US Expat Taxes for Americans Living in Bulgaria – What You Need to Know
It has been estimated that there are several thousand Americans living in Bulgaria.
Living in Bulgaria is an incredible experience for a number of reasons, including the friendly locals, the culture and cuisine, the quality of life, and having the rest of Europe on your doorstep. As an American expatriate living in Bulgaria though, what exactly do you need to know regarding filing US expat (and Bulgarian) taxes?
All US citizens and green card holders who earn a minimum of around $10,000 (or just $400 for self-employed individuals) anywhere in the world are required to file a US federal tax return and pay taxes to the IRS, regardless of where in the world they live or their income is generated.
The good news is if you are paying income tax in Bulgaria, there are various exclusions and exemptions available to prevent you paying tax on the same income to the IRS too.
US taxes – what you need to know
If you earn over US$10,000 (or just $400 of self-employment income), wherever the income originates in the world you have to file IRS form 1040.
While any US taxes due are still due by April 15th, expats get an automatic filing extension until June 15th, which can be extended further on request until October 15th.
If you have overseas assets worth over US$200,000 per person, excluding your home if it is owned in your own name, you also have to file form 8938 to declare them.
If you had a total of at least US$10,000 in one or more foreign bank and/or investment accounts at any time during the tax year, you also have to file FinCEN form 114, otherwise known as a Foreign Bank Account Report or FBAR.
If you pay income tax in Bulgaria, there are several exemptions that allow you to pay less or no US income tax on the same income to the IRS.
“Bulgarian tax residents are taxed on their worldwide income. Non-residents are taxed in Bulgaria only on their Bulgarian-source income. Generally, this is all income derived as a result of economic activities performed in the territory of Bulgaria or as a result of disposal of property in Bulgaria.” – PwC
The main exemptions are the Foreign Earned Income Exclusion, which lets you exclude the first around US$100,000 of foreign earned income from US tax if you can prove that you are a Bulgarian resident, and the Foreign Tax Credit, which gives you a $1 tax credit for every dollar of tax you’ve paid in Bulgaria. These exemptions can be combined if necessary. Remember though that even if you don’t owe any tax to the IRS, if your income is over US$10,000 (or $400 if you’re self-employed) you still have to file a federal return.
The US and Bulgarian governments share taxpayer info, and Bulgarian banks pass on US account holders’ account info to the IRS, so it’s not worth not filing or omitting anything on your return. The penalties for incorrect or incomplete filing for expats are steep to say the least.
If you’re a US citizen, green card holder, or US/Bulgarian dual citizen, and you have been living in Bulgaria but you didn’t know you had to file a US tax return, don’t worry: there’s a program called the IRS Streamlined Procedure that allows you to catch up on your filing without paying any penalties. Don’t delay though, in case the IRS comes to you first.
Bulgarian taxes – what you need to know
Bulgarian residents are taxed on their worldwide income at a flat rate of 10%. Non-residents are only taxed on Bulgarian sourced income, generally defined as any income derived from activities or property in Bulgaria.
Foreigners living in Bulgaria are considered a resident for tax purposes if their center of vital interests is in Bulgaria (with regard to personal and economic ties), or if they spend over 183 days in Bulgaria in a 12 month period that overlaps with the tax year.
The Bulgarian tax year is the same as in the US, which is to say the calendar year. Bulgarian income tax returns are due by April 30th. The Bulgarian tax authority is called the National Revenue Agency.
We strongly recommend that if you have any doubts or questions about your tax situation as a US expat living in Bulgaria that you contact a US expat tax specialist.