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. This is important, because under the previous version of the rule, there was no need to actually purchase property. 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. Conditions (1) through (5) above do not apply to nonresident aliens of the United States. 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 US taxpayers begin researching how to relinquish their US status, oftentimes they will come across Puerto Rico. A flat 4% corporate tax rate The U.S. will not tax any prior unrealized gains if recognized after 10 years of residence in 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. Under Act 60, an eligible business includes export services and commerce. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. Legally avoiding the 37% federal rate and the 13.3% California (or other state) rate is a jaw-dropping benefit . You dont need to satisfy them allsatisfying just a single one is sufficient. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. Thus, with the tools provided by this Code, this Administration shall keep boosting the economy and attracting private capital to the Island. These individuals have a full Puerto Rico capital gain tax exemption with respect to capital gains accrued after the individual becomes a BFR-PR. Noting, the Puerto Rico BFR rules are not the same as the Substantial Presence Test BFR rules but the concept is the same. To qualify for the exemptions, you must become a bonafide resident of Puerto Rico. 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. 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: 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. Act 60 provides tremendous tax benefits to qualified businesses and individual investors. Thirdly, an individual should not have a closer connection to the USA or to a foreign country than to 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. 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. Initial consultations Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. The purpose of Puerto Rico Incentives Code 60 is to promote investment in Puerto Rico by providing investment residents with tax breaks. There are always exceptions, exclusions, and limitations to be aware of. 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). 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). 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. What It Means to Be a Resident of Puerto Rico. 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. 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. With the Act 60 Export Services Tax Incentive (formerly Act 20), it may only have to pay 4% corporate income tax. The term 'resident individual' means an individual who is domiciled in Puerto Rico. Carlos Fontn, director of the DDEC's office of business incentives in Puerto Rico, said in April, the agency began the first . 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. 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. In addition, every year you must make a donation of $10,000 split evenly between two qualifying nonprofit organizations in Puerto Rico. For detailed information directly from the IRS about the residency tests, consult Publication 570. Puerto Rico Service Exporters Must Document Well to Avoid IRS Ire. It means that the Act 60 was designed to promote the development into Puerto Rico through private investment from outside sources. Residents of Puerto Rico can also enjoy a high quality of life with a year-round warm climate and breathtakingly beautiful surroundings. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. That way, you can satisfy all the tests and achieve bona fide residency even in the year of your move. Residency in Puerto Rico The Guide from 7th Heaven Properties, Can a citizen or permanent resident of the USA live in Puerto Rico? Before they will exempt you from regular U.S. tax obligations, the IRS must determine that you have truly made Puerto Rico your home. 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. Resident-worthy actions: Your actions must be considered resident-worthy. So, even though Puerto Rico will only charge you 4% corporate tax, the US will take at least another 6.5% from your CFC if you . 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. Those of Act 22 on average pay 12 times more than most taxpayers in PR. 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? 957(c)(1) a bona fide resident of Puerto Rico is not treated as a U.S. person (as defined in Sec. The presence test considers how much time you spend in Puerto Rico. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. Theyve been delighted to experience the rich culture, delicious food, and wonderful tropical sightseeing opportunities found 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. 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. 257 of December 10, 2018, which introduced significant amendments to the Puerto Rico Internal Revenue Code ("Puerto Rico Code"); and Act No. 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. 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. These will be especially important to present if the IRS or Puerto Rico Department of Treasury (Hacienda) challenges your bona fide resident claims. 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? This Code is approved with the conviction that it shall improve Puerto Ricos economic competitiveness. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. 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. Of course not. 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