EU Laws & Cryptocurrencies – Trading Rules & Legislation

As of 2021, more and more European and world virtual currency traders choose Bulgaria for their headquarters of cryptocurrency business. There is still no law on virtual currencies based on blockchain technology, neither in Bulgaria, nor in the EU, nor in any other developed country, although cryptocurrency trading (Bitcoin, Ethereum, etc.) has been flourishing for years. Supervisory authorities in various EU countries issue sporadic guidelines, recommendations and warnings, but this has nothing to do with creating a legally regulated framework for crypto trading to adhere to, let alone uniform legal requirements. read more

Cross-border mergers & acquisitions – move an EU company to Bulgaria

EU limited liability companies are free move from one Member State and establish themselves in another EU Member State and EU laws provide 3 legal options such cross-border merger – by registering a branch, by registering a subsidiary or by one of the forms of company transformation (merger, consolidation). The subject of this article is the merger (by acquisition or formation of a new company) between foreign and Bulgarian companies – reorganisation and the related transfer of an EU company’s seat and activities from one EU country to Bulgaria – which procedure is regulated by Bulgarian Commercial Act and by Directive (EU) 2017/1132 of the European Parliament and of the Council of 14 June 2017 on certain aspects of company law, which replaced the old Directive 2005/56/EC.

First of all, only mergers and consolidations can be used as forms of transformation. Next, at least one of the companies being merged or consolidated must have its registered office in a Member State of the European Union or another State party to the Agreement on the European Economic Area (EEA), and the Bulgarian company involved must necessarily be an equity company (LLC or JSC). There is also a restriction under Bulgarian Commercial Act for a company with its registered office in Bulgaria that is to merge into or consolidate with a company with its registered office in another Member State – it must not own land.

The first step in the transformation procedure is the preparation and announcement of a so-called General Transformation Plan (GTP). This is done at the earliest one month prior to the adoption of the resolution on the transformation by the acquiring (or newly formed) and the transforming companies. It must be in writing and signed by all the representatives of the transforming companies. This plan shall contain information on the manner in which the transformation will take place. The requisites concerning the general plan are contained in Bulgarian Commercial Act. The GTP must be accompanied by a report on the transformation drawn up by the management body of each of the transforming companies, a draft memorandum or articles of association of the newly established company (in the case of a merger) or amended or supplemented memorandum or articles of association of the receiving company (in the case of a consolidation), as well as the annual accounts, the balance sheet and a detailed list of the companies involved in the transformation, containing basic information about them and the rules for the protection of their creditors in their country. The reorganisation report shall contain the legal and economic justification for the overall plan as well as the impact that the reorganisation will have on the shareholders of the companies. The report shall also be made available to the employees of the companies being transformed.

The second step in the transformation procedure is the appointment, by decision of the management bodies of the transforming companies, of a so-called special auditor, who draws up a report following the audit of the transformation. This step could be omitted if there is a written agreement to that effect by all the partners or shareholders.

The most important point in the whole procedure is the adoption of the resolution to transform by the General Meeting of each of the transforming companies – i.e. we have several (two or more) separate resolutions. These resolutions also approve the overall plan of transformation. An interesting stage in the procedure for registration of the company transformation is the point at which a certificate of the legality of the transformation in respect of the foreign company (or companies) is requested from the Commercial Register (or its equivalent) in another Member State.

Where a Bulgarian company is merged into or consolidated with a foreign company, once the relevant foreign registry enters this fact and issues the relevant notification, the deletion of the relevant company in Bulgarian Commercial Register shall also take place. A characteristic feature of the transformations is that after the actual entry of the transformation in the relevant register, all rights and obligations of the transforming companies automatically pass to the newly established legal entity or the receiving company.

The registration of the transformation may be challenged by any shareholder or member of the companies involved in the transformation if certain material and expressly provided for breaches of the legislation have occurred, such as: there is no contract, draft contract or plan of transformation, or even if they are present they are invalid at the time of the transformation, or the resolution on transformation contravenes a mandatory legal provision or the articles of association of the transforming companies, etc. The challenge can only be made before the registration of the transformation.

After registration, a claim for invalidity of the newly established company may be filed under Article 70 of Bulgarian Commercial Act. Another option for shareholders or partners who feel aggrieved in some way is the claim for monetary compensation provided for in Article 263p, in the event that the exchange ratio adopted in the contract or plan of transformation is not equivalent. Where it cannot be defended also by way of an action, the shareholder aggrieved by the transformation shall have the right to leave the company and the right to be paid the monetary equivalent of the shares or company shares held by him before the date of transformation. The shareholder may do so within 3 months of the registration of the transformation by written notice to the company.

Registered address of Bulgarian companies – local business address of registration

Any Bulgarian company should have its own registered address. This is a local postal address in Bulgaria which is used for business, fiscal and other purposes. The registered address of a newly formed or existing Bulgarian company is probably one of the most important legal questions in the process of Bulgarian company setup.

The very first thing to mention in this relation is that from legal point of view there is no such legal term as ‘business address’. The official legal term, according to Bulgarian Commerce Law, is ‘seat and registered address’ but practically registered, business, fiscal, postal, etc. address in practice means one and the same thing.

The above mentioned local postal address is actually the company’s official business address. But what is the purpose of this official address one may ask? The main and maybe most important role is that this is the local address in Bulgaria where all official company correspondence is delivered. This is of utmost importance due to the fact that it may lead to monetary losses or even business closure. And here is one simple example in this relation – if someone, actually this could be anyone, is suing the company – all court summons are delivered to the official postal address of the Bulgarian company. And if there is no such company found at the address, then, according to Bulgarian laws, all papers are considered delivered and accepted and the company is not sought for the civil or commercial proceedings anymore. Which of course means that this company would bot for example be able to appoint a lawyer to defend its rights and best interest – and this in most cases leads to a lost case. And if it’s a big case then the company would suffer enormous losses and could even go bankrupt.

Having in mind the above, a common question of foreign businessmen who are living abroad is: Can I use the address of someone else in Bulgaria? And the answer is positive. There are companies in Bulgaria that offer registered address or even virtual office services. The first thing means that you are officially registering your company at the address in Bulgaria of a trusted person (e.g. lawyers, etc.) and then all correspondence is duly accepted by the authorized persons and then forwarded to the company owner/s or shareholder/s – usually scanned copies of the documents via e-mail over the Internet. The fee for this service varies but is usually in a very low amount, typically around 100 Euros per annum. The virtual office service is more expensive.

Private security company incorporation in Bulgaria

If you are considering opening a private security company in Bulgaria, you should know that this activity can be conducted only after obtaining a private security licence.

The definition of “private security activity”, the procedure for obtaining the licence and the necessary documents are specified in the Private Security Activity Act and the respective sub-legislation. Private security companies can provide any of the following services: physical security, security of individuals, protection of property, protection of events, protection of real estate, etc. It is important to note that if the company wants to provide more than one type of security services, it must have an explicit permit for each type of security activity separately. Security activities can be armed or unarmed. The company can be licenced to operate on the whole territory of Bulgaria or only within a specific area. Depending on the above listed options, the licensing fee is different. read more

AML contact person + new declaration for companies in Bulgaria (foreign-owned)

Money laundering – through banks, real estate, nominees or other schemes – is a crime according to Bulgarian Criminal Code as it is all over the world.  In connection to this in 2018 Bulgaria launched a new Law on Measures Against Money Laundering which totally repealed the previous one in force. The new law fully complies with European standards and in particular with Directive (EC) 2015/849 on the Prevention of the Use of the Financial System for Money Laundering or Terrorist Financing. The changes are mainly related to the imposition of new obligations to those who are defined as “obliged entities” – these are all natural and legal persons, who are committed to the observance and implementation of the anti-money laundering and anti-terrorist financing measures referred to in the same law.

One of the main obligations under the new Bulgarian Anti-Money Laundering Act is related to all companies, including branches of foreign commercial companies registered in Bulgaria. When entering into business relations with their clients / contractors obliged entities must apply measures for comprehensive check of their client, including identification of the beneficial owner of their clients – legal entities. By virtue of this law “a client” is any natural or legal person or other legal entity that enters into business relations or performs a random business transaction with an obliged person. In case a client appears not personally, but through a nominee, in order to be able to perform this identification, the obliged person must consult the relevant Bulgarian register (Trade Register, BULSTAT register) as well as to obtain an official document (contract, certificate or other) showing who the beneficial owner is.

The new Anti-Money Laundering Act requires that legal entities  submit to the relevant public register (Commercial Register, BULSTAT Register) a specific declaration about their beneficial  owner. The declaration is required to be presented by the legal representative / the manager of the company. It is this particular declaration and its submission that is a subject of the most discussions. At first glance, it appears that all companies must submit a declaration to the relevant registry, regardless of the form of their company. But as you read the law, you can see that this declaration is not necessarily needed for natural persons. This means that  a Ltd. company, which has a natural person registered as the sole owner of the capital, is not obliged to declare and prove again that this person is the real owner of the respective commercial company. This is not the case, however,  if the owner of the company is not a physical person, but another legal entity, whether Bulgarian or foreign. In this case the respective national public register does not show directly who the primary beneficial owner is and therefor the submission of a declaration in this case is mandatory.

When it comes to a Limited Liability Partnership, the obligation for declaration of the actual owner is more logical as there are at least two partners (natural or legal persons). For a company in which we have, for example, two associate natural persons holding 50% of the capital each there isn’t a obligation for declaration of a beneficial owner as the names of both are disclosed and are visible in the register. When there are more partners – physical persons in the association, some of which hold less than 25% of the capital, the latter shall not be declared as beneficial owners. If the minority partners with shareholding less 25 % are legal entities, however, their beneficial owners should be declared regardless of the fact that their share is minoritary.

Along with the declaration of a beneficial owner, the new law introduces another obligation for all Bulgarian companies. Every company shall declare a contact person (sort of AML officer) for communication with tax and state authorities which person must be permanently residing in Bulgaria. This is a practical problem for all Bulgarian companies founded by foreign shareholders.  Additional difficulty to foreign company owners will be the fact that the contact person must express his consent by a special notary certified statement. Upon giving such statement, a number of obligations will arise for the contact person, such as an obligation to receive, dispose of and provide appropriate and accurate information and data about the beneficial owners. The contact person  can be fined  between BGN 100 to BGN 1,000 for non-fulfillment of this obligation, and in case of a repeated violation – the fine shall be from BGN 200 to BGN 2,000.

According to the new law, the deadline for filing the declaration of the beneficial owner and contact person of the legal entity is February 1, 2019. However, information appeared in the media that this period may be extended as the Regulation on Application of Anti-Money Laundering Measures is not ready yet and some of the forms have not been published. For the moment, however, there is no clear and accurate information whether this will happen.  

Bulgarian Forex license – fast obtaining and EU passporting

Obtaining Forex license in Bulgaria

Bulgarian Forex broker MiFID EU passporting

Bulgarian Forex license gives right to the broker to operate within the entire EU either by free providing of services or through opening a branch.

Companies that want to operate Forex business platforms in Bulgaria should be registered as investment intermediaries and licensed by Bulgarian Financial Supervision Commission. They work under the European MiFID which has been implemented in Bulgarian legislation and financial institutions are regulated by the directive with some national specifics.

There are two types of Forex licenses in Bulgaria which are applicable to brokers, depending on the type of activity:

  1. Brokerage license  – BGN 250 000 (approx. EUR 125 000) minimum required investment capital – that type of license gives the investment intermediary the opportunity to hold clients’ money and securities and to provide any of the following services:
    1. Reception and transmission of orders in relation to one or more financial  instruments, including intermediating for conclusion of transactions in relation to  financial instruments
    2. Provision of investment advice to clients
    3. Execution of orders on behalf of clients
    4. Portfolio management

    Full (Market Maker) license – BGN 1 500 000 (approx. EUR 750 000) foundation capital – that type of Forex license gives Bulgarian investment intermediaries the right to deal on their own account.

    In both cases 25 % of the minimum required capital must be deposited with a bank before filing the application for licensing in Bulgaria and the remaining amount within 14 days from receiving the approval by the Financial Supervision Commission.

    Apart from the capital requirement, there are other requirements that can be summarised in several categories:

  2. Requirement towards the directors (managers) – they must be professionals of good reputation, with proper higher education and experience in the field
  3. Requirements towards the shareholders and the origin of funds of the share capital – as above shareholders can be persons/companies of good reputation, showing clear criminal record and clear origin of investment capital
  4. Capital adequacy requirements
  5. Requirements towards staff, organizational structure
  6. Requirements towards internal control, audit
  7. Technical requirements
  8. read more

Relocating to Bulgaria or move business after Brexit

Relocating to Bulgaria after Brexit is an option considered by more and more Britons. Moving business to Bulgaria is another option which more and more European and worldwide businessmen are taking advantage of.

Bulgaria is an EU member since 2007. Continued financial stability, lowest corporate income tax in Europe (10%), lowest cost of labour force combined with highly educated work force are only a few of its credits. That is why it is not a surprise why UK and other EU companies already started to study the opportunities to use Bulgaria as a safe harbour for relocation of their business.

The EU is the UK’s largest trade partner. Free movement of goods within the EU is one of its best achievements – no border control, no duties, no VAT payable on import. Brexit puts too much uncertainty about how UK export-import companies will be affected. Some are optimistic that new trading arrangements will be achieved allowing Britain to continue to benefit from free trade even after Brexit but largest European member states already implied that such scenario is unlikely to happen. That means that UK trading companies and manufacturers could face significant difficulties and it may happen that they will not be able to run their European businesses from the UK. Relocating to Bulgaria a working business is not an easy job, that is why most businessmen prefer to wait and monitor the consequence of events before making a decision. Waiting is not a wise option as any last minute relocation could result in negative due diligence reports and decline in reputation; some top corporate UK solicitors and consultants already advised that relocating to the EU should be considered in the wake of Brexit as moving will allow such companies to get round potential trade barriers.

Most uncertain is the statute of regulated companies, such as financial institutions, transport companies, investment brokers, etc. Now most global regulated companies do business in the EU through their UK based companies using the right to passport their service in other member states. For example, largest Forex brokers are UK based and London is the largest Forex trading hub in Europe. According to statistics over 40 % of foreign exchange trading volumes worldwide are generated in London. Large market makers will definitely relocate to other big financial centres such as Frankfurt, Dublin or Paris but for a medium Forex broker Bulgaria is the perfect relocation option. A number of new emerging brokers already chose Bulgaria for their licensing even before Brexit mainly due to the low cost of the initial investment for the licensing and low cost of the post-licence support. Bulgaria also offers perfect conditions for haulage companies licensing as well. Procedures are fast and insurance and guarantee are much cheaper as compared to the UK. Now UK transport companies use one licence of the Community which allows them to carry cargo across the EU. The negative impact of Brexit is expected to be most severe for trucking companies, not only because of the EU regulations but due to the fact that 80 % of the truck drivers in the UK are immigrants and shortage of workforce is forecasted as inevitable, if not now, surely in a few months or years.

Bulgaria is still not among the top relocation jurisdictions for big corporations but its advantages for small and medium sized businesses are unquestionable and perspicacious entrepreneurs have already noticed the chance to insure their business future by setting up a Bulgarian company. Having companies in both the UK and Bulgaria is a wise business decision for many reasons, the main of which is the fact that the initial company setup is very cheap and then running a dormant company costs a couple of hundred euros per annum. A Bulgarian dormant company can be quickly turned into an active commercial company at any time if its owner(s) decide to start doing business in Bulgaria – and this would then be a company with business history, although it has been dormant for that time. Some have already moved their whole businesses in Bulgaria while some have only cloned their businesses – moving only 10-20% of their business activities just to see how well they will perform while keeping their main business activities in the UK. In any case setting up a Bulgarian company is definitely beneficial to British businessmen, no matter what exactly the business consequences of Brexit will be.

Registration and licensing of recruitment / employment agency in Bulgaria

The procedure of registration of recruitment / employment agencies in Bulgaria is regulated under Bulgarian Employment Promotion Act and Ordinance on the Terms and Conditions for Conducting Mediation in Employment.

Offering any of the intermediation employment and recruitment services listed below requires obtaining a registration certificate before starting the activities. These activities are:

  • Consulting job seekers and employers
  • Professional training
  • Referral to appropriate employment programs
  • Support to job seekers for starting work
  • Offering job positions on behalf of various employers

The certificate of mediation activity is issued by the Minister of Labour and Social Policy but the application is actually filed with Bulgarian Employment Agency. Along with the application form, the recruitment agency applicants should provide a list of documents proving that their company matches the requirements prescribed by Bulgarian and European legislation such as: education of manager and employees of the company, certificate of good standing, certificate of clean tax record of the company, certificate of registration with the Personal Data Protection Commission as well as drafts of the intermediation contracts the company will offer to employers and job seekers.

There is a state fee payable at the time of application. The fee is BGN 400 if the recruitment company will operate only on the territory of Bulgaria and BGN 900 if the employment company wants to operate in other countries as well.

The whole process of registration of an employment agency in Bulgaria takes minimum three months. Actually the application is reviewed by the competent authority within 14 days so this stage is relatively fast. However, the preparation of required legal documentation which should be filed together with the application form takes at least two months.

Once the company has been registered as an recruitment agency it has the obligation to display the registration certificate prominently in all its offices as well as to quote its registration number in all its job ads and publications. The mediator can publish ads or announce job vacancies only if he has a contract with an employer.

Bulgarian Law explicitly stipulates that recruitment services shall be provided for free to job seekers. Any agency fees shall be paid by the employers. Agency fees cannot be deducted from the salary of the employees.

EU Online Gambling Licence from Bulgaria

Gambling licence in Bulgaria is the best and most cost effective solution in the whole EU. Especially when it comes to online gambling which could in fact be managed from abroad and not necessarily from Bulgaria where the licence has been obtained. Bulgarian Gambling Law requires that the owner of the company that will provide online gambling to be either a Bulgarian or an EU national. The same requirement is if the shareholder is a legal entity. If a non-EU company plans to obtain such licence, it should incorporate another EU company first and then the new entity can be the shareholder of the Bulgarian company that will organize the online gambling.

The first major requirement is a minimum amount of the investment. There are two applicable components – BGN 600 000 (a little more than EUR 300 000) is the amount which must be invested in hardware, software, etc. plus BGN 1 000 000 free capital for the purpose of paying clients, i.e. real money available ‘at hand’. The documents proving that the company has the required funds (BGN 1 600 000 BGN) are shown together with the application for the licence. The origin of all funds must be proved as the Commission explicitly checks for this.

Another mandatory requirement concerns the online communication equipment and respectively the central computer system. The rule is that they must be physically located on the territory of Bulgaria. However, they can be managed or maintained from a distance, i.e. even though in Bulgaria, servers and other equipment can be run from abroad. The central computer system of the online casino must be connected to the Bulgarian National Revenue Agency for real time transfer of information directly to the National Revenue Agency.  Every transaction is online registered in the Agency’s system. And finally the gaming software should be approved by the Bulgarian State Commission on Gambling

When it comes to payment applicants should bear in mind that licensed companies organizing online gambling must open a special bank account for depositing stakes and paying out winnings with an EU or a Swiss licensed bank operating in Bulgaria.

The time frame for obtaining an online gambling licence is 2 months from the date on which all required documents have been filed with the Commission. If there are any discrepancies or if the Commission requires more documents, then the applicant has another month. The fees for reviewing the applicant’s documents are BGN 40 000 for sporting events and horse/dog racing or BGN 70 000 for online poker and casino. A licence can be issued for 5 or 100 years and in order to be maintained the company organizing the online gambling should annually pay BGN 100 000 plus 20% on the net profit.

error:
Call us now!