5 Tax Mistakes Investors Make — Part 2 (For Connoisseurs)

I quickly wrote a little blog post about the tax mistakes we most often make as investors. On a second reading I decided I had left out quite a few details, so I'm publishing an improved and edited version. As they say — for connoisseurs!

Here are the points on which I have supplemented my own material:

1. As of 1 January 2026, the exemption under the Personal Income Tax Act (PITA) is no longer limited to regulated markets. The law also covers certain SME growth markets. This does not mean, however, that every trade on an MTF is exempt — the market must hold the special "SME growth market" status and, separately, appear on the ESMA list. (Check here (opens in a new tab))
2. The regime for individuals and the regime for companies are not the same. In my post, legal entities were missing entirely. For companies, the Corporate Income Tax Act (CITA) also provides a special option for shares traded on certain third-country markets recognised as equivalent by the European Commission. This is not a blanket exemption for individuals, ETFs, ETCs and derivatives. (Check here (opens in a new tab))
3. Depositary receipts are not debt instruments. They represent rights over deposited shares, but they are not necessarily identical to directly held shares for tax purposes. ETCs and ETNs, however, are usually debt securities.
4. Tax-loss harvesting is not prohibited or inherently risky under MAR. The risk arises from fictitious trades, arranging with a counterparty, self-dealing, artificial turnover, price manipulation or the use of inside information.
5. The sale of a personal investment portfolio is not automatically included in the turnover for VAT registration. There must first be economic activity within the meaning of the VAT Act. The Court of Justice of the EU holds that managing a portfolio as a private investor does not automatically become an economic activity merely because of its scale or professional management.

The profit in the broker app is not the after-tax profit

Most investors track price, yield, dividends and risk. The tax law, however, asks different questions:

• ⁉️ Who is investing — an individual or a company?
• ⁉️ What exactly was bought — a share, a fund unit, a debt security or a derivative?
• ⁉️ Where was the sale actually executed?
• ⁉️ Is this management of personal assets, or already an organised business activity?

A single error in any of these answers can turn a supposedly tax-free gain into taxable income, render a realised loss meaningless, or even raise the question of whether the investor is acting as a trader. And here it does not matter how the asset looks in the mobile app. What matters is what it is under the law.

First of all: individual, company or trader?

These are three different tax regimes.

For an individual who manages personal assets and does not act as a trader, the taxable result from the sale of financial assets under the general rules is formed by reducing the annual gains by the annual losses. The positive result is reduced by 10% statutory deductible expenses and taxed at 10%. This often leads to an effective burden of 9% on the positive net result in this category. (See Art. 33 PITA)

For a company, the profit under the general rules is included in the tax financial result and taxed at 10% corporate tax, except where the special tax treatment of transactions in financial instruments under CITA applies. (Art. 44 and Art. 196 CITA; Supplementary Provisions of CITA, § 1, item 21)

If the individual actually carries out the activity in an organised way and by occupation as a trader, the absence of registration as a sole trader is not sufficient protection. Under such a classification, the sole-trader regime with a 15% tax may apply, and in certain circumstances social security consequences may also arise. (NRA practice can be searched in the NRA's "Questions and Answers" system (opens in a new tab) using keywords such as "occupation" and "independent economic activity". If the link does not work, open the Electronic services portal from the NRA website, then "Free access services" and "Questions and Answers".)

This is precisely why the same transaction can have a different outcome depending on who carries it out.

Mistake №1: "My broker is European, therefore the profit is tax-free"

This is one of the most widespread and most expensive misconceptions.

A European broker does not mean a European market. And a European market does not necessarily mean a regulated market. A single investment transaction has at least four different elements:

1. the investment intermediary;
2. the issuer of the security;
3. the market or market segment on which the instrument is admitted;
4. the venue where the specific order was executed.

For the tax treatment, the fourth is key — where the sale was actually executed.

What markets exist

Under MiFID II, the main organised trading venues are:

• regulated market;
• multilateral trading facility — MTF;
• organised trading facility — OTF.

OTC means the trade was executed outside an organised trading venue. "Open Market" is often a commercial name for a specific segment, not a separate legal category under MiFID II.

As of 1 January 2026, PITA allows, for the relevant financial instruments, not only trades on a regulated market but also trades on a qualifying SME growth market. This market is a specially registered type of MTF. Consequently, not every MTF platform and not every one of its segments meets the conditions.

What this means for the individual

For a Bulgarian tax-resident individual, the exemption under Art. 13(1)(3) PITA in conjunction with § 1, item 11 of the Supplementary Provisions requires two main tests to be met at the same time:

• ✅ the instrument sold must be among those listed in the law;
• ✅ the trade must have been executed on a qualifying trading venue.

Among the categories expressly listed are shares, rights, government securities, and units or shares of certain collective investment schemes and national investment funds. The law also provides separate scenarios for buy-backs and tender offers.

It is not enough that:

• the broker holds an EU licence;
• the issuer is a European company;
• the instrument is displayed in euros;
• the app shows the logo of a European exchange;
• the security has a secondary listing in Europe.

It is necessary to establish where the specific sale was executed.

Why Revolut is not a "regulated market"

Revolut is a trademark and interface through which various financial services are provided. Investment services for European clients are provided by a licensed investment firm — Revolut Securities Europe UAB. The register of the central bank of Lithuania lists it as an investment intermediary authorised to receive, transmit and execute client orders. This does not make it a regulated market.

The app is the entry point to the transaction. It is not necessarily the venue where the transaction is executed.

Practical example

An individual buys shares of a US company through a European investment intermediary. They later sell the shares, and the trade confirmation shows that the order was executed on Nasdaq. The fact that the intermediary is licensed in the EU does not automatically make the profit tax-free under PITA. The instrument, the market and the applicable statutory scenario must be analysed.

For a company, the analysis is different. CITA contains a special rule for shares traded on certain third-country markets recognised as equivalent by a decision of the European Commission. The European Commission has such a decision for certain markets in the US. This, however, is not a blanket exemption for any US assets, for all financial instruments, or for individuals.

How to avoid the mistake

For each significant position you should have at least:

• the ISIN of the instrument;
• the legal name and type of the instrument;
• confirmation of the executed sale;
• the code or name of the execution venue;
• the MIC code, where available;
• a document showing which company in the broker's group is party to the service.

The tax law does not see the broker's logo. It sees the instrument and the execution venue.

Mistake №2: "If it says ETF, the tax regime is clear"

It is not.

ETFs, ETCs, ETNs and ETPs can look almost identical in the broker app. They can all track an index, gold, oil, a crypto-asset or a particular sector. But legally they can be fundamentally different.

The difference in plain language

• ETP is a broad market term for products traded on an exchange. It is not a separate tax category.
• ETF is usually a fund whose units or shares are traded on an exchange. Many European ETFs are organised as UCITS collective investment schemes. But the abbreviation ETF by itself proves neither the legal form nor the tax regime.
• ETC is usually a debt security providing exposure to a commodity or a basket of commodities. ESMA expressly distinguishes ETCs from UCITS funds and describes them as debt instruments.
• ETN is also usually a debt obligation of the issuer, whose return is linked to a particular index or asset.
• ADRs and GDRs are depositary receipts. They evidence an interest in shares held through a depositary, but they are not necessarily identical to directly held shares for the purposes of the Bulgarian tax exemption. They are not debt instruments, but neither should they automatically be declared as ordinary shares without further analysis.
• CFD is a contract with the intermediary to pay the price difference. The investor does not own the share, the gold or the ETF on which the contract is based.

The two tests that must be met

To assess whether a sale can be exempt, it is not enough to establish the exchange. Two separate tests are required:

Test №1: What is the instrument? Is it a share, a fund unit, a debt security, a depositary receipt or a derivative?

Test №2: Where was the trade executed? On a regulated market, on a qualifying growth market, on an ordinary MTF, or off-market?

Failing just one of the tests is enough for the exemption to fall away.

Practical example

In one and the same app, the investor sees:

• a UCITS ETF tracking the S&P 500 index;
• an ETC tracking the price of gold;
• a CFD tracking the same ETF.

The three positions may move similarly in price, but legally they are different:

• the ETF may represent a unit in a collective investment scheme;
• the ETC is usually a debt security;
• the CFD is a derivative contract with the intermediary.

Even if all three are accessible through the same platform, they should not automatically be placed in the same tax category. The law names specific instruments, not marketing abbreviations.

How to avoid the mistake

Before you buy, or at least before you sell the product, check:

• how it is described in the prospectus or key information document;
• who issues it;
• whether it is a fund or a debt security;
• whether it has UCITS status;
• what the ISIN code is;
• how the collateral is structured;
• at which venue the sale will be executed.

ETF is a commercial label. The tax follows the legal structure.

Mistake №3: They leave losses "on the screen" and wait for next year

An unrealised loss may be painful for the investor, but for the tax law it does not yet exist.

For the taxable transactions of an individual who does not act as a trader, the annual result is formed from the gains and losses realised during the same year. If the loss remains unrealised by the end of the year, it does not reduce the gains already realised for that year.

What is more — where the annual result under this regime is negative, the tax return shows zero. The loss does not automatically become a tax loss that the individual can carry forward and use in subsequent years.

How tax-loss harvesting works

Tax-loss harvesting means the investor deliberately realises a loss on a position in order to offset it against realised taxable gains within the same tax year.

Example:

• realised taxable gains: EUR 20,000;
• unrealised loss on another position: EUR 8,000.

Without realising the loss:

• positive result: EUR 20,000;
• after 10% statutory expenses: EUR 18,000;
• tax at 10%: EUR 1,800.

If the loss is realised by the end of the year:

• net result: 20,000 − 8,000 = EUR 12,000;
• after 10% statutory expenses: EUR 10,800;
• tax: EUR 1,080.

The difference is EUR 720, before accounting for commissions, spread, currency risk and a possible price rise after the sale.

The important limitation

Losses only matter within the corresponding taxable regime.

If a particular sale is exempt from tax, the loss on it, as a rule, does not become a tool for reducing gains from taxable transactions. You cannot use only the convenient half of the regime — the gain exempt and the loss deducted.

With companies, too, care is needed: where the gains and losses from certain qualifying transactions are neutralised under CITA, realising a loss may not have the expected effect on the corporate tax.

And what about MAR and market manipulation?

The sale of a losing asset for tax purposes does not in itself automatically constitute market abuse. MAR prohibits the use of inside information and actions that send false or misleading signals, create an artificial price or manipulate the market.

A risk arises, for example, with:

• a fictitious sale with no real change in risk;
• a pre-arranged counterparty;
• trades between controlled accounts;
• self-dealing;
• artificial creation of turnover;
• actions aimed at influencing the market price;
• the use of inside information.

A genuine sale at market price, where the investor actually parts with the asset and bears the risk of price movement, is entirely different from a manipulative or simulated trade.

US publications on the 30-day wash-sale rule should not be transferred mechanically to Bulgarian taxation. The analysis must be carried out under Bulgarian tax law and under the market-abuse rules applicable to the specific trade.

The tax loss must be managed, not merely observed.

Mistake №4: They assume last year's tax strategy will work this year too

A tax strategy has a shelf life.

The legislation does not change only in December, and not every change enters into force on 1 January. Changes can also be adopted during the year, contain transitional regimes, or affect only certain instruments, markets and categories of investors.

The regime for growth markets is particularly telling. Initially, Bulgaria introduced a temporary tax treatment for trades on growth markets, applicable until the end of 2025. With subsequent amendments, the legislator made the regime permanent as of 1 January 2026.

An investor who relies only on an old article, a forum post or a tax analysis from a previous year can reach two equally bad outcomes:

• pay a tax that is no longer due;
• fail to pay a tax because they rely on a repealed or expired rule.

The problem is not only the rate

A change may affect:

• the definition of a qualifying market;
• the scope of exempt instruments;
• the VAT registration threshold;
• the registration deadlines;
• the applicable regime for individuals and companies;
• the recognition of third-country markets;
• the way of documenting and declaring.

Sometimes the investment strategy remains economically profitable but becomes tax inefficient. In other cases the tax change creates an opportunity that the investor misses because they did not check it in time.

What a good annual review looks like

Before the end of each year it is wise to draw up a tax map of the portfolio:

• which gains have already been realised;
• which losses can be realised;
• which trades are exempt;
• which trades are taxable;
• whether there are contentious ETFs, ETCs, ADRs, GDRs or derivatives;
• where the trades were executed;
• whether the documents from the broker are available;
• whether there are changes applicable from next year;
• whether there is a risk that the activity will be seen as commercial.

This review must be done while there is still time to act. In April you can complete the return, but you cannot retroactively realise a loss as of 31 December.

Tax planning ends before the end of the year. Tax declaration begins after it.

Mistake №5: They either add every sale to VAT turnover, or ignore the VAT risk entirely

There are two opposing misconceptions here.

The first is that every sale of shares automatically accumulates turnover for VAT registration.

The second is that financial transactions never matter for registration.

Both are wrong.

A personal portfolio is not automatically economic activity

For a transaction to be part of the VAT regime, it must first be carried out within an independent economic activity.

The Court of Justice of the European Union examined this question in the case Wellcome Trust, C-155/94. In essence, the court held that the acquisition and sale of securities in managing an investment portfolio as a private investor does not automatically become an economic activity merely because the portfolio is substantial or professionally managed.

Consequently, an individual who sells shares from their personal long-term portfolio should not mechanically add the entire sale value to their VAT turnover. Scale matters as part of the overall factual picture, but it is not the only criterion.

When financial transactions may matter

If the person carries out financial operations as part of an organised economic activity, provides financial services by occupation, or the transactions are functionally connected with their business, then a second analysis must be carried out.

Financial services under Art. 46 of the VAT Act are, in principle, exempt supplies. But where they are part of the economic activity and not merely incidental, they may be included in determining the annual turnover for registration. The law also contains a special definition of incidental financial services — those that are not connected with the usual economic activity and are of a secondary or occasional character.

As of 1 January 2026, the threshold for mandatory registration under the general regime is EUR 51,130 of annual domestic turnover, and once it is exceeded a short deadline applies for filing the application.

Practical example

A consultant receives during the year:

• EUR 48,000 in income from consulting services;
• EUR 20,000 in sale value from shares in their personal portfolio.

The wrong approach is to automatically add the two figures and assume a turnover of EUR 68,000. First, the following must be answered:

1. Are the shares managed as personal assets?
2. Do the sales constitute an independent economic activity?
3. If they are economic activity, do they constitute financial services under Art. 46?
4. Are they a main or an incidental part of the activity?
5. What is the turnover from the other taxable services?

Only after this analysis can a conclusion be drawn about registration.

Where the 16.67% price shock comes from

The financial transaction itself is usually exempt, and 20% VAT is not automatically charged on the sale of the shares. The problem may appear with the person's other taxable services.

The standard VAT rate is 20%.

If the supplier has been working with end customers at a final price of EUR 100 and, after registration, cannot raise the price:

• the taxable base is now EUR 83.33;
• the VAT is EUR 16.67;
• the total price remains EUR 100.

So the economic loss is not 20% of the final price, but 16.67% of it. To keep a net income of EUR 100, the supplier would have to raise the final price to EUR 120.

This effect is particularly serious with:

• services to individuals;
• customers with no right to a tax credit;
• medical, educational and other exempt businesses;
• contracts with fixed final prices;
• markets where a 20% increase is commercially impossible.

With customers who are VAT-registered companies with a full right to a tax credit, the price effect may be considerably smaller.

The correct conclusion, therefore, is neither "the portfolio never matters for VAT" nor "every sale of shares enters the turnover." The correct question is: is this management of personal assets, or economic activity?

🎁 Bonus mistake: They confuse a share with an option, CFD, future or other derivative

The fact that a contract tracks the price of a share does not make it a share.

• When buying a share, the investor acquires ownership rights in the company.
• With a CFD, the investor usually has a contract with the intermediary to pay a price difference. They do not acquire ownership of the share.
• With an option, the investor acquires a right — or takes on an obligation — to buy or sell a certain asset under pre-set conditions.
• With a future, the parties take on contractual obligations for future performance or cash settlement.

These are different financial instruments. Therefore:

• a regulated market by itself does not make the derivative tax-free;
• the presence of a share as an underlying asset does not turn the contract into a share;
• a payment labelled "dividend adjustment" on a CFD is not necessarily a dividend from a held share;
• each instrument must be classified according to its own legal structure.

Options, CFDs and futures are not among the categories that should automatically be equated with shares or units in collective investment schemes for exemption purposes. For an individual, the result from them should, as a rule, be analysed in the taxable regime for financial assets, unless a specific special rule leads to a different result.

The same underlying asset does not mean the same tax regime.

🎁 Bonus two: The investor doesn't notice they already look like a trader

There is no statutory rule such as "over 100 trades and you become a trader" or "day trading is always a business." But there is also no defence such as "I have no company, therefore I am an ordinary individual."

The practice draws on criminal law by analogy with recidivism. Once is an inadvertent mistake. Twice is an incident. The third time is recidivism. But, transferred to tax matters, this is nowhere written in black and white.

In assessing this, the following may be considered:

• the systematic nature and duration of the activity;
• the organisation;
• the volume and character of the trades;
• the infrastructure used;
• the way it is financed;
• whether the activity is a main source of income;
• whether the behaviour has the characteristics of an occupation;
• whether the person offers services or manages the funds of others.

The NRA expressly accepts that an individual may be taxed as a trader even without formal registration as a sole trader, where they in fact act as such. Under this regime, the exemptions and the taxation formula for the ordinary private investor should not be applied mechanically.

This is an analysis that must be done in advance, because the difference is not only between 10% and 15%. It may have implications for social security, advance payments, accounting, and the way expenses are proven.

What the right approach looks like

For each position in the investment portfolio there should be a short "tax file":

1. Who is the owner: an individual or a company.
2. What is the instrument: a share, a fund, an ETC, an ETN, a depositary receipt or a derivative.
3. What is its legal form: UCITS, a collective investment scheme, a debt security or a contract.
4. Where the sale was executed: market, segment and MIC code.
5. What is the regime: exempt, taxable or contentious.
6. What is the annual result: realised gains and losses.
7. What evidence is available: statements, trade confirmations, prospectus, KID and corporate events.
8. Whether there is additional risk: commercial activity, VAT or foreign tax.

The worst time to ask these questions is after the trade has already been completed and the deadline for lawful tax planning has passed.

Tax efficiency does not begin with completing the annual return. It begins before the purchase. The investor should not merely know what the product tracks. They should know:

• what they legally own;
• through whom they own it;
• where they will sell it;
• which tax regime will apply;
• how they will prove all of this in an audit.

Because the most expensive investment mistake is not always buying a bad asset. Sometimes it is buying a good asset in a way that creates a bad tax outcome.

This material is current as of 15 July 2026 and deals mainly with Bulgarian tax residents. It is not tax advice or consultation. For an actual case, consult an accountant. This material is entirely for educational purposes.