A draft of an entirely new Law on the introduction of the euro in the Republic of Bulgaria has been published on the Council of Ministers’ portal for public discussions, which aims to regulate all substantial legal aspects related to the change of the official currency in Bulgaria. Specific provisions are foreseen on currency conversion, the transition period (dual circulation and dual price indication), legal entities (capital requirements, corporate documentation), accounting/tax issues, interest rates, the role of credit institutions, etc.

1. Currency Conversion

Pursuant to the proposals, the conversion is done by dividing the numerical value in leva by the full numerical value of the official exchange rate expressed in six digits with all five decimal figures (namely - 1.95583 leva for one euro).

After the conversion, the resulting amount shall be rounded to the second decimal figures on the basis of the third digit, whereas (i) if the third digit is less than 5, the second digit shall remain unchanged, respectively (ii) if it is greater than 5, the second one shall be increased by one unit.

What should this mean in an example:

- in event of conversion of 10 leva, this amount is firstly divided by 1,95583. The resulting amount thereof (5,1129 in this example) is rounded to the second digit based on the third, i.e. 5,11 euros would be the final amount, since the third digit is lower than 5.

The draft envisages one exception to the above rule, namely – labour remunerations, compensations, cash and social allowances, as well as pensions, are rounded towards the higher number, if the third decimal figure is greater than 0.

All amounts contained in so-called "legal instruments" (legislation acts, court decisions, contracts, etc.) will be automatically considered as values in euros by applying the above general conversion rules. This means that if an individual has an outstanding receivable against another individual in leva - for instance, based on a court judgment rendered before the euro adoption date - he should receive from the debtor the equivalent amount in euro.

2. Exchange of levs with euro banknotes and coins

The exchange of euro banknotes and coins will be carried out in several ways, whereas it is envisaged that the Bulgarian National Bank will do the BGN - EUR exchange pro bono, in unlimited quantity and without time limit, under the official exchange rate.

Such obligations will have all credit institutions in the country, but for a limited period of 6 (six) months as of the euro introduction. For the exchange of amounts greater than BGN 30 000, one must file a preliminary request three days in advance.

In locations where there are no offices or branches of a credit institution, the exchange of lev into euro will be carried out free of charge by Bulgarian Post EAD, with a maximum exchange value of BGN 1 000 per day for one individual. For amounts ranging from BGN 1 000 to BGN 10 000 per day per individual, Bulgarian Post EAD will be obliged to exchange banknotes and coins in lev into euro free of charge, but after a preliminary request filed 3 to 5 working days in advance, and only in pre-announced post offices in the country.

Credit institutions and Bulgarian Post EAD will be entitled to cease the service for cash exchange of banknotes and coins from lev to euro after expiry of 12 months from the date of the introduction of the euro in the Republic of Bulgaria. Upon expiry of this period, they would be entitled to impose an exchange fee.

All bank accounts in lev will be converted into euro automatically and free of charge, and ATM withdrawals, after the introduction of the euro, would be only possible in euro.

3. Dual circulation and dual price indication periods

The draft foresees an obligation for traders to indicate the prices of the goods and services offered by them in both euro and in lev. This practice will be discontinued once 12 months have passed as of the introduction of the euro in Bulgaria, i.e. after that moment prices will be indicated only in euro currency.   

In order to ensure a smoother transition to the new currency, the lev will continue to be a legally admissible payment mean for a period of 1 month from the date of euro adoption - the so-called "dual circulation period". Traders would be, however, obliged to give consumers change only in euro unless they do not dispose with sufficient cash at hand at the moment of purchase. 

4. Interest rates under credit agreements

With regard to credit agreements with a fixed interest rate, after the introduction of the euro in Bulgaria, the fixed interest rate shall remain as agreed before the date of introduction of the euro.

The situation is different for credit agreements with variable interest rates. In this hypothesis, the new interest rate shall be calculated according to a new formula, information on which is to be provided to the borrowers free of charge and in writing, irrespectively of their capacity (traders or consumers).

In any case, the new variable interest rate under the credit agreement shall not be higher than the interest rate stipulated under the agreement before the introduction of the euro. This way, neither the borrowers nor the lender should be placed at a disadvantage compared with the situation before the currency change.

The above rules are applicable to all types of credits, including consumer credit and real estate credit granted to consumers.

5. Capital companies

Provisions are introduced on the currency conversions of the registered capital of trade companies in a manner which observes the protection of shareholders principle, and the automatic reflection of the changes in the Commercial Register and the Register of Non-Profit Legal Entities.

The nominal value of a share, respectively the capital of a limited liability company, is converted from leva into euro by dividing the current capital value with the full numerical value of the official exchange rate (1.95583) and rounding the result pursuant to the general rounding rules commented above.

Amendments to the Commercial Act are also envisaged, which allow the minimum value of a share to be one еuro cent. The minimum value of the capital of a limited liability company will be EUR 1 and the minimum capital of a joint-stock company will be EUR 25 000.

Companies must bring their Articles of Association in line with the changes when they first apply to register any changes to their corporate status in the Commercial register, but no later than 12 months after the law enters into force.

6. Accounting and documentation, payment of outstanding public debts

As a general rule, on the date of introduction of the еuro in Bulgaria, the balances under the book accounts in lev are transformed into еuro in accordance with the conversion rules (the value of each individual asset is converted taking into account both the general conversion rules and the specific ones, applicable to labour remunerations, benefits, etc.).

From the same date, the current accounting and reporting shall be in еuro and the annual financial statements shall be drawn up in thousands of еuro, with the figures for the previous reporting period being converted as well into thousands of еuro in accordance with the conversion rules, aiming to ensure comparability between the current and the previous period. The annual financial statements shall be prepared in the currency which is the official currency of the Republic of Bulgaria at the end of the respective reporting period and the comparative figures for the previous reporting period shall be in the same currency.

Special provisions have been also introduced concerning tax and insurance reporting. The monetary figures in tax declaration and declarations for compulsory social security contributions, and other documents which have to be submitted for an expired tax/insurance period, shall be indicated in the currency which was the official currency of the Republic of Bulgaria at the end of the respective tax/insurance period for which the declaration or document is submitted. Monetary figures in tax declaration to be submitted for a future tax period shall be indicated in the official currency of the Republic of Bulgaria at the time of their submission.

After the date of introduction of the еuro in Bulgaria, all receivables of the state and municipalities shall be paid and collected in еuro. During the period of dual circulation of the lev and the еuro, in cases where payment in cash of public debts is permissible, cash payments could be also made in lev.

7. Sanctions

Respective administrative-penal provisions are also stipulated in event of non-compliance with the requirements under the new law.

Some of the examples in this regard are as follows:

- a trader who fails to announce prices in еuro and in lev or violates the rules on the manner of announcing prices during the period of double price indication shall be punished with a fine of BGN 400 to BGN 5 000; for legal entities - a pecuniary sanction of BGN 600 to BGN 7 000, and in case of repeated violation - up to BGN 14 000;

- for not declaring the price in еuro and in lev in a fiscal receipt during the period of double price marking, the penalty may reach up to BGN 1 000;

- sanctioning companies for breach of the currency conversion rules with a pecuniary penalty which may reach BGN 16 000.