Global Stock Options. BULGARIA Penkov, Markov & Partners

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1 Global Stock Options BULGARIA Penkov, Markov & Partners CONTACT INFORMATION: Vladimir Penkov Penkov, Markov & Partners Bl. 22, entr. A, Iztok Dstr., 1113 Sofia Bulgaria Telephone: To understand the answers given below it is important to first read the survey scenario, which can be accessed by CLICKING HERE>>. General Remarks: The concept of Global Stock Equity Plan is unknown to the Bulgarian law system as well as its application for granting stocks executives located around the world. However, similar effects could be achieved by a simple sale of stocks by the company or third party assigned under an informal plan adopted by the management of the company. Therefore, in the paragraphs below we will emphasize only on simple sale model and not on Global Stock Equity Plan concept as known in other jurisdiction. 1. Are there any corporate actions that need to be taken by the Committee or the shareholders to establish the plan? The actions which are needed for the establishment of the plan for sale should be performed by the Board of Directors or the shareholders depending on the specific provisions of the Articles of Association of the company. The plan should provide sufficient information for the provision of the stocks and other relevant investor information. This information as well as the plan should be presented to the executives who will be offered to participate.

2 2. Are there any requirements in your jurisdiction about the composition or authority of the Committee? Where the right to participate in the plan is granted to members of the Supervisory Board, or members of the Board of Directors, respectively, the decision for granting the right to participate shall be taken by the General Shareholders Meeting. 3. What does the Committee have to publicly disclose about its Plan-related decisions and when must those disclosures be made? Please see the answer of Question Is a participant subject to taxation: on receipt of the option; on exercise; or otherwise? Participants are not subject to taxation on receipt or exercise of the option. Grounds for taxation shall be the occurrence of any profit realized by sale, exchange, or other nongratuitous transfer of shares or stock under the conditions pointed in Answer 5 below. 5. Does the tax treatment vary depending on where the Participant resides or habitually exercises his duties (i.e. outside your jurisdiction)? Given the circumstance that Company X is publicly traded company and is listed on regulated exchange market in Bulgaria, the income of Participants, residing in Bulgaria from the sale or other transfer of the shares shall not be levied with any income tax. However, if the Participant is a foreign person (generally a person without permanent address in Bulgaria or residing for more than 183 days per year outside Bulgaria) we should note that there would be some tax consequences upon sale or transfer of the acquired shares (stock). In this case a final tax in the amount of 10% over the positive difference between the selling price and the documented cost of acquisition of the shares (in our case the exercise price) shall be due. The tax shall be remitted by the Participant. It should be noted that if the non-resident Participant is established for tax purposes in a Member State of the European Union or in another Member State of the European Economic Area, no final tax shall be levied. Of course, where there is a Double Tax Treaty signed between Bulgaria and the country of residence of the respective Participant, the provisions of this treaty have to be taken into consideration. Also should be noted that under the simple sale model no options are granted to the executives but only stocks. 6. Does the tax treatment vary depending on the type of option or specific Plan provisions concerning the option? As pointed in General Remarks above the concept of Global Stock Equity Plan is unknown to the Bulgarian law system. In this respect we may point out that if the effect of the plan is to be achieved by simple sale of stock, the tax treatment would be as pointed in item 5 above.

3 7. Is Company X entitled to claim a deduction from (or other reduction of) taxable income with respect to the option and, if so, when and how is this calculated? The Corporate Income Tax Act does not stipulate any entitlement of employers to make deductions from their taxable income with respect to the grant of such options. 8. Does the tax treatment under 7 vary depending on where the Participant resides or habitually exercises his duties (i.e. outside your jurisdiction?) Not applicable. 9. Are there special rules for significant shareholders (for example, more than 10% shareholders of the Company)? Shareholders who own at least 5 percent of the Company s capital are entitled to demand a convening of the General Meeting, as well as to supplement the agenda with issues, to be discussed by the General Meeting, not having been initially announced. Shareholders who own at least 10 percent of the Company s capital are entitled to instigate a claim for seeking accountability from the Board of Directors, or from the Supervisory and Management Boards, respectively, with regard to damages caused to the Company. From tax point of view there are no special rules for significant shareholders. 10. What are the other principal tax considerations, if any, such as withholding for social insurance, employment taxes, unemployment taxes, etc., for Company X or its local subsidiary or branch office in your jurisdiction, and the participant? Please see the answer of Questions 5 and What needs to be done, if anything, under your local law so that Participants obtain the favorable tax treatment offered by your jurisdiction? First of all, as pointed in the answer to Question 4 above, tax treatment would be applicable in case of sale of the shares (stock) which the Participant has acquired. In this regard, please see the answer of Question 5 with respect to the tax treatment of share transfers, completed on the Bulgarian regulated market by Bulgarian resident and nonresident Participants. The circumstance that the person is resident in a Member State of the European Union or in another Member State of the European Economic Area shall be certified by a document issued by the tax administration of the respective State and the fact that the disposition of shares has been effected on a regulated market shall be certified by a declaration by the Participant. 12. What securities law, or other regulatory (or exchange) requirements are there, if any, such as: filing requirements; prospectus requirements; offering exemptions; size of offering limitations; and currency requirements? Please see the answer of Question Is a cashless exercise permissible?

4 Generally, both the purchase of shares and the share acquisition by way of exchange are permissible. 14. Are there any rules in your jurisdiction that prohibit or discourage a foreign subsidiary of Company X from granting options to acquire shares of common stock of Company X to the subsidiary's executives? No such restrictions or prohibitions exist. 15. Are the rules addressed in this survey applied differently based on whether the multinational operates in a particular jurisdiction as a branch office or as a domestic subsidiary? If so, what are these differences? There is no difference depending on the way of operation in third countries. 16. Do executive employees in other jurisdictions need to be covered by a plan of the subsidiary or a plan separate from your Plan to comply with your jurisdiction's law? Inasmuch as the plan may contain provisions which contradict the imperative norms of Bulgarian legislation, it is recommended that the plan be studied in advance and adapted in view of the local legislative provisions. 17. If known, please comment on the accounting issues which are relevant for this Plan. In respect of this question, it needs to be reiterated that offering participation in such plans is not widespread in Bulgaria; therefore, the respective statutory regulations are too succinct and non-exhaustive. In this light, we cannot point out other key aspects related to the plan. 18. List any other requirements of importance in your jurisdiction. Please see the answer of Question Severance Risks: Will the value of granted options legally need to be included in severance calculations? No such statutory requirement exists. 20. Acquired Rights: Will Plan participants become legally entitled to future grants or immediate vesting at termination of employment or service? No such statutory requirement exists. 21. Data Privacy: Will Company X or the local subsidiary or branch office need to take any additional measures to adhere to local data privacy laws?

5 Inasmuch as the granting of the right to participate in a global stock equity plan can entail obtainment or disclosure of employees personal data, the Company shall adhere to the provisions of the Personal Data Protection Act (PDPA). The PDPA obligates employers to register as administrators of personal data, as well as to observe established rules and procedures regulating the disclosure of employees personal data to third parties.