Taxation of Investment Income
Core Concepts
Taxation of investment income in Bulgaria includes rules on capital gains, dividends, interest, and rental income. Key concepts: flat tax rate (10% for corporate and personal income), withholding tax on dividends (5%), and the exemption for capital gains on shares traded on a regulated market (if certain conditions met). Candidates must understand the tax treatment of different instruments (e.g., bonds, derivatives, CIS), the concept of tax residency, and the avoidance of double taxation (tax treaties). Traps often involve misapplying the participation exemption for dividends (available for Bulgarian companies holding ≥10% for at least 1 year), confusing the taxation of capital gains from shares vs. bonds, and overlooking the tax on interest income (10% withholding for residents, exemptions for certain government bonds). Also, the rules on tax-free reinvestment and the treatment of losses (carry-forward). Candidates should know the reporting obligations and the role of the National Revenue Agency (NRA). Another trap: the taxation of income from foreign sources and the foreign tax credit.
Worked Example / Rule of Thumb
An individual sells shares on the BSE. If the shares are admitted to trading on a regulated market and the individual has held them for more than 3 years, the capital gain is exempt. Otherwise, 10% tax applies. Rule of thumb: check holding period and market listing for exemptions.
Key Points
- Flat tax rate: 10% on personal and corporate income.
- Dividends: 5% withholding tax; participation exemption for companies.
- Capital gains on regulated market shares may be exempt if held >3 years.
- Interest income: 10% withholding; some exemptions (e.g., government bonds).
- Tax residency determines worldwide income taxation.
- Foreign tax credit available under tax treaties.
Professional Ethics and Conflicts of Interest
Core Concepts
Professional ethics in investment services require integrity, objectivity, confidentiality, and professionalism. Candidates must understand the code of conduct, the duty to act in the client's best interests, and the management of conflicts of interest. Key concepts: independence, disclosure, and the prohibition of market abuse (insider dealing, market manipulation). Traps often involve misidentifying conflicts (e.g., personal account dealing, gifts and entertainment), misunderstanding the need for a conflicts of interest policy, and overlooking the rules on insider lists and wall-crossing. Also, the ethical treatment of confidential information and the obligation to report breaches (whistleblowing). Candidates should know the FSC's requirements for personal transactions and the restrictions on inducements. Another trap: the distinction between a gift and a bribe, and the need to obtain pre-approval for outside business activities. Rule of thumb: if a benefit could influence judgment, it is a conflict and must be disclosed or avoided.
Worked Example / Rule of Thumb
An analyst holds shares in a company she covers. She must disclose the holding and may be restricted from trading around research reports. Rule of thumb: personal interests must never override client interests; when in doubt, disclose and abstain.
Key Points
- Core ethical principles: integrity, objectivity, confidentiality, professionalism.
- Act in client's best interests; avoid or manage conflicts.
- Conflicts include personal account dealing, gifts, and outside activities.
- Insider dealing and market manipulation are prohibited.
- Whistleblowing encouraged; breaches reported internally or to FSC.
- Pre-approval required for personal transactions and outside business activities.