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. The goal of tax planning is to legally limit, minimize, and if possible, avoid US tax while also avoiding a tax fraud audit (eggshell or reverse eggshell) or special agent investigation. PUERTO RICO 787.759.9292 MIAMI 305-677-6626 MCVPR.COM . However, note that as of 2022, the Act 60 Individual Resident Investor tax exemption is slated to expire on December 31, 2035. To be a bona fide resident of Puerto Rico: For example, the salaries of owners and employees are tax deductible. Golding & Golding, A PLC (2023): LawDog Enterprises - All Rights Reserved - No Legal Advice Intended: This website includes information about legal issues and legal developments. 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. Just be sure to comply with the presence test, the tax home test, the closer connection test, and the residence test if this is the right move for you. 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. As Puerto Rico is a part of the USA but has an independent tax system, residents of Puerto Rico pay taxes to Puerto Rico rather than to the Federal Government and the tax rates compare extremely favorably. Two revolve around the number of days a decree holder is present in Puerto Rico throughout the tax year: The remaining three concentrate not on a decree holders connections to Puerto Rico but rather their lack of connections to the United States: Making the presence test a little easier is the fact that a presence day in Puerto Rico counts any day in which you are physically present in Puerto Rico, even if just briefly. Fortunately, upon becoming a bona fide resident of Puerto Rico, you pay no tax on your Puerto Rico-sourced income, but instead just Puerto Rican income tax. Puerto Rican and foreign companies created investments that transform and accelerate economic development in Puerto Rico thanks to Act 60. 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? Schedule Consultation . You did not maintain a tax home outside of Puerto Rico for the last 183 days of the year. You did not have more than $3,000 in earned income (defined as pay for personal services performed, such as wages, salaries, or professional fees) in the US during the tax year and were present in Puerto Rico for more days than in the US. No Article, Blog Post or Page may be reproduced or used without express written consent of Golding & Golding. In 2012, Puerto Rico had passed two laws intended to make the island a "global investment destination.". 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; } 5. Golding & Goldingspecializes exclusivelyin international tax, and specificallyIRS offshore disclosure. 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. To benefit from the tax advantages under Act 60-2019 (detailed below) an individual must purchase property in Puerto Rico within 2 years. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. Even if youre only in Puerto Rico for an hour on a certain day, that counts as being present in Puerto Rico. 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. Puerto Ricos status as a top tax haven is undisputed. Bona fide resident of Puerto Rico. 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. 2. */. 257 of December 10, 2018, which introduced significant amendments to the Puerto Rico Internal Revenue Code ("Puerto Rico Code"); and Act No. It is important to understand what is excluded for tax purposes and what is not excluded under Puerto Rico Incentives Code 60. However, you cant qualify unless you establish residency on the island. Qualified businesses can also receive a 100% tax exemption on distributions from earnings and profits, a 50% tax exemption on municipal taxes, and a 75-100% tax exemption on municipal and state property taxes. 60 of July 1, 2019, known as the Puerto Rico Incentives *Paragraph C refers to the Presence Test. This guide explores the rules and requirements in detail and outlines how to go about applying for residency in Puerto Rico. 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. permanent residence, Puerto Rico, Real Estate, residency, Caribbean Citizenship by Investment Real Estate. Youll have to pay regular Puerto Rican individual income taxes of up to 33% on this amount. The term 'resident individual' means an individual who is domiciled in Puerto Rico. A Puerto Rico resident is an individual who is domiciled in Puerto Rico. You were present in the United States for no more than 90 days during the tax year. Puerto Rico seeks to move away from its historical focus on manufacturing and become a major services exporter. For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) The Department of Economic Development and Commerce (DDEC), as . 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. When a US person obtains a Golden Visa, they have a second passport (CBI) or travel privileges (RBI). 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. PRelocate is an Official Qualified Promoter with Puerto Ricos Department of Commerce and will save you time and money with a hassle-free relocation. Conditions (1) through (5) above do not apply to nonresident aliens of the United States. The tax home test is far more straightforward than the presence test and only encompasses a single condition: maintain your tax home in Puerto Rico throughout the entire tax year. As a side note, this will help solidify US residents in making Puerto Rico their main home because owning property or real estate in a location and claiming it as primary residence goes a long way in showing Puerto Rico is actually the tax home. Best Places to Buy Property in Puerto Rico. To pass this test, an individual should be able to satisfy 1 of the following conditions: Secondly, an individual should not have a tax home outside of 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. 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. If your C Corporation conducts its business in Puerto Rico, then dividends paid to shareholders will be taxed at 0%. When US taxpayers begin researching how to relinquish their US status, oftentimes they will come across Puerto Rico. Puerto Rico Residency Requirements Benefits of Puerto Rico Residency Find Out More. What It Means to Be a Resident of Puerto Rico. 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 . * *This is primarily an issue for US Citizens who do not have citizenship elsewhere. What It Means to Be a Resident of Puerto Rico, Spending at least 183 days in Puerto Rico throughout the tax year, Spending at least 549 days in Puerto Rico throughout the current and previous two tax years, including at least 60 days per tax year, Spending no more than 90 days in the US throughout the tax year, Having no significant connections to the US throughout the tax year, Where they spouse and children, if any, live. 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. These services must not have a connection with Puerto Rico. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. 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. Puerto Rico Service Exporters Must Document Well to Avoid IRS Ire. All of these benefits and so much more can be yours if you relocate to Puerto Rico. 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 purpose of these measures is to provide incentives to individuals who have not been residents of Puerto Rico to become residents. 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 US citizens who are not dual-citizens and have been US citizens from birth, the idea of giving up their citizenship can be overwhelming. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. 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 . If you have decided to make the move and take advantage of Puerto Ricos generous tax incentives, make sure youre really committed. Form 8898 is used to officially declare the beginning or cessation of bona fide residency in a U.S. possession, determined by the three above-mentioned tests. 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. Offering a luxurious lifestyle, golden sand beaches and highly attractive tax benefits, this territory of the United States can offer residents a high quality of life and unique advantages without a requirement to renounce citizenship of the USA. 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. attorney to discuss your specific facts and circumstances and to obtain advice on specific legal problems. 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. 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. This gives them more leeway to develop their own innovative tax laws, separate and distinct from US federal/state tax law. 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 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. Act 60 Updates from Act 22 (Individuals) 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. 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. You were not present in the US for more than 90 days during the tax year. 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. The U.S. will not tax any prior unrealized gains if recognized after 10 years of residence in Puerto Rico. 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. In this blog we will highlight some of the major steps you need to take to qualify for Puerto Rico's Act 22. Keep in mind that as the owner of an export-service company, you must pay yourself a reasonable salary based on the services you provide. Now, under Act 52-2022, if a nonresident employer employs a remote employee who works from Puerto Rico, then the employer is not regarded to be engaged in trade or business within Puerto Rico for tax years beginning after December 31, 2021, provided that all of the following requirements are met: Initial consultations Neither you nor your relatives can control these nonprofit entities. There are always exceptions, exclusions, and limitations to be aware of. 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. 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? 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. You must own it yourself or jointly with a spouse. Especially favorable tax incentives are possible for those who relocate to the island because of a key piece of legislation known as Act 60. purposes only and may not reflect the most current legal developments. This is ensured by Act 60-2019 (formerly known as Act 22). Rather, the US person has to become a. Residents can also benefit from 75% exemption on property tax and construction taxes. 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. What is the GILTI Tax, and How Does It Affect Non-Resident Export Services Tax Incentive Decree Holders? Long-Term Permanent Residents (LTR) tend to not have this issue, since LTRs already have citizenship in another country. The contributions of the companies under the Act 20/22 have a positive impact on the local economy. Most Puerto Rico investors who apply for Act 60 or Act 22 must donate to a Puerto Rico charity each 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. 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). Upon approval, you will be required to pay a one-time $5,000 acceptance fee. Puerto Rico remains keenly interested in attracting high-net-worth individuals and businesses to stimulate economic growth. Those of Act 22 on average pay 12 times more than most taxpayers in PR. 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. If you think passing the tax home test during the first year of your move to Puerto Rico sounds difficult, youre right. Contact us today to ask about starting the next exciting chapter of your life on this stunning Caribbean island. Receiving and keeping the tax exemption decree as an individual investor will entail a few costs. This tax haven can easily save taxpayers hundreds of thousands of dollars per year (or more) in federal taxes! Your tax home is the jurisdiction in which your primary place of employment is located. Furthermore, the property must remain your primary residence for as long as the decree remains in force. The core motivation of the IRS in administering the, The first of the three tests is perhaps the most complicated. 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 . If thats the case, the IRS will treat your primary residence as your tax home. 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. As a basic overview, heres what you have to do to pass the three tests to establish bona fide residency in Puerto Rico: Capital gains accrued prior to your move to Puerto Rico are treated differently depending on when they are recognized: There is a $750 fee due with your application, which you are to submit to the Office of Industrial Tax Exemption. 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 . Puerto Rico voter registration is required. 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. 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. Puerto Rico enjoys fiscal autonomy, which means that it can offer very attractive tax incentives not available on the mainland U.S., with the advantages of being in a U.S. environment. 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. 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. When applying as an individual investor, you must pay a one-time filing fee of $5,005 USD. 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. 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. Special rule for nonresident aliens. Note that you may only receive 30 free days of international travel if you fulfill the following conditions: Certain exemptions also apply. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. 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. Feb. 9, 2023, 1:45 AM. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. 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; } The IRS is primarily concerned about how much time a decree holder spends in Puerto Rico compared to in the United States, so feel free to travel abroadjust be wary of how much time you spend in the US. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. Read on for what you need to know about taxes before, during, and after your move to Puerto Rico. 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. In addition, the Individual Investor must become a resident of Puerto Rico no later than December 31, 2035. 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