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The National Revenue Agency of Bulgaria is preparing to conduct inspections on cryptocurrency trading platforms and their customers. The authority wants to make sure that both are fulfilling their obligations under the country’s tax and social security laws.
Also read: Denmark’s Tax Agency to Collect Information About Bitcoin Traders
Nine Crypto Companies Subjected to ‘Control Actions’
The tax service plans to investigate companies that have declared the trading of digital assets as their core business activity, Bulgarian media reported quoting an official announcement. It also wants to find out more about how these platforms operate.
The main concern is that the transactions related to the exchange of virtual currencies are anonymous. This, according to the regulator, comes with risks of revenue concealment and tax evasion.
The National Revenue Agency (NRA) has already conducted a study of the Bulgarian entities working in the sector. The tax authority said it has assigned “control actions” in regards to nine companies.
Crypto Income Must Be Reported on Tax Returns
Once the checks are completed, tax officials will analyze the data gathered for the users of these platforms. The main task is to determine whether these taxpayers have reported their income from cryptocurrency transactions.
In Bulgaria, profits from crypto trading are treated as income from the sale of financial assets. Private individuals are expected to declare these revenues on their annual tax returns. A flat income tax rate of 10 percent is applied to the positive balance from these transactions in fiat currency.
Profits earned by businesses are subject to taxation under the Corporate Income Tax Act, with the same tax rate. Bulgarian residents are obliged to file their tax declarations and pay their taxes for the previous year by April 30. Annual corporate tax returns should be submitted by March 31, 2019.
Awaiting European Regulations
Bulgaria has not yet adopted a dedicated legislation on the taxation of income from crypto-related activities such as trading and mining. The applicable rules are based on a clarification notice issued by the NRA several years ago. Currently, digital coins are taxed like other financial instruments and Bulgarian authorities reference the general EU regulations and the European practice in the field.
However, the treatment of cryptocurrency profits varies significantly between EU member states. Tax rates can be anywhere between 0 and 50 percent. Interpretations regarding the legal status of digital assets are also quite diverse. Cryptocurrencies and the industry built around them remain largely unregulated in most EU countries. Recognizing that as a major problem, many officials have urged for unified rules across the European Union. Two regulatory agencies recently called for the adoption of common EU regulations.
European regulation may be needed to level the playing field, the European Banking Authority (EBA) said in a report. EBA advised the European Commission to conduct a comprehensive analysis and determine what action is required at the EU level to address the issues regarding the opportunities and risks presented by cryptocurrencies and related technologies. In another report to the Commission, the Council and the Euro Parliament, the European Securities and Markets Authority (ESMA) stated that crypto assets need an EU-wide approach to ensure investor protection.
What do you think about the actions of Bulgarian tax authorities regarding cryptocurrency exchanges and traders? Share your thoughts on crypto taxation in the comments section below.
Images courtesy of Shutterstock.
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