26.9- United States Tax Treaty with Bulgaria

Information provided is for general understanding, tax code is complex and the information provided may not include all relevant information to the taxpayer's specific situation. We at Z-tax & Accounting specialize in International Taxation and Tax Treaties applicable to the taxpayer's specific situation. Contact us today, and we will gladly help with your Tax situation and applicable Tax treaty benefits. 

The U.S.–Bulgaria Income Tax Treaty, signed on February 23, 2007, aims to prevent double taxation and fiscal evasion concerning taxes on income. It applies to both individuals and entities in both countries.

Key Provisions

Taxes Covered

The treaty applies to taxes on income imposed by each contracting state. In Bulgaria, this includes personal income tax and corporate tax. In the United States, it applies to federal income taxes as defined by the Internal Revenue Code. Social security taxes are not covered by the treaty.

Relief from Double Taxation

• Bulgaria: Offers a credit for U.S. taxes paid on U.S.-sourced income.
  
  

• United States: Allows a credit for Bulgarian taxes paid on Bulgarian-sourced income.

This ensures that income is not taxed twice.

Savings Clause

The treaty includes a "savings clause," allowing each country to tax its residents as if the treaty were not in effect. This means U.S. citizens and residents may still be subject to U.S. taxes on their worldwide income, even if the treaty provides for reduced rates or exemptions.

Exchange of Information

The treaty facilitates the exchange of tax information between the U.S. and Bulgaria to prevent tax evasion and ensure proper tax compliance.

Practical Implications

• U.S. Residents: May claim a credit for Bulgarian taxes paid on Bulgarian-sourced income, reducing their U.S. tax liability.
  
  

• Bulgarian Residents: May claim a credit for U.S. taxes paid on U.S.-sourced income, reducing their Bulgarian tax liability.
  
  

• Withholding Tax: Reduced rates on dividends, interest, and royalties can lower the tax burden on cross-border income.
  
  

• Social Security: No totalization agreement exists; individuals may be subject to social security taxes in both countries.