Tax question

[CleverUsername]

Hello - this is my first post on here! Just wondering if anyone can shed any light.
I'm British but have not lived there since 2004, and have my own business (bricks n mortar) where I live (Eastern Europe), partnership with dh.

If I start making money online, where should I declare it to? I have a few ideas and some money trickling in but if I start making more I need to declare it to someone. My Paypal account is in £, and connected to my UK bank account, but I'm not resident there. Confused.com!

Which country is your business registered in?
Which country do you fill in tax returns for?

The business is registered in and I pay tax in Bulgaria. But money I receive from my online activity doesn't pass through Bulgaria at all.

I would have thought that money earned from a Bulgarian business should be taxed in Bulgaria. That seems to be the case for e.g. amazon and other companies that register offshore "for tax reasons".

The money I earn online is nothing to do with the Bulgarian business though. I don't receive any money from Bulgarians and it doesn't go into a Bulgarian bank account - I just happen to live here. The Bulgarian business runs as you would expect, but that's a registered company with accounts. This is a separate private income I'm talking about.

Surely you would pay taxes on your income dependent on the country you are in, if you are there all the time?

Otherwise there would be a ton of tax evasion schemes going on for people to say 'ah but I'm running an internet business paid in dollars but I'm not in America'.

It might not go into a bulgarian bank account but its being paid to someone in bulgaria.

Presumably you have an accountant for the bulgarian business, so speak to them.

The answer is not going to be straightforwrd as it will depend on the tax rules in all relevant countries in which you do business.

If the online stuff is not related to your business but is you doing stuff directly, then the income is likely to be taxed where you are resident (although will depend on tax rules there). You would only be taxed in the UK if you are carrying on a business through a "permanent establishment" in the UK (which basically means a fixed place of business or dependent agent). I am not up to speed on developments on tax treatment of e-commerce, but basically it certainly used to be the case that if you dont have anyone doing stuff on the ground in the UK you won't pay tax in the UK.

You have to know what the Bulgarian tax system is.

However, my gut instinct is that you are earning money (doesn't matter where) while being present in Bulgaria, therefore they should have a major claim.

There is a distinction in taxes between earned and unearned/passive income (ie from investments). Countries which do not tax on worldwide income may allow residents/citizens to have passive income abroad, but tax earned income.

I think you want to take a look oecd model treaty, bilateral tax agreement between UK and Bulgaria, are you being paid for goods or services? There's been a fairly recent change in that some services (consultancy for example) are looked at as being provided and taxable in the country of the client.

I found this section in the HMRC site regarding residency rules for tax and NI. Also this section on double taxation treaties. I think these points are relevant to you, especially A6

Q5. Will I have to pay tax in the country to which I go to live or work?
A5 The country to which you go to live or work may tax you on your world-wide income. This will depend on its own laws. You may need to ask the tax authority there for advice. More information on Double Taxation Treaties.

Q6: Why am I paying tax in the UK on my income when I am no longer resident there?
A6. Income arising in the UK will remain liable to UK Income Tax. However, depending on your nationality and where you live you may be eligible to:
1.Make a claim for repayment of UK Income Tax. More information on Double Taxation Treaties.
2.Make an application for exemption from UK Income Tax. More information on Double Taxation Treaties.
3.Use any personal allowances to which you may be entitled to offset some or all of your tax liability. More information on Personal Allowances.

Tax rules differ from country to country. I'll check on Bulgaria for you when I get to work, but the principle governing most developed economies is that individuals are taxed on their worldwide income if they are tax-resident in that country.

There are a lot of different concepts in that sentence which need closer examination, however I think the position is broadly likely to be that you should be taxable on the income in Bulgaria. This is because you are tax resident in Bulgaria by virtue of being physically present there.

There are certain other issues that may mean the above is not correct. For instance the above may not be true in the UK if the position were reversed (ie Bulgarian national resident in the UK). So please do get advice appropriate to your situation.

Thanks for all the replies - it's a bit of a minefield! I understand that I'm living here so should (and do) pay tax here but it seems strange to me that Bulgaria could take a slice of some income which neither originates nor ends up in Bulgaria itself - but I see what you're saying. And even though I'm British, if I had a big pile of money sitting in my Paypal account (I don't) which I believe has its HQ in Ireland, does that complicate matters further?! I will talk to my accountants here.

If the case is true that people have to pay tax on their worldwide private income, what stops people from evading tax this way? (Sorry if that is an idiotic question - I have a lot to learn!) I can't see how the authorities here could know what I was earning elsewhere if I didn't tell them. So people in any country could theoretically have a foreign bank account and use that without the tax man knowing?

Is there any chance that I could actually be liable in both places? (Please say no!) or are there rules in place about that?

D'oh, I forgot to check if Bulgaria taxes residents on worldwide income.

See, if you were a Bulgarian, resident in the UK, with income arising overseas, you would only be taxed on the income to the extent that it was remitted to the UK. This is the non-dom stuff that has Joe Public in a lather, but as you point out, it actually is pretty sensible if you stop and think for a minute about it.

But quirks like this in tax laws of individual jurisdictions are what make it imperative for you to get this checked out locally. Who knows if Bulgaria may not have the same sort of remittance basis of taxation for its non-doms?

As to what stops people from cheating, well, all this is so traceable nowadays. You can't do a thing without an electronic trace. It's not worth the risk.

I've heard a rumour that uk-based banks where the account holders have a foreign address are now passing on the details of income to the national bank of their country of residence.

I live in France. Apparently the Bank of France are now being given details of income being credited to uk bank accounts. In addition we have to declare all foreign bank accounts opened/open and closed during the year when we make our tax return.

Forgot to add, our bank (Lloyds TSB) have told me that they consider it fraud to have a uk correspondence address for an account when you live overseas on a permanent basis.