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. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. With the Act 60 Export Services Tax Incentive (formerly Act 20), it may only have to pay 4% corporate income tax. Thus, to reap the benefits of the ever-popular Act 60 Export Services and Individual Resident Investor tax exemptions, you must hold up your end of the bargain and settle into a life in Puerto Rico. And, if it the income is sourced in Puerto Rico, it would escape tax in the U.S. as well. The term 'resident individual' means an individual who is domiciled in Puerto Rico. 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. 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. We look forward to helping you find your perfect property in Puerto Rico. Puerto Ricos status as a top tax haven is undisputed. 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. * *This is primarily an issue for US Citizens who do not have citizenship elsewhere. Weve covered the main ones, but take a look at all of these additional tax incentives that may also apply, depending on the nature of your business. 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. 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 incentive is available to any individual that wasn't a bona fide resident of Puerto Rico between January 17, 2006, and January 17, 2012 (these dates have varied at different times and should be confirmed at the time of application to confirm eligibility) and moves to PR. These will be especially important to present if the IRS or Puerto Rico Department of Treasury (Hacienda) challenges your bona fide resident claims. 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. At the same time, youll retain your U.S. citizenship and wont forfeit Medicare or Social Security. 957(c)(1) a bona fide resident of Puerto Rico is not treated as a U.S. person (as defined in Sec. 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. 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. It has only one requirement: do not have a tax home outside of Puerto Rico during any part of the tax year. Golding & Goldingspecializes exclusivelyin international tax, and specificallyIRS offshore disclosure. Basically, to satisfy the tax home test, keep your officeor your home, as the case may bein Puerto Rico. Legally avoiding the 37% federal rate and the 13.3% California (or other state) rate is a jaw-dropping benefit . Puerto Rico offers a myriad of tax incentives, but they all entail the same goal for the government: boosting Puerto Ricos economy by attracting to the island high-net-worth individuals who will invest in the infrastructure. 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. 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 non-profit charitable contribution requirement which was previously at $5,000 has been increased to $10,000. Don't Pass Up a Lucrative Life in Puerto Rico https://nomadcapitalist.com/Puerto Rico Act 60 Real Estate Tax Incentives for individual investors is becoming increasingly popular among US persons looking . Act 60 ensures that this grant will remain a binding contract between you and the Puerto Rican government for at least 15 years. We elaborate on that at the end of the post. As you might suspect, its easier to satisfy this requirement if you move to Puerto Rico during the first part of the year. Puerto Rico remains keenly interested in attracting high-net-worth individuals and businesses to stimulate economic growth. Afterward, each year, you will have to make a $10,000 charitable donation and submit an annual report along with a $300 fee. Would you like to find out more about how to get residency in Puerto Rico? Residency in Puerto Rico The Guide from 7th Heaven Properties, Can a citizen or permanent resident of the USA live in Puerto Rico? To be a bona fide resident of Puerto Rico: A flat 4% corporate tax rate Puerto Rican and foreign companies created investments that transform and accelerate economic development in Puerto Rico thanks to Act 60. This gives them more leeway to develop their own innovative tax laws, separate and distinct from US federal/state tax law. and representation are limited. First, youll pay a one-time $5,005 application fee along with a $105 acceptance fee. permanent residence, Puerto Rico, Real Estate, residency, Caribbean Citizenship by Investment Real Estate. When a US person obtains a Golden Visa, they have a second passport (CBI) or travel privileges (RBI). What are Puerto Rico Tax Incentives Under New Act 60 (20/22). 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; } 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. *Paragraph C refers to the Presence Test. 1. 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. The non-profit charitable contribution requirement which was previously at $5,000 has been increased to $10,000. 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. TIP. Puerto Rico operates with some independent from the US government. 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. . 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. There are always exceptions, exclusions, and limitations to be aware of. . Still, Puerto Rico hopes to lure American mainlanders with an income tax of only 4%. 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? The most important consideration for the IRS is that you spend more time in Puerto Rico than in the rest of the United States. 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. Long-Term Permanent Residents (LTR) tend to not have this issue, since LTRs already have citizenship in another country. 2 This income also would be excluded from Puerto Rican income tax. 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. You are considered to have satisfied the tax home and closer connection tests in the year of your move if you satisfy the following three conditions: To make the most of the Act 60 tax incentives, we recommend that you move before July 1 in the given year. 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. Not be present in the USA for more than 90 days during the tax year. 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. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. Luckily, you can take your pick from a huge selection of quality housing on the island. Executed lease or transfer of title-proof of real estate ownership is required. 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. 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. What is a Board-Certified Tax Law Specialist. 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 Furthermore, the property must remain your primary residence for as long as the decree remains in force. Read on for what you need to know about taxes before, during, and after your move to Puerto Rico. During each year of the 3-year period, you must be present in the relevant territory for at least 60 days. To qualify for the exemptions, you must become a bonafide resident of Puerto Rico. Thousands of Americans have already made the move to Puerto Rico, enjoying a 0% income tax rate on capital gains or a 4% corporate tax rate for their business while indulging in the excitement of Puerto Rican culture and cuisine. 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; } 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. 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. Opening a Puerto Rican bank account is helpful not only for the test but also for your daily life on the island, as is a local drivers license. Act 60 offers a corporate tax rate of 4% to Puerto Rican companies that export services performed in the territory to people or companies . Rather, the US person has to become a. You were present in the United States for no more than 90 days during the tax year. Conditions (1) through (5) above do not apply to nonresident aliens of the United States. 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