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. You were not present in the US for more than 90 days during the tax year. 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). Bona fide residency is the benchmark to determine commitment to the island, and it is measured by three tests: the presence test, the tax home test, and the closer connection test. First and foremost, that means becoming a bona fide resident of Puerto Rico. Local government has legislated a series of incentives to attract investment, of which EB-5 Visa program participants can also take advantage. Luckily, you can take your pick from a huge selection of quality housing on the island. Puerto Rico Incentives Code 60 for prior Acts 20/20: Many high-net worth Taxpayers are (understandably) upset about the massive U.S. taxes levied on their employment, investment, and corporate income. 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 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. Of course not. 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 . Miramar Plaza, 954 Avenida Ponce de LeonSuite 205San Juan, Puerto Rico 00907, #mc_embed_signup{background:#fff; clear:left; font:14px Helvetica,Arial,sans-serif; } Act 60 offers a corporate tax rate of 4% to Puerto Rican companies that export services performed in the territory to people or companies . 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. 2 This income also would be excluded from Puerto Rican income tax. When US taxpayers begin researching how to relinquish their US status, oftentimes they will come across Puerto Rico. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. The total net capital gain generated by a Resident Individual Investor related to any appreciation of Securities or other Assets after said Resident Individual Investor becomes a Resident Individual of Puerto Rico, that is recognized before January 1, 2036, shall be fully exempt from income taxes in Puerto Rico, including the alternate basic tax provided in the Puerto Rico Internal Revenue Code. 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. 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. 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 Puerto Rico resident is an individual who is domiciled 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. Before they will exempt you from regular U.S. tax obligations, the IRS must determine that you have truly made Puerto Rico your home. Chapter 3 of Act 60-2019 - Export Services Tax Incentive. 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. We hope this comprehensive look at Puerto Ricos tax incentives and requirements under Act 60 will help inform your decision on whether to relocate. Conditions (1) through (5) above do not apply to nonresident aliens of the United States. In addition, the Individual Investor must become a resident of Puerto Rico no later than December 31, 2035. If your C Corporation conducts its business in Puerto Rico, then dividends paid to shareholders will be taxed at 0%. You were present in Puerto Rico for at least 183 days in the tax year. 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. Note, however, that if youre going for the 549 days in a three-year period condition, you must still physically spend at least 60 days in Puerto Rico each year. Under Act 60, an eligible business includes export services and commerce. This property must be the individuals primary residence and not rented out. Especially favorable tax incentives are possible for those who relocate to the island because of a key piece of legislation known as Act 60. 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 . Earned income is pay for personal services performed, such as wages, salaries, or professional fees. With the Act 60 Export Services Tax Incentive (formerly Act 20), it may only have to pay 4% corporate income tax. The Incentives Code consolidates various tax decrees, incentives, subsidies, and benefits, including . As a US territory, Puerto Rico has a unique tax climate. 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. */. Rather, the US person has to become a Bona-Fide Resident of Puerto Rico. In addition, every year you must make a donation of $10,000 split evenly between two qualifying nonprofit organizations in Puerto Rico. The closer connection test is perhaps the most reliable in determining your loyalty to Puerto Rico. Owners of existing businesses can qualify for the Act 60 business tax incentives in one of two ways: Youll have to pay a one-time fee of $750 when you file your initial application. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. First, youll pay a one-time $5,005 application fee along with a $105 acceptance fee. Its important to keep considerations like funding, location, how to search for a property, and how to close the transaction in mind, so be sure to review these tips for buying a home in Puerto Rico. Third, to pass the closer connection test, you must convince the IRS that you have stronger ties to Puerto Rico than to the rest of the United States. 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. Those of Act 22 on average pay 12 times more than most taxpayers in PR. 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. 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. 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'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. 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. Your benefits should not be affected even if there are amendments to the legislation during the term of this agreement. 60 of July 1, 2019, known as the Puerto Rico Incentives 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. Noting, the Puerto Rico BFR rules are not the same as the Substantial Presence Test BFR rules but the concept is the same. Foreign Earned Income Exclusion: 0% tax on first $100,000 and 35% tax on $400,000 = $140,000. attorney to discuss your specific facts and circumstances and to obtain advice on specific legal problems. 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. Only one of the following conditions must be true: To be counted as present in Puerto Rico, you must be physically present on the island during any part of the day. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. This tax haven can easily save taxpayers hundreds of thousands of dollars per year (or more) in federal taxes! With fewer close connections to the U.S. mainland, youll minimize your risk of an IRS audit. Residency in Puerto Rico The Guide from 7th Heaven Properties, Can a citizen or permanent resident of the USA live in Puerto Rico? /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. Puerto Rico Tax Compliance Guide By TCG, Torres CPA Group, CifrasPR, Torres & Soto Tax . Passing the Presence Test First, to pass the presence test, you must satisfy the IRS requirement to be physically located inside Puerto Rico for at least 183 days of the taxable year. 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. In other words, a tax home is your main place of business, employment, or post of duty, according to IRS rules. Finally, exceptions are available for special circumstances, such as medical treatment or disasters. Act 60 ensures that this grant will remain a binding contract between you and the Puerto Rican government for at least 15 years. 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? 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. For example, if you leave Puerto Rico to receive or accompany a parent, spouse, child, or stepchild to receive a qualifying medical treatment, you are still counted as present in Puerto Rico. Are you wondering how exactly your business will benefit from relocating to Puerto Rico? Its a requirement. 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. Lets explore each of these in greater detail. 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. 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. We look forward to helping you find your perfect property in Puerto Rico. Carlos Fontn, director of the DDEC's office of business incentives in Puerto Rico, said in April, the agency began the first . For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) 257 of December 10, 2018, which introduced significant amendments to the Puerto Rico Internal Revenue Code ("Puerto Rico Code"); and Act No. PRelocate is an Official Qualified Promoter with Puerto Ricos Department of Commerce and will save you time and money with a hassle-free relocation. These individuals have a full Puerto Rico capital gain tax exemption with respect to capital gains accrued after the individual becomes a BFR-PR. 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. . /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. Afterward, each year, you will have to make a $10,000 charitable donation and submit an annual report along with a $300 fee. 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. However, in the case of Puerto Rico, all the above tax and other benefits are legally available to residents of Puerto Rico without having to renounce US citizenship. 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). However, if your C Corporation derives its revenue from the United States, dividends will be subject to regular federal taxes. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. One of these is the low 4% corporate tax rate we touched on earlier. 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. Puerto Ricos bona fide residency tests may seem intimidating, but if youre dedicated to starting fresh in the USs sunny Caribbean island territory, the tests are simple. 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. TIP. What is important to note is that US Persons do not use the standard Substantial Presence Test (SPT) to determine whether or not they qualify for residence in Puerto Rico noting SPT is used (kinda, sorta) when the person is a foreign national, nonresident alien and seeking residence in Puerto Rico. Puerto Rico seeks to move away from its historical focus on manufacturing and become a major services exporter. Can a citizen or permanent resident of the USA live in Puerto Rico? 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. Note that you may only receive 30 free days of international travel if you fulfill the following conditions: Certain exemptions also apply. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. 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. This assumes you're using an offshore company and thus not subject to Self Employment Tax in the United States. Feb. 9, 2023, 1:45 AM. Your tax home defaults to your primary place of residence if you do not have a primary or regular place of employment. */, Dont Pass Up a Lucrative Life in Puerto Rico, generally lower prices than in the mainland, How Puerto Rico Governs and What This Means for You. Puerto Rico tax rules can vary depending on the nature and activities of your business. Consulting with a tax advisor would be a good idea as well. Think about how your business can flourish with such a low tax burden. 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. 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. Incumbent will receive assignments in the form of plans and specification covering work to be accomplished by contractors and schedules for completion of the construction work.Qualifications: Who . The Taxpayers curiosity brings them to Google (or more likely, DuckDuckGo) and their research take them down one Puerto Rico Tax Rabbit Hole after the next. Under the latter approach, youd set up a new entity on the island that charges a management fee to the rest of your mainland-based business. they want to find a way to legally avoid the overbearing US tax rules, while not necessarily expatriating and renouncing their US citizenship. This is because the Commonwealth of Puerto Rico is an unincorporated territory of the United States. That way, you can satisfy all the tests and achieve bona fide residency even in the year of your move. Lets traverse some of the key points of act 22 for Individuals (Act 20 is for Businesses) (now combined into act 60) as it relates to individuals and investments to US residents who relocate to Puerto Rico and become a bona fide resident (citations refer directly to the act). We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. 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. What It Means to Be a Resident of Puerto Rico. Don't Pass Up a Lucrative Life in Puerto Rico 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. 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). Youll also use Form 8898 to inform the IRS of your new residency status. 1. There are always exceptions, exclusions, and limitations to be aware of. doing business 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. 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. At the same time, youll retain your U.S. citizenship and wont forfeit Medicare or Social Security. You did not maintain a tax home outside of Puerto Rico for the last 183 days of the year. Find out how to become resident in Puerto Rico, from the requirements to the tax advantages of living in this tropical US territory. If your company provides services connected to commercial activities on the island or gives advice regarding the laws and regulations of Puerto Rico, it is not providing export services, because there is a connection. 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. 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. Promotion of Puerto Rico as a residency jurisdiction Prevalence of non-resident options via IFEs (discussed below) 1. 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. https://nomadcapitalist.com/Puerto Rico Act 60 Real Estate Tax Incentives for individual investors is becoming increasingly popular among US persons looking . Initial consultations In order to promote investment into Puerto Rico, they developed Act 60 to attract high net-worth individuals and businesses. they want to find a way to legally avoid the overbearing US tax rules, while not necessarily expatriating and renouncing their US citizenship. 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. 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. It means that the Act 60 was designed to promote the development into Puerto Rico through private investment from outside sources. 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. 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. 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. and representation are limited. Miramar Plaza, 954 Avenida Ponce de LeonSuite 205San Juan, Puerto Rico 00907, #mc_embed_signup{background:#fff; clear:left; font:14px Helvetica,Arial,sans-serif; } Individual - Residence. The core motivation of the IRS in administering the bona fide residency tests is to make sure that you intend to stay in Puerto Rico for an extended period of time and that you spend limited time in the US during your period of bona fide residency. As a U.S. territory, Puerto Rico is subject to tax rules that are different from those of U.S. states. 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. 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. Schedule Consultation . This gives them more leeway to develop their own innovative tax laws, separate and distinct from US federal/state tax law. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. 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. What does this mean? The Department of Economic Development and Commerce (DDEC), as . *Paragraph C refers to the Presence Test. However, you cant qualify unless you establish residency on the island. 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. 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. Neither you nor your relatives can control these nonprofit entities. 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. For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) 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. 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? International Tax Attorney | IRS Offshore Voluntary Disclosure, Click Here to Schedule a Reduced-Fee Consultation, Puerto Rico Incentives Code 60 for prior Acts 20/20. To qualify as a resident of Puerto Rico, an individual must essentially pass 3 key tests as follows. This comes out to $5,110 in application fees and an ongoing $15,005 in annual report filing fees and charitable contributions. The core motivation of the IRS in administering the, The first of the three tests is perhaps the most complicated. Miramar Plaza, 954 Avenida Ponce de LeonSuite 205San Juan, Puerto Rico 00907, #mc_embed_signup{background:#fff; clear:left; font:14px Helvetica,Arial,sans-serif; } 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. For all of the Puerto Rico tax incentives, it is necessary to ensure you understand and monitor compliance with residency requirements. Puerto Rico is a great investment opportunity, because it does not require a passport for US citizens and it does not require the US citizen to expatriate in order to gain the tax benefits under Acts 20 and 22 (combined into Act 60) but, is it really that easy? Physical Presence: the investor has to be physically present in Puerto Rico 168-183 days per year, and in the United States for less than 90 days in the year. Individual Investor must not have been a resident of Puerto Rico during any of the 10 years prior to the effective date of Act 60 (July 1st, 2019). For detailed information directly from the IRS about the residency tests, consult Publication 570. Most Puerto Rico investors who apply for Act 60 or Act 22 must donate to a Puerto Rico charity each year. Long-Term Permanent Residents (LTR) tend to not have this issue, since LTRs already have citizenship in another country. As you can see, Puerto Ricos enormous Act 60 tax benefits greatly exceed the relatively small costs and inconveniences of relocation. 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. The purpose of these measures is to provide incentives to individuals who have not been residents of Puerto Rico to become residents. Consulting companies, auditing firms, marketing businesses, and more are eligible business types. Entrepreneurs can save with a 4% corporate tax rate. Tax Exemption Period Act 60. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. 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. 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Form 8898 to inform the IRS must determine that you have truly made Puerto Rico legislation known as Act,... Business can flourish with such a low tax burden measures is to provide incentives to attract net-worth! Puerto Rican income tax attract high net-worth individuals and businesses nonprofit entities or place... Can flourish with such a low tax burden have truly made Puerto Rico seeks to move away from its focus. And will save you time and money with a tax home outside of Puerto Rico investors who apply Act... Compliance with residency requirements tax climate resident in Puerto Rico seeks to move away its. Or more ) in federal taxes has a unique tax climate not been residents of Puerto,! Use form 8898 to inform the IRS of your HTML file who relocate to the tax year gains...