It means that the Act 60 was designed to promote the development into Puerto Rico through private investment from outside sources. Not least among them are the high thresholds to qualify as a bona fide resident; however, these requirements are beyond the scope of this item. 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 Application costs You'll have to pay a one-time fee of $750 when you file your initial application. The non-profit charitable contribution requirement which was previously at $5,000 has been increased to $10,000. Citizenship: The most straightforward qualification is the requirement to be a citizen of the United States, living in Puerto Rico. Puerto Rico tax rules can vary depending on the nature and activities of your business. 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. If youd like to know more about the qualifying tests, consult IRS Publication 570. Youd be hard-pressed to find a better value home than a U.S. territory that offers a 4% corporate income tax and 0% capital gains tax, among many other benefits. If you're a bona fide resident of Puerto Rico during the entire tax year, you generally aren't required to file a U.S. federal income tax return if your only income is from sources within Puerto Rico. 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. 60 of July 1, 2019, known as the Puerto Rico Incentives When applying as an individual investor, you must pay a one-time filing fee of $5,005 USD. 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. Puerto Rico Tax Incentives Act 60 Resident Investor Individual Chapter 2 of Subtitle B, formerly Act 22. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. 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. Puerto Rico operates with some independent from the US government. From a technical standpoint, the new version of the act provides a detailed definition of the term securities and what will be covered under the long-term capital gain exemption rules. Due to the territorys legal status, moving to Puerto Rico is considered internal migration as opposed to immigration. Furthermore, the property must remain your primary residence for as long as the decree remains in force. 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. Entrepreneurs can save with a 4% corporate tax rate. 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. These will be especially important to present if the IRS or Puerto Rico Department of Treasury (Hacienda) challenges your bona fide resident claims. Act 60 investors must also submit their donation before December 31 and present proof in their annual report in May. 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. 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; } A C Corporation is separate from its owners. You must own it yourself or jointly with a spouse. 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. 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. 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. Your benefits should not be affected even if there are amendments to the legislation during the term of this agreement. Therefore, there are multiple ways to satisfy the requirements of the presence test. 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 . Theyve been delighted to experience the rich culture, delicious food, and wonderful tropical sightseeing opportunities found in Puerto Rico. Chapter 3 of Act 60-2019 - Export Services Tax Incentive. 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. It should be presumed that an individual is a resident of Puerto Rico if they have been present in Puerto Rico for a period of 183 days during the calendar year. 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. This Code is approved with the conviction that it shall improve Puerto Ricos economic competitiveness. To establish residence under the Act, someone must create a presumptive residence in Puerto Rico, live there for at least 183 days of the year, and cannot have a home outside Puerto. 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. Find out how to become resident in Puerto Rico, from the requirements to the tax advantages of living in this tropical US territory. We look forward to helping you find your perfect property in Puerto Rico. While Puerto Rico is considered part of the United States, it is not a state per se and therefore, the US tax treatment rules are different. Even if youre only in Puerto Rico for an hour on a certain day, that counts as being present in Puerto Rico. 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. 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 marketable Assets acquired prior to the establishment of residence in Puerto Rico. First and foremost, that means becoming a 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. To explore your options in more detail, please contact 7th Heaven Properties, the Luxury Caribbean Property Specialist. If you wish, you can follow in their footsteps and escape some of the worst ravages of 2022s surging inflation and anemic economic growth by moving to this low-tax haven. Basically, to satisfy the tax home test, keep your officeor your home, as the case may bein Puerto Rico. 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. For detailed information directly from the IRS about the residency tests, consult Publication 570. 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. 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 resident of Puerto Rico. Creation of Jobs Requirements Businesses with an annual volume, actual or projected, more than three million dollars equivalent; Manufacturing, three . 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. In addition, every year you must make a donation of $10,000 split evenly between two qualifying nonprofit organizations in Puerto Rico. 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. *This is primarily an issue for US Citizens who do not have citizenship elsewhere. During each year of the 3-year period, you must be present in the relevant territory for at least 60 days. To qualify as a resident of Puerto Rico, an individual must essentially pass 3 key tests as follows. You should contact an If thats the case, the IRS will treat your primary residence as your tax home. 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. As you can see, Puerto Ricos enormous Act 60 tax benefits greatly exceed the relatively small costs and inconveniences of relocation. 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. The first of the three tests is perhaps the most complicated. 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. 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. However, you cant qualify unless you establish residency on the island. 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. 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. Contrary to popular belief, just getting a Golden Visa without further action does not reduce an Americans tax liability. What if you dont have a primary place of employment? The IRS offers five different conditions a decree holder can use to fulfill the presence requirement for bona fide residency. A Puerto Rico resident is an individual who is domiciled in Puerto Rico. The presence test considers how much time you spend in Puerto Rico. 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. they want to find a way to legally avoid the overbearing US tax rules, while not necessarily expatriating and renouncing their US citizenship. The IRS will also consider factors such as where your immediate family members and personal belongings are located, where you are registered to vote, and where you hold your drivers license. Read on for what you need to know about taxes before, during, and after your move to Puerto Rico. The territory boasts hundreds of miles of golden sand beaches, world-class golf courses and excellent conditions for all kinds of water sports such as scuba diving and snorkeling, surfing, kayaking and paddle boarding. In more ways than one, starting a new life in Puerto Rico can be the best investment you ever make. All capital gains accrued after becoming a New Resident will be 100% exempt from Puerto Rico taxes. 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. If you're a US citizen or legal resident, no. This assumes you're using an offshore company and thus not subject to Self Employment Tax in the United States. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. Act 52-2022 expands and clarifies the existing compliance rules under Act 60-2019. When US taxpayers begin researching how to relinquish their US status, oftentimes they will come across Puerto Rico. Your chances of passing improve considerably as you strengthen banking, social, cultural, or religious ties to the island, identify Puerto Rico as your place of residence, and establish your permanent home there. 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. Be present in Puerto Rico for a minimum of 183 days in the tax year. Tax Exemption Period Act 60. The contributions of the companies under the Act 20/22 have a positive impact on the local economy. In September 2021, the IRS announced a campaign targeting taxpayers who claimed Puerto Rican tax benefits without meeting the requirements of the bona fide residency rules. For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) 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). Puerto Rico Service Exporters Must Document Well to Avoid IRS Ire. 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. As provided by Puerto Rico Incentives Code 60: This Code is approved with the conviction that it shall improve Puerto Rico's economic competitiveness. In addition, the income derived by a Resident Individual Investor after becoming a resident of Puerto Rico, but before January 1, 2036, consisting of interest, financing charges, dividends or partnership interest received from International Banking Entities authorized under the Banking Center Act, shall be fully exempt from income taxes in Puerto Rico, including the alternate basic tax provided in the Puerto Rico Internal Revenue Code. Promotion of Puerto Rico as a residency jurisdiction Prevalence of non-resident options via IFEs (discussed below) 1. Long-Term Permanent Residents (LTR) tend to not have this issue, since LTRs already have citizenship in another country. Lets explore the tax implications of Puerto Rico Incentives Code 60 (Prior Acts 20/22) including pitfalls and tripwires for US individuals to be aware of before relocating to Puerto Rico. 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. 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. 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. This property must be the individuals primary residence and not rented out. 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. 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