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. 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. Puerto Rico operates with some independent from the US government. Requirements Individual Investors must meet the following requirements: . The IRS offers five different conditions a decree holder can use to fulfill the presence requirement for bona fide residency. 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. Local government has legislated a series of incentives to attract investment, of which EB-5 Visa program participants can also take advantage. Still, Puerto Rico hopes to lure American mainlanders with an income tax of only 4%. Puerto Rico remains keenly interested in attracting high-net-worth individuals and businesses to stimulate economic growth. 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. 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. 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. 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. 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. Initial consultations 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). Be present in Puerto Rico for a minimum of 183 days in 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. Residents can also benefit from 75% exemption on property tax and construction taxes. Special rule for nonresident aliens. A C Corporation is separate from its owners. 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 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. With the right structuring, one could essentially lower their effective tax rate from as high as 50% or more to 0% under the right circumstances, by moving to the island. 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. Earned income is pay for personal services performed, such as wages, salaries, or professional fees. 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. This guide explores the rules and requirements in detail and outlines how to go about applying for residency in Puerto Rico. The owner must also take out a reasonable salary for him- or herself, which is subject to normal Puerto Rico income tax rates. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. What does this mean? doing business in Puerto Rico. 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. The purpose of these measures is to provide incentives to individuals who have not been residents of Puerto Rico to become residents. Executed lease or transfer of title-proof of real estate ownership is required. 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. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. To keep track of your presence days, download our Day Tracker Tool. 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. You must own it yourself or jointly with a spouse. Chapter 3 of Act 60-2019 - Export Services Tax Incentive. 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. For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) In 2012, Puerto Rico had passed two laws intended to make the island a "global investment destination.". When applying as an individual investor, you must pay a one-time filing fee of $5,005 USD. For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) Only one of the following conditions must be true: You were present in Puerto Rico for at least 183 days in the tax year. The core motivation of the IRS in administering the, The first of the three tests is perhaps the most complicated. 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. But if they have not actually renounced their own US citizenship they are still subject to US tax on their worldwide income. Those of Act 22 on average pay 12 times more than most taxpayers in PR. The Department of Economic Development and Commerce (DDEC, in Spanish) has revoked 121 tax incentive decrees to Act 22 (now Act 60) beneficiaries who failed to submit annual reports to the agency, as the law required. Another bonus is the 30 free international travel days decree holders are eligible for if they spend more time in Puerto Rico than the US. Lets take the example of a C Corporation, which the IRS recognizes as an independent legal entity. Act 60 ensures that this grant will remain a binding contract between you and the Puerto Rican government for at least 15 years. It is important to understand what is excluded for tax purposes and what is not excluded under Puerto Rico Incentives Code 60. Noting, the Puerto Rico BFR rules are not the same as the Substantial Presence Test BFR rules but the concept is the same. 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). Passing the Presence Test The term 'resident individual' means an individual who is domiciled in Puerto Rico. Your tax home is considered to be where your primary or regular place of employment or post of duty is, regardless of where you reside. 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. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. 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. When US taxpayers begin researching how to relinquish their US status, oftentimes they will come across Puerto Rico. 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. 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. 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. Thus, with the tools provided by this Code, this Administration shall keep boosting the economy and attracting private capital to the Island. Firstly, an individual must be present in Puerto Rico for defined period. 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. 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. Resident Engineer (Construction) About the Position: Incumbent will serve as the Resident Engineer under the general supervision of the Area Engineer. Thirdly, an individual should not have a closer connection to the USA or to a foreign country than to Puerto Rico. To avoid paying regular U.S. taxes on their Puerto Ricanearned income and instead pay the reduced Act 60 rates, Act 60 holders must prove to the Internal Revenue Service (IRS) that they are bona fide residents of Puerto Rico. 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. The non-profit charitable contribution requirement which was previously at $5,000 has been increased to $10,000. Youll want to keep meticulous records to ensure you dont jeopardize your eligibility for these generous Act 60 tax benefits. Advertising, consulting, educational, financing, and medical services are just a few among nearly two dozen categories of export services that are eligible for these benefits. Rather, the US person has to become a Bona-Fide Resident of Puerto Rico. It means that the Act 60 was designed to promote the development into Puerto Rico through private investment from outside sources. Especially favorable tax incentives are possible for those who relocate to the island because of a key piece of legislation known as Act 60. The purpose of Puerto Rico Incentives Code 60 is to promote investment in Puerto Rico by providing investment residents with tax breaks. Foreign Earned Income Exclusion: 0% tax on first $100,000 and 35% tax on $400,000 = $140,000. 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? Those who wait until 2036 to apply for the incentive and become Puerto Rican residents wont receive the same benefits unless new legislation is passed. 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. Most Puerto Rico investors who apply for Act 60 or Act 22 must donate to a Puerto Rico charity each year. Lets explore each of these in greater detail. To be a bona fide resident of Puerto Rico: Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. It is expected that individuals who receive their decree before this date will be grandfathered in. The purpose of Puerto Rico Incentives Code 60 is to promote investment in Puerto Rico by providing investment residents with tax breaks. Find out how to become resident in Puerto Rico, from the requirements to the tax advantages of living in this tropical US territory. 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. 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. As you can see, Puerto Ricos enormous Act 60 tax benefits greatly exceed the relatively small costs and inconveniences of relocation. 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. Would you like to find out more about how to get residency in Puerto Rico? This is ensured by Act 60-2019 (formerly known as Act 22). Golding & Golding, A PLC (2023): LawDog Enterprises - All Rights Reserved - No Legal Advice Intended: This website includes information about legal issues and legal developments. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. 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. 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. 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). 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? 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. This property must be the individuals primary residence and not rented out. Basically, to satisfy the tax home test, keep your officeor your home, as the case may bein Puerto Rico. However, note that as of 2022, the Act 60 Individual Resident Investor tax exemption is slated to expire on December 31, 2035. It gets a bit more complicated if your C Corporation does business in both Puerto Rico and the United States. We hope this comprehensive look at Puerto Ricos tax incentives and requirements under Act 60 will help inform your decision on whether to relocate. 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. 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? 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