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). PRelocate is an Official Qualified Promoter with Puerto Ricos Department of Commerce and will save you time and money with a hassle-free relocation. Various factors such as the presence of an individuals permanent home, family, belongings, principal bank and business in Puerto Rico, as well as the existence of professional, cultural, religious, social and political affiliations and links in Puerto Rico, may help to demonstrate a closer connection to Puerto Rico than to anywhere else. Since this test is essentially assessing your intentions, it is somewhat subjective, and since everyones situation is different, the IRS considers different factors in each case. 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. For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) Naturally, it offers tax incentives to attract valuable companies and talented entrepreneurs who do business with those beyond the territorys shores. 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. For all of the Puerto Rico tax incentives, it is necessary to ensure you understand and monitor compliance with residency requirements. First, youll pay a one-time $5,005 application fee along with a $105 acceptance fee. When US taxpayers begin researching how to relinquish their US status, oftentimes they will come across Puerto Rico. PUERTO RICO 787.759.9292 MIAMI 305-677-6626 MCVPR.COM . 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: Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. 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. Its a requirement. 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. Moving to Puerto Rico can be a dream come true for individual U.S. investors and businesses seeking to lower their taxes, as long as they follow certain requirements. Puerto Rico's Acts 20 & 22, tax incentive laws make living and working in Puerto Rico more enticing than ever before for U.S. Citizens. This Code is approved with the conviction that it shall improve Puerto Ricos economic competitiveness. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. In order to encourage the transfer of such individuals to . . Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. Puerto Rico is a sunny Caribbean paradise, and you can enjoy an enriched life in a beautiful culture with beautiful weather, but if youre pining for your life in the US because you left significant connections there, you may not enjoy it. 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? There are many advantages to becoming a resident of Puerto Rico. Puerto Rico tax haven Eligibility under Act 60 an individual must have physical presence in the Island for at least 183 days of the year and must not have been a resident of Puerto Rico from 2009 to 2019 (the 10-year period preceding the effective date of the Incentives Code). 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. 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. As of 2022, that could result in a tax rate of up to 37%. To qualify for the exemptions, you must become a bonafide resident of Puerto Rico. Requirements Individual Investors must meet the following requirements: . 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? Still, Puerto Rico hopes to lure American mainlanders with an income tax of only 4%. Citizens and permanent residents of the USA enjoy the right to live in Puerto Rico in the same way that citizens of Puerto Rico may live in the mainland US. 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. Feb. 9, 2023, 1:45 AM. Therefore, there are multiple ways to satisfy the requirements of the presence test. 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. It has only one requirement: do not have a tax home outside of Puerto Rico during any part of the tax year. Passing Puerto Ricos bona fide residency tests may seem tough, but if you truly move your whole life to Puerto Rico, its not that difficult. And since its generous tax incentives are only available to bona fide residents, enjoying the wonders of a Puerto Rican life is imperative. Under Act 60, an eligible business includes export services and commerce. One of these is the low 4% corporate tax rate we touched on earlier. 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. Act 52-2022 expands and clarifies the existing compliance rules under Act 60-2019. Special rule for nonresident aliens. 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. The purpose of Puerto Rico Incentives Code 60 is to promote investment in Puerto Rico by providing investment residents with tax breaks. As you might suspect, its easier to satisfy this requirement if you move to Puerto Rico during the first part of the year. Act 20 offers entities a 4% corporate rate on business . 4. Golding & Golding, A PLC (2023): LawDog Enterprises - All Rights Reserved - No Legal Advice Intended: This website includes information about legal issues and legal developments. You are a bona fide resident of Puerto Rico for the year of your move plus the two proceeding years. You had no significant connection to the United States during the tax year. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. Are you wondering how exactly your business will benefit from relocating to Puerto Rico? No Article, Blog Post or Page may be reproduced or used without express written consent of Golding & Golding. 2 This income also would be excluded from Puerto Rican income tax. 2. 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. Rather, the US person has to become a Bona-Fide Resident of Puerto Rico. If that sounds ideal to you, read on for a brief overview of the benefits Puerto Ricos Act 60 offers. If thats the case, the IRS will treat your primary residence as your tax home. You had earned income in the United States of no more than a total of $3,000 and were present for more days in the relevant territory than in the United States during the tax year. The core motivation of the IRS in administering the, The first of the three tests is perhaps the most complicated. Foreign Earned Income Exclusion: 0% tax on first $100,000 and 35% tax on $400,000 = $140,000. Puerto Rican and foreign companies created investments that transform and accelerate economic development in Puerto Rico thanks to Act 60. Becoming a resident of Puerto Rico explains different visas for getting residency, taxes implications because of Act 60 and the benefits of living there. Therefore, there are multiple ways to satisfy the requirements of the presence test. Thats why IRS has introduced a special exception for your first year in Puerto Rico, contingent on three conditions: 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. 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. 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. Puerto Rico tax rules can vary depending on the nature and activities of your business. 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. We look forward to helping you find your perfect property in Puerto Rico. And, if it the income is sourced in Puerto Rico, it would escape tax in the U.S. as well. This means that Puerto Rico should be your primary place or residence or your primary place of employment. The presence test considers how much time you spend in Puerto Rico. You were present in the relevant territory for at least 183 days during the tax year. they want to find a way to legally avoid the overbearing US tax rules, while not necessarily expatriating and renouncing their US citizenship. 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. 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. 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. As a US territory, Puerto Rico has a unique tax climate. For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) Consulting companies, auditing firms, marketing businesses, and more are eligible business types. 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. We elaborate on that at the end of the post. 1 Puerto Rico Resident CFC & PFIC Tax Planning 2 Puerto Rico Act 60 Can Shapeshift and Terminate 3 Avoiding CFC Status in Puerto Rico has Strict Requirements 4 Other CFCs are still subject to 5471, GILTI and Subpart F 5 Foreign Income is Still Taxable 6 Puerto Rico Trust are Foreign (Even if Accounts and Assets are not) (a) Appreciation Before Becoming a Resident Individual of Puerto Rico. 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. 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. 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. The purpose of Puerto Rico Incentives Code 60 is to promote investment in Puerto Rico by providing investment residents with tax breaks. *Paragraph C refers to the Presence Test. * *This is primarily an issue for US Citizens who do not have citizenship elsewhere. 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. . 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 . A person will be considered a bona fide resident of Puerto Rico under Section 933 if he/she (1) passes a physical presence test; (2) is not a tax resident outside of Puerto Rico during the tax year; and (3) has no closer connection to the United States or any country other than Puerto Rico. If the unrecognized gain is US-sourced, it will still generally be taxable in the US despite Puerto Rico Incentives Code 60. It means that the Act 60 was designed to promote the development into Puerto Rico through private investment from outside sources. The IRS offers five different conditions a decree holder can use to fulfill the presence requirement for bona fide residency. The non-profit charitable contribution requirement which was previously at $5,000 has been increased to $10,000. Rather, the US person has to become a. The closer connection test is perhaps the most reliable in determining your loyalty to 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. As provided by Puerto Rico Incentives Code 60: What does this mean? 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. When a US person obtains a Golden Visa, they have a second passport (CBI) or travel privileges (RBI). 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. Let's explore each of these in greater detail. Golding & Goldingspecializes exclusivelyin international tax, and specificallyIRS offshore disclosure. Puerto Ricos status as a top tax haven is undisputed. Such materials are for informational 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. 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 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). The purpose of these measures is to provide incentives to individuals who have not been residents of Puerto Rico to become residents. 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. Entrepreneurs can save with a 4% corporate tax rate. Contact us today to ask about starting the next exciting chapter of your life on this stunning Caribbean island. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. 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. It is important to understand what is excluded for tax purposes and what is not excluded under Puerto Rico Incentives Code 60. Residency in Puerto Rico The Guide from 7th Heaven Properties, Can a citizen or permanent resident of the USA live in 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 . 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. Puerto Ricos bona fide residency tests may seem intimidating, but if youre dedicated to starting fresh in the USs sunny Caribbean island territory, the tests are simple. Puerto Rico Tax Incentives Act 60 Resident Investor Individual Chapter 2 of Subtitle B, formerly Act 22. Think about how your business can flourish with such a low tax burden. TIP. 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. Passing the Presence Test 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. 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 To keep track of your presence days, download our Day Tracker Tool. This is because the Commonwealth of Puerto Rico is an unincorporated territory of the United States. 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. Most Puerto Rico investors who apply for Act 60 or Act 22 must donate to a Puerto Rico charity each year. Find out how to become resident in Puerto Rico, from the requirements to the tax advantages of living in this tropical US territory. 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. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. 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. 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 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. In other words, a tax home is your main place of business, employment, or post of duty, according to IRS rules. Individual Investor must not have been a resident of Puerto Rico during any of the 10 years prior to the effective date of Act 60 (July 1st, 2019). 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. 5. 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. Nov. 8, 2019, 10:00 AM. 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. In order to promote investment into Puerto Rico, they developed Act 60 to attract high net-worth individuals and businesses. The first of the three tests is perhaps the most complicated. If youd like to know more about the qualifying tests, consult IRS Publication 570. 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. First and foremost, there are some significant tax benefits. During each year of the 3-year period, you must be present in the relevant territory for at least 60 days. 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. The non-profit charitable contribution requirement which was previously at $5,000 has been increased to $10,000. Finally, exceptions are available for special circumstances, such as medical treatment or disasters. Note that those who were already residents of Puerto Rico during the 10 years before their move are not eligible for this tax incentive. 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. Plus, you are obliged to donate at least $10,000 USD to charity. Creation of Jobs Requirements Businesses with an annual volume, actual or projected, more than three million dollars equivalent; Manufacturing, three . Act 60. Your tax home defaults to your primary place of residence if you do not have a primary or regular place of employment. 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. Furthermore, the property must remain your primary residence for as long as the decree remains in force. You must own it yourself or jointly with a spouse. In more ways than one, starting a new life in Puerto Rico can be the best investment you ever make. You were present in the relevant territory for at least 549 days during the 3-year period that includes the current tax year and the 2 immediately preceding tax years. Would you like to find out more about how to get residency in Puerto Rico? 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. 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; } 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. Executed lease or transfer of title-proof of real estate ownership is required. A Puerto Rican driver's license is required. 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. That way, you can satisfy all the tests and achieve bona fide residency even in the year of your move. Legally avoiding the 37% federal rate and the 13.3% California (or other state) rate is a jaw-dropping benefit . 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. 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. 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. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. However, in the case of Puerto Rico, all the above tax and other benefits are legally available to residents of Puerto Rico without having to renounce US citizenship. The most important consideration for the IRS is that you spend more time in Puerto Rico than in the rest of the United States. Tax Exemption Period Act 60. Puerto Rico operates with some independent from the US government. Of important consequence is the fact that the person cannot have a closer connection to the United States or a second tax home. You were present in Puerto Rico for at least 183 days in the tax year. 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. 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. With fewer close connections to the U.S. mainland, youll minimize your risk of an IRS audit. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. 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. Under Chapter 2 of Act 60 . 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. 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 . 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. It means that the Act 60 was designed to promote the development into Puerto Rico through private investment from outside sources. What It Means to Be a Resident of Puerto Rico. Carlos Fontn, director of the DDEC's office of business incentives in Puerto Rico, said in April, the agency began the first . Your tax home is the jurisdiction in which your primary place of employment is located. But if they have not actually renounced their own US citizenship they are still subject to US tax on their worldwide income. To be a bona fide resident of Puerto Rico: Second, to pass the tax home test, you must not keep a tax home outside of Puerto Rico at any time. Read on for what you need to know about taxes before, during, and after your move 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. With beautiful, sunny weather, a vibrant Hispanic culture, and generally lower prices than in the mainland, Puerto Rico offers more than just tax savings. Chapter 3 of Act 60-2019 - Export Services Tax Incentive. Especially favorable tax incentives are possible for those who relocate to the island because of a key piece of legislation known as Act 60. 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).
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