3 Things to Know About Taxes as a U.S. Expat in Bolivia

Bolivia is a South American country that is constantly called the Tibet of the Americas. It is known for being one of the most diverse countries in the continent.

If you are planning to become a U.S. expat in Bolivia, or have been one for a while, it’s important to know the tax laws of the country and the potential impact on your U.S. tax return. Expat taxes can get complicated. Fortunately, we have outlined the key points below.

Photo by: Mathew Straubmuller

1. Taxation in Bolivia

Let’s start by discussing who is required to pay taxes in Bolivia. Residents, including foreigners who maintain a residence with intention of staying are obligated to pay taxes on their world-wide income. Non-residents are taxed on Bolivia-source income only.

For 2013, the applicable income tax rates are:

• Employment Income: Either 12.5% or 13% (based on classification).
• Taxation on Interests: Same as employment income; non-residents are subject to a 12.5% withholding tax.
• Taxation on Dividends: None for residents, but non-residents are subject to a 12.5% withholding tax .
• Taxation on Capital Gains: Same as employment income (except financial transactions conducted through the Bolivian stock exchange).

Bolivia and the U.S. do not have a social security tax agreement in-place. Therefore, certain U.S. expats will be required to pay into both social security programs.

2. How Living in Bolivia Impacts U.S. Taxes

As a U.S. citizen or permanent resident (Greencard), you are required to file U.S. taxes even if you live in Bolivia. Plus, if you have assets in foreign financial accounts (e.g., foreign banks), there are informational reports you may be required to file. For example, U.S. Expats Living in Bolivia with $10,000 or more in foreign banks must file the FBAR (now known as FinCen 114).

Fortunately, the U.S. government provides various forms of tax relief that can lower or eliminate U.S. tax obligations

• The Foreign Earned Income Exclusion – It allows you to exclude a certain amount of income earned outside the U.S.
• The Foreign Housing Exclusion/Deduction – This one relates to additional income that can be excluded for household-related expenses tied to living abroad.
• The Foreign Tax Credit – It allows you to offset foreign taxes paid against U.S. tax obligations.

In most cases, the foreign earned income exclusion is preferable to the foreign tax credit if you live in a country with a lower tax rate than the U.S. (assuming your income is not above the applicable threshold). However, it’s a good idea to speak with an expat tax specialist to discuss the best application of these tax reliefs.

3. FATCA and Bolivia

The U.S. government is increasingly interested in knowing about the foreign assets held by its citizens and residents. As a result, it has been busy inking deals with other countries whereby foreign financial institutions (FFIs) will be required to:

• Identify accounts of U.S. persons;
• Report certain information to the IRS regarding those accounts;
• Withhold a 30% tax on certain payments to non-participating FFIs and account holders unwilling to provide the required information

As of the publication of this article, roughly 80 countries have either signed intergovernmental agreements with the United States or are in discussions. Bolivia and the U.S. do not yet have a FATCA agreement in-place. However, you should be aware of the implications given that the IRS intends to expand FATCA’s reach in the upcoming years.

If you have any questions regarding your U.S. expat taxes, contact us today. We are here to help.