A Q&A guide to employee share plans law in Bulgaria.
The Q&A gives a high level overview of the key practical issues including, whether share plans are common and can be offered by foreign parent companies, the structure and rules relating to the different types of share option plan, share purchase plan and phantom share plan, taxation, corporate governance guidelines, consultation duties, exchange control regulations, taxation of internationally mobile employees, prospectus requirements, and necessary regulatory consents and filings.
To compare answers across multiple jurisdictions, visit the Employee share plans Country Q&A tool.
The Q&A is part of the PLC multi-jurisdictional guide to employee share plans law. For a full list of jurisdictional Q&As visit www.practicallaw.com/employeeshareplans-mjg.
Share plans are not commonly used by employers in Bulgaria, partly because a significant number of the largest employers are former state-owned enterprises that have been privatised without becoming listed companies. During the privatisation process, it was common for privatised companies to distribute or sell company’s shares, vouchers or coupons to their employees. This process, however, came to an end together with the privatisation of former state-owned companies and the applicable law was revoked in 2002. Currently, even among listed companies, share plans are extremely rare.
At the same time, share plans are frequently offered to directors and senior officers of Bulgarian subsidiaries, branches or other offices of multinational corporations that offer such plans to their global workforce. References in this article are therefore limited essentially to offers by multinational corporations.
It is lawful to offer participation in an employee share plan where the shares to be acquired are shares in a foreign parent company, and this is the most common situation. If an offer is to more than 100 Bulgarian employees (and other offerees) the Bulgarian securities regulations apply but an exemption from the requirement to have an authorised prospectus is likely to be available in line with the Directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading (Prospectus Directive).
Bulgarian companies do not typically offer employee share plans and there is therefore little established practice or legal regulation.
Share plans involving Bulgarian employees of multinational corporations are much more common and can be of different types. The variety of types depends on the jurisdiction in which the particular multinational corporation and/or company issuing the shares is located and on its preferences.
Main characteristics. Share option plans in Bulgaria are usually offered by multinational corporations to local executives or senior managers. A share option plan grants call options on the shares of a listed company within the group, during an exercise period (option term) at a price stipulated in the plan (usually with a discount to the market price as at the exercise date, or at a price amounting to the shares market price as at the date of the share option grant). However, the employees must usually comply with certain requirements to obtain the right to exercise the option, typically continuation of service for a specific period of time or meeting of a performance goal. The employees can exercise the option when all vesting requirements are met, within the option term. After the shares' acquisition under the share option plan, the employees can sell the shares on the market. The employee's benefit is the difference between the exercise price and the market value of the shares at the time of the sale.
Types of company. Companies typically granting share options in Bulgaria are non-Bulgarian listed companies or other specialised entities that are part of multinational corporate group of which the Bulgarian employer is a subsidiary.
Popularity. Bulgarian companies, even when listed, do not commonly offer share option plans. Non-listed companies are free to offer share option plans but in practice do not do so.
Discretionary/all-employee. There is no restriction on the discretionary offer of share option plans. The employer must explicitly stipulate the conditions for participation in the share option plan. Since payments under a share option plan could be considered as an additional employment benefit, where a Bulgarian employer grants a share option plan, the general criteria for determination of eligible employees must be set out in the company's internal salary regulations.
The general rules on the determination of eligible employees must be grounded on clear and non-discriminating criteria. The Protection Against Discrimination Act allows the setting of minimum conditions of age or professional experience/seniority in service as eligibility criteria for the enjoyment of employment related benefits. Such requirements do not constitute discrimination if the limitation is justified by a legitimate aim, including a legitimate employment policy, and if the means for achieving that aim are appropriate and necessary.
Non-employee participation. There is no limitation on non-employee participation. If the share option plan is also granted to non-employee directors and consultants, the employment law requirements do not apply to them.
Maximum value of shares. There is no maximum share value that is limited by enacted amendments in the Bulgarian legislation. Currently, however, a bill is discussed in Bulgaria regulating the maximum share values that can be issued to employees (see Question 34).
Market value. There is no regulation on this and practice varies. If a company offers newly issued shares as part of a share option plan, the exercise price must not be less than the par value of the shares underlying the options.
Typically, no tax and social security obligations arise from the grant of the option, since there is rarely any payment to or receipt of any benefit by the employee, or such benefit does not have an identifiable value until the option exercise date (see Question 8).
Vesting conditions typically imply that a granted option (usually non-transferrable) has no value other than when it is vested and then exercised. However, it is less likely, although still possible, for the option to be taxable and subject to social security obligations in accordance with general tax and social security laws if it is either:
Transferrable and has a grant price.
Granted for consideration by the employee (such as plans where small amounts of the employee's salary are regularly allocated to the purchase of options).
If so, then the taxable base would be either:
Their grant value.
The consideration for which they are granted.
Their market or fair value.
If the costs related to the option are borne by the Bulgarian employer, administration of tax and possibly social security withholding obligations are also borne by the employer. If these costs are centralised at group level outside Bulgaria, the employees themselves must administer tax returns and file and pay taxes
There are no legal requirements for vesting terms and conditions. Since payments under a share option plan may be considered as an additional employment benefit, depending on the features of the particular share option plan (such as whether it is granted by the Bulgarian employer or another non-Bulgarian group entity), the general terms and conditions for entitlement to obtain the award (including vesting terms and conditions) may need to be specified in the employer's internal salary rules.
However, the company is free to specify the applicable performance or time-based vesting conditions. Such conditions are common in share option plans offered by multinational corporate groups to the employees of their Bulgarian subsidiaries.
It is possible, although not likely, that Bulgarian tax and social security obligations arise from the compliance with the vesting conditions of the option, especially if the share option plan is transferrable and funded by the employer (see Question 4). After vesting, a share option may qualify as a benefit-in-kind. The tax and social security basis may be difficult to calculate, especially if the associated cost is not directly funded by the Bulgarian subsidiary employer.
It is likely that Bulgarian tax and social security obligations arise from the exercise of the option, especially if the share option plan is funded by the employer, in which case, on exercise, the share option qualifies as a benefit-in-kind. Therefore, depending on the particular terms, conditions and features of the option, the benefit-in-kind may be subject to accounting for tax/social security in the same manner as other payments to the employee (or senior manager). The tax rate on employment compensation is at a flat 10% rate, based on gross employment remuneration less social security contributions payments.
The most common aggregate social security rate for 2012 is 30.3%. The contributions are calculated on the basis of the employee's monthly remuneration along with all employment benefits received for the respective month, where there is a capped maximum social security base of BGN2000 (as at 1 August 2012 US$1 was about BGN1.5). The excess of the employee's monthly remuneration is not subject to social security contributions.
The tax and social security basis may be difficult to calculate, especially if the associated cost is not directly funded by the Bulgarian subsidiary employer or the shares are not listed.
Accounting for tax/social security. The employer, if a Bulgarian taxable entity, must withhold tax/social security on all payments to an employee, including benefits-in-kind.
If costs related to the granting, vesting or exercise of options covered by share option plans are not allocated to the Bulgarian employer, reporting and withholding obligations are the employee's direct obligation. Share option plans often provide for assistance to employees in such cases.
How liability is recovered from employee. There is little established practice on the recovering of liability from employees. It is possible for share option plans to pre-fund the employer or another group company for tax costs and other levies payable, for example, on the exercise of the options (since the employees would not yet have realised any income to finance such costs). The repayment by employees of pre-funding can take various forms and the employee's liability can be recovered by deductions from future salary or otherwise as may be agreed in the share option plan terms and conditions.
Beneficial tax treatment is available on exit as capital gains realised from on-exchange transactions in shares listed on a regulated market within the European Economic Area (EEA) are exempt from taxation (Personal Income Tax Act). This exemption can be enjoyed without any further conditions on the employee. Generally, the regulated market is a major European (therefore, a non-Bulgarian) stock exchange, which is why it may be advisable for the employer/grantor of the options to procure for the employees sufficient evidence of meeting the exemption condition.
The employee pays income tax on the capital gain realised on sale, unless the tax exemption for transactions on regulated markets applies (see Question 4). If the shares are issued by a non-Bulgarian issuer, a double tax treaty may also regulate aspects of the Bulgarian taxation.
There are no social security implications for the realisation of capital gains.
Bulgarian companies do not typically offer share acquisition or purchase plans and there is therefore little established practice or legal regulation.
Most such plans are used by multinational corporate groups for the employees of their Bulgarian subsidiaries.
Main characteristics. Generally, the employer allows its employees to set aside money over a period of time (an offering period), usually out of taxable payroll deductions, to purchase shares at the end of the offering period. Generally, the share purchase price in the share acquisition or purchase plan amounts to the shares' market value at the beginning or end of the offering period with a fixed discount.
The plan generally requires the employees to comply with certain requirements to obtain the right to purchase the shares at the defined price. These may include the continuation of service for a specific period of time or the meeting of a performance goal. After vesting, and after the expiration of any applicable holding period, the shares acquired are sold to realise a gain over the acquisition price.
Types of company. Generally, only non-Bulgarian listed companies that are part of a multinational corporation or other specialised group entity, of which the Bulgarian employer is a subsidiary or related company, grant share acquisition or purchase plans in Bulgaria.
Popularity. Bulgarian companies, even if listed, do not commonly offer share acquisition or purchase plans. Non-listed companies are free to offer share acquisition or purchase plans but in practice do not do so.
Discretionary/all-employee. The situation is the same as for share option plans (see Question 4).
Non-employee participation. The situation is the same as for share option plans (see Question 4).
Maximum value of shares. The situation is the same as for share option plans (see Question 4).
Payment for shares and price. The employer (or another group company) can fully fund the shares in the share acquisition or purchase plan.
There is a tax exemption for capital gains realised from an on-exchange transaction on an EEA regulated market (see Question 4).
If the share acquisition or purchase plan is funded by the employer, it is likely to be deemed a benefit-in-kind, which is subject to taxation and withholding of social security levies as a part of the employment remuneration. If the costs are centralised at multinational corporate group level outside Bulgaria, it is likely that the employees must file tax returns themselves and make tax withholdings. The share acquisition or purchase plan is likely to include assistance for employees in this respect.
There is no express prohibition and the situation is similar to that for share option plans (see Question 6).
It is possible that tax and social security liabilities arise but this is unlikely unless the employee actually acquires the shares that are the subject of the share acquisition or purchase plan. The situation is similar to that for share option plans (see Question 6).
The employee must report capital gains realised on sale of the shares in his tax return. The employer has no administrative or withholding obligations. The capital gains may be tax exempt if realised on an EEA regulated market (see Question 4). Otherwise, the applicable Bulgarian tax rate is 10%. A double tax treaty may be applicable.
There are no social security implications in relation to the realisation of capital gains.
Bulgarian companies do not typically offer phantom or cash-settled share plans and therefore, there is little established practice or legal regulation.
Such plans are more commonly used by multinational corporate groups for the employees of their Bulgarian subsidiaries and can be of various types.
Main characteristics. The phantom or cash-settled plans are bonus plans that grant employees the right to receive an award based on the value of the company's shares, rather than shares themselves. Phantom or cash-settled plans typically provide the employee with a cash payment based on the increase in the value of a stated number of shares over a specific period of time, usually paid out at the end of a specified period of time. Phantom or cash-settled share plans do not require a specific settlement date and, as with options, the employees may have flexibility as to when to exercise the plan. Some phantom or cash-settled share plans make the receipt of the award conditional on certain objectives, such as sales, profits, or other targets.
Types of company. Typically, only non-Bulgarian listed companies that are part of a multinational corporation or other specialised group entity, of which the Bulgarian employer is a subsidiary or related company, grant phantom or cash-settled plans in Bulgaria. Bulgarian companies are free to offer phantom or cash-settled plans but in practice do not do so.
Popularity. See above, Types of company.
Discretionary/all-employee. The situation is the same as for share option plans (see Question 4).
Non-employee participation. The situation is the same as for share option plans (see Question 4).
Maximum value of awards. The situation is the same as for share option plans (see Question 4).
Until there is effective payment of the award to the employee under the plan, no tax or social security obligations arise as Bulgarian personal income taxation is based on the cash basis principle. There is no favourable tax treatment for phantom or cash-settled plans (unlike share option and share acquisition plans where, in the final phase or exit, capital gains realised on sale of the shares on an EEA regulated market can be tax exempt). The benefits realised by the employee under a phantom or cash-settled plan are taxed at the flat 10% personal income tax rate.
The receipt of the award can be conditional on performance or timed-based vesting conditions. Depending on the particular plan (in particular, whether the Bulgarian employer or another non-Bulgarian group entity grants it), the general terms and conditions (including vesting terms and conditions) may need to be specified in the employer's internal salary rules, which are required under the Bulgarian labour law.
No tax or social security contributions are due if no award payment is made. Tax and social security obligations arise on payment of the award to the employee (see Question 21).
On award settlement the employee owes income tax, social security and health insurance contributions for the received benefit.
If the award income is included in the employee's monthly salary, the local employer must withhold and pay income tax (at the flat rate of 10%) and the mandatory social security and health insurance contributions, on behalf of the employee (see Question 7).
If the income on exercise of the award is granted by a non-Bulgarian group company that is not the employer of the Bulgarian employee, the income is subject to reporting in the annual return and the tax is payable by the employee.
No such guidelines have been adopted in Bulgaria.
No specific consultation or notification proceedings are required before an employee share plan is launched, unless it is launched as a part of the employer’s internal salary regulations and/or collective employment agreement/s. In such cases, prior consultations with the employees’ and trade unions representatives should be carried out.
There are no legal requirements to compensate for loss of options or awards on employment termination, but such compensation may be stipulated between the employer and the employee or by the employer in the share plan.
Employees can transfer money from Bulgaria to another jurisdiction to purchase shares under an employee share plan by using banks established in Bulgaria. If the amount to be transferred exceeds BGN25,000, or its equivalent in another currency, the servicing bank must be provided with information (grounds for the transfer) in accordance with the regulations issued by the Bulgarian National Bank. An additional statistical form must be submitted to the bank if the transferred amount exceeds BGN100,000. This statistical reporting is a precondition for the bank to execute the ordered wire transfer, although it serves statistical purposes only and does not represent an application for approval.
Employees of Bulgarian companies do not need prior approval from any government authority to purchase and hold foreign shares in Bulgaria or to sell shares in another jurisdiction and repatriate the proceeds to Bulgaria.
Employees can open securities accounts with local banks, regardless of whether they are local or foreign residents. Individuals who are foreign citizens but permanently reside in the country are considered local residents for this purpose.
Bulgarian resident employees (including non-nationals, subject to certain domicile criteria) must file an annual return for statistical purposes (due by 31 March for the preceding year) to the Bulgarian National Bank for any bank accounts opened with foreign banks outside Bulgaria, if the funds deposited exceed BGN50,000.
If the employee leaves Bulgaria at the time of a grant of a share option or award but before payment of cash or a benefit-in-kind (that is, leaves before the taxable event) and stops qualifying as a Bulgarian tax resident before the taxable event, Bulgarian taxation is not triggered on the taxable event, unless the benefit is treated as Bulgarian-source income. Whether this is the case depends primarily on whether the Bulgarian employer bears the cost for the share plan in relation to the taxable event.
If the employee moves to Bulgaria after the grant of share options or awards and the taxable event occurs while he or she qualifies as a Bulgarian tax resident, taxation is triggered, even if the source of payment under the plan is not Bulgaria. The employee's income while a Bulgarian tax resident is taxed as part of his or her worldwide income but a double tax treaty may apply and reduce the Bulgarian tax payable.
Public offerings in Bulgaria require a prospectus to be filed with the Bulgarian Financial Supervision Commission (Commission). The offering must be published at least seven days before its start by a notice in the State Gazette and one central daily newspaper including:
Its beginning and end date.
The registration number of the Commission's approval.
The place, time and manner in which the prospectus will be made available.
Other data as required by the Commission.
Securities offered by foreign issuers to Bulgarian employees and others also fall within the regulations on public offering.
Bulgaria is an EU member state and the EU Prospectus Directive has been transposed into local law.
There are no prospectus requirements for employee share plans offers, if one or more of the below exemptions apply:
The options are non-transferrable. There is no public offer in this case as the Prospectus Directive, and therefore the Bulgarian law, applies only to transferable shares.
The shares are offered to employees. The addressees of the offer must be given a document containing information on the grounds of the offer, the type and number of offered shares, the attendant rights and the manner of their exercising, the terms and conditions on acquisition of the shares, as well as any other relevant information. This exemption applies to shares listed on an EEA regulated market.
The shares are offered to less than 100 persons. The number of qualified investors (see below) is deducted from this.
The shares offered have a total value of the equivalent in BGN of EUR100,000 over a 12-month rolling period.
The shares are offered only to qualified investors (typically high net-worth individuals and institutional investors).
The minimum value for which securities can be acquired is the equivalent in BGN of EUR50,000 per investor for every separate proposal.
The single nominal value of the proposed securities is at least the equivalent in BGN of EUR50,000.
If the prospectus requirement applies, the company must pay a state fee for the prospectus confirmation by the Commission:
For a public offering of shares with a total value of up to BGN200,000: a fee of BGN900.
For a public offering of shares with a total value of more than BGN200,000: a fee of BGN900 plus 0.1% of the difference above BGN200,000 but not more than BGN5,000.
A prospectus authorised in another EU member state may be passported into Bulgaria (with no approval by the Commission required).
The term for prospectus confirmation by the Commission is ten working days from the date of filing the application. The Commission can prolong this term by an additional ten working days if additional documents need to be presented.
Generally, every employer must register as a personal data controller with the Commission for Personal Data Protection (CPDP) before starting personal data processing. There is an exemption procedure that on request applies to employers who collect personal data from less than 15 employees.
Employees' written consent must be obtained before the collection, use, and transfer of their personal data.
When processing and transferring an employee's personal data, the data controller (that is, the local subsidiary) must notify the employee of the following (unless the employee has already been notified of this information):
The nature of the data.
The purpose of processing the data.
The recipient of the data.
Information on the mandatory or voluntary nature of providing the data and the consequences of failure to provide it.
Information on the right to access and correct his or her personal data.
From 1 January 2007, the local entity (in its capacity as a personal data controller) can freely transfer the personal data to third parties located in other EU member states without CPDP approval in compliance with the requirements of the Bulgarian Personal Data Protection Act. However, the consent of the employee for the data processing and transfer should be obtained in advance.
The local entity can transfer the personal data to third parties in non-EU countries after obtaining CPDP approval and in compliance with the requirements of the Bulgarian Personal Data Protection Act. The CPDP approves the transfer of personal data to non-EU countries only if the third country ensures an adequate level of protection. The adequacy of the level of protection afforded by a third country is assessed by the CPDP.
The CPDP will only approve the transfer of personal data to a non-EU country which does not ensure an adequate level of protection, if:
There is prior written consent of the individual concerned.
The transfer is necessary for the performance of obligations under a contract between the employee and the employer, as well as for actions proceeding the contract's execution and performed at the individual's request.
The transfer is necessary for the conclusion or performance of a contract concluded in the interest of the employee between the controller and a third party.
The CPDP may approve a transfer of personal data to a non-EU country which does not ensure an adequate level of protection, if the controller and the recipient put in place safeguards to protect the personal data. Such safeguards may in particular result from contractual clauses.
According to the Bulgarian CPDP the employer is qualified as an administrator of personal data. Therefore it is obliged to comply with all data protection requirements under the CPDP (see Question 31).
An employee’s prior written consent is required before the employee’s personal data can be sent to an overseas parent company or plan administrator (see Question 31).
There is no legal requirement on the language of the share plans or for their translation into Bulgarian, unless a prospectus is required (see Question 29), in which case the prospectus must be translated into Bulgarian (subject to certain exceptions for passported prospectuses). In practice, most of the competent state authorities that may be involved in the share plans implementation and/or its subsequent supervision, (such as tax and social security authorities, labour inspection, and so on) require the share plans to be translated into Bulgarian.
There is no legal obstacle to employees entering into binding electronic agreements under share plans. In general, if an agreement is executed as an electronic document or by exchange of electronic messages, the agreement is deemed as having been executed in writing. However, it is advisable that all eligible employees have the documentation in paper copies in addition to any posting to the web or other online resources that the granting company might use.
There are no legal requirements for witnesses or notarisation of the relevant agreement for it to be binding.
The employee must explicitly give his consent to the employer to deduct contributions for the shares from the employee's salary. It is advisable for such consent to be given in writing. The employee may also have to give consent for a personal data transfer to a parent company or plan administrator (see Question 31).
Multinational corporate groups are increasingly offering participation in employee share plans to their Bulgarian personnel. Generally, these share plans are offered to the senior management (directors and senior officers) of their respective Bulgarian subsidiary, establishment or another office.
Local business groups, even if they include a listed company in the group, offer share plans on an extremely limited basis, despite the tax exemption for capital gains on the Bulgarian Stock Exchange.
In view of the applicable Bulgarian legislation, the Law on Public Offering of Securities was recently amended. In compliance with these amendments, listed companies enact and apply rules for the employee’s remunerations, including share option plans’ receivables. The later rules must be issued in compliance with a new ordinance that is to be adopted recently. There is a trend of initiation legislation process with respect to the employee’s additional remunerations including share option plans’ benefits.
On the 29 August 2012, a bill for the amendment of the Law on Public Offering of Securities was proposed by the Bulgarian Council of Ministers. The proposed amendments regulate the prospectus requirements for employee share option plan offers. Certain exemptions from the restrictive rules for increase of a capital of listed companies when it comes to issuance of new shares for employees also take place in the discussed bill.
Description. This is the official website of the Financial Supervision Commission.
Description. This is an English version of the official website of the Financial Supervision Commission.
Description. This is the official website of the National Revenue Agency.
Description. This is an English version of the official website of the Financial National Revenue Agency.
Description. This is the official website of the Commission for Personal Data Protection.
Description. This is an English version of the official website of the Commission for Personal Data Protection.
Qualified. Bulgaria, 2009
Areas of practice. Employment; company and commercial; dispute resolution.
Qualified. Bulgaria, 2013
Areas of practice. Employment; company and commercial; intellectual property.