As digital money continues to gain popularity and supporters, Bitcoin and Ethereum regularly making global news, it might seem that the tax law is yet to regulate the proceeds of this seemingly innovative source of income. While business only recently started opening up to the opportunities related cryptocurrencies e.g. by accepting these alternative payments for their services and products, the law, the Bulgarian fiscal authorities have been clear for years regarding the tax treatment of the proceeds from this trendy activity.
The income from cryptocurrency transactions is taxable. In 2014, the Bulgarian National Revenue Agency unequivocally stated in an instruction that any profits of a person, who is tax resident of Bulgaria, might gain from trading with bitcoins and any type of cryptocurrency is subject to income tax – the standard 10% personal income tax. Respectively, it is to be included in the individual annual income tax declaration by 30 April of the following year.
How to calculate the taxable amount? In general, it is the difference between the profit gained and the loss incurred within the calendar year from sale or exchange of cryptocurrency. Profit and loss are calculated for each transaction separately, comparing the acquisition price and the sale price.
Commercial trading is subject to higher tax. When the transactions related to cryptocurrency qualify as commercial (business) activity, the National Revenue Agency prescribes application of the higher 15% income tax, instead of the 10% tax on personal income. To distinguish between commercial and non-commercial activity the authorities apply the standard criteria as to all transactions – does it amount to professional activity, done as occupation for profit or not? For example, if a person purchases a special computer system for the creation (extraction) of bitcoins with the view to trade on the exchange, this shall be deemed commercial activity – even if the person is not registered as sole proprietor (едноличен търговец).
In brief, the income from cryptocurrency transactions is always taxable, the only volatility being regarding the applicable tax rate. In case of doubt, the authorities might claim the higher 15% income tax if there are arguments to suggest that the transaction is a part of commercial activity. According to the National Revenue Agency, the regular trading in cryptocurrencies, including the purchase of “digging machines” for profit, specify the transactions as an business activity and the individuals, despite the lack of registration or accounting reporting should be taxed as traders.
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Please note that this statement is for information only and does not constitute legal advice.