The Problem Every American Abroad Faces
The United States is one of only two countries in the world (the other is Eritrea) that taxes its citizens on worldwide income regardless of where they live. Move to Bulgaria, build a life there, pay Bulgarian taxes in full — and the IRS still expects you to file. Every year. On everything.
The good news: the Bulgaria-US double tax treaty, combined with specific IRS exclusions and credits, means most American expats in Bulgaria can legally reduce or eliminate double taxation. The bad news: the compliance burden is real, and the penalties for getting it wrong are severe.
This guide covers every tax obligation an American citizen or green card holder faces when living in Bulgaria — from treaty withholding rates to FBAR filings to the tax chain of owning a Bulgarian company.
The Treaty at a Glance
The Convention between the United States and Bulgaria for the Avoidance of Double Taxation was signed on February 23, 2007, with an amending protocol signed on February 26, 2008. The treaty entered into force on December 15, 2008, and has been in effect for all tax years since.
Here are the key withholding tax rates the treaty sets for cross-border payments between the two countries:
| Income Type | Treaty Rate | Without Treaty (BG domestic) | Notes |
|---|---|---|---|
| Dividends (10%+ holding) | 5% | 5% | Beneficial owner holds at least 10% of voting power |
| Dividends (portfolio) | 10% | 5% (individuals) / varies | All other cases |
| Interest | 5% | 10% | Reduced from domestic 10% rate |
| Royalties | 5% | 10% | Reduced from domestic 10% rate |
| Capital gains (shares) | Residence state only | Varies | Generally taxed only where seller resides |
| Employment income | Where work performed | N/A | 183-day exemption for short assignments |
| Business profits | Residence state only | N/A | Unless permanent establishment in other country |
Key point: For a US citizen who owns a Bulgarian EOOD and receives dividends, the relevant rate is the 5% dividend withholding — because as the sole owner, you hold 100% of the voting power (well above the 10% threshold). This is also the standard Bulgarian domestic rate for individual dividend recipients, so the treaty rate and domestic rate align in this scenario.
For a broader overview of all Bulgarian tax treaties, see our complete guide to Bulgaria's double tax treaties.
The US Worldwide Taxation Problem
Most countries tax based on residency — if you leave, you stop owing tax. The United States taxes based on citizenship. This fundamental difference creates a unique burden for American expats:
- US citizens owe tax on worldwide income regardless of where they live or earn it
- Green card holders (permanent residents) have the same obligation, even if they live outside the US full-time
- Filing is mandatory even if you owe zero US tax — the IRS requires the return regardless
- FATCA compliance means foreign banks (including Bulgarian banks) report your account information to the IRS
This means a US citizen living in Sofia, earning only Bulgarian-source income, paying Bulgarian taxes in full, must still file a US federal tax return every year. And report every foreign bank account. And report foreign financial assets above certain thresholds. The filing obligations alone make US citizenship the most tax-intensive nationality to hold abroad.
Penalties are steep: Failure to file FBAR carries penalties up to USD 16,536 per violation for non-willful violations. Willful violations can reach the greater of USD 165,353 or 50% of the account balance. FATCA Form 8938 non-filing penalties start at USD 10,000. These apply per account, per year.
Foreign Earned Income Exclusion (FEIE)
The FEIE (IRS Form 2555) allows US expats to exclude earned income from US taxation — up to a set limit that adjusts annually for inflation.
2026 FEIE Threshold
For tax year 2026, the maximum exclusion is USD 132,900 per person. If both spouses work abroad and each qualifies, they can exclude up to USD 265,800 combined.
Qualifying Tests
You must meet one of two tests:
- Physical Presence Test: You were physically present outside the United States for at least 330 full days during any 12-month period. This is the most common test for recent movers. Partial days in the US count as US days.
- Bona Fide Residence Test: You established genuine residence in a foreign country for an entire tax year. This requires intent to live abroad indefinitely — not just spending time outside the US.
What the FEIE Covers — and What It Does Not
- Covers: Wages, salaries, self-employment income — earned income only
- Does NOT cover: Dividends, interest, rental income, capital gains, pension distributions — passive and investment income is excluded from the FEIE
This distinction matters enormously for EOOD owners: your salary from the management contract qualifies for the FEIE, but your dividend distributions do not. For dividends, you need the Foreign Tax Credit.
Practical tip: The FEIE amount is adjusted annually by the IRS. Always verify the current year threshold at irs.gov before filing. The 2025 threshold was USD 130,000; the 2026 figure of USD 132,900 represents one of the largest single-year increases in recent history.
US Citizen Moving to Bulgaria?
We help American expats structure their Bulgarian tax residency, company formation, and cross-border compliance from day one.
Book Free ConsultationForeign Tax Credit (FTC)
The Foreign Tax Credit (IRS Form 1116) lets you credit taxes paid to Bulgaria directly against your US tax liability. Dollar for dollar.
How It Works
If you earn USD 100,000 in Bulgaria and pay 10% Bulgarian income tax (USD 10,000), you report the full USD 100,000 on your US return — but then claim a USD 10,000 credit. If your US tax on that income would have been USD 12,000, you owe only USD 2,000 to the IRS. If your US tax would have been USD 8,000, you owe nothing and carry the excess USD 2,000 forward for up to 10 years.
FEIE vs FTC: Which Is Better?
You cannot use both on the same income. Here is when each makes sense:
| Scenario | Better Choice | Why |
|---|---|---|
| Salary under USD 132,900, minimal BG tax paid | FEIE | Excludes all earned income; simple |
| Salary over USD 132,900 | FTC | Credits BG tax on the full amount, no cap |
| EOOD owner taking dividends | FTC | FEIE does not cover dividends; FTC credits both CIT and WHT |
| Mix of salary + passive income | FTC (or split) | FTC covers all income types; FEIE only covers earned income |
| Very low income, high BG social contributions | FTC | Bulgarian social security is not creditable, but income tax is; FTC maximizes the offset |
Important: Once you elect the FEIE, you are locked in for that year and all future years unless you formally revoke it. Revoking the FEIE means you cannot re-elect it for five tax years without IRS approval. Choose carefully in your first year abroad.
FBAR and FATCA Reporting
Even if you owe zero US tax after applying the FEIE or FTC, you still have information reporting obligations. These are the two main ones:
FBAR — FinCEN Form 114
- What: Report of Foreign Bank and Financial Accounts
- Threshold: Aggregate value of all foreign accounts exceeds USD 10,000 at any point during the calendar year
- Includes: Personal bank accounts, business accounts (EOOD), investment accounts, any account where you have signature authority
- Filed with: FinCEN (not the IRS) via the BSA E-Filing System
- Deadline: April 15, with automatic extension to October 15
- Penalties: Up to USD 16,536 per non-willful violation; up to 50% of account balance for willful violations
If you have a personal Bulgarian bank account and an EOOD business account, and their combined balance exceeds USD 10,000 at any point during the year — even for a single day — you must file the FBAR. Given that the threshold is roughly EUR 9,200, virtually every American with a Bulgarian bank account and any meaningful savings will trigger this requirement.
FATCA — Form 8938
- What: Statement of Specified Foreign Financial Assets
- Thresholds for expats living abroad (single): Over USD 200,000 on December 31 or over USD 300,000 at any point during the year
- Thresholds for expats living abroad (married filing jointly): Over USD 400,000 on December 31 or over USD 600,000 at any point
- Covers: Bank accounts, investment accounts, foreign pensions, ownership interests in foreign entities (including your EOOD), foreign stocks and securities not held in a US account
- Filed with: IRS, attached to your Form 1040
- Penalties: USD 10,000 for failure to file, up to USD 60,000 for continued non-compliance
FBAR and Form 8938 are separate filings. You may need to file both. The FBAR goes to FinCEN; Form 8938 goes to the IRS with your tax return. Different thresholds, different forms, different agencies. Many expats file the FBAR but forget Form 8938, or vice versa.
Need Help With US-Bulgaria Tax Compliance?
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Get StartedOwning a Bulgarian EOOD as a US Citizen
Many American expats in Bulgaria open an EOOD (single-member LLC) to run their business. Here is the complete tax chain from company profit to your pocket, accounting for both Bulgarian and US obligations:
The Tax Chain
| Step | What Happens | Rate | Example (EUR 100,000 profit) |
|---|---|---|---|
| 1. Bulgarian CIT | EOOD pays corporate income tax on net profit | 10% | EUR 10,000 tax; EUR 90,000 remains |
| 2. Bulgarian dividend WHT | 5% withheld when distributing to individual owner | 5% | EUR 4,500 tax; EUR 85,500 received |
| 3. US reporting | Report dividends on Form 1040 as foreign income | Varies | Full EUR 90,000 dividend is reported |
| 4. Foreign Tax Credit | Credit BG taxes (CIT + WHT) against US liability | Credit | Up to EUR 14,500 credit available |
| 5. Net result | Effective combined rate | 15% | EUR 14,500 total tax (BG); minimal to zero US tax |
The combined Bulgarian rate is 15% (10% CIT + 5% dividend WHT). Because US tax rates on qualified dividends are typically 15% or 20% (depending on income bracket), the Bulgarian taxes paid generate enough Foreign Tax Credits to eliminate or nearly eliminate any additional US tax on the same income.
Additional US Reporting for EOOD Owners
- Form 5471: Information Return of U.S. Persons With Respect to Certain Foreign Corporations — required annually for any US person who owns more than 50% of a foreign corporation. This is a complex form with severe penalties (USD 10,000) for non-filing.
- FBAR: Your EOOD's bank account must be included in your FBAR filing
- Form 8938: Your ownership interest in the EOOD itself is a specified foreign financial asset
- Subpart F / GILTI: Anti-deferral rules may apply to certain passive income earned by your EOOD. Consult a US international tax advisor.
Practical tip: The EOOD structure remains highly tax-efficient for US citizens despite the reporting burden. The 15% combined Bulgarian rate competes favorably with US self-employment rates, and the FTC mechanism prevents true double taxation. The key is getting the compliance right from year one. See our guide on how to pay yourself from a Bulgarian EOOD for the salary-dividend optimization strategy.
Social Security: No Totalization Agreement
The United States has totalization agreements with about 30 countries — but Bulgaria is not one of them. As of 2026, no US-Bulgaria totalization agreement exists, and none is currently under negotiation.
What This Means in Practice
- Employed in Bulgaria: You pay Bulgarian social security contributions (up to approximately 32.7% of gross salary, split between employer and employee). You are generally exempt from US Social Security/Medicare because you are employed by a foreign employer in a foreign country.
- Self-employed or EOOD owner-manager: You pay Bulgarian social insurance contributions. You may also owe US self-employment tax (15.3% — 12.4% Social Security + 2.9% Medicare) on net self-employment income. This creates genuine double social security taxation.
- No credit transfer: Bulgarian social security contributions do not count toward US Social Security benefits, and vice versa. Years worked in Bulgaria do not count toward the 40 US work credits needed for Social Security eligibility.
This is the hidden cost. Many American expats plan their Bulgarian tax obligations around income tax (10% flat rate, 15% combined CIT + dividend) and overlook social security entirely. Without a totalization agreement, self-employed US citizens may pay social contributions in both countries simultaneously. Factor this into your planning from the start.
Practical Steps for US Citizens Moving to Bulgaria
If you are an American citizen or green card holder planning to move to Bulgaria — or already living there — here is your compliance checklist:
File Your US Tax Return Every Year
Form 1040 is mandatory regardless of where you live or whether you owe US tax. Report all worldwide income. Expats get an automatic extension to June 15, with a further extension to October 15 available on request. Visit irs.gov for current filing requirements.
Elect FEIE or FTC in Your First Year
Decide whether the Foreign Earned Income Exclusion or the Foreign Tax Credit is better for your situation. Remember: the FEIE election is sticky — revoking it locks you out for five years. If you have EOOD dividend income, the FTC is almost always more beneficial.
File FBAR by April 15 (Extended to October 15)
If the aggregate value of your foreign accounts exceeds USD 10,000 at any point during the year, file FinCEN Form 114 electronically at fincen.gov. Include your personal Bulgarian bank account AND your EOOD business account if you have signature authority.
File Form 8938 If You Meet the Thresholds
Expats living abroad: report specified foreign financial assets if they exceed USD 200,000 at year-end or USD 300,000 at any point (single). Married filing jointly: USD 400,000 / USD 600,000. Attach to your Form 1040.
File Form 5471 If You Own a Bulgarian EOOD
As a US person owning more than 50% of a foreign corporation, you must file Form 5471 annually with your tax return. Penalty for non-filing is USD 10,000. This form requires detailed financial statements of your EOOD.
Hire a Cross-Border Tax Advisor
US-Bulgaria tax compliance requires expertise in both jurisdictions. You need a Bulgarian accountant for local filings and a US-qualified CPA or enrolled agent experienced with expat returns (Forms 2555, 1116, 5471, 8938). We can coordinate both sides.
Cross-Border Tax Compliance, Sorted
We coordinate your Bulgarian company formation, tax residency, and local filings — and connect you with a US CPA for the American side.
Book Free Consultation"Is it really worth moving to Bulgaria if I still have to file US taxes?" — Yes. Bulgaria's 10% flat income tax and 15% combined CIT + dividend rate are among the lowest in Europe. The Foreign Tax Credit mechanism means you typically owe zero additional US tax on Bulgarian-taxed income. The compliance burden (FBAR, Form 8938, Form 5471) is real, but it is paperwork — not additional tax. With the right advisors, the annual cost of US expat filing runs EUR 1,000–3,000, which is trivially small compared to the tax savings versus most Western European countries.
"Can I just not file and hope the IRS doesn't notice?" — FATCA makes this strategy obsolete. Bulgarian banks report your account information to the IRS through the US-Bulgaria intergovernmental agreement. The IRS knows you have foreign accounts. Non-filing triggers automatic penalties. The Streamlined Filing Compliance Procedures exist for expats who are behind — use them before the IRS contacts you.
"Should I renounce US citizenship to escape the tax obligations?" — This is a drastic step with permanent consequences. Renunciation triggers an exit tax on unrealized gains if your net worth exceeds USD 2 million or your average annual net income tax for the five preceding years exceeds a threshold (check irs.gov for the current figure). Most American expats in Bulgaria find that proper tax planning eliminates double taxation without renouncing anything.
Ready to Move to Bulgaria? Let's Plan Your Tax Position
Tell us about your situation — US citizen or green card holder, income sources, whether you plan to open an EOOD — and we'll map out your Bulgarian + US tax obligations. Free, no obligation.
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