# Moving to Romania - Need Tax Help



## inROGo

I would really appreciate some tax information regarding my situation. I've done a lot of research and reading for hours but things are still somewhat confusing to me since I'm very new to this. I would love some input from some of the knowledgeable members on this forum that I've had the pleasure of reading posts from.


I'm moving to Romania in July 2016, I was born there and have US citizenship, I plan on getting dual citizenship with Romania since I qualify once I move back there. I plan on living there for a few years.

I have been self-employed for 9 years now with an online business, it will be the same work I will be doing once I get there.

I am single not married.


My questions are as follows. (sorry ahead of time for having so many)


1. In 2017, for the tax year 2016, how should I file my taxes? It will be a year in which I partly lived in the US, Jan 16, through middle of July 16, and partly in Romania, middle of July through end of December. I always use Turbo Tax to file my returns and plan on doing the same once there. Do I file as normal and just indicate my change of address?

2. Will I not be able to use the Foreign Earned Income Exclusion, or Foreign Housing Exclusion or Deduction until I am there for at least 12 months?

2. Does having dual citizenship and dual passports automatically make me a resident of Romania and bypass the requirement of living there 12 months?

3. Romania and the US have a double taxation treaty, but I don't really understand how that works, does that mean that I only have to pay the US tax and Romania won't tax me? Or does it mean I pay Romania tax first, and then am able to deduct what I paid in Romanian taxes for my US taxes?

4. As far as obamacare, can I stop paying it as soon as I move to Romania, or do I need to continue to pay it for 12 months after I get there before I can stop?

5. Since I'll have Romanian citizenship I believe it would be fairly easy to open up a bank account there. Would it be in my best interest to do so and wire funds to live off of to it from the US? Would doing that help me avoid currency conversion fees? Would the USD automatically get converted to the Romanian currency once it hits the bank or would it still be USD and require fees for me to use it?

6. As far as FinCEN goes that seems pretty straight forward, if I have a bank account with 10k or more in it, once I year I would just submit this form online and report everything truthfully. I plan on having maybe 15k in my Romanian account yearly to cover my cost of living so I would just file this form from the website yearly. Is there anything else I need to know about FinCen besides what I just mentioned?

7. Does anyone know of a checklist type of guide or any articles that goes into full depth into how to relocate overseas?


Thanks


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## BBCWatcher

inROGo said:


> 1. In 2017, for the tax year 2016, how should I file my taxes? It will be a year in which I partly lived in the US, Jan 16, through middle of July 16, and partly in Romania, middle of July through end of December. I always use Turbo Tax to file my returns and plan on doing the same once there. Do I file as normal and just indicate my change of address?


Yes, pretty much. Here are the basic steps:

(a) Continue making estimated U.S. tax payments through at least the third quarter, 2016 (payment due September 15, 2016). You can notify the IRS of your new mailing address using Form 1040-ES as you make that estimated tax payment in late 2016. Note that the due date when using postal mail from overseas is based on _receipt_ at the IRS.

(b) Pay any outstanding tax for 2016 by April 15, 2017, as best as you can estimate it.

(c) Apply for an extension to file until October 15, 2017.

(d) Once you reach 330 days outside the United States (sometime in June, 2017), you can file your 2016 U.S. tax return and qualify for the Foreign Earned Income Exclusion for the period from July, 2016 (when you move) through the end of the tax year, if you wish to take the FEIE. (Probably a good idea for Romania. I think Romania has a fairly low income tax rate.) Note that unless you're contributing to the Romanian social security system, and unless Romania has a social security treaty with the U.S. (I think it does), you won't be able to skip the U.S. Self-Employment Tax.



> 2. Does having dual citizenship and dual passports automatically make me a resident of Romania and bypass the requirement of living there 12 months?


From the U.S. perspective, no. You could hold 16 other passports and it wouldn't matter. But it doesn't matter anyway.



> 3. Romania and the US have a double taxation treaty, but I don't really understand how that works, does that mean that I only have to pay the US tax and Romania won't tax me? Or does it mean I pay Romania tax first, and then am able to deduct what I paid in Romanian taxes for my US taxes?


It means you can read the treaty to see if it offers something interesting, but usually the savings clause means it's not so interesting to U.S. persons.



> 4. As far as obamacare, can I stop paying it as soon as I move to Romania, or do I need to continue to pay it for 12 months after I get there before I can stop?


You can stop any time you wish, even now. Of course you don't have that medical insurance if you stop paying for it, and medical insurance is good stuff to have to protect both your bodily and financial health. You only owe the higher rate of U.S. income tax (the Shared Responsibility Payment) if you failed to have Minimum Essential Coverage during your period of U.S. residence. When you're no longer a U.S. resident, then the Shared Responsibility Payment does not apply.



> 5. Since I'll have Romanian citizenship I believe it would be fairly easy to open up a bank account there. Would it be in my best interest to do so and wire funds to live off of to it from the US? Would doing that help me avoid currency conversion fees?


No. You're still converting currency.

Unless you have a specific reason to open an account in Romania -- such as receiving a salary from a Romanian employer -- I wouldn't bother. Focus instead on getting low cost means to spend funds in Romania from your U.S. bank account, i.e. low cost U.S. debit/ATM and credit cards.

Note that if you have any non-U.S. accounts they'll likely need to be reported on the U.S. side via FinCEN Form 114 and perhaps an IRS form or two.


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## Bevdeforges

To amplify a bit on what BBC has already said:



inROGo said:


> 1. In 2017, for the tax year 2016, how should I file my taxes? It will be a year in which I partly lived in the US, Jan 16, through middle of July 16, and partly in Romania, middle of July through end of December. I always use Turbo Tax to file my returns and plan on doing the same once there. Do I file as normal and just indicate my change of address?


Basically, yes. But get hold of a copy of IRS publication 54, which explains most of the details - especially about deferring your filing deadline until you meet one of the two tests for living overseas. You may want to check on another tax preparation software (TaxAct and Tax Slayer are the two most often mentioned) because there have been occasional problems for overseas filers with TurboTax. Though that may depend on your individual circumstances.



> 2. Will I not be able to use the Foreign Earned Income Exclusion, or Foreign Housing Exclusion or Deduction until I am there for at least 12 months?


Again, see publication 54. If you want to use the FEIE, it will depend on which test you qualify under.



> 2. Does having dual citizenship and dual passports automatically make me a resident of Romania and bypass the requirement of living there 12 months?


No. For the FEIE you have to pass either the Physical Presence test or the Bona Fide Residence test, neither of which has much if anything to do with having a second nationality. Again, Publication 54 explains this in detail.



> 3. Romania and the US have a double taxation treaty, but I don't really understand how that works, does that mean that I only have to pay the US tax and Romania won't tax me? Or does it mean I pay Romania tax first, and then am able to deduct what I paid in Romanian taxes for my US taxes?


https://www.irs.gov/Businesses/International-Businesses/Romania---Tax-Treaty-Documents
Many of these treaties work in a similar manner, but each treaty has its little oddities. When you get to Romania, check the website of the US Embassy/Consulate there. They sometimes have information on the tax treaty available online for local residents subject to US filing requirements.


> 4. As far as obamacare, can I stop paying it as soon as I move to Romania, or do I need to continue to pay it for 12 months after I get there before I can stop?


By the time you file your US taxes, you need to meet the requirements for having dropped it (i.e. Physical presence test or bona fide resident test).



> 5. Since I'll have Romanian citizenship I believe it would be fairly easy to open up a bank account there. Would it be in my best interest to do so and wire funds to live off of to it from the US? Would doing that help me avoid currency conversion fees? Would the USD automatically get converted to the Romanian currency once it hits the bank or would it still be USD and require fees for me to use it?


With or without citizenship, you may find you need a local bank account just for day to day expenses. To transfer funds, you may want to look into an FX company - a way to get good exchange rates without exorbitant transfer fees. 



> 6. As far as FinCEN goes that seems pretty straight forward, if I have a bank account with 10k or more in it, once I year I would just submit this form online and report everything truthfully. I plan on having maybe 15k in my Romanian account yearly to cover my cost of living so I would just file this form from the website yearly. Is there anything else I need to know about FinCen besides what I just mentioned?


If you have multiple bank accounts overseas, it's the sum total of the balances that counts, not just the one account.



> 7. Does anyone know of a checklist type of guide or any articles that goes into full depth into how to relocate overseas?


Not a checklist, but for the tax side of things, do take a look at Pub 54. 
Cheers,
Bev


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## BBCWatcher

I took a quick look at Romania's income tax system and rates. It appears that practically every U.S. person subject to Romanian income tax would be better off taking the Foreign Earned Income Exclusion (FEIE) if eligible for it.

Unfortunately I was wrong: the United States and Romania do not have a social security treaty at present. Consequently if you're a self-employed U.S. person in Romania you'll have to pay the U.S. Self-Employment Tax on your earned income, and you'll also likely have to make contributions to Romania's social insurance system from the same income -- and Romania's social insurance tax rates appear to be quite steep.(*) You can't credit one against the other: you have to pay both from the same income.

That's the bad news. Of course the good news is that you may qualify for both countries' social insurance benefits, including retirement benefits -- and contributions boost those future benefits. Moreover, your U.S. benefits would not be subject to the Windfall Elimination Provision (WEP) if your earnings were subject to U.S. contributions.

If you don't like the fact you would owe U.S. Self-Employment Tax (even with the boost to/continuation of your U.S. Social Security benefits), one "workaround" is to work for a foreign employer in Romania.

(*) According to one recent source I found, self-employed individuals pay 36.8%, and that's assuming they skip the optional Unemployment Fund contribution. However, once they reach 5 times the average gross salary in Romania they only pay into the Health Fund (5.5%). Also, these social insurance taxes are deductible from income when calculating income tax. Even so, that's a lot higher than the U.S. total rate of 15.3% (which drops to 2.9% for Medicare once you hit the Social Security earnings cap, which isn't as high as 5 times average gross U.S. salary).

So, to net it out, you'll probably pay Romanian income tax (top marginal rate of 16%), zero U.S. income tax unless you have particularly high earnings (above the FEIE) and/or U.S. source income, the U.S. Self-Employment Tax of 15.3% (up to the Social Security earnings cap), and the Romanian social insurance taxes of 36.8% (up to their earnings cap). You're very likely going to be paying over 50% of your first dollars of income from work just in social insurance taxes across the two countries, in other words -- just to set expectations here so there are no surprises. Are you sure you want to move to Romania, particularly as a self-employed person?


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## Bevdeforges

> If you don't like the fact you would owe U.S. Self-Employment Tax (even with the boost to/continuation of your U.S. Social Security benefits), one "workaround" is to work for a foreign employer in Romania.


One way to do this is to incorporate your business in Romania (so that the business pays its own taxes) and then you can be an "employee" of the company. Each country has its own peculiarities in how you do this and you may or may not need to have a partner (i.e. a second owner) in order to do this. But time enough to explore that side of things after you've arrived.
Cheers,
Bev


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## BBCWatcher

If the tax situation in Romania is discouraging, here are some possible alternatives:

* The following EU/EEA countries have social security treaties with the U.S.: Italy, Germany, Belgium, Norway, the United Kingdom, Sweden, Spain, France, Portugal, the Netherlands, Austria, Finland, Ireland, Luxembourg, Greece, Denmark, the Czech Republic, Poland, and Slovakia. Switzerland also has a social security treaty with the U.S. If you're a resident of any of these countries then as long as you're making contributions into their social insurance systems you don't have to contribute to the U.S. system (from the same income).

* Italy's social security treaty with the U.S. is particularly interesting because U.S. citizen self-employed workers in Italy (who are not also Italian citizens) can choose to remain within the U.S. system exclusively (which is the better system). The other treaties generally require self-employed workers living in those countries to shift onto the non-U.S. systems, and those systems are generally less attractive (for demographic reasons at least).

* At very quick glance, the countries with relatively low overall tax rates on labor income, inclusive of social insurance taxes, appear to be Cyprus, Malta, Ireland, Luxembourg, and the United Kingdom (especially in Gibraltar). But you'll have to dig into that a bit more to see exactly what your situation would be. And of course taxes aren't everything.

* Citizens of Romania can live in any EU/EEA country provided they're exercising a treaty right. That means in your case having adequate self-employment income, above the social minimum.

* You need at least 14 years and 6 months of contributions into the Romanian social security system to qualify for retirement benefits. Your contributions to U.S. Social Security don't count toward that minimum amount of time (since there's no treaty with the U.S.) That's a long time!


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## inROGo

BBCWatcher and Bevdeforges thank you so much for taking time to write the detailed help and even extra information to my questions. You two are godsends and are also the two I was hoping I would get a reply from. I really appreciate it so much!

I'm going to take the next few days to read over everything you both wrote, as well as research any part of it I didn't understand and/or need more information about. I'll come back to this thread to post what I've found out about everything as soon as I can.

One thing is for sure this is more complicated than I imagined but i'm going to invest as much time as needed in research to be able to find out all my options and the best course to take. 

Again thanks so much and i'll be back sometime later to update.


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## inROGo

OK i'm back and have a very key question to ask.

Once I move to Romania, if I don't open a bank account in Romania, as well as continue to get my payments for the online work I do sent to my American bank account, would I still be subject to Romanian income tax and Romanian social security?

This article says that:
www[dot]expatfocus.com/expatriate-romania-taxation



> A foreign national transferred to Romania by an employer will become liable to pay Romanian individual income tax. This applies* only to income sourced in Romania*, such as:
> 
> - salary received from a foreign employer for services provided in Romania
> - employment income
> - income from a source in Romanian territory


and



> - The taxpayer will only be subject to Romanian individual income tax for income coming from Romanian sources.


Since my income would be generated by a US company, and paid to my US bank account, I don't think I would qualify for having to pay Romanian income tax since it's not "Romanian Sourced."

Another article on the same site says that:
www[dot]expatfocus.com/expatriate-romania-social-security



> Social security contributions are required for income received on the basis of employment contracts or civil agreements registered in Romania.


I'm hoping those above two sources are accurate and I'm not interpreting them wrong because the last thing I would want to do is any type of tax evasion. 

But I think it would be virtually impossible for Romania to know that I am even generating any income at all since it's all being generated in the US. I would be allowed to live in the country due to my dual citizenship without having to jump through any hoops of verifying any income with the authorities to qualify for naturalization or work visas or anything. As far as they're concerned I could just be living off of a savings account in the US.

However this Romanian expat taxation guide on page 7 says that:
www[dot]pwc.ch/user_content/editor/files/publ_tls/pwc_tax_guide_romania_11.pdf



> While Romanian individuals domiciled and tax resident in Romania are liable for income tax on their worldwide income, foreign individuals who are Romanian tax residents (by either having the centre of vital interests in Romania or by being present in Romania for more than 183 days during any 12-month period ending in the tax year) become liable for Romanian income tax on their worldwide income only as of the fourth consecutive year of tax residence in Romania.


My questions about that above statement are:

Since I will be a citizen of Romania, would I be considered a "Romanian individuals domiciled and tax resident in Romania" or since I still am a citizen of the US, be considered a "foreign individual who is Romanian tax resident?"

If I was the latter apparently I wouldn't have to pay taxes on worldwide income for 4 years. 

This is all still pretty confusing but i'm sure all the answers are out there if I keep searching.

Thanks for any help in advance!


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## Bevdeforges

You have to be a bit careful, based on the source of those quotes about Romanian taxes. It looks like those are either "expat information sites" or possibly expat information produced by international accountants or law firms. Not saying they are wrong, but you need to consider how current the information is.

The "ideal" source for tax info about Romania would be the Romanian tax service - and in Romanian. Translations always introduce an element of uncertainty. However, one key factor will be the basis on which you are moving to Romania - you mentioned that you were born there, but need to live there for a certain time before you can claim your Romanian nationality. Will you be getting a visa of some sort? That may provide a clue as to whether you'll be considered a "foreign individual" or a "Romanian individual." The Romanian Visa | Ministry of Foreign Affairs

Normally, a long stay visa requires you to state your "purpose" in living in Romania - i.e. to work, study or whatever. I suspect that your avowed "purpose" will determine your tax status regarding your foreign (to Romania) sources of income.
Cheers,
Bev


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## inROGo

I think you misread the part about me having to live there to get Romanian nationality, I actually don't have to for any amount of time. I have a Romanian birth certificate so all I need to do is go and use it to get my Romanian passport with it since I already am a citizen of Romania. 

Do you honestly think the best thing for me to do is find an accountant who specializes in expats to Romania and pay him to advise and help me with my process? 

I was hoping I could save money by just finding out everything I need to do myself on the internet but it's being more complicated than I imagined so I might, unfortunately for my wallet, have to go that route.


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## BBCWatcher

For what it's worth, I like Bev's idea to check the information that Romania's own tax and social insurance agencies provide online. ANAF's Web site seems to be the right place to start. Here's their guide to social insurance contributions (I think). Most if not all of what they publish is in Romanian, but if that's an obstacle you might as well get started overcoming it.


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## Bevdeforges

inROGo said:


> Do you honestly think the best thing for me to do is find an accountant who specializes in expats to Romania and pay him to advise and help me with my process?


Actually, no. I think you should find out how the Romanians do their taxes. The chances of finding anyone doing Romanian taxes who "specializes" in expats are somewhere between slim and none. If you need help doing your US taxes, there are plenty of advisers online. (Check first with the US Embassy or Consulate, though. If there is a significant contingent of US expats they may have a VITA or other volunteer tax assistance program, or at least know of one.)

But given that you're already a Romanian citizen, I suspect you are going to be assumed to be "resident" in Romania sooner rather than later, so just don't count on being eligible for that "temporary foreign resident" treatment.

And, yes, you'll be much better off if you can read the Romanian tax authority's website in the original rather than in translation.
Cheers,
Bev


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