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). Therefore, there are multiple ways to satisfy the requirements of the presence test. A Puerto Rican driver's license is required. Not be present in the USA for more than 90 days during the tax year. In more ways than one, starting a new life in Puerto Rico can be the best investment you ever make. Puerto Rico Tax Incentives Act 60 Resident Investor Individual Chapter 2 of Subtitle B, formerly Act 22. Thus, with the tools provided by this Code, this Administration shall keep boosting the economy and attracting private capital to the Island. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. All capital gains accrued after becoming a New Resident will be 100% exempt from Puerto Rico taxes. How about moving just yourself? Under the latter approach, youd set up a new entity on the island that charges a management fee to the rest of your mainland-based business. 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. Puerto Rican and foreign companies created investments that transform and accelerate economic development in Puerto Rico thanks to Act 60. Let's explore each of these in greater detail. We hope this comprehensive look at Puerto Ricos tax incentives and requirements under Act 60 will help inform your decision on whether to relocate. With fewer close connections to the U.S. mainland, youll minimize your risk of an IRS audit. To benefit from the tax advantages under Act 60-2019 (detailed below) an individual must purchase property in Puerto Rico within 2 years. 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 were not present in the US for more than 90 days during the tax year. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. Under GILTI, the minimum tax for any US-owned CFC is 10.5% (max 21%). This property must be the individuals primary residence and not rented out. 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. 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. When you have satisfied all the requirements to become a bona fide Puerto Rico resident, you must file Form 8898 to notify the IRS of your new residency status. Thus, in the most ideal of situations, the taxpayer will move to Puerto Rico and become a Bona-Fide resident without having realized but unrecognized gain already. 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. 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. Physical . 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. 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. As of 2022, that could result in a tax rate of up to 37%. Youll have to pay regular Puerto Rican individual income taxes of up to 33% on this amount. Puerto Rico taxes are very favorable to crypto investors when using Act 60. What are Puerto Rico Tax Incentives Under New Act 60 (20/22). they want to find a way to legally avoid the overbearing US tax rules, while not necessarily expatriating and renouncing their US citizenship. 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. This tax haven can easily save taxpayers hundreds of thousands of dollars per year (or more) in federal taxes! Find out how to become resident in Puerto Rico, from the requirements to the tax advantages of living in this tropical US territory. 1. 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. 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. Are you wondering how exactly your business will benefit from relocating to Puerto Rico? Lets explore each of these in greater detail. 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. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. Firstly, an individual must be present in Puerto Rico for defined period. Incumbent will receive assignments in the form of plans and specification covering work to be accomplished by contractors and schedules for completion of the construction work.Qualifications: Who . 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. The closer connection test can be tricky for some Act 60 decree holders to satisfy because its subjective and offers no hard guidelines on fulfillment. If youd like to enjoy these much lower federal and state taxes, you must follow through on a series of Act 60 Puerto Rico requirements. A U.S. taxpayer who is a bona fide resident of Puerto Rico for an entire taxable year is able to exclude from U.S. federal income tax under 933 (1) Puerto Rican-source interest and dividends, and (possibly) worldwide capital gains. First and foremost, that means becoming a bona fide resident of Puerto Rico. Of course, this is far lower than the 21% corporate tax rate, plus state taxes, that your business would be likely to pay on the mainland. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. 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; } This implies residing on the island for more than 183 days per year, filling out IRS forms, such as form 8898 and applying for a tax exemption decree from the Secretary of Economic Development and Commerce of Puerto Rico. As provided by Puerto Rico Incentives Code 60: This Code is approved with the conviction that it shall improve Puerto Rico's economic competitiveness. 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. Demand for Non-CRS Banking as CRS Goes Global Opening bank accounts in countries that do not participate in the Common Reporting Standards (CRS) is sometimes seen as a way to increase privacy. All three are easy to satisfy if you truly commit to a new life in Puerto Rico. Interestingly, however, under Sec. 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. Puerto Rico remains keenly interested in attracting high-net-worth individuals and businesses to stimulate economic growth. With proper tax planning and sourcing allocations, a person can feasibly reduce their tax liability to nearly zero on income and assets generated and acquired once becoming a Puerto Rican resident but its not quite that simple. If you're a US citizen or legal resident, no. The purpose of Puerto Rico Incentives Code 60 is to promote investment in Puerto Rico by providing investment residents with tax breaks. Golding & Goldingspecializes exclusivelyin international tax, and specificallyIRS offshore disclosure. Act 60 offers a corporate tax rate of 4% to Puerto Rican companies that export services performed in the territory to people or companies . 5%, if such gain is recognized after said 10-year period. Be present in Puerto Rico for a minimum of 183 days in the tax year. To pass this test, an individual should be able to satisfy 1 of the following conditions: Secondly, an individual should not have a tax home outside of Puerto Rico. 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. To explore your options in more detail, please contact 7th Heaven Properties, the Luxury Caribbean Property Specialist. As a U.S. territory, Puerto Rico is subject to tax rules that are different from those of U.S. states. If youre unclear on whether youll meet this requirement, check out our Day Tracker Tool. Think about how your business can flourish with such a low tax burden. 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. 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. The purpose of these measures is to provide incentives to individuals who have not been residents of Puerto Rico to become residents. they want to find a way to legally avoid the overbearing US tax rules, while not necessarily expatriating and renouncing their US citizenship. With the Act 60 Export Services Tax Incentive (formerly Act 20), it may only have to pay 4% corporate income tax. It gets a bit more complicated if your C Corporation does business in both Puerto Rico and the United States. This comes out to $5,110 in application fees and an ongoing $15,005 in annual report filing fees and charitable contributions. 2. 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. 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. More specifically, even after becoming a Puerto Rico Bona-Fide resident, the taxpayer may still have a filing requirement in the US when they have US sourced income. 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. 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. 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 Act 60 investors must also submit their donation before December 31 and present proof in their annual report in May. permanent residence, Puerto Rico, Real Estate, residency, Caribbean Citizenship by Investment Real Estate. 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. However, you cant qualify unless you establish residency on the island. Citizenship: The most straightforward qualification is the requirement to be a citizen of the United States, living in Puerto Rico. Only one of the following conditions must be true: To be counted as present in Puerto Rico, you must be physically present on the island during any part of the day. 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). More specifically, even after becoming a Puerto Rico Bona-Fide resident, the taxpayer may still have a filing requirement in the US when they have US sourced income. 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; } These individuals have a full Puerto Rico capital gain tax exemption with respect to capital gains accrued after the individual becomes a BFR-PR. Act 60 ensures that this grant will remain a binding contract between you and the Puerto Rican government for at least 15 years. Discover: Best Places to Buy Property in Puerto Rico. 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. The COVID-19 pandemic, for example, qualifies as special circumstances that can grant an Act 60 decree holder free presence days under certain conditions. What else do you need to do to get this process started? Promotion of Puerto Rico as a residency jurisdiction Prevalence of non-resident options via IFEs (discussed below) 1. 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. Puerto Rico Residency Requirements Benefits of Puerto Rico Residency Find Out More. Those of Act 22 on average pay 12 times more than most taxpayers in PR. In addition, every year you must make a donation of $10,000 split evenly between two qualifying nonprofit organizations in 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. For all of the Puerto Rico tax incentives, it is necessary to ensure you understand and monitor compliance with residency requirements. 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. */, Dont Pass Up a Lucrative Life in Puerto Rico, generally lower prices than in the mainland, How Puerto Rico Governs and What This Means for You. 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. Thanks to this code, your income sourced from Puerto Rico can be exempt from both federal and state taxes. For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) 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. The closer connection test is perhaps the most reliable in determining your loyalty to Puerto Rico. Then, youll be required to file an annual report each year along with a $300 fee. The tax incentives enjoyed by Individual Resident Investors in Puerto Rico are perhaps the most impressive of all Puerto Rican tax incentives: Just keep in mind that to qualify for these generous incentives, you must become a bona fide resident of Puerto Rico, which involves spending the majority of your time in Puerto Rico, making Puerto Rico your tax home, and establishing closer connections in Puerto Rico than in the US. Finally, exceptions are available for special circumstances, such as medical treatment or disasters. You were present in the relevant territory for at least 183 days during the tax year. Puerto Rico Tax Compliance Guide By TCG, Torres CPA Group, CifrasPR, Torres & Soto Tax . 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. 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. Lets take the example of a C Corporation, which the IRS recognizes as an independent legal entity. Such materials are for informational One of these is the low 4% corporate tax rate we touched on earlier. Before they will exempt you from regular U.S. tax obligations, the IRS must determine that you have truly made Puerto Rico your home. 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