The purpose of Puerto Rico Incentives Code 60 is to promote investment in Puerto Rico by providing investment residents with tax breaks. See District of Columbia House Voting Rights Act, S.160, 111th Congress (passed by the Senate, February 26, 2009) (2009).52 However, the United States has not taken similar "steps" with regard to the five million United States citizens who reside in the other U.S. territories, of which close to four million are residents of Puerto Rico. 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 fully exempt from income taxes in Puerto Rico, including the alternate basic tax provided in the Puerto Rico Internal Revenue Code. 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. 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. A C Corporation is separate from its owners. Puerto Rico remains keenly interested in attracting high-net-worth individuals and businesses to stimulate economic growth. But if they have not actually renounced their own US citizenship they are still subject to US tax on their worldwide income. Contrary to popular belief, just getting a Golden Visa without further action does not reduce an Americans tax liability. What else do you need to do to get this process started? How do I become a resident of Puerto Rico? 2 This income also would be excluded from Puerto Rican income tax. 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. Therefore, it is important to note that the Taxpayer must plan to try to keep their income sourced in Puerto Rico to avoid any unnecessary pitfalls. And, if it the income is sourced in Puerto Rico, it would escape tax in the U.S. as well. Puerto Rico is easily accessible from the mainland USA with no need to show a passport when traveling from the mainland USA to Puerto Rico. In 2012, Puerto Rico had passed two laws intended to make the island a "global investment destination.". Sometimes, effective tax planning can help avoid these taxes. At printing time, the government of Puerto Rico enacted into law: Act No. Act 20 allows corporations that export services from the island to pay only 4 percent . Most Puerto Rico investors who apply for Act 60 or Act 22 must donate to a Puerto Rico charity each year. If your export-service company is conducting its activities inside Puerto Rico, it may be eligible for substantial benefits that apply to income received from customers 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. The tax home test is the most straightforward of the three. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. 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. purposes only and may not reflect the most current legal developments. Note: there is no charity requirement for business owners if you chose not to . 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 thats the case, the IRS will treat your primary residence as your tax home. Financial accounts include bank accounts, crypto asset accounts, certain insurance policies or investment accounts. You were present in the relevant territory for at least 183 days during the tax year. 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. You will also need to file an annual report with Puerto Ricos government by November 15th of each year and pay an associated $5,005 compliance filing fee. If you're a US citizen or legal resident, no. This property must be the individuals primary residence and not rented out. Puerto Rico's Act 60: 30% tax on first $100,000 = $30,000 and 4% of $400,000 = $16,000, for a total tax of $46,000. 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? 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. This comes out to $5,110 in application fees and an ongoing $15,005 in annual report filing fees and charitable contributions. Puerto Rico is a sunny Caribbean paradise, and you can enjoy an enriched life in a beautiful culture with beautiful weather, but if youre pining for your life in the US because you left significant connections there, you may not enjoy it. And, if it the income is sourced in Puerto Rico, it would escape tax in the U.S. as well. Best Places to Buy Property in Puerto Rico. Think about how your business can flourish with such a low tax burden. 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. 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. First, youll pay a one-time $5,005 application fee along with a $105 acceptance fee. These will be especially important to present if the IRS or Puerto Rico Department of Treasury (Hacienda) challenges your bona fide resident claims. 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. SAN JUAN, Puerto Rico, Nov. 8, 2019 /PRNewswire-PRWeb/ -- Former Governor of Puerto Rico, Ricardo Rossell, signed Act 60-2019, commonly known as the Puerto Rico . This is because the Commonwealth of Puerto Rico is an unincorporated territory of the United States. With beautiful, sunny weather, a vibrant Hispanic culture, and generally lower prices than in the mainland, Puerto Rico offers more than just tax savings. The IRS offers five different conditions a decree holder can use to fulfill the presence requirement for bona fide residency. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. Article 7 of Act 22 protects those trusts created by Act 22 grantees from the forced inheritance provisions of the Puerto Rico Civil Code. The purpose of these measures is to provide incentives to individuals who have not been residents of Puerto Rico to become residents. The three tests are the presence test, the tax home test, and the closer connection test. 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. 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. If you leave your family in the US, it will be quite difficult to pass the closer connection test, unless you satisfy all the other requirements listed. Act 60 investors must also submit their donation before December 31 and present proof in their annual report in May. With the Act 60 Export Services Tax Incentive (formerly Act 20), it may only have to pay 4% corporate income tax. Upon approval, you will be required to pay a one-time $5,000 acceptance fee. 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. 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. 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. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. 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 . 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. You dont need to satisfy them allsatisfying just a single one is sufficient. 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. The IRS's new campaign addresses taxpayers who have claimed benefits through Puerto Rico Act 60, without meeting the requirements of section 937, Residence and Source Rules Involving Possessions. 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. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. 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. 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. 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? Rather, the US person has to become a Bona-Fide Resident of Puerto Rico. When a US person obtains a Golden Visa, they have a second passport (CBI) or travel privileges (RBI). Act 60 provides tremendous tax benefits to qualified businesses and individual investors. Thousands of Americans have already made the move to Puerto Rico, enjoying a 0% income tax rate on capital gains or a 4% corporate tax rate for their business while indulging in the excitement of Puerto Rican culture and cuisine. 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. 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. Bona fide resident of Puerto Rico. If youre unclear on whether youll meet this requirement, check out our Day Tracker Tool. A nonresident alien individual (as defined in section 7701(b)(1)(B)) satisfies the requirements of this paragraph (c) for a taxable year if during that taxable year that individual satisfies the substantial presence test of 301.7701(b)-1(c) of this chapter (except for the substitution of the name of the relevant possession for the term United States where appropriate). 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. Weve covered the main ones, but take a look at all of these additional tax incentives that may also apply, depending on the nature of your business. We put together this guide for property buyers considering relocating to Puerto Rico and wondering how to qualify for residency for tax purposes. How about moving just yourself? Puerto Rico now requires the individual to purchase residential property within the first two years of becoming a resident. The IRS' report to Congress calculated that more than 1,924 applicantscorporations, LLCs, partnerships, and other typeshad been granted tax benefits under the Exports Services Act (formerly known as Act 20) as of March 2020 based on partial information provided by Puerto Rico. Puerto Rico is a US territory, and as such, all you need to visit is a Real ID-compliant driver's license or another form of photo identification. Even if youre only in Puerto Rico for an hour on a certain day, that counts as being present in Puerto Rico. Are you wondering how exactly your business will benefit from relocating to Puerto Rico? Act 60 ensures that this grant will remain a binding contract between you and the Puerto Rican government for at least 15 years. The U.S. will not tax any prior unrealized gains if recognized after 10 years of residence in Puerto Rico. As the US taxes citizens on their worldwide income, some individuals have felt the need to renounce their US citizenship and move abroad to minimize their tax burden. 4. Theyve been delighted to experience the rich culture, delicious food, and wonderful tropical sightseeing opportunities found in Puerto Rico. Interestingly, however, under 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. Lets 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). 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. 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. This Code is approved with the conviction that it shall improve Puerto Ricos economic competitiveness. But if they have not actually renounced their own US citizenship they are still subject to US tax on their worldwide income no matter where they reside. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. Creation of Jobs Requirements Businesses with an annual volume, actual or projected, more than three million dollars equivalent; Manufacturing, three . In this blog we will highlight some of the major steps you need to take to qualify for Puerto Rico's Act 22. You did not maintain a tax home outside of Puerto Rico for the last 183 days of the year. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. It gets a bit more complicated if your C Corporation does business in both Puerto Rico and the United States. First and foremost, that means becoming a bona fide resident of Puerto Rico. 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