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Despite the continuing political turbulence and the related internal and external impact,joining the Eurozone remains a priority on the Bulgarian economic development agenda as is evident from the Act on the Introduction of the Euro (“Act”) published in State Gazette 70 of 20.8.2024.
While it remains uncertain when a decision setting out the date for the introduction of the euro in Bulgaria will be adopted by the Council of the European Union, the Act aims to cover all aspects of the anticipated currency change, i.e., to introduce rules on the conversion from the Bulgarian lev (BGN) to the euro (EUR), impose various obligations on businesses and public authorities, designates supervisory bodies, and introduce tools for control of the transition. Below is an overview of the scope of the Act and its essential rules and principles.
General Principles
The introduction of the euro shall be based on the principles of protection of consumers, information, effectiveness, transparency, continuity, and automated conversion of BGN into euro. The introduction of the new currency shall not have as a result the amendment of any term set out in a legal instrument or provide an exemption from any obligation or performance due under such legal instrument and does not grant any right for unilateral amendment or termination of such legal instrument.
Conversion rate and exchange
As a general rule, conversion will be done by dividing the numeric value in BGN to the full numeric value of the official EUR rate (EUR 1 = BGN 1.95583). After conversion, the result shall be rounded down to the second figure after the decimal point.
BGN (banknotes and coins) will retain its legal tender status for a period of one month as of the date of introduction of the euro (“Period of dual circulation”) but in case of payment in BGN change will be given out in EUR unless the trader does not have sufficient funds in EUR.
During the period of dual circulation, traders are not allowed to increase the prices of goods and services if such increase is not justified by objective economic factors.
Within the first 6 months from the date of introduction of the EUR, credit institutions and the Bulgarian Posts will be exchanging BGN to EUR free of charge using the official rate. After the expiry of the initial 6-month term fees may be applied to any exchange.
Consumers
Conversion should not put consumers in a worse economic position. Thus, consumers should receive clear, precise and timely information on the principles applicable to the conversion of BGN to EUR and the prices of goods and services.
All prices shall be stated in BGN and in EUR for a period starting one month after entry into force of the decision to adopt the EUR and ending 12 months after the date on which the EUR is adopted[1]. Both prices should be placed in immediate proximity and in a way not to mislead consumers. Additional rules as regards the dual display of prices are established for various situations (e.g., price per item, discounts, price comparison).
Registered company capital
The Act provides detailed rules on the conversion of registered company capital depending on the company type. In general, the rules of conversion and rounding down of the result described above apply here as well. On the date of introduction of the EUR, company capital indicated in the Commercial Register will be automatically substituted with the respective value in EUR subject to a direct conversion by the Registry Agency. The Act also amends the Commercial Act, allowing the minimum value of shares and stocks to be 1 euro cent.
Companies will have to amend their corporate documents in compliance with the Act within 12 months as from the date of introduction of the euro and submit to the Commercial Register the amended articles of incorporation along with the first subsequent application for which no state fee will be charged. The Act also allows LLCs to increase or decrease their capital through amendment in the articles of incorporation where due to the conversion this is required to preserve the rights of the shareholders and the change in the capital is up to 5% of the registered capital.
Other areas
On the date of introduction of the EUR, funds in accounts will be converted by the respective credit or other institutions free of charge and retaining all contractual conditions applicable to the account prior to the conversion. Fixed interest rates applied to loans agreed by the date of introduction of the euro remain unchanged and variable interest rates cannot be higher than the respective rate applied prior to the introduction. Benchmarks applied to bank loan agreements will also be affected.
Specific rules on conversion are provided for debt securities, shares in pension funds, collective investment schemes, dematerialized financial instruments, government loans, and government-guaranteed loans. With respect to the conversion of government securities it should be noted that all operations with such securities will be suspended three days prior to the introduction of the euro.
All outstanding public debts as well as unduly paid or collected public debts prior to the introduction of the euro will also be automatically converted in accordance with the rules above. After the introduction of the euro all public debts will be collected in EUR but during the period of dual circulation payments in BGN will still be accepted.
As from the date of introduction of the euro, subject to conversion are also remunerations, compensations, social security payments, and pensions. Food vouchers, discount coupons, reclamation coupons issued prior to the introduction of the euro will remain in circulation until their expiry or exhaustion of stocks subject to the general rule of conversion and rounding down of their value.
The Act sets out specific rules for the accounting and filing of tax declarations with respect to the conversion as well as with respect to the drafting of the annual financial statements.
Control and sanctions
Control over the enforcement of the Act will be exercised by the Bulgarian National Bank, the Financial Supervision Commission, National Revenue Agency, and the Consumer Protection Commission depending on the specific area concerned. Sanctions vary from BGN 50 to BGN 100,000 (approximately EUR 25 to EUR 51,130) depending on the type of breach and other relevant factors.
Entry into force and supplementary legislation
The Act enters into force three days after its publication in the State Gazette. All amendments to other statutes made through the Act enter into force as from the date of introduction of the euro in Bulgaria.
As the Act covers more or less all areas and activities in the country, its enforcement depends on a number of regulations which are expected to be adopted within 6 months of the entry into force of the Act.
“No information contained in this article should be considered or interpreted in any manner as legal advice and/or the provision of legal services. This article has been prepared for the purposes of general information only. PETERKA & PARTNERS does not accept any responsibility for any omission and/or action undertaken by you and/or by any third party on the basis of the information contained herein. For further information on the new act please contact us at [email protected]”
Author: Ivelin Chernaev, Senior Associate and Plamen Peev, Director of PETERKA & PARTNERS Bulgaria
Footnotes
[1] Exemptions from this obligation are, e.g., tobacco products, oil products, goods the price of which is placed directly in the process of manufacturing, etc.