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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.
With the above in mind, small and individual players in the crypto market usually do not take any measures to comply with legislation, and this is somewhat justified because it requires additional costs. However, for slightly larger and medium-sized players in the virtual currency market, it is advisable to take preventive measures that can save them a lot of hassles with all sorts of government institutions in the future. Even if cryptocurrencies are not comprehensively and precisely regulated in the current Bulgarian and European legislation, this does not mean that e.g. Bulgarian National Revenue Agency (NRA) will not carry out a tax audit, within which it will establish by an audit act considerable income and therefore unpaid taxes on the part of the obliged person – crypto trader. Or the Financial Intelligence Unit will not knock on the door in connection with measures against money laundering, not taken even on paper. Or the Commission for Personal Data Protection (CPDP) for requesting from the obliged person documentation of compliance and fulfilment of legal requirements.
It is perhaps unnecessary to mention at all that the first mandatory step in this respect is the registration of a limited liability company (LTD) or a joint stock company (JSC), because according to Bulgarian Commercial Act (CA), persons who carry out commercial activities on a sole proprietorship basis, even if they have registered absolutely nothing, are presumed to be sole traders (sole proprietorship). And in the case of a sole trader, firstly, taxation is less favourable and, in addition, the trader is liable with all his personal assets for his obligations.
The next step is to map out the business model according to which the cryptocurrency trading activity will be carried out in practice. It is highly advisable to consult a lawyer and an accountant. The least advisable option is to try something out to see if it works and, once it is found to work flawlessly (only on the technical side, however), no further legal or accounting measures are taken, at least until the competent authorities come to visit and serve a prescription, administrative infringement, penalty notice or other act. A good compromise option is to test how something works from an individual account that is not subsequently used in the company business activity of crypto trading.
Bulgarian Measures Against Money Laundering Act (MAMLA) is the first piece of legislation to be complied with by cryptocurrency traders in their activities. It also contains the first attempt at a legal definition in Bulgarian legislation of the concept of virtual currencies – “a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily linked to a legal currency and does not have the legal status of currency or money, but is accepted by natural or legal persons as a medium of exchange and can be transferred, stored and traded electronically”. Under the most recent paragraphs of Article 5 of the MAMLA, persons who provide exchange services between virtual currencies and recognized currencies without gold backing on a professional basis, as well as wallet providers who offer custodial services (a natural or legal person or other legal entity that provides private cryptographic key custodial services on behalf of its clients for the holding, storage and transfer of virtual currencies) are obliged and therefore subject to sanctions under the law. Depending on the volume and complexity of the transactions carried out by the crypto trader, appropriate documentation should be prepared and made available upon request by the competent authorities.
The next act that should be complied with when trading in cryptocurrencies is the GDPR. It does not explicitly set out requirements for cryptocurrency traders, but they do arise from the activity carried out. Considering that even just email addresses without other accompanying data fall under the category of “personal data”, there is simply no way around the GDPR, even when it comes to trading with an accompanying high level of anonymization such as crypto trading.
Last but not least among the authorities controlling the trade with virtual currencies are the revenue administration authorities in the face of the NRA. In this regard, some would be surprised to know that there is a Regulation of the Minister of Finance, according to which there is a public register at the NRA, in which crypto traders should be registered. However, it should be borne in mind that it is not so important to be formally entered in this register as it is to “spell out” the business model and activities so that the tax administration has nothing to “catch” when exercising control over crypto traders. It is important to note that the registration in question should be carried out prior to the commencement of business.