Do I have to file at home while living in Bulgaria?
It depends on residence, not on address — except for US citizens and green-card holders, for whom the answer is yes regardless of where they live. We settle the residence question first, because every other answer follows from it.
Is there a treaty between my country and Bulgaria?
That is verified rather than assumed: we confirm which treaty text governs Bulgaria and your home country for the year in question, because a protocol can move a rate or an article between years. If there is no treaty, unilateral credit rules are what prevent double taxation.
I own property in Bulgaria. Where is the rent taxed?
Rent from immovable property is almost always taxable where the property is situated, frequently by withholding on the gross amount, with your home country taxing the same income and giving credit. A net-basis election, where one exists, is usually the difference between tax on profit and tax on turnover.
Do I still have to file at home if I pay tax in Bulgaria?
Paying tax in Bulgaria does not by itself end a home filing obligation. Canada and the United States both reach worldwide income — Canada by residence, the United States by citizenship — and residence turns on where your home, family and settled life are rather than on where the salary is paid. If the home obligation continues, the Bulgarian income goes on the home return and the Bulgarian tax is claimed as a credit against the home tax on that same income. Because the Bulgarian charge is a low flat one, the credit often absorbs only part of the home liability and a balance is still collected at home. Severing residence is a separate question with its own evidence.
Why is my home tax bill still high when Bulgarian tax is low?
A foreign tax credit relieves double taxation; it does not transfer the Bulgarian rate to your home country. The credit is limited to the tax actually paid in Bulgaria on that income, so where the local charge is a low flat one and the home system is progressive, the difference is simply collected at home. This is why planning for Bulgaria is rarely about reducing the Bulgarian charge. It is about knowing the size of the home balance early enough to fund it, and about the timing of income so that the credit and the liability it relieves fall in the same year.
I am American working for an outsourcing firm in Sofia, what do I file?
United States filing follows citizenship, so the return continues whether or not you ever go back. The Bulgarian employment income is reported, and relief comes either through a credit for the Bulgarian tax or through the exclusion available to people living and working abroad; the two interact, and choosing between them is a year-by-year decision rather than a permanent one. Separately, accounts held at Bulgarian banks, and the savings or investment wrappers a local employer may arrange, usually fall within the annual FBAR reporting, which is filed whether or not any tax is due.
Do I have to report my Bulgarian bank account back home?
Almost certainly, and account reporting is independent of whether any tax arises. Americans report foreign accounts annually on the FBAR, and Canadians holding foreign property above the reporting floor report it on the T1135. Both are informational filings with penalties of their own, and both are commonly missed by people whose Bulgarian salary was taxed at source and who therefore assumed nothing further was owed. Employer-arranged savings products, brokerage accounts opened locally, and accounts over which you merely hold signing authority all need to be looked at, not only the current account the salary lands in.
I rent out a flat in Bulgaria, where is that income taxed?
Rent from Bulgarian property is taxable in Bulgaria because that is where the property sits, and it is taxable again in your country of residence if you are resident there. The credit mechanism stops the same income being taxed twice over, but the two systems rarely measure the profit the same way. Deductible expenses, the treatment of repairs against improvements, and the depreciation position all differ, so the profit reported locally and the profit reported at home are usually different figures drawn from one set of records. Keeping those records in a form that supports both computations saves rebuilding them later.
Do I need to pay instalments at home while living in Bulgaria?
Often, yes. Where the Bulgarian charge is low and the home liability is met by a balance on filing rather than by withholding, home-country instalment rules can be triggered, because those rules look at tax not collected at source rather than at where you live. The practical consequence is a sequence: the first year abroad produces a balance on assessment, and the following year produces instalment demands based on it. Working that figure out in advance, instead of meeting it on assessment, is most of what planning for Bulgaria actually consists of.
Which country taxes my government pension or social security?
The treaty decides, and the answer differs by the type of retirement income. Many treaties give social security to the country of residence, sometimes exclusively, while a pension for government service can stay taxable only in the paying country. Some treaties also cap the taxable proportion or preserve an exemption the source country gives its own residents. Because the categories are distinct, one household can have two pensions taxed by two different countries. See the pensions and annuities article.
When is Form 1116 not required?
Three situations. You elect the exception for a small amount of creditable foreign tax that arises from passive income and is reported to you on a payer statement such as a 1099 or K-1. You choose to deduct the foreign tax instead of crediting it. Or all the foreign income was excluded under the foreign earned income exclusion, in which case there is no credit to claim on it in the first place. The first option costs you the carryover. See Form 1116.
