You must acquire a grant of tax exemption by applying through Puerto Ricos Industrial Tax Exemption Office. All capital gains accrued after becoming a New Resident will be 100% exempt from Puerto Rico taxes. You should use common sense and rely on your own legal counsel for a formal legal opinion on Puerto Ricos tax incentives, maintaining bona fide residence in Puerto Rico, and any other issues related to taxes or residency in Puerto Rico. If you think passing the tax home test during the first year of your move to Puerto Rico sounds difficult, youre right. How about moving just yourself? This Code is approved with the conviction that it shall improve Puerto Ricos economic competitiveness. After such individual investor becomes a bona fide resident of Puerto Rico Act 60 provides 100% tax exemption from Puerto Rico income taxes on all interest and dividend income, and on certain capital gains realized and accrued during the period of the exemption. Thus, to reap the benefits of the ever-popular Act 60 Export Services and Individual Resident Investor tax exemptions, you must hold up your end of the bargain and settle into a life in Puerto Rico. With the Act 60 Export Services Tax Incentive (formerly Act 20), it may only have to pay 4% corporate income tax. Act 60 investors must also submit their donation before December 31 and present proof in their annual report in May. To qualify for the exemptions, you must become a bonafide resident of Puerto Rico. It means that under Puerto Rico Incentives Code 60, if an individual is granted Puerto Rico tax exemption under the act, long term gains as a result of investments made after becoming a resident will be exempt from tax in Puerto Rico. The first of the three tests is perhaps the most complicated. The closer connection test is perhaps the most reliable in determining your loyalty to Puerto Rico. purposes only and may not reflect the most current legal developments. Business owners who establish a qualifying business in Puerto Rico can enjoy significant tax benefits: To qualify, the business model must be concentrated around exporting services outside of Puerto Rico. Ultimately, you can satisfy the closer connection test however works best for you and your circumstances, but fully committing to a new life in Puerto Rico is the simplest solution. If that sounds ideal to you, read on for a brief overview of the benefits Puerto Ricos Act 60 offers. If you are a U.S. citizen or resident alien, you will satisfy the presence test for the tax year if you meet one of the following conditions. The non-profit charitable contribution requirement which was previously at $5,000 has been increased to $10,000. Puerto Rico Residency Requirements Benefits of Puerto Rico Residency Find Out More. If you're a US citizen or legal resident, no. At the same time, youll retain your U.S. citizenship and wont forfeit Medicare or Social Security. Thus, in the most ideal of situations, the taxpayer will move to Puerto Rico and become a Bona-Fide resident without having realized but unrecognized gain already. If you're a bona fide resident of Puerto Rico during the entire tax year, you generally aren't required to file a U.S. federal income tax return if your only income is from sources within Puerto Rico. It is crucial to understand that in order to exclude the income from capital gains and dividends, it should be accrued after arriving in Puerto Rico and acquiring dividends and capital gains as a Resident of Puerto Rico. For taxable years after December 31, 2016, said capital gain shall be considered income from sources outside of Puerto Rico for purposes of the income tax provided in the Puerto Rico Internal Revenue Code. If a US person relocates to Puerto Rico and has realized but unrecognized capital gain and waits to recognize the gain until being a resident for 10 years will only be subject to a 5% Puerto Rico tax rate. The purpose of Puerto Rico Incentives Code 60 is to promote investment in Puerto Rico by providing investment residents with tax breaks. Theyve been delighted to experience the rich culture, delicious food, and wonderful tropical sightseeing opportunities found in Puerto Rico. Many of the factors that help you pass the closer connection test, such as a Puerto Rican drivers license or voter registration, will also help you get by in day-to-day life in Puerto Rico. The U.S. will not tax any prior unrealized gains if recognized after 10 years of residence in Puerto Rico. However, this is a rule of thumb, and others have retained their status with fewer than 183 days on the islands soil in the wake of major natural disaster declarations. What if you dont have a primary place of employment? Under certain conditions, you can also satisfy the presence test if you were located in Puerto Rico for at least 549 days during the current year and the preceding two years. In this blog we will highlight some of the major steps you need to take to qualify for Puerto Rico's Act 22. Think about how your business can flourish with such a low tax burden. Due to the territorys legal status, moving to Puerto Rico is considered internal migration as opposed to immigration. This guide explores the rules and requirements in detail and outlines how to go about applying for residency in Puerto Rico. Fortunately, the IRS provides a special exemption for that first year. Those who wait until 2036 to apply for the incentive and become Puerto Rican residents wont receive the same benefits unless new legislation is passed. Various factors such as the presence of an individuals permanent home, family, belongings, principal bank and business in Puerto Rico, as well as the existence of professional, cultural, religious, social and political affiliations and links in Puerto Rico, may help to demonstrate a closer connection to Puerto Rico than to anywhere else. What does this mean? This property must be the individuals primary residence and not rented out. For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) Second, to pass the tax home test, you must not keep a tax home outside of Puerto Rico at any time. These services must not have a connection with Puerto Rico. If you evacuate or cannot return to Puerto Rico due to disaster, you may also qualify for automatic presence days even though you are physically outside of Puerto Rico. Its worth noting that between previous fee increases as well as rising inflation, these figures could easily rise at some point during the next few years. If saving big on income taxes while soaking up the sun on a U.S.-owned Caribbean island sounds like a dream life to you, relocating to Puerto Rico under the Act 60 tax exemptions may be right for you. Golding & Goldingspecializes exclusivelyin international tax, and specificallyIRS offshore disclosure. Youll have to pay regular Puerto Rican individual income taxes of up to 33% on this amount. To avoid penalties, this would require a transfer pricing analysis and intercompany agreements to determine the share of profits realized in Puerto Rico vs. on the mainland, as laid out in this guide. Youll want to keep meticulous records to ensure you dont jeopardize your eligibility for these generous Act 60 tax benefits. If such appreciation is recognized after December 31, 2035, the net capital gain with respect to said Securities or other Assets shall be subject to income taxes in accordance with the tax treatment provided by the Puerto Rico Internal Revenue Code. What It Means to Be a Resident of Puerto Rico. Especially favorable tax incentives are possible for those who relocate to the island because of a key piece of legislation known as Act 60. Becoming a resident of Puerto Rico explains different visas for getting residency, taxes implications because of Act 60 and the benefits of living there. Creation of Jobs Requirements Businesses with an annual volume, actual or projected, more than three million dollars equivalent; Manufacturing, three . Local government has legislated a series of incentives to attract investment, of which EB-5 Visa program participants can also take advantage. We look forward to helping you find your perfect property in Puerto Rico. Under GILTI, the minimum tax for any US-owned CFC is 10.5% (max 21%). Nov. 8, 2019, 10:00 AM. It is important to understand what is excluded for tax purposes and what is not excluded under, It is crucial to understand that in order to exclude the income from capital gains and dividends, it should be accrued. Not be present in the USA for more than 90 days during the tax year. Residents can also benefit from 75% exemption on property tax and construction taxes. Financial accounts include bank accounts, crypto asset accounts, certain insurance policies or investment accounts. 257 of December 10, 2018, which introduced significant amendments to the Puerto Rico Internal Revenue Code ("Puerto Rico Code"); and Act No. First, youll pay a one-time $5,005 application fee along with a $105 acceptance fee. Sometimes, effective tax planning can help avoid these taxes. Even if you are in the US or another country for part of the day, if you were physically present in Puerto Rico even briefly, you are counted as being present that day. they want to find a way to legally avoid the overbearing US tax rules, while not necessarily expatriating and renouncing their US citizenship. Only, For detailed information directly from the IRS about the residency tests, consult, Educators and Trainers Can See Big Tax Breaks in Puerto Rico Under Act 60, Puerto Rico Tax Incentives: Young Entrepreneurs, A Guide to Puerto Rico Export Services Tax Incentive For Businesses, A Guide to Puerto Rico Investor Resident Individual Tax Incentive, How to Pass the Puerto Rico Bona Fide Residency Tests, Things to Consider Before Living in Puerto Rico, Are Puerto Ricans US Citizens? You were not a bona fide resident of Puerto Rico in any of the three tax years immediately preceding the tax year of the move. To be excluded from the above taxes imposed by the US on cryptocurrency gains, you need to be a "bona fide resident" of Puerto Rico for the entire taxable year and meet some other time-based qualifications. Lets explore each of these in greater detail. Likewise, the incentives offered shall be continuously reviewed in order to identify those that are not cost-effective and to strengthen those that have proven to have an impact and which generate a return on investment for the Treasury. To be defined as a bona fide resident of Puerto Rico, an individual must be able to demonstrate that he/she satisfies 3 key residency requirements relating to the individuals presence in Puerto Rico, having a tax home in Puerto Rico and having closer connections to the territory than anywhere else. Bona fide resident of Puerto Rico. Plus, you are obliged to donate at least $10,000 USD to charity. It is important to note that bona fide residency is not the same thing as residency, and you are not considered a bona fide resident of Puerto Rico simply by living in Puerto Rico. Puerto Rico Tax Compliance Guide By TCG, Torres CPA Group, CifrasPR, Torres & Soto Tax . Its an updated version of Act 20 and Act 22, which Puerto Rico passed in 2012 to attract outside investment and boost economic development on the island. 957(c)(1) a bona fide resident of Puerto Rico is not treated as a U.S. person (as defined in Sec. You should use common sense and rely on your own legal counsel for a formal legal opinion on Puerto Ricos tax incentives, maintaining bona fide residence in Puerto Rico, and any other issues related to taxes or residency in Puerto Rico. 1 Puerto Rico Resident CFC & PFIC Tax Planning 2 Puerto Rico Act 60 Can Shapeshift and Terminate 3 Avoiding CFC Status in Puerto Rico has Strict Requirements 4 Other CFCs are still subject to 5471, GILTI and Subpart F 5 Foreign Income is Still Taxable 6 Puerto Rico Trust are Foreign (Even if Accounts and Assets are not) 60 of July 1, 2019, known as the Puerto Rico Incentives PRelocates expert team members are ready to field your questions and are as knowledgeable as they are friendly. 5%, if such gain is recognized after said 10-year period. Puerto Rico Tax Incentives for Businesses, Puerto Rico Tax Incentives for Individuals, Becoming a Bona Fide Resident of Puerto Rico, Obtaining and Maintaining The Tax Exemption Decree, What Ownership of a Puerto Rico C Corporation Means, What Ownership of a Puerto Rico Export-Service Company Means, Lets Review Key Points and Discuss Next Steps, The Process to Purchase a Used Car in Puerto Rico, How to Obtain Your Puerto Rican Drivers License, A Guide to Puerto Rico Export Services Tax Incentive For Businesses, A Guide to Puerto Rico Investor Resident Individual Tax Incentive, How to Pass the Puerto Rico Bona Fide Residency Tests, Things to Consider Before Living in Puerto Rico, Are Puerto Ricans US Citizens? To enjoy this lifestyle and benefit from the tax incentives under Act 60-2019 (the Puerto Rico Incentives Code), individuals should be aware of the complex rules and the various residency requirements which now include buying property in Puerto Rico within a defined time period. This is ensured by Act 60-2019 (formerly known as Act 22). The tax home test is the most straightforward of the three. To benefit from the tax advantages under Act 60-2019 (detailed below) an individual must purchase property in Puerto Rico within 2 years. The requirements to qualify under Act 60 include a $10,000 USD annual donation to a charity, the purchase of real estate within a time frame of two years, and filing a yearly report to the . Promotion of Puerto Rico as a residency jurisdiction Prevalence of non-resident options via IFEs (discussed below) 1. Lets take the example of a C Corporation, which the IRS recognizes as an independent legal entity. If you have decided to make the move and take advantage of Puerto Ricos generous tax incentives, make sure youre really committed. */, To avoid paying regular U.S. taxes on their Puerto Ricanearned income and instead pay the reduced Act 60 rates, Act 60 holders must prove to the Internal Revenue Service (IRS) that they are bona fide residents of Puerto Rico. The core motivation of the IRS in administering the, The first of the three tests is perhaps the most complicated. 2 This income also would be excluded from Puerto Rican income tax. The portion of the net long-term capital gain generated by a Resident Individual Investor attributable to any appreciation of the Securities or other Assets owned by such Resident Individual Investor before becoming a Resident Individual of Puerto Rico, which appreciation is recognized ten (10) years after becoming a Resident Individual of Puerto Rico and before January 1, 2036, shall be subject to a five percent (5%) tax, in lieu of any other tax imposed under the Puerto Rico Internal Revenue Code and shall not be subject to the alternate basic tax provided in Subsection A of the Puerto Rico Internal Revenue Code. Moving to Puerto Rico can be a dream come true for individual U.S. investors and businesses seeking to lower their taxes, as long as they follow certain requirements. Golding & Golding, A PLC (2023): LawDog Enterprises - All Rights Reserved - No Legal Advice Intended: This website includes information about legal issues and legal developments. 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