I. Introduction

This article does not concern persons who trade financial assets (FA) professionally and are required to be taxed under the regime for sole traders (ET).

Advantages and Disadvantages of Taxation as a Sole Trader

• An obligation arises to maintain accounting records
• A tax rate of 15% applies
• Mandatory social security contributions are due
• Daily monitoring of turnover is required
• Upon reaching taxable turnover of EUR 51,130 within 12 months, an obligation for VAT registration arises
• Expenses related to the activity (commissions, fees, interest, exchange differences, etc.) are recognized for tax purposes
• It is possible to apply tax relief for transactions on certain markets outside the EU (e.g., USA, Australia, Hong Kong), recognized as equivalent
• Tax losses can be carried forward and deducted for up to 5 years

Regulated Markets

• The regulated market in the Republic of Bulgaria (Bulgarian Stock Exchange)
• Regulated markets in EU Member States
• Regulated markets in countries part of the European Economic Area (EEA): Iceland, Liechtenstein, Norway
• Growth markets, including transactions on such markets (e.g., the BEAM market in Bulgaria)

The list is published on the ESMA website:
https://registers.esma.europa.eu/publication/

The European Securities and Markets Authority (ESMA) maintains and publishes an updated list of all regulated markets in the EU and EEA.

Use “Refine search” → Entity type: Regulated market

Transactions on a Regulated Market That Are Exempt from Taxation

• hares and stocks of collective investment schemes and national investment funds
• Shares of public companies
• Tradable rights to shares of public companies – securities giving the right to subscribe to a certain number of shares in connection with a capital increase decision
• Government securities (bonds, treasury bills)

Transactions That Are Not Exempt from Taxation (Even on a Regulated Market)

• Compensatory instruments
• Investment vouchers
• Investment gold and silver
• Corporate bonds
• Any other financial instruments

II. Income from the Sale of Financial Assets

Determination of Taxable Income from the Sale of Financial Assets

The taxable income is the sum of the profits realised during the year, determined for each individual transaction, reduced by the sum of the losses realised during the year, determined for each individual transaction.

The resulting difference (profits minus losses) is further reduced by 10% statutory recognised expenses.

Meaning of an Individual Transaction

The result is not calculated at the portfolio level, but separately for each transaction.

The result of each transaction is calculated, and for the entire year the results (profit or loss) are summed.

• If the result is positive → it is subject to taxation
• If the result is negative → it is not taxed, but cannot be carried forward or deducted from taxable income in future tax years

Example: Calculation of Taxable Income from Share Transactions

During the year, you have three transactions:

Transaction 1
You buy 100 shares at 10 BGN
= 1,000 BGN
You sell them at 15 BGN
= 1,500 BGN
Profit = +500 BGN

Transaction 2
You buy 50 shares at 20 BGN
= 1,000 BGN
You sell them at 18 BGN
= 900 BGN
Loss = –100 BGN

Transaction 3
You buy 30 shares at 5 BGN
= 150 BGN
You sell them at 8 BGN
= 240 BGN
Profit = +90 BGN

Determination of Taxable Income

Taxable income is calculated as:

Total profits – Total losses

Calculation:
Total profits: 500 + 90 = 590 BGN
Total losses: 100 BGN
Taxable income: 590 – 100 = 490 BGN

Important: This is the amount that is subject to declaration and taxation.

Treatment of Fees and Commissions

Expenses such as interest, commissions, and fees paid to brokers or banks at the time of purchase are not included in the acquisition cost when calculating the result of the transaction. Commissions and fees paid in connection with the sale do not reduce the selling price. Costs associated with currency conversion are also not taken into account

Sale of Financial Assets with Different Acquisition Prices

A weighted average price is used

Practical Example

Purchases:
100 shares × 10 BGN = 1,000 BGN
50 shares × 20 BGN = 1,000 BGN
50 shares × 30 BGN = 1,500 BGN

Total:
Number of shares: 200
Total investment: 3,500 BGN

Weighted average price:
3,500 ÷ 200 = 17.50 BGN per share

Partial Sale of Assets

You sell 80 shares × 25 BGN
= 2,000 BGN

Acquisition cost:
80 × 17.50 = 1,400 BGN

Result of the transaction:
Profit: 2,000 – 1,400 = 600 BGN

This is the result for this specific transaction.

Moment of Acquisition of Income from Sale

Income is considered acquired on the date of transfer of the respective financial asset, regardless of the date on which the payment from the sale is received.

In certain cases, even if the payment is made in instalments or part of the amount is transferred to an escrow account, the entire income under the contract is considered acquired at the moment of transfer of the asset.

Exchange Rate for Conversion into BGN

The conversion is carried out using the Bulgarian National Bank (BNB) exchange rate, valid on the date the income is acquired.

The conversion using the BNB rate is done as of the date of transfer (e.g. the date of the contract or transaction), not the date on which the amount is actually received in the bank account.

Reporting in the Annual Tax Return (GDD)

Appendix No. 5 (Form 2051): “Income from transfer of rights or property” – code 508
Cryptocurrencies: code 5082

Practical Tips

In the annual tax return (GDD), total amounts of selling prices and acquisition prices are indicated; therefore, you should prepare Excel tables in which you have information about purchases/sales by currencies, markets, codes, used exchange rates, dates, countries, regulated or unregulated markets, etc.

This table will also help you with completing the appendix to the GDD regarding the shares and stocks held abroad.

If we are going to realise profits, when selling, we aim to use a regulated market so that the income is non-taxable.

If we are going to realise losses, when selling, we aim to use an unregulated market so that we reduce our profits from other sales from the unregulated market.

What matters to us is which market we used for the sale (regulated or unregulated) and not on which market the shares are listed.

Received bonus shares are non-monetary income which is taxable. The value of the income is calculated in leva as of the date of receipt and is declared in Appendix No. 6 (Form 2061).

III. Income from Holding Financial Assets

1. Interest from Holding Financial Assets

Non-taxable interest from financial assets

• Interest on deposits in banks, when they are in institutions established in Bulgaria, other EU Member States, or EEA countries (Iceland, Liechtenstein, and Norway)
• Interest and discounts from Bulgarian government, municipal, and corporate bonds, as well as from similar bonds issued under the legislation of another EU Member State or an EEA country

The key criterion here is where the bond is issued, not the market on which it is traded.

Moment of acquisition of interest income

On the date of receipt of the money.

In specific cases, when interest income (for example from foreign bonds) is distributed through an investment intermediary, it is considered acquired on the date on which the intermediary credits the account of the individual with the amount of the interest.

Reporting of taxable interest income

Taxable interest is declared in Appendix No. 6 of the annual tax return (GDD) with code 603.

2. Dividends from Holding Financial Assets

Non-taxable dividends

Dividends distributed in the form of new shares and stocks in commercial companies or an increase in the nominal value of already existing shares and stocks

Upon subsequent sale of such assets acquired through reinvestment, their acquisition price is considered “zero”, if the transaction is not exempt on another basis.

Taxable dividends

Taxable are dividend incomes from all sources acquired during the year, which are not explicitly exempt by law. Apart from those mentioned above, all others are taxable.

Main Taxation Rules for Dividends

• Tax rate in Bulgaria: 5 percent on the gross amount of the dividend
• Source in Bulgaria: The tax is withheld and paid by the paying company within the end of the month following the quarter in which the decision for distribution was taken. In this case, the individual is not obliged to declare the income in the GDD.
• Source abroad: When the dividend is from a foreign entity, the individual is obliged to declare the income, calculate and pay the tax

Moment of Acquisition of Dividend Income

On the date of receipt of the dividend, regardless of the date on which the decision for distribution of the dividend was taken.

Reporting of Foreign Dividends

Appendix No. 8 (Form 2081), Part III, Income code: 8141. If dividends are received several times during the year from the same payer (one company), they may be indicated on one row as a total amount. The name of the company that paid the dividend is also indicated.

3. Withheld Taxes at Source for Interest and Dividends

Required documents for applying a Double Taxation Treaty(DTT)

When applying the “tax credit method” to the GDD, evidence for the amount of taxes paid abroad must be attached. These may be documents issued by the income payers, certificates issued by the competent authorities of the other state, etc.

When applying the “exemption with progression method”, evidence for the amount of tax paid abroad may not be required.

Reporting income subject to DTT

In addition to the relevant appendix to the GDD, Appendix No. 9 (Form 2091) of the GDD is also completed. In general, you should not have tax to pay on dividend income when applying a DTT, because usually the tax withheld abroad is higher than 5%.

IV. Declaration of Ownership of Financial Assets in the GDD

Declaration of shares and equity participations abroad

In Appendix No. 8 (Form 2081), Part I.

Method of declaration

It is indicated:

• The country in which the respective company is registered
• The number of shares or stocks
• Date of acquisition
• Total acquisition price in foreign currency and its equivalent in leva

Company names and/or codes are not indicated, but countries.

Shares and stocksre indicated separately. Exchange Traded Funds (ETFs) are rather units.

If you have purchased shares from the same company on different dates, each purchase should be indicated on a separate row so that the date and the respective acquisition price can be precisely identified.

“Free shares” held at the end of the year in foreign companies are also subject to declaration.

The provision for declaring shares and stocks abroad does not apply when a foreign collective investment scheme is organised as a contractual fund (separate property) and not as an investment company (joint-stock company).

Declaration in Appendix No. 8 is mandatory, even if there is no realised income from the assets or if the income from their disposal is non-taxable.

The appendix is also completed even if the person has no obligation to submit a GDD on another basis.

Assets not subject to declaration

• Investment gold
• Cryptocurrency
• Unclosed options
• Exchange-Traded Commodity (ETC)

V. VAT – Registration and Taxation

When financial asset transactions create VAT turnover

If you carry out incidental transactions with financial assets, you do not have the status of a “taxable person” within the meaning of the VAT Act and you should not register for VAT even if you have exceeded the registration threshold. A taxable person is one who carries out an independent economic activity characterized by regularity, generation of constant income, and intention for the activity to become a permanent source of revenue (carried out “by occupation”).

VAT treatment of financial asset transactions

Transactions with shares and stocks are exempt supplies, but their tax bases are included when calculating the taxable turnover for mandatory VAT registration.

The tax bases (selling prices) of the realized assets are summed, not the profit from them.

Transactions carried out within the territory of the country participate in forming the taxable turnover. Transactions on markets outside Bulgaria do not participate in forming the taxable turnover.

As an exception, supplies with investment gold do not form taxable turnover for mandatory VAT registration, as they are exempt supplies and are not explicitly specified by the VAT Act as forming turnover for registration.

VI. Practical Tips

You also have the option to report your non-taxable income. Please complete Form No. 13 (2013 version)

To complete the annual tax return (GDD) you need from:

Interactive Brokers to download the following reports:

• Activity Statement
• Trade Confirmation

For proof of tax paid at source – Tax Documents:

Revolut:
Invest / More / Statement / Account statement and Profit & Loss statement