Lets clarify what we mean when we say these tax breaks apply only to exported services. More specifically, even after becoming a Puerto Rico Bona-Fide resident, the taxpayer may still have a filing requirement in the US when they have US sourced income. Earned income is pay for personal services performed, such as wages, salaries, or professional fees. The amount of the net long- term capital gain shall be limited to the portion of the gain related to the appreciation of the Securities or other Assets while the Resident Individual Investor resided outside of Puerto Rico. Receiving and keeping the tax exemption decree as an individual investor will entail a few costs. This is an important point because if your company does business with other entities that are based on the island, youll risk losing your tax exemption. The Department of Economic Development and Commerce (DDEC), as . Under Act 60, an eligible business includes export services and commerce. 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. Promotion of Puerto Rico as a residency jurisdiction Prevalence of non-resident options via IFEs (discussed below) 1. Bona fide resident of Puerto Rico. Its a requirement. 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? 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. Local government has legislated a series of incentives to attract investment, of which EB-5 Visa program participants can also take advantage. Think about how your business can flourish with such a low tax burden. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. You must own it yourself or jointly with a spouse. In this blog we will highlight some of the major steps you need to take to qualify for Puerto Rico's Act 22. 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. At the same time, youll retain your U.S. citizenship and wont forfeit Medicare or Social Security. You had no significant connection to the United States during the tax year. Puerto Rico Act 60: How You Can Lower Your Federal and State Tax Rates Under the Resident Tax Incentive Code October 13, 2022 The Tax Incentive Code, known as "Act 60", provides tax exemptions to businesses and investors that relocate to, or are established in, Puerto Rico. In 2012, Puerto Rico had passed two laws intended to make the island a "global investment destination.". If such appreciation is recognized at any other time, 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. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. Flights to and from Puerto Rico are considered domestic flights, a distinction shared in the Caribbean by only one other island chain: the US Virgin Islands. No Article, Blog Post or Page may be reproduced or used without express written consent of Golding & Golding. Of important consequence is the fact that the person cannot have a closer connection to the United States or a second tax home. Golding & Golding, A PLC (2023): LawDog Enterprises - All Rights Reserved - No Legal Advice Intended: This website includes information about legal issues and legal developments. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. Puerto Rico Residency Requirements Benefits of Puerto Rico Residency Find Out More. 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. It is important to understand what is excluded for tax purposes and what is not excluded under Puerto Rico Incentives Code 60. Before they will exempt you from regular U.S. tax obligations, the IRS must determine that you have truly made Puerto Rico your home. The former Governor of Puerto Rico, Ricardo Rossell, signed Act 60-2019, commonly known as the Puerto Rico Incentives Code, into law on July 1, 2019, which came into effect on January 1, 2020. And, if it the income is sourced in Puerto Rico, it would escape tax in the U.S. as well. One of these is the low 4% corporate tax rate we touched on earlier. Act 60 Updates from Act 22 (Individuals) The individual cannot have been a resident of Puerto Rico for at least 10 years prior this is increased from previously in which it was six years. Achieving bona fide residency in the year of the move and the two years following it This means that as long as you move to Puerto Rico before July 1, you can become a bona fide Puerto Rican resident in your first year on the island and reap the benefits of your Act 60 decree immediately. Puerto Rico tax haven Eligibility under Act 60 an individual must have physical presence in the Island for at least 183 days of the year and must not have been a resident of Puerto Rico from 2009 to 2019 (the 10-year period preceding the effective date of the Incentives Code). We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. To qualify as a resident of Puerto Rico, an individual must essentially pass 3 key tests as follows. Under GILTI, the minimum tax for any US-owned CFC is 10.5% (max 21%). Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. Naturally, it offers tax incentives to attract valuable companies and talented entrepreneurs who do business with those beyond the territorys shores. Act 60. Puerto Rico now requires the individual to purchase residential property within the first two years of becoming a resident. First and foremost, that means becoming a bona fide resident of Puerto Rico. However, individuals deriving income for services performed within Puerto . Like with Act 22 donations, the nonprofit entities must operate in Puerto Rico and not be run by the investor or their family, spouse, or partner. Under Act 60s Investor Resident Individual Tax Incentive (formerly Act 22), an eligible individual investor can receive a 100% tax exemption on interest, dividends, short- and long-term capital gains, and gains on crypto-based assets acquired after moving. Neither you nor your relatives can control these nonprofit entities. You were present in the relevant territory for at least 549 days during the 3-year period that includes the current tax year and the 2 immediately preceding tax years. 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? Residents of Puerto Rico can also enjoy a high quality of life with a year-round warm climate and breathtakingly beautiful surroundings. Puerto Rico seeks to move away from its historical focus on manufacturing and become a major services exporter. Second, to pass the tax home test, you must not keep a tax home outside of Puerto Rico at any time. The purpose of Puerto Rico Incentives Code 60 is to promote investment in Puerto Rico by providing investment residents with tax breaks. Under Chapter 2 of Act 60 . 4. Where your personal belongings, such as cars, furniture, clothing, and jewelry, are stored, Where organizations that you affiliate with, whether professional, cultural, social, religious, or political, are located, The jurisdiction for which you hold a drivers license, The jurisdiction in which you are registered to vote, Where charitable organizations that you contribute to are located, Which country you put down as your country of residence on official forms, Which forms or documents you file, such as Form W-8BEN or Form W-9. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. 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 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 . This assumes you're using an offshore company and thus not subject to Self Employment Tax in the United States. What is a Board-Certified Tax Law Specialist. It is expected that individuals who receive their decree before this date will be grandfathered in. The closer connection test is perhaps the most reliable in determining your loyalty to Puerto Rico. Puerto Rico offers a myriad of tax incentives, but they all entail the same goal for the government: boosting Puerto Ricos economy by attracting to the island high-net-worth individuals who will invest in the infrastructure. Discover: Best Places to Buy Property in Puerto Rico. First and foremost, that means becoming a bona fide resident of Puerto Rico. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. This Code is approved with the conviction that it shall improve Puerto Ricos economic competitiveness. Generally, you are a bona fide resident of one of these territories (the relevant territory) if, during the tax year, you: Do not have a tax home outside the relevant territory, and, Do not have a closer connection to the United States or to a foreign country than to the relevant territory. But if they have not actually renounced their own US citizenship they are still subject to US tax on their worldwide income. According to Act 60-2019 (known as the "Puerto Rico Incentives Code") which replaces various historical incentives including Acts 20 and 22, residents of Puerto Rico can enjoy a 4% flat income tax rate and freedom from taxes on capital gains, dividends, interest and royalties. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. To recap, under Puerto Ricos Act 60 tax incentives, you and your business may be eligible for staggering tax savings if you adhere to the requirements. PRelocate does not assume any responsibility for the contents of, or the consequences of using, any version of any real estate or other document templates or any spreadsheets found on our website (together, the Materials). Those of Act 22 on average pay 12 times more than most taxpayers in PR. This comes out to $5,110 in application fees and an ongoing $15,005 in annual report filing fees and charitable contributions. 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. When you have satisfied all the requirements to become a bona fide Puerto Rico resident, you must file Form 8898 to notify the IRS of your new residency status. 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