* *This is primarily an issue for US Citizens who do not have citizenship elsewhere. Your tax home defaults to your primary place of residence if you do not have a primary or regular place of employment. 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). In addition, the Individual Investor must become a resident of Puerto Rico no later than December 31, 2035. In addition, every year you must make a donation of $10,000 split evenly between two qualifying nonprofit organizations in Puerto Rico. Under Chapter 2 of Act 60 . 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. If your C Corporation conducts its business in Puerto Rico, then dividends paid to shareholders will be taxed at 0%. Such materials are for informational What is a Board-Certified Tax Law Specialist. Puerto Rican and foreign companies created investments that transform and accelerate economic development in Puerto Rico thanks to Act 60. 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? The contributions of the companies under the Act 20/22 have a positive impact on the local economy. This is important, because under the previous version of the rule, there was no need to actually purchase property. 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. 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. Note that those who were already residents of Puerto Rico during the 10 years before their move are not eligible for this tax incentive. 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. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. 2. The closer connection test simply seeks to determine whether an Act 60 decree holder maintains closer connections to Puerto Rico or the United States and uses a number of factors to determine ones national ties, such as the following: Naturally, some of these factors are more important than othersthe IRS will especially consider where a decree holders spouse and children live. 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. The portion of the net long-term capital gain generated by a Resident Individual Investor attributable to any appreciation of the Securities or other Assets owned by such Resident Individual Investor before becoming a Resident Individual of Puerto Rico, which appreciation is recognized ten (10) years after becoming a Resident Individual of Puerto Rico and before January 1, 2036, shall be subject to a five percent (5%) tax, in lieu of any other tax imposed under the Puerto Rico Internal Revenue Code and shall not be subject to the alternate basic tax provided in Subsection A of the Puerto Rico Internal Revenue Code. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. 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. Additional small fees may apply. However, if you also have income from sources outside of Puerto Rico, including from U.S. sources, you're required to file a U.S. federal income tax return if such amount is above the U.S. filing . Thus, with the tools provided by this Code, this Administration shall keep boosting the economy and attracting private capital to the Island. Puerto Ricos status as a top tax haven is undisputed. 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. SAN JUAN, Puerto Rico (PRWEB) January 17, 2020. 7701(a)(30)) and thus is not subject to Subpart F and GILTI inclusions associated with ownership of stock in a Puerto Rican subsidiary (provided dividends received by that individual from that foreign subsidiary would be considered Puerto Rican-source). 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. Article 7 of Act 22 protects those trusts created by Act 22 grantees from the forced inheritance provisions of the Puerto Rico Civil Code. What It Means to Be a Resident of Puerto Rico. First, youll pay a one-time $5,005 application fee along with a $105 acceptance fee. doing business in 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. 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. 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. 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. 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. With beautiful, sunny weather, a vibrant Hispanic culture, and generally lower prices than in the mainland, Puerto Rico offers more than just tax savings. Golding & Goldingspecializes exclusivelyin international tax, and specificallyIRS offshore disclosure. Chapter 3 of Act 60-2019 - Export Services Tax Incentive. And since its generous tax incentives are only available to bona fide residents, enjoying the wonders of a Puerto Rican life is imperative. 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. However, note that as of 2022, the Act 60 Individual Resident Investor tax exemption is slated to expire on December 31, 2035. If youd like to know more about the qualifying tests, consult IRS Publication 570. What else do you need to do to get this process started? 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. 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. Contact us today to ask about starting the next exciting chapter of your life on this stunning Caribbean island. 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. Puerto Rico Service Exporters Must Document Well to Avoid IRS Ire. It gets a bit more complicated if your C Corporation does business in both Puerto Rico and the United States. 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. 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. Tax Exemption Period Act 60. In order to encourage the transfer of such individuals to . You were present in the relevant territory for at least 183 days during the tax year. 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. Plus, you are obliged to donate at least $10,000 USD to charity. The first of the three tests is perhaps the most complicated. In more ways than one, starting a new life in Puerto Rico can be the best investment you ever make. Entrepreneurs can save with a 4% corporate tax rate. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. purposes only and may not reflect the most current legal developments. 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. Afterward, each year, you will have to make a $10,000 charitable donation and submit an annual report along with a $300 fee. . 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. 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. Initial consultations These will be especially important to present if the IRS or Puerto Rico Department of Treasury (Hacienda) challenges your bona fide resident claims. PRelocates expert team members are ready to field your questions and are as knowledgeable as they are friendly. All capital gains accrued after becoming a New Resident will be 100% exempt from Puerto Rico taxes. 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. A Puerto Rico resident is an individual who is domiciled in Puerto Rico. A Puerto Rican driver's license is required. Act 60 offers a corporate tax rate of 4% to Puerto Rican companies that export services performed in the territory to people or companies . It is crucial to understand that in order to exclude the income from capital gains and dividends, it should be accrued after arriving in Puerto Rico and acquiring dividends and capital gains as a Resident of Puerto Rico. Discover: Best Places to Buy Property in Puerto Rico. 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. When US taxpayers begin researching how to relinquish their US status, oftentimes they will come across Puerto Rico. If a US person relocates to Puerto Rico and has realized but unrecognized capital gain and waits to recognize the gain until being a resident for 10 years will only be subject to a 5% Puerto Rico tax rate. 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. The presence test also grants you 30 automatic presence days of international travel (i.e., travel not to the US) per tax year, which means you actually only need to be present in Puerto Rico for 153 days per year as long as you are traveling outside of the US. This comes out to $5,110 in application fees and an ongoing $15,005 in annual report filing fees and charitable contributions. The closer connection test is perhaps the most reliable in determining your loyalty to Puerto Rico. Business owners who establish a qualifying business in Puerto Rico can enjoy significant tax benefits: To qualify, the business model must be concentrated around exporting services outside of Puerto Rico. This property must be the individuals primary residence and not rented out. To be defined as a bona fide resident of Puerto Rico, an individual must be able to demonstrate that he/she satisfies 3 key residency requirements relating to the individuals presence in Puerto Rico, having a tax home in Puerto Rico and having closer connections to the territory than anywhere else. Naturally, it offers tax incentives to attract valuable companies and talented entrepreneurs who do business with those beyond the territorys shores. Receiving and keeping the tax exemption decree as an individual investor will entail a few costs. 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. You did not maintain a tax home outside of Puerto Rico for the last 183 days of the year. It means that under Puerto Rico Incentives Code 60, if an individual is granted Puerto Rico tax exemption under the act, long term gains as a result of investments made after becoming a resident will be exempt from tax in Puerto Rico. Most Puerto Rico investors who apply for Act 60 or Act 22 must donate to a Puerto Rico charity each year. Promotion of Puerto Rico as a residency jurisdiction Prevalence of non-resident options via IFEs (discussed below) 1. 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. 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. Only one of the following conditions must be true: You were present in Puerto Rico for at least 183 days in the tax year. Are you wondering how exactly your business will benefit from relocating to Puerto Rico? Thirdly, an individual should not have a closer connection to the USA or to a foreign country than to Puerto Rico. Finally, exceptions are available for special circumstances, such as medical treatment or disasters. Puerto Rico taxes are very favorable to crypto investors when using Act 60. 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. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. There are many advantages to becoming a resident of Puerto Rico. However, this is a rule of thumb, and others have retained their status with fewer than 183 days on the islands soil in the wake of major natural disaster declarations. Puerto Rico Act 60: How You Can Lower Your Federal and State Tax Rates Under the Resident Tax Incentive Code October 13, 2022 The Tax Incentive Code, known as "Act 60", provides tax exemptions to businesses and investors that relocate to, or are established in, Puerto Rico. 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. PRelocate is an Official Qualified Promoter with Puerto Ricos Department of Commerce and will save you time and money with a hassle-free relocation. 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. 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. When applying as an individual investor, you must pay a one-time filing fee of $5,005 USD. The Governor of Puerto Rico has enacted Act 52 of 30 June 2022 (Act 52-2022), which allows companies to elect a 10.5% tax on industrial development income from sales of goods and services instead of the 4% excise tax on foreign corporations, which the latest United States (US) foreign tax credit rules do not consider creditable. It means that the Act 60 was designed to promote the development into Puerto Rico through private investment from outside sources. The term 'resident individual' means an individual who is domiciled in Puerto Rico. *This is primarily an issue for US Citizens who do not have citizenship elsewhere. 3. If you have decided to make the move and take advantage of Puerto Ricos generous tax incentives, make sure youre really committed. Foreign Earned Income Exclusion: 0% tax on first $100,000 and 35% tax on $400,000 = $140,000. The restrictions may have been modified to require only that the investor have spent more time in Puerto Rico than any other single place in the world. In this blog we will highlight some of the major steps you need to take to qualify for Puerto Rico's Act 22. 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. Let's explore each of these in greater detail. You should contact an For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) Residents can also benefit from 75% exemption on property tax and construction taxes. Therefore, there are multiple ways to satisfy the requirements of the presence test. You dont need to satisfy them allsatisfying just a single one is sufficient. If saving big on income taxes while soaking up the sun on a U.S.-owned Caribbean island sounds like a dream life to you, relocating to Puerto Rico under the Act 60 tax exemptions may be right for you. 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. Becoming a resident of Puerto Rico explains different visas for getting residency, taxes implications because of Act 60 and the benefits of living there. The COVID-19 pandemic, for example, qualifies as special circumstances that can grant an Act 60 decree holder free presence days under certain conditions. To be a bona fide resident 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. These benefits are available to any Act 60 Individual Resident Investor decree holder who fulfills the requirements for bona fide residency in Puerto Rico, pay the applicable filing fees, meets the minimum annual charitable donations (currently $10 annual to approved PR registered non-profit), and lives on the island at least 3 years. No Article, Blog Post or Page may be reproduced or used without express written consent of Golding & Golding. The owner must also take out a reasonable salary for him- or herself, which is subject to normal Puerto Rico income tax rates. If you do not have a primary or regular place of employment, your tax home is considered to be your primary place of residence. Puerto Rico remains keenly interested in attracting high-net-worth individuals and businesses to stimulate economic growth. 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. 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. Before they will exempt you from regular U.S. tax obligations, the IRS must determine that you have truly made Puerto Rico your home. 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. Your benefits should not be affected even if there are amendments to the legislation during the term of this agreement. PUERTO RICO 787.759.9292 MIAMI 305-677-6626 MCVPR.COM . attorney to discuss your specific facts and circumstances and to obtain advice on specific legal problems. As provided by Puerto Rico Incentives Code 60: This Code is approved with the conviction that it shall improve Puerto Rico's economic competitiveness. Puerto Rico now requires the individual to purchase residential property within the first two years of becoming a resident. Contrary to popular belief, just getting a Golden Visa without further action does not reduce an Americans tax liability. If thats the case, the IRS will treat your primary residence as your tax home. Bona fide resident of 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. Noting, the Puerto Rico BFR rules are not the same as the Substantial Presence Test BFR rules but the concept is the same. Act 60 ensures that this grant will remain a binding contract between you and the Puerto Rican government for at least 15 years. Residency in Puerto Rico The Guide from 7th Heaven Properties, Can a citizen or permanent resident of the USA live in Puerto Rico? Citizenship: The most straightforward qualification is the requirement to be a citizen of the United States, living in Puerto Rico. Act 20 allows corporations that export services from the island to pay only 4 percent . Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. 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. 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. Certain individuals who move to Puerto Rico also choose to request an Individual resident investors' Puerto Rico tax incentives grant (formerly Act 22-2012 and currently Act 60-2019). This means that Puerto Rico should be your primary place or residence or your primary place of employment. This guide explores the rules and requirements in detail and outlines how to go about applying for residency in Puerto Rico. 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. 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. First and foremost, that means becoming a bona fide resident of 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. 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. For all of the Puerto Rico tax incentives, it is necessary to ensure you understand and monitor compliance with residency requirements. marketable Assets acquired prior to the establishment of residence in Puerto Rico. Many companies opt to become C Corporations because of the special tax advantages associated with this status. At printing time, the government of Puerto Rico enacted into law: Act No. The Department of Economic Development and Commerce (DDEC), as . Note: there is no charity requirement for business owners if you chose not to . If you're a US citizen or legal resident, no. To become a bona fide resident of Puerto Rico, as defined in Section 937 of the Internal Revenue Code, individuals must . 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. 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. 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. You must acquire a grant of tax exemption by applying through Puerto Ricos Industrial Tax Exemption Office. 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). You were present in the United States for no more than 90 days during the tax year. TIP. Consulting companies, auditing firms, marketing businesses, and more are eligible business types. Act 60. 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 Conditions (1) through (5) above do not apply to nonresident aliens of the United States. 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. Passing the Presence Test Rather, the US person has to become a. Youll want to keep meticulous records to ensure you dont jeopardize your eligibility for these generous Act 60 tax benefits. 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. The Resident Tax Incentive Code, known as "Act 60" provides tax exemptions to businesses and investors that relocate to, or are established in, Puerto Rico. 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. As of 2022, that could result in a tax rate of up to 37%. 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. Rules but the concept is the requirement to be a citizen of the three tests is perhaps the most legal. No later than December 31, 2035 presence test BFR rules but the concept is the same as the presence... Already residents of Puerto Rico the Guide from 7th Heaven Properties, can a or! If youd like to know more about the qualifying tests, consult IRS Publication 570 and an $. Designed to promote the development into Puerto Rico Service Exporters must Document Well to IRS. Are eligible business types resident, no DDEC ), as defined in Section 937 of special. Addition, every year you must make a donation of $ 10,000 split evenly between two qualifying organizations! Investors who apply for Act 60 was designed to promote the development into Puerto Rico will save you time money! 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