# Foreign Earned Income Exclusion For Foreign Dividents



## Hudeus (Apr 22, 2021)

Hi Forum,

Thank you for the community here. I've been browsing a lot of the wonderful content you've shared! Can you please help me figure out the following:

I'm a dual citizen of USA and Bulgaria. 2 Years ago I moved to Bulgaria and registered an LTD company here where the majority of my income goes through. My permanent and tax address is in Bulgaria. I'm employed by my company and pay myself a small salary but the primary way I pay myself is by a dividend from the profits the company makes every year. 

Are these divident payments eligible for the Foreign Earned Income Exclusion? 

Thank you!


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## Bevdeforges (Nov 16, 2007)

No. The Foreign Earned Income Exclusion applies only to what the IRS considers "earned income" - which amounts to salary, wages and if you are a sole proprietorship and declare the results of your business through your personal tax return, then your business results. Dividends, however, are not considered "earned" income.


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## Hudeus (Apr 22, 2021)

Well I might have really screwed myself... Are there any kind of deductions here I can utilize? I've also paid tax on these dividends here already... 

And do you think reporting these earnings as wages is viable? How would they know the difference?


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## Bevdeforges (Nov 16, 2007)

For dividends you should be able to use the Foreign Tax Credit (form 1116). Though chances are they don't really have any way of knowing how you paid yourself.


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## Hudeus (Apr 22, 2021)

I can't thank you enough for the help!


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## Moulard (Feb 3, 2017)

There are actually a whole bunch of other issues that you may or may not have considered in regards to the company. 

If you are the sole owner / director of the company, and you are treating it as a pass-through entity then you are actually meant to treat all of the company income as your personal income. Effectively treating yourself as self employed - in which case you can kind of ignore the dividend as you can pay yourself a dividend on your income if that makes any sense, and then yes, you could treat the company income as earned income for the most part.

You could always choose to treat the company as a corporation, but that path leads to a whole different set of complications


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## Hudeus (Apr 22, 2021)

Hi Moulard, thank you for the response. If this is true it seems like it may make my life easier if I can apply the foreign earned income exclusion.


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## Moulard (Feb 3, 2017)

Hudeus said:


> Hi Moulard, thank you for the response. If this is true it seems like it may make my life easier if I can apply the foreign earned income exclusion.


Either the FEIE or you can claim foreign tax credits for Bulgarian income taxes paid by you and your company.

The downside is that there is no totalisation agreement between the US and Bulgaria, and so treating yourself as self employed would subject you to US Social security taxes.


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## Hudeus (Apr 22, 2021)

This is the most complicated thing in the world for nothing. I'm definitely getting rid of my American citizenship soon unfortunately. Thank you for your feedback.


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## Nononymous (Jul 12, 2011)

Hudeus said:


> This is the most complicated thing in the world for nothing. I'm definitely getting rid of my American citizenship soon unfortunately. Thank you for your feedback.


There is also the option of not filing US tax returns and completely ignoring the situation. That may be difficult if you were born in the US and your birthplace creates problems with banking and investment. At least this year the stimulus benefit will offset the renunciation fee.


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## Hudeus (Apr 22, 2021)

Nononymous said:


> There is also the option of not filing US tax returns and completely ignoring the situation. That may be difficult if you were born in the US and your birthplace creates problems with banking and investment. At least this year the stimulus benefit will offset the renunciation fee.


Well I've lived there on and off from age 10 to 27 and only recently moved back. I wasn't born an american and I don't have assets there but I still have family there. The IRS is crazy, I'll need to go visit family and if I'm "caught" for something I will be in a mountain of trouble. Also I'm starting to be at a point financially where they may or may not express interest in me. I just feel burdened by this whole system.


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## Nononymous (Jul 12, 2011)

If you have a non-US passport with non-US birthplace you can avoid FATCA and stay completely off the radar.

You *really* need to screw up badly to be in any sort of trouble when you visit the US. The border clowns don't have access to any IRS database.

If you don't have plans to return permanently to the US, you can choose to ignore completely.


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