Accounting for cryptocurrency transactions in Bulgaria is still relatively new and complicated due to the lack of specific regulations. However, based on available clarifications from the National Revenue Agency (NAA) and application of international accounting standards, there are some basic principles, that businesses and individuals must follow.

Key points in accounting for cryptocurrencies

1. Legal status of cryptocurrencies

In Bulgaria and the European Union, cryptocurrencies are not considered an official currency or means of payment. They are seen more as a financial asset (or intangible asset) and are accounted for in this way.

As a result, cryptocurrency transactions must be reflected as transactions with financial assets.

2. Cryptocurrencies as an intangible asset

According to International Accounting Standards (MSS) and the International Financial Reporting Standard (IFRS), cryptocurrencies can be accounted for as:

An intangible asset (if held for investment purposes).

Trading asset (if the company buys and sells cryptocurrencies for commercial purposes).

3. Acquisition of cryptocurrency

When acquiring cryptocurrency, it is accounted for at purchase price (the cost price), including all associated costs such as transaction fees, commissions, etc.

Example of an entry in accounting:

Debit: Financial assets (or intangible assets)

Credit: Cash or bank accounts (depending on the payment method)

4. Selling cryptocurrency

When selling cryptocurrency, revenue is recorded, and the difference between the selling price and the cost represents the profit or loss on the transaction.

If there is a profit:

1. Debit: Cash

Credit: Income from financial assets (or income from asset trading)

2. Debit: Income from financial assets

Credit: Financial assets

 

The difference between the selling price and the purchase price is reflected as a profit on investments.

If there is a loss:

Debit: Costs of financial assets (or investment loss)

Credit: Financial assets (or intangible assets)

Cryptocurrency exchange

If a cryptocurrency is exchanged for another cryptocurrency, this is considered a trade and is posted based on the current market value of the two currencies at the time of the exchange.

In this case, a profit or loss may again occur, depending on the value of the cryptocurrencies at the exchange.

5. Valuation of cryptocurrencies

According to international standards, cryptocurrencies can be valued using the historical cost method or the fair value method.

Historical cost: Cryptocurrencies are accounted for by price, on which they were acquired, without revaluations being made until the time of their sale.

Fair value: Cryptocurrencies are revalued periodically (for example at the end of each financial year) at their current market value. The difference in value can be reflected as an unrealized gain or loss in the accounting statement.

6. Cryptocurrencies as inventories or intangible assets

There are various hypotheses regarding the accounting of cryptocurrencies. According to the June IFRS Clarifications Committee 2019 g., if a firm trades cryptocurrencies on a regular basis (as the main subject of activity), they may be accounted for as inventories and valued at cost or the lower of cost and current market value (MSS2) or as an intangible asset (MSS 38), if the value of the cryptocurrency can be separated from its holder, as a countable unit, then sold or transferred, or the holder cannot allocate a fixed number of currency units.

7. Tax treatment of cryptocurrencies

• Tax on profits

For legal entities, profit from cryptocurrency transactions is subject to corporate tax at the rate of 10%.

Profits are calculated as the difference between the revenue from the sale of cryptocurrencies and the cost of their acquisition (cost price).

• Tax treatment for individuals

For individuals, the profit from the sale of cryptocurrency is subject to general income tax (10%). Individuals are required to file an annual tax return and declare these earnings.

If the person trades cryptocurrencies on a regular and commercial basis, may be required to register as a self-insured person or even as a legal entity (for example ET or EOOD). With an ET or an individual without a registered trader, if cryptocurrency activity can be defined as primary, it is the tax rate 15%

• Value added tax (VAT)

In the European Union, including Bulgaria, cryptocurrency transactions are considered exempt from VAT according to the Court of Justice of the European Union (case C-264/14 Hedqvist). That's what it means, that the purchase and sale of cryptocurrencies are not subject to VAT, but is included in the turnover for VAT registration upon accumulation of the required legally determined turnover 12 months ago.

• Examples of accounting entries

Acquire Bitcoin for 10,000 BGN:

Debit: Financial assets (cryptocurrencies) – 10,000 BGN.

Credit: Bank Account – 10,000 BGN.

 

Selling bitcoin for 12,000 BGN:

Debit: Bank Account – 12,000 BGN.

Credit: Financial assets – 10,000 BGN.

Credit: Cryptocurrency trading income (profit) – 2,000 BGN.

 

Exchange of 1 bitcoin for 5 ethereum, at a market value of 10,000 BGN. for bitcoin and 2,000 BGN. for ethereum:

Debit: Financial assets (etherium) – 10,000 BGN.

Credit: Financial assets (bitcoin) – 10,000 BGN.

Accounting for cryptocurrencies requires careful tracking of each transaction, as well as valuation of cryptocurrencies at different points in time. Due to the ever-changing regulatory and tax landscape, it is advisable to consult a professional accountant or tax consultant, to ensure proper application of accounting standards and tax rules.

For a detailed consultation, contact the Marilena-Consult EOOD team.