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. Lets take the example of a C Corporation, which the IRS recognizes as an independent legal entity. With proper tax planning and sourcing allocations, a person can feasibly reduce their tax liability to nearly zero on income and assets generated and acquired once becoming a Puerto Rican resident but its not quite that simple. How about moving just yourself? Local government has legislated a series of incentives to attract investment, of which EB-5 Visa program participants can also take advantage. To discover homes for sale in Puerto Rico and condos for sale in Puerto Rico from the exclusive beachfront resort communities of Bahia Beach and Dorado Beach to more affordable options in Palmas del Mar, explore real estate in Puerto Rico on our website. 5. The tax incentives offered by Act 60 have enticed thousands of U.S. citizens to make the move to sunny Puerto Rico, but in order to enjoy these lucrative benefits, Act 60 holders must satisfy three residency tests to prove that they are bona fide residents of Puerto Rico. To qualify for the exemptions, you must become a bonafide resident of Puerto Rico. Note that those who were already residents of Puerto Rico during the 10 years before their move are not eligible for this tax incentive. Act 20 offers entities a 4% corporate rate on business . One of these is the low 4% corporate tax rate we touched on earlier. Act 52-2022 requires Puerto Rico resident individuals to report financial accounts that are held outside of Puerto Rico or outside of the United States and had a balance over $10,000 during the tax year. Then, under a law referred to as Act 60 (formerly Act 20 and Act 22), Puerto Rico has enacted several tax incentives, the two most popular of which are as follows: a Puerto Rican corporation that's engaged in certain types of service businesses only pays Puerto Rican tax of 4%. Lets get some clarity on how the tax situation plays out: To begin with, becoming a resident of Puerto Rico is not as simple as purchasing a property and visiting the PR Coast a few times a year. If the unrecognized gain is US-sourced, it will still generally be taxable in the US despite Puerto Rico Incentives Code 60. 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. This applies to the primary place where you work and create value. Neither you nor your relatives can control these nonprofit entities. Given that one of the requirements for bona fide Puerto Rican residency is to maintain a tax home in Puerto Rico for the entire tax year, satisfying this test in the year of your move is clearly impossible unless you move on January 1. The Department of Economic Development and Commerce (DDEC), as . Its recommended to sell or rent out your home in the US, which will not only significantly help pass the closer connection test but also provide some extra cash. 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. 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. 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. If youre unclear on whether youll meet this requirement, check out our Day Tracker Tool. It has only one requirement: do not have a tax home outside of Puerto Rico during any part of the tax year. Consequently, the IRS has identified vulnerabilities with certain individuals who may be excluding income subject to U.S. tax on a filed U.S. income tax return or failing to file and report income . Citizenship: The most straightforward qualification is the requirement to be a citizen of the United States, living in Puerto Rico. Consulting companies, auditing firms, marketing businesses, and more are eligible business types. Consulting companies, auditing firms, marketing businesses, and, How to qualify for the Act 60 Export Services Tax Incentive, Moving the entire company, including employees, to Puerto Rico and ceasing all operations in the United States, Establishing a Puerto Rico subsidiary and recording the percentage of business income and expenses related to the Puerto Rico entity so that it can be taxed under the Act 60 incentives, Individual Resident Investor Tax Incentive, 100% tax exemption from Puerto Rico income taxes on all dividends, 100% tax exemption from Puerto Rico income taxes on all interest, 100% tax exemption from Puerto Rico income taxes on all short-term and long-term capital gains, 100% tax exemption from Puerto Rico income taxes on all cryptocurrencies and other crypto assets, Just keep in mind that to qualify for these generous incentives, you must become a, Be physically present in Puerto Rico for at least 183 days of each tax year, Make Puerto Rico your tax home by establishing your office or primary place of work there, Buy property in Puerto Rico, move your family and possessions there, get a Puerto Rican drivers license, register to vote in Puerto Rico, and do other things that demonstrate your commitment to a life on the island, Capital gains before moving to Puerto Rico, If the gains are recognized within 10 years of your move, they are taxed at the U.S. rate, If the gains are recognized after 10 years of your move, they are taxed at Puerto Ricos preferential 5% flat tax rate, and you do not owe U.S. taxes on them, Applying for the Individual Resident Investor Act, Why EB-5 Investors Should Consider Moving to Puerto Rico, How to Obtain or Renew Your Annual Vehicle Registration (Marbete) in Puerto Rico, 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? While it is meant to test your residency in Puerto Rico, the key concern of the IRS is that you are not spending a lot of time in the US. Plus, you are obliged to donate at least $10,000 USD to charity. If youd like to know more about the qualifying tests, consult IRS Publication 570. That way, you can satisfy all the tests and achieve bona fide residency even in the year of your move. Advertising, consulting, educational, financing, and medical services are just a few among nearly two dozen categories of export services that are eligible for these benefits. 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. To explore your options in more detail, please contact 7th Heaven Properties, the Luxury Caribbean Property Specialist. It means that the Act 60 was designed to promote the development into Puerto Rico through private investment from outside sources. For US citizens who are not dual-citizens and have been US citizens from birth, the idea of giving up their citizenship can be overwhelming. Upon approval, you will be required to pay a one-time $5,000 acceptance fee. If you think this test sounds impossible to satisfy for the year of your move, thats why the IRS offers a special exemption for the year of your move only. Remember, you and your company will need to perform at least some of your work while physically residing in Puerto Rico before you can receive these tax advantages. This assumes you're using an offshore company and thus not subject to Self Employment Tax in the United States. Legally avoiding the 37% federal rate and the 13.3% California (or other state) rate is a jaw-dropping benefit . In order to promote investment into Puerto Rico, they developed Act 60 to attract high net-worth individuals and businesses. Puerto Rico seeks to move away from its historical focus on manufacturing and become a major services exporter. Residents can also benefit from 75% exemption on property tax and construction taxes. Each year, the island welcomes new, ambitious Americans and others who wish to keep more of their money while enjoying the island lifestyle Puerto Rico offers. The purpose of Puerto Rico Incentives Code 60 is to promote investment in Puerto Rico by providing investment residents with tax breaks. Puerto Rico Service Exporters Must Document Well to Avoid IRS Ire. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. 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. You must acquire a grant of tax exemption by applying through Puerto Ricos Industrial Tax Exemption Office. If you are aiming to satisfy the presence test by spending at least 549 days within a three-year period in Puerto Rico, you still must be physically present in Puerto Rico for 60 days per year. There are always exceptions, exclusions, and limitations to be aware of. 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. This property must be the individuals primary residence and not rented out. A Puerto Rican driver's license is required. Act 52-2022 requires Puerto Rico resident individuals to report financial accounts that are held outside of Puerto Rico or outside of the US and had a balance over $10,000 during the tax year. The factors that the IRS considers when determining whether you have maintained a closer connection to Puerto Rico than the US during the tax year include the following: Essentially, to pass the closer connection test, you need to move your entire life to Puerto Rico, including your family. Earned income is pay for personal services performed, such as wages, salaries, or professional fees. What is a Board-Certified Tax Law Specialist. 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. *This is primarily an issue for US Citizens who do not have citizenship elsewhere. A flat 4% corporate tax rate Puerto Rico Act 60 Tax Exemptions: IRS Examination and Audits, Key Issues for Individual and Business Taxpayers Treatment of Puerto Rico-Sourced Income, Puerto Rico Act 60 (formerly Act 20 and Act 22) Benefits, Residency Requirements Recording of a 90-minute premium CLE/CPE video webinar with Q&A */. 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. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. For example, the salaries of owners and employees are tax deductible. 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. Note that you may only receive 30 free days of international travel if you fulfill the following conditions: Certain exemptions also apply. 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. If you do not have a primary or regular place of employment, your tax home is considered to be your primary place of residence. You had no significant connection to the US during the tax year. If youve invested in stocks, securities, or cryptocurrency, this may still be a great move for you. Most Puerto Rico investors who apply for Act 60 or Act 22 must donate to a Puerto Rico charity each year. Let's explore each of these in greater detail. 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). What It Means to Be a Resident of Puerto Rico. https://nomadcapitalist.com/Puerto Rico Act 60 Real Estate Tax Incentives for individual investors is becoming increasingly popular among US persons looking . Creation of Jobs Requirements Businesses with an annual volume, actual or projected, more than three million dollars equivalent; Manufacturing, three . Can a citizen or permanent resident of the USA live in Puerto Rico? Demand for Non-CRS Banking as CRS Goes Global Opening bank accounts in countries that do not participate in the Common Reporting Standards (CRS) is sometimes seen as a way to increase privacy. In 2012, Puerto Rico had passed two laws intended to make the island a "global investment destination.". You were present in the United States for no more than 90 days during the tax year. The amount of said net capital gain means the portion of the gain related to the appreciation of the Securities or other Assets owned by the Resident Individual Investor at the time of becoming a Resident Individual of Puerto Rico and those acquired by him after becoming a Resident Individual of Puerto Rico. You did not maintain a tax home outside of Puerto Rico for the last 183 days of the year. Carlos Fontn, director of the DDEC's office of business incentives in Puerto Rico, said in April, the agency began the first . doing business in Puerto Rico. Firstly, an individual must be present in Puerto Rico for defined period. Planning Tip: Puerto Rico income is not taxable in the US but the US still taxes the individual on their worldwide income (other than Puerto Rico Income under IRC 933). If your C Corporation conducts its business in Puerto Rico, then dividends paid to shareholders will be taxed at 0%. 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. You had no significant connection to the United States during the tax year. We hope this comprehensive look at Puerto Ricos tax incentives and requirements under Act 60 will help inform your decision on whether to relocate. The closer connection test can be tricky for some Act 60 decree holders to satisfy because its subjective and offers no hard guidelines on fulfillment. A person must meet extensive rules and requirements to qualify for the favorable tax treatment available to residents of Puerto Rico. How do I become a resident of Puerto Rico? To benefit from the tax advantages under Act 60-2019 (detailed below) an individual must purchase property in Puerto Rico within 2 years. Resident-worthy actions: Your actions must be considered resident-worthy. 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. Residency in Puerto Rico The Guide from 7th Heaven Properties, Can a citizen or permanent resident of the USA live in Puerto Rico? Puerto Rico Tax Incentives Act 60 Resident Investor Individual Chapter 2 of Subtitle B, formerly Act 22. Have no significant connection to the USA during the tax year. 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. Executed lease or transfer of title-proof of real estate ownership is required. And, if it the income is sourced in Puerto Rico, it would escape tax in the U.S. as well. Puerto Rico taxes are very favorable to crypto investors when using Act 60. 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. permanent residence, Puerto Rico, Real Estate, residency, Caribbean Citizenship by Investment Real Estate. The tax incentives offered by Act 60 have enticed thousands of U.S. citizens to make the move to sunny Puerto Rico, but in order to enjoy these lucrative benefits, Act 60 holders must satisfy three residency tests to prove that they are bona fide residents of Puerto Rico. Where they keep important personal belongings, What jurisdiction their primary bank is in, Where the organizations they affiliate with are located, Maintaining a tax home in Puerto Rico for the last 183 days of the year, Not having been a bona fide resident of Puerto Rico in the three tax years before the year of the move, Achieving bona fide residency in the year of the move and the two years following it. Of course, this is far lower than the 21% corporate tax rate, plus state taxes, that your business would be likely to pay on the mainland. Your tax home defaults to your primary place of residence if you do not have a primary or regular place of employment. A C Corporation is separate from its owners. These free travel days encompass travel outside of the United States but effectively mean that a degree holder need only spend 153 days in Puerto Rico, as long as the extra 30 days are spent outside of the US. Act 52-2022 expands and clarifies the existing compliance rules under Act 60-2019. Many companies opt to become C Corporations because of the special tax advantages associated with this status. The non-profit charitable contribution requirement which was previously at $5,000 has been increased to $10,000. Commit to Puerto Rico, and passing the residency tests will be fairly easy. Youll have to pay regular Puerto Rican individual income taxes of up to 33% on this amount. 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