On 20.08.2024, in issue 70 of the State Gazette the Law on the Introduction of the Euro in the Republic of Bulgaria (“Euro Act”) has been promulgated. Overall, the Euro Act has undergone only a few changes compared to the initial draft submitted to the National Assembly for consideration. In this article we will focus on the key aspects of the new legal act as follows:

1. Currency Conversion

General rules are provided for the conversion of values from lev to euro. The conversion is carried out by dividing the numerical value in levs by the full numerical value of the official exchange rate expressed in six digits with all five decimal places (namely - 1,95583 levs per 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 equal or 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 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.

All amounts contained in the 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 - they should receive from the debtor the equivalent amount in euro. The conversion shall in no way affect the validity of legal instruments issued before the date of introduction of the euro.

2. Exchange of levs with euro banknotes and coins

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

Such obligation will have all credit institutions in the country, but for a limited period of 6 (six) months as of the euro introduction, whereas for the exchange of amounts greater than BGN 30 000, one must file a preliminary request 3 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 the Bulgarian Post EAD for a 6-month period as of the introduction of the Euro. The maximum exchange value is 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, the exchange of banknotes and coins in lev into euro shall be again done 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.

Upon expiration of a 12-month period as of the introduction of the euro in Republic of Bulgaria, the credit institutions and Bulgarian Post EAD will be entitled to cease the service for cash exchange of banknotes and coins from lev to euro or they could provide the service against consideration (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 Act 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 ceased 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, 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 - there is a mechanism to change the interest rate if certain circumstances arise (the so-called use of an alternative “benchmark” to determine the interest rate, which would be necessary if the previous “benchmark” no longer applies or has undergone a significant material change), of which the customer must be notified.

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, respectively 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 also 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.

In the case of a joint-stock company, the nominal value of a share is converted from lev to euro by dividing the nominal value of the share at the official exchange rate and rounding the result using the general rounding rules mentioned above.

The capital of the company in this case will be equal to the nominal value of the share in euros (i.e. after the currency conversion) multiplied by the total number of shares. The difference between the subscribed capital in lev and the new value in euro after the above operations is attributed to retained earnings.

In the case of LLCs, the reverse sequence is provided - first the entire capital is converted according to the general rules, and each shareholder's equity share is determined by distributing the total converted amount of the capital to the shareholders in accordance with their share (in percentage) before the conversion.

By means of the Euro Act, respective amendments to the Commercial Act are also adopted - the minimum value of a share in LLC and JSC shall be a minimum of one euro cent, i.e. the share may no longer be a whole number, which is logical in view of the currency conversion. The minimum capital of a LLC shall be EUR 1 and the minimum capital of a joint-stock company - EUR 25 000.

Companies should bring their constituent acts (articles of association, articles of incorporation, statutes etc.) in line with the changes when they first apply for registration of changes or announcement of acts in the Commercial Register, but not later than 12 months from the date of introduction of the euro in Bulgaria, otherwise they risk a sanction.  

In the event that, in order to preserve the rights of the shareholders of a limited liability company upon the conversion of their shares in the capital, an amendment of the converted capital is required, the amendment may only be up to 5% of the registered capital and must be made in accordance with the procedure for amending the articles of association. In this case, the rules of the Commercial Act on capital increases and decreases shall not apply.

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. 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.

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 and, if the tax period ends within the dual circulation period, the values shall be expressed in euro. 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, whereas during the period of dual circulation of the lev and the еuro, in cases where payment in cash of public debts is permissible, the 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 800;

- sanctioning companies for violation of the currency conversion rules, including those related to the updating of their constituent acts, with a pecuniary sanction that may reach BGN 14,000.