ESOP, RSU and Shares from Employer — Tax Treatment in Bulgaria (2026)

Who this guide applies to

The topic of equity compensation taxation in Bulgaria affects a broad range of individuals who receive securities or rights in securities from a Bulgarian or foreign employer. In our firm's practice, we identify the following typical profiles:

• Employees of global tech corporations — engineers, product managers and executives at Google, Meta, Microsoft, Amazon, Apple and others, who work from Bulgaria (either through a local entity or remotely) and receive RSUs (Restricted Stock Units) or ESPP.
• Employees and early contributors of startups — specialists with a contract-based engagement with a foreign company (typically a Delaware C-corp or UK Ltd), who receive stock options, SAFE notes or phantom shares as part of their compensation package.
• Bulgarian entrepreneurs with stakes in foreign subsidiaries — co-founders and key employees of a Bulgarian company that is part of a larger structure operating a global ESOP.
• Contractors (freelancers) of a foreign principal — self-insured individuals or EOOD entities who, in addition to their regular remuneration, also receive equity.

This analysis concerns individuals who are Bulgarian tax residents within the meaning of Art. 4 of the ZDDFL (Personal Income Tax Act). If residency status is contested, or if you are a tax resident of another country, different rules apply — including Double Tax Treaties (DTTs).

Why the topic matters right now

Over the past two years, the NRA (National Revenue Agency / НАП) has stepped up information exchange with foreign tax administrations under CRS (Common Reporting Standard) and the DAC directives. That means brokerage accounts at Interactive Brokers, Schwab, E*TRADE, Fidelity and others are visible to the Bulgarian fiscal authorities. Undeclared RSU income or sale proceeds lead to tax audits with interest and penalties — and for that reason a conservative approach to declaring is no longer just a recommendation, but a practical necessity. Moreover, as we will see below, the NRA's own position on stock options changed substantively after 2017, and most publications by tax advisers from the previous decade are by now effectively outdated.

Types of equity compensation and legal instruments

The umbrella term "equity compensation" covers instruments of very different legal nature. Distinguishing between them is crucial, because each type is treated differently at each stage of its life cycle.

Stock Options (ISO and NSO/NQSO)

An option is a right (but not an obligation) to purchase a defined number of shares at a pre-agreed price — the so-called strike price or exercise price. The standard scheme includes:

• Vesting schedule — typically 4 years with a 1-year cliff, i.e. 25% of the options become "exercisable" after the first year, with the remainder vesting evenly over the following 36 months.
• Expiration — rights usually expire 10 years after grant.
• Post-termination exercise window — on departure, the employee typically has 90 days to exercise vested options, after which they are forfeited.

Under US law there are two main subtypes of options:

• ISO (Incentive Stock Option) — a preferential tax category in the US, available only to employees (not contractors or directors). For Bulgarian tax purposes this distinction is irrelevant — what matters is the actual mechanism.
• NSO or NQSO (Non-Qualified Stock Option) — the more common type, which can be granted to anyone — employees, contractors or board members.

RSU (Restricted Stock Units)

RSUs are a promise by the employer to transfer shares once certain conditions are met — most often the expiration of a vesting period, sometimes additional milestones (liquidity event, revenue target, etc.). Key differences from options:

• There is no strike price — the employee receives the full shares, not the right to purchase them.
• RSU value is always positive — unlike options, which may be "under water" (strike price above market price).
• RSUs are the standard in publicly traded corporations — Google, Meta, Microsoft, Amazon and others abandoned mass option programs in favour of RSUs during the 2000s.

ESOP (Employee Stock Ownership Plan)

In US legal terminology, ESOP denotes a specific qualified retirement plan governed by ERISA — distinct from option plans. In the European and Bulgarian context, however, the term "ESOP" is commonly used generically — as a synonym for an overall employee equity plan, whether based on options, RSUs or phantom instruments. In this article we use the term in the broader, colloquial sense.

SAFE, VSOP and Phantom stock

Startups often use "virtual" instruments that mimic the economic effect of equity without actually distributing shares:

• VSOP (Virtual Stock Option Plan) — a contractual obligation to pay a cash amount equal to the notional value of options upon a liquidity event (exit, IPO).
• Phantom shares / SAR (Stock Appreciation Rights) — a cash bonus linked to the appreciation of share value above a baseline price.
• SAFE (Simple Agreement for Future Equity) — originally designed for investors, but sometimes also used for employees in early-stage startups. It represents a promise of future shares upon specified conditions.

All of these instruments, when they eventually translate into a cash payment, are treated in Bulgaria as employment income at the time of payment — regardless of their formal name.

ESPP (Employee Stock Purchase Plan)

ESPP is a programme under which employees may purchase employer shares at a discount — typically 10% or 15% off the market price. A "look-back" mechanism is also often added, where the discount is computed on the lower of the prices at the start and end of the offering period. In Bulgaria, the discount is treated as additional employment income.

Tax events by stage

For correct reporting, it is critical to distinguish the four stages in the life of an equity instrument: grant, vesting, exercise and sale. Each stage may — but does not always — give rise to a tax event. One important clarification from the outset: the ZDDFL (Personal Income Tax Act) contains no express statutory provision specifically governing stock options. Their treatment is derived from the general rules on employment income and from the practice of the NRA, which, as we shall see, has undergone a substantial shift.

Stage 1: Grant

The moment the employer signs the grant notice or board resolution awarding the equity. Under the current NRA practice (both for individuals and for employers) the grant itself is not a tax event. The employee does not yet own any asset — they only hold a contractual right, conditional on continued performance of the employment relationship. This approach has been consistently reflected in NRA rulings issued after 2017.

Exceptions to this rule are rare: for example, a SAFE with an immediate cash payment, or an RSU with immediate vesting, which is economically equivalent to a bonus.

Stage 2: Vesting

The moment the granted rights become irrevocable. Here the treatment differs sharply depending on the type of instrument:

• RSU — YES, tax event. Employment income equal to FMV (fair market value) of the shares on the vesting date. On each quarterly (or otherwise periodic) vesting event, the market value of the received shares on the vesting date is treated as employment income. This is the moment of actual transfer of ownership.
• Stock Options — NOT an event. Vesting merely renders the options "exercisable" — the employee still has no shares and has not realised any economic benefit; they have only a matured right to purchase the shares at the strike price.
• SAFE / VSOP / Phantom — depends on the contract. The tax event typically arises at payment (exit, IPO, liquidity event), not upon formal vesting.

Stage 3: Exercise — for options

NRA CURRENT PRACTICE (post-2017): exercise is a tax event. Under the current position of the administration, the taxable employment income is determined as follows:

• Preferential (strike) price: Taxable income = FMV on the exercise date − strike price, converted to BGN/EUR at the official rate as of the exercise date.
• Free grant (no strike): Taxable income = full FMV of the shares at the acquisition date.

The employer is required to withhold tax (10%) and social security contributions (up to the maximum insurance base) and to declare and remit them in the month of exercise. If the employer is foreign and has no local payroll infrastructure, the obligation for self-declaration and self-insurance falls entirely on the individual, who must pay the amounts due and report them in the annual tax return.

⚠️ Important: This position is not codified in the ZDDFL. The NRA derives it from the general principle that any remuneration linked to the performance of labour constitutes employment income within the meaning of Art. 24 of the ZDDFL. The reasoning is that upon exercise the option converts from an abstract right into a concrete economic benefit, received in connection with the performance of employment duties.

A different qualification is possible where the options are granted to external consultants, board members or other persons not in an employment relationship with the company — in that case, income may fall under Art. 29 or Art. 35 of the ZDDFL (income from non-employment relationships, or other income), which has different social security consequences.

Stage 4: Sale of the shares

On sale of the shares, a separate, unambiguous tax event arises — a capital gain or loss. Core rules:

• Taxable gain = sale price − acquisition price. Acquisition price includes the strike price plus the employment income already taxed at exercise (for options) or FMV at vesting (for RSUs).
• Tax rate: 10% on the net gain, per Art. 33 of the ZDDFL.
• NEW from 01.01.2024: the statutory 10% deductible expenses are applied automatically to the positive result, producing an effective rate of 9% on the capital gain.
• Netting: gains and losses from the disposal of financial assets during the year are aggregated within the same calendar year.
• Exemption: under Art. 13(1)(3) of the ZDDFL, income from the disposal of financial instruments admitted to trading on a regulated market in an EU/EEA member state is tax-exempt. Nasdaq, NYSE and LSE are not EU/EEA-regulated markets.
• ⚠️ Loss: a capital loss from the sale of financial instruments offsets gains only in the same calendar year — it does NOT carry forward to subsequent tax periods.

Art. 13 ZDDFL exemption — when it applies

One of the most frequently miscited arguments by investors in Bulgaria is "gains on a regulated market are exempt" — applied, however, to Nasdaq or NYSE. This is a serious error that can prove costly on audit.

Art. 13(1)(3) of the ZDDFL exempts from tax "income from the disposal of financial instruments admitted to trading on a regulated market in a Member State of the European Union, or in another state party to the Agreement on the European Economic Area".

Which markets fall within the exemption

• Euronext (Amsterdam, Paris, Brussels, Lisbon, Dublin)
• Deutsche Börse / Xetra (Frankfurt)
• Nasdaq Nordic (Stockholm, Helsinki, Copenhagen, Iceland) — qualifies, as the Nordic states are EU or EEA members. Caution: this is distinct from the US Nasdaq.
• Borsa Italiana (Milan)
• BME (Madrid, Barcelona)
• Bulgarian Stock Exchange (BSE) (Sofia)
• Vienna Stock Exchange
• Warsaw Stock Exchange

Which markets do NOT fall within the scope

• Nasdaq (US) — US jurisdiction, not EU.
• NYSE / AMEX — American.
• LSE (London Stock Exchange) — the United Kingdom is not in the EU after Brexit (1 January 2021).
• SIX Swiss Exchange — Switzerland is not EU/EEA.
• Toronto, Hong Kong, Tokyo, Shanghai — outside the EU.

In practice, this means that most equity compensation received by Bulgarian tech professionals — RSUs of Google, Meta, Microsoft, Amazon, Apple, Tesla, NVIDIA — does not fall within the Art. 13 exemption on sale. A 10% tax under Art. 33 is due on the capital gain, with automatic application of the 10% statutory deduction for an effective 9% rate.

There are, however, niches in which the exemption does apply: shares of SAP (Frankfurt), ASML (Amsterdam — Euronext), Siemens, Adyen, Infineon, Spotify (Stockholm). If you work for such a company, check carefully on which market its shares are listed.

The historical shift in NRA's position

The taxation of stock options in Bulgaria is among the most complex and least codified topics in the ZDDFL. Over the last decade the position of the administration underwent a principled shift that is still not fully absorbed by many tax advisers and employers.

Pre-2017 — tax event at grant

In earlier NRA rulings and guidance, the administration held the position that the grant of options itself constituted a tax event. The argument: the employee receives a valuable proprietary right that can be valued on market criteria (Black-Scholes or a similar model) and should therefore be taxed as income. This approach, however, created a practical problem — for pre-IPO startups, options have no real liquidity, and "paper" taxation meant the employee could not actually pay the tax without having realised any gain.

From 2017 — tax event at exercise

After 2017, the NRA revised its position and now treats the exercise of options as the moment at which taxable employment income arises. The main arguments for this position are:

• Options acquire real, measurable market value only upon exercise — until then they are an abstract right whose value depends on factors beyond the employee's control;
• At exercise the employee receives a concrete economic benefit (the FMV − strike spread), which constitutes remuneration linked to labour;
• Analogy with a direct grant of shares: had the employer given shares instead of options, taxation would arise on receipt — exercising an option is functionally equivalent.

Criticisms and alternative interpretations

The current NRA position is not uncontested. The main criticisms are:

• No express statutory text: the ZDDFL contains no provision directly governing stock options. The entire treatment is derived by analogy and through the general clause of Art. 24 ZDDFL on employment income.
• Alternative "at sale" interpretation: some tax advisers (for example TaxMonkey and other practitioners) hold that the tax event arises only on the sale of the shares, with the full difference between sale price and strike treated as a capital gain under Art. 33 ZDDFL. The argument: until the sale there is no realised economic benefit in cash form; at exercise the employee merely uses their own funds to acquire an asset.
• Case law: limited. The Supreme Administrative Court (ВАС) in the decisions available to date has tended to support the NRA's position, but the topic has not been definitively settled in binding interpretive practice.

Our recommendation: for most clients, aligning with the current NRA practice (tax event at exercise) is the safer choice — the audit risk under the alternative approach is significant. An aggressive "at sale" approach may be defensible in specific circumstances (e.g. options granted to an external consultant not employed under an employment contract), but always requires a preliminary legal and tax analysis.

Further information on the annual personal income tax is published on the official NRA portal — NRA — Annual Personal Income Tax.

Considerations for foreign employers

A substantial part of the equity compensation received by Bulgarian specialists comes from foreign companies — US, German, UK, Dutch. This gives rise to potential double taxation, the need to apply DTTs, and specific social security issues.

Avoiding double taxation

As a Bulgarian tax resident, you are taxed in Bulgaria on your worldwide income. That income may also be taxed in the source state — for example, the United States, if you receive RSUs from a US company. Double Tax Treaties (DTTs) provide mechanisms to avoid double taxation:

• US — Bulgaria — DTT in force since 2008. The tax credit method applies: tax paid in the US (up to defined thresholds) is credited against the tax due in Bulgaria.
• Germany, Netherlands, France, Belgium and other EU states — separate DTTs, typically using exemption or credit method by type of income.
• United Kingdom — DTT in force. After Brexit the EU directives no longer apply, but the treaty remains.

To apply a DTT, documentation is required — 1099, W-2, payslips, payroll ledgers, certificates of tax paid. Everything is converted at the official foreign exchange rate as of the date of each individual event.

Social security aspects

Social security obligations when working for a foreign employer are a separate and often overlooked issue:

• EU / EEA / Switzerland: Regulation (EC) No 883/2004 on the coordination of social security systems applies. If you obtain an A1 certificate from the employer, confirming that you are insured in the principal's state, no Bulgarian social security contributions are due.
• No A1 in an EU context: if you physically work from Bulgaria, the activity is deemed carried out in Bulgaria and Bulgarian social security law applies. The employer is required to register with the NRA as a foreign insurer, or to use a local employer of record (EOR) service.
• US — Bulgaria: there is no bilateral totalization agreement. This means potential double insurance under certain schemes. For remote work from Bulgaria, Bulgarian social security typically applies.

The maximum insurance base in Bulgaria for 2026 is EUR 2,111.64/month (BGN 4,130), with contributions due on the lower of the two values — actual income or the cap.

Practical case studies with concrete figures

The theoretical rules are best understood through concrete scenarios. Below we examine three typical cases that illustrate the differences between the instruments and between the current and alternative tax interpretations.

Case 1: Google employee with RSU package

Facts: An engineer, working for Google from Bulgaria, receives a grant of 1,000 RSUs with a vesting schedule of 250 RSUs per quarter.

Event — vesting of 250 RSUs at USD 120: Value of the vested package = 250 × 120 = USD 30,000. Converted to EUR (at the ECB rate on the vesting date, notionally 1 USD ≈ 0.85 EUR) ≈ EUR 25,500 employment income.

Tax treatment: EUR 25,500 is employment income acquired at the moment of vesting. Taxation: 10% income tax + social security contributions up to the maximum insurance base (EUR 2,111.64/month), giving an overall tax-and-social-security burden roughly in the range of EUR 4,000 – 6,000, depending on when in the month vesting occurs and whether the monthly cap has already been reached by regular salary. Google typically automatically sells a portion of the vested shares to cover US federal and state tax (sell-to-cover), which is also declared in the Bulgarian annual tax return with a DTT credit.

Subsequent sale after 1 year at USD 150: Capital gain = (150 − 120) × 250 × EUR/USD rate ≈ EUR 6,375. Tax 10% with automatic 10% statutory deduction = effective rate 9% × EUR 6,375 ≈ EUR 574.

Case 2: Stock options from a US startup — current NRA position

Facts: In 2023 an engineer receives a grant of 10,000 NSOs with a strike price of USD 0.10 (equal to the 409A FMV of an early-stage pre-Seed startup). In 2026, after a Series B, the 409A valuation rises to USD 5.00 per share. The engineer decides to exercise all vested options.

At exercise (2026): Taxable employment income = (FMV − strike) × quantity × rate = (5 − 0.10) × 10,000 × 0.91 ≈ EUR 44,590.

10% tax + social security contributions up to the cap: for a single month at maximum income, contributions on ≈ EUR 2,111.64 × rates (DOO + DZPO + health) = approximate burden EUR 5,000 – 7,000, depending on whether the monthly cap is already reached and on the person's insurance status.

On a subsequent sale after 1 year at USD 10: Acquisition price = strike (USD 0.10) + already-taxed employment income = FMV at exercise (USD 5.00). Capital gain = (10 − 5) × 10,000 × rate ≈ EUR 45,460. Tax 9% (effective rate with 10% statutory deduction) ≈ EUR 4,091.

Total tax-and-social-security burden under the current NRA position (exercise + sale): EUR 5,000 – 7,000 + EUR 4,091 ≈ EUR 9,000 – 11,000.

Case 3: The same options under the alternative "at sale" approach

Under the alternative interpretation, exercise is not a tax event; the only event is the sale. Acquisition price for the subsequent sale = strike (USD 0.10 × 10,000 × rate) ≈ EUR 910.

On sale at USD 10: Capital gain = (10 − 0.10) × 10,000 × rate ≈ EUR 90,100. Tax 9% = EUR 8,109.

Comparison: At first glance the alternative approach produces a lower nominal burden (EUR 8,109 vs EUR 9,000 – 11,000). The key difference, however, is that under the alternative approach all income is classified as a capital gain with no social security, whereas under the NRA position the employment component also attracts social security contributions up to EUR 2,111.64/month.

Risk profile: On audit, the NRA will apply its current practice and recharacterise the FMV − strike spread at exercise as employment income. This leads to additional assessments of tax, social security, interest (≈10% per annum) and potentially penalties of 5% to 20% of the tax. For option volumes above EUR 40,000 of taxable income, that could mean additional assessments of EUR 6,000 – 10,000. For that reason, the aggressive "at sale" approach is justified only in specific circumstances and only after an express consultation with legal and tax advisers.

Reporting in the annual tax return

All equity-related income is reported in the annual tax return under Art. 50 of the ZDDFL, form 2001a. The filing deadline is 30 April of the year following the year of acquisition. Filing is electronic, via the NRA's electronic services portal, using a qualified electronic signature (QES) or PIK.

Annex 1 — Income from employment relationships

Here you report:

• The value of vested RSUs (at FMV as of the vesting date);
• The FMV − strike price spread at exercise of options (per the current NRA practice — in the month of exercise);
• The discount on an ESPP purchase;
• Any cash payments under VSOP / phantom / SAR schemes.

Where the employer is Bulgarian, in most cases tax and social security are already withheld from salary. Where the employer is foreign, the individual must declare the amounts and remit tax and social security themselves, in the month the event occurs.

Annex 5 — Income from the sale of financial assets

Here all sales of shares received under equity programmes (code 508) are completed. For each transaction, the following are stated:

• Acquisition price (in EUR) — strike price + income declared at exercise/vesting;
• Sale price (in EUR) — net of brokerage commission;
• Acquisition date and sale date;
• Number of shares.

The net gain from all transactions is taxed at 10%, and the automatic 10% statutory deduction (in force from 01.01.2024) brings the effective rate to 9%. A loss from the sale of financial instruments offsets gains only in the same calendar year (Art. 33, para 6 of the ZDDFL) and does not carry forward to subsequent years.

Annex 8 — Income from sources abroad

Used for:

• Dividends on received shares (taxed in Bulgaria at 5%, with any foreign withholding credited up to the Bulgarian tax due);
• Applying a DTT credit for foreign taxes paid on employment income (e.g. US income tax withheld on RSU vesting or option exercise).

Exchange rates and documentation

All foreign currencies are converted to EUR at the official rate as of the date of each individual event (vesting, exercise, sale, dividend). For 2026 Bulgaria is in the eurozone, so USD → EUR is carried out at the ECB fixing; for USD, GBP and others — also at ECB reference rates or BNB rates, depending on the methodology applied internally.

We recommend retaining: grant notices, vesting reports, 1099-B / 1042-S forms, payroll statements, brokerage statements. On audit, the NRA demands full traceability — missing documents make it harder to substantiate the acquisition price, and tax is assessed on gross proceeds, leading to significant additional assessments.

Bulgarian alternative — Variable Capital Company (VCC / ДПК)

Until 2024 Bulgaria lacked a suitable legal form for tech startups wishing to distribute options or RSUs to employees in a transparent way. With the introduction of the Variable Capital Company (VCC / ДПК) in 2024, that gap was filled.

The VCC offers a number of advantages for equity compensation:

• Vesting schedules embedded directly in the articles — without the need for complex SPV structures;
• Recognition of SAFE and VSOP instruments — which until 2024 existed in a legal vacuum;
• Lower tax burden — subject to certain conditions, capital gains on the sale of units are taxed at 10% (Art. 33), and with the automatic 10% statutory deduction — at an effective 9% rate, without the usual complications of classical OOD/EOOD structures;
• Simple procedure for capital increases — upon admission of new investors or exercise of options by employees.

For Bulgarian startups planning to scale up with international investors, the VCC is often the more appropriate structure than a traditional OOD. For those already using a Delaware C-corp as a parent, a Bulgarian VCC can serve as the operating local entity.

Social security obligations on equity income

A common misconception is that equity compensation "is not salary" and therefore is not subject to social security. The reality is different:

• Where income is classified as employment income (RSUs at vesting, exercise benefit on options under current NRA practice, ESPP discount, VSOP/phantom payments), social security contributions are due under the general regime — up to the maximum insurance base.
• The maximum insurance base for 2026 is EUR 2,111.64 per month (BGN 4,130). Above that amount, no contributions are due.
• Social security contributions include state social insurance (DOO), mandatory supplementary pension insurance (DZPO) and health insurance.
• Where a foreign employer does not withhold Bulgarian social security, the employee files information with the NRA and agrees a mechanism for payment (typically via an EOR or foreign registration as insurer).

Capital gains on the sale of shares (under Art. 33 of the ZDDFL) are not insurance income. Only the 10% tax with an effective 9% rate after the 10% statutory deduction is due — no social security. This is an important distinction that is often overlooked in practice, where the two types of income are conflated.

When double insurance can be avoided

When working for an EU/EEA employer with an A1 form — no Bulgarian social security is due. Without an A1, and with physical work from Bulgaria — Bulgarian social security law applies, with the option of arranging an EOR or direct registration. For self-insured individuals, the minimum insurance base in 2026 is EUR 550.66/month (BGN 1,077).

Frequently asked questions