amount by a 10% expense allowance (Article 33, Paragraph 3 of the PITA).
  • Declaring Your Income: You must declare this income in Appendix No. 5 of your annual tax return. Remember to include all taxable income earned throughout the year.
  • Health Insurance Contributions: If you’ve made social security contributions, your taxable base is reduced by the amount you paid for health insurance (Article 34 of the PITA).
  • Calculating Profit/Loss: For each transaction, calculate your profit or loss by subtracting the price you paid for the cryptocurrency (your acquisition cost) from the price at which you sold it (Article 33, Paragraph 4 of the PITA).
  • Record Keeping: Keep all documents related to your cryptocurrency transactions for at least five years, even though no advance tax is due (Article 38 of the Tax and Social Insurance Procedure Code).

2. Cryptocurrency Mining: A Business Activity

In Bulgaria, income from mining cryptocurrency is classified as business income and is subject to taxation under Article 50 of the PITA. You’ll need to declare this income in Appendix No. 2 of your annual tax return.

  • Why is it Considered Business Income? Mining often involves investing in specialised equipment to generate a profit by selling the mined cryptocurrency. This is seen as a regular income-generating activity, making it a business activity under Bulgarian law.
  • Sole Trader Status: Whether you’re considered a sole trader depends on the nature and regularity of your mining operations, not on whether you’ve formally registered as a business.
  • Tax Calculation: Your taxable income from mining is calculated according to the Corporate Income Tax Act (Article 26 of the PITA).

3. What Exactly are Cryptocurrencies?

Bulgarian law defines cryptocurrencies as digital representations of value that:

  • Are not issued or guaranteed by any central bank or public authority.
  • Are not necessarily tied to a legally established currency like the Bulgarian Lev.
  • Don’t have the legal status of money but are accepted as a medium of exchange by individuals and entities.
  • Can be transferred, stored, and traded electronically.

4. Documentation and Record-Keeping

While you don’t need to submit specific documents with your tax return for income from cryptocurrency transactions, maintaining detailed records of all your crypto activities is crucial. Keep these records for at least five years after the limitation period for related tax obligations.

Simplify Your Crypto Taxes with Aidos

Navigating the world of cryptocurrency taxation can be complex and time-consuming. Don’t risk making costly mistakes. Our team of expert accountants at Aido specializes in tax regulations in Bulgaria. We can help you:

  • Understand your tax obligations
  • Optimize your tax returns
  • Ensure full compliance with Bulgarian law

Contact us today for a free consultation and let us take the stress out of your crypto taxes.

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FAQ’s about Cryptocurrency Taxation in Bulgaria

Q: Do I have to pay taxes on cryptocurrency in Bulgaria?

A: Yes, any profit you make from selling, exchanging, or mining cryptocurrency is considered taxable income in Bulgaria.

Q: What is the cryptocurrency tax rate in Bulgaria?

A: The tax rate on cryptocurrency gains in Bulgaria is 10% of the realized profit. However, if your cryptocurrency activities are considered a business, the tax rate may be different.

Q: Where do I report cryptocurrency income on my Bulgarian tax return?

A: You need to declare income from selling or exchanging cryptocurrency in Appendix No. 5 of your annual tax return. Income from mining is declared in Appendix No. 2.

Q: How long do I need to keep cryptocurrency transaction records in Bulgaria?

A: It’s crucial to keep records of all your cryptocurrency transactions for at least five years following the expiration of the limitation period for related tax obligations.

Q: I’m a foreigner living in Bulgaria. Do the same tax rules apply to me?

A: Tax residency rules can be complex. If you’re a foreigner living in Bulgaria, it’s essential to consult with a tax advisor to determine your tax obligations related to cryptocurrency.

Key Takeaways:

  • Cryptocurrency income is taxable in Bulgaria.
  • Keep detailed records of all your cryptocurrency transactions.
  • Consult with a tax professional for personalized advice.

Source: National Revenue Agency

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