The territory offers some of the most luxurious real estate in the Caribbean, ranging from lavish homes overlooking the ocean to stunning contemporary beachfront condominium residences. Puerto Rican and foreign companies created investments that transform and accelerate economic development in Puerto Rico thanks to Act 60. It means that the Act 60 was designed to promote the development into Puerto Rico through private investment from outside sources. It means that once the person becomes a resident individual investor of Puerto Rico unde Puerto Rico Incentives Code 60 and until 1/1/2036 any dividend or interest income is exempt from tax in Puerto Rico. You can follow one of two paths to make this happen: a total relocation of your business or partial relocation of it to Puerto Rico. Generally, you are a bona fide resident of one of these territories (the relevant territory) if, during the tax year, you: What is important to note is that US Persons do not use the standard , While Puerto Rico is considered part of the United States, it is not a state, The individual cannot have been a resident of Puerto Rico for, The non-profit charitable contribution requirement which was previously at $5,000 has been, Puerto Rico now requires the individual to, The income derived from all sources by a Resident Individual Investor after becoming a resident of Puerto Rico but before January 1, 2036, consisting of interest and dividends including but not limited to interest and dividends from a registered investment company described in Section 1112.01 of the Puerto Rico Internal Revenue Code, shall be. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. Have no significant connection to the USA during the tax year. An individual is treated as a bona fide resident of Puerto Rico under Section 933 if the person (1) meets a physical presence test; (2) does not have a tax home outside of Puerto Rico during the taxable year; and (3) does not have a closer connection to the United States or a foreign country than to Puerto Rico. The restrictions may have been modified to require only that the investor have spent more time in Puerto Rico than any other single place in the world. Giving up your connection to organizations in the US is also not mandatory, but it is recommended to make connections with Puerto Rico organizations to establish ties in the local community. Puerto Rico taxes are very favorable to crypto investors when using Act 60. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. Puerto Rico now requires the individual to purchase residential property within the first two years of becoming a resident. The report's findings concluded with what was already known; Act 20 and Act 22 led to hundreds of millions of dollars of lost U.S. income tax revenue. 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. 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. As you might suspect, its easier to satisfy this requirement if you move to Puerto Rico during the first part of the year. Thanks to this code, your income sourced from Puerto Rico can be exempt from both federal and state taxes. Contrary to popular belief, just getting a Golden Visa without further action does not reduce an Americans tax liability. Youll become a bona fide resident and be eligible for Act 60 tax benefits if you pass four qualifying tests: the presence test, the tax home test, the closer connection test, and the residence test. Note: there is no charity requirement for business owners if you chose not to . 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. Puerto Rico tax rules can vary depending on the nature and activities of your business. To qualify as a resident of Puerto Rico, an individual must essentially pass 3 key tests as follows. You had earned income in the United States of no more than a total of $3,000 and were present for more days in the relevant territory than in the United States during the tax year. 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. Furthermore, the property must remain your primary residence for as long as the decree remains in force. 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. A person will be considered a bona fide resident of Puerto Rico under Section 933 if he/she (1) passes a physical presence test; (2) is not a tax resident outside of Puerto Rico during the tax year; and (3) has no closer connection to the United States or any country other than Puerto Rico. You were present in Puerto Rico for at least 183 days in the tax year. Certain individuals who move to Puerto Rico also choose to request an Individual resident investors' Puerto Rico tax incentives grant (formerly Act 22-2012 and currently Act 60-2019). What It Means to Be a Resident of Puerto Rico. 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. TIP. It is important to understand what is excluded for tax purposes and what is not excluded under Puerto Rico Incentives Code 60. 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. (b) Appreciation after becoming a Resident Individual of Puerto Rico. Financial accounts include bank accounts, crypto asset accounts, certain insurance policies or investment accounts. Its no surprise that thousands of Americans who have moved to the island have been thrilled with the tax breaks that have saved them millions of dollars. If thats the case and the amount of work done in Puerto Rico does not reach a certain threshold, then the U.S.-sourced dividends will be subject to U.S. federal taxes. Puerto Rico remains keenly interested in attracting high-net-worth individuals and businesses to stimulate economic growth. Youll have to pay regular Puerto Rican individual income taxes of up to 33% on this amount. You were present in Puerto Rico for at least 549 days in the three-year period of the current tax year and the two previous tax years and were in Puerto Rico for at least 60 days in each tax year during that period. . 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. To benefit from the tax advantages under Act 60-2019 (detailed below) an individual must purchase property in Puerto Rico within 2 years. Bona fide resident of Puerto Rico. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. 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. When filling out the form, you will need to refer to the detailed instructions, which are based on the bona fide residency rules outlined in Publication 570. Feb. 9, 2023, 1:45 AM. 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. 5%, if such gain is recognized after said 10-year period. Citizens and permanent residents of the USA enjoy the right to live in Puerto Rico in the same way that citizens of Puerto Rico may live in the mainland US. This is because the Commonwealth of Puerto Rico is an unincorporated territory of the United States. Long-Term Permanent Residents (LTR) tend to not have this issue, since LTRs already have citizenship in another country. 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. You had no significant connection to the United States during the tax year. You dont need to satisfy them allsatisfying just a single one is sufficient. Still, Puerto Rico hopes to lure American mainlanders with an income tax of only 4%. *This is primarily an issue for US Citizens who do not have citizenship elsewhere. To be a bona fide resident of Puerto Rico: At printing time, the government of Puerto Rico enacted into law: Act No. Puerto Rico voter registration is required. All of these benefits and so much more can be yours if you relocate to Puerto Rico. Conditions (1) through (5) above do not apply to nonresident aliens of the United States. 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. The Department of Economic Development and Commerce (DDEC), as . You did not maintain a tax home outside of Puerto Rico for the last 183 days of the year. These benefits are available to any Act 60 Individual Resident Investor decree holder who fulfills the requirements for bona fide residency in Puerto Rico, pay the applicable filing fees, meets the minimum annual charitable donations (currently $10 annual to approved PR registered non-profit), and lives on the island at least 3 years. Creation of Jobs Requirements Businesses with an annual volume, actual or projected, more than three million dollars equivalent; Manufacturing, three . Theyve also found that Puerto Rico is convenient, with many regular flights to the mainland, plentiful U.S. retailers, and a U.S.-based legal system. Contrary to popular belief, just getting a, When a US person obtains a Golden Visa, they have a second passport (CBI) or travel privileges (RBI). 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. 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. Foreign Earned Income Exclusion: 0% tax on first $100,000 and 35% tax on $400,000 = $140,000. You must own it yourself or jointly with a spouse. Act 22 (as amended by Act 60 of 2019), also known as The Individual Investors Act, was approved by the Legislative Assembly of Puerto Rico during 2012. As provided by Puerto Rico Incentives Code 60: This Code is approved with the conviction that it shall improve Puerto Rico's economic competitiveness. Local government has legislated a series of incentives to attract investment, of which EB-5 Visa program participants can also take advantage. doing business in Puerto Rico. Chapter 3 of Act 60-2019 - Export Services Tax Incentive. If youd like to enjoy these much lower federal and state taxes, you must follow through on a series of Act 60 Puerto Rico requirements. And, if it the income is sourced in Puerto Rico, it would escape tax in the U.S. as well. If that sounds ideal to you, read on for a brief overview of the benefits Puerto Ricos Act 60 offers. The purpose of these measures is to provide incentives to individuals who have not been residents of Puerto Rico to become residents. Currently, such an eligible business with a tax exemption decree in Puerto Rico under Act 60 will enjoy a: 4% income tax rate (2% for 5 years for small businesses, or 1% for pioneer activity) 100% income tax exemption on dividends or profits generated Therefore, there are multiple ways to satisfy the requirements of the presence test. Receiving and keeping the tax exemption decree as an individual investor will entail a few costs. Additional small fees may apply. A C Corporation is separate from its owners. Would you like to find out more about how to get residency in Puerto Rico? Your benefits should not be affected even if there are amendments to the legislation during the term of this agreement. 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. During each year of the 3-year period, you must be present in the relevant territory for at least 60 days. 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). You'll become a bona fide resident and be eligible for Act 60 tax benefits if you pass four qualifying tests: the presence test, the tax home test, the closer connection test, and the residence test. Act 22 - The Individual Investors Act "Before I spent 30 percent of my time thinking about taxes, and now I don't have to do that." - John Helmers, Act 22 Resident, Money Manager, CEO Long Focus Capital. Golding & Golding, A PLC (2023): LawDog Enterprises - All Rights Reserved - No Legal Advice Intended: This website includes information about legal issues and legal developments. Spend at least 549 days in Puerto Rico during the 3-year period of the current tax year and the 2 preceding years, including at least 60 days in Puerto Rico during each tax year. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. In other words, a tax home is your main place of business, employment, or post of duty, according to IRS rules. The tax incentives enjoyed by Individual Resident Investors in Puerto Rico are perhaps the most impressive of all Puerto Rican tax incentives: Just keep in mind that to qualify for these generous incentives, you must become a bona fide resident of Puerto Rico, which involves spending the majority of your time in Puerto Rico, making Puerto Rico your tax home, and establishing closer connections in Puerto Rico than in the US. Most Puerto Rico investors who apply for Act 60 or Act 22 must donate to a Puerto Rico charity each 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. Thus, with the tools provided by this Code, this Administration shall keep boosting the economy and attracting private capital to the Island. 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. permanent residence, Puerto Rico, Real Estate, residency, Caribbean Citizenship by Investment Real Estate. A flat 4% corporate tax rate Then, once becoming a bona fide resident of Puerto Rico, the taxpayer will then begin to acquire income sourced from Puerto Rico so that it is not taxable in the United States. We look forward to helping you find your perfect property in Puerto Rico. Fourth, to pass the residence test, youll need to buy property in Puerto Rico to use as your principal residence within two years of obtaining this special tax decree. Upon approval, you will be required to pay a one-time $5,000 acceptance fee. When you have satisfied all the requirements to become a bona fide Puerto Rico resident, you must file, 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. 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. If your C Corporation conducts its business in Puerto Rico, then dividends paid to shareholders will be taxed at 0%. You were present in the relevant territory for at least 183 days during the tax year. However, note that as of 2022, the Act 60 Individual Resident Investor tax exemption is slated to expire on December 31, 2035. 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. 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? 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. 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