* *This is primarily an issue for US Citizens who do not have citizenship elsewhere. With fewer close connections to the U.S. mainland, youll minimize your risk of an IRS audit. The purpose of Puerto Rico Incentives Code 60 is to promote investment in Puerto Rico by providing investment residents with tax breaks. Physical Presence: the investor has to be physically present in Puerto Rico 168-183 days per year, and in the United States for less than 90 days in the year. Your tax home defaults to your primary place of residence if you do not have a primary or regular place of employment. 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. If you're a US citizen or legal resident, no. 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. 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. 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. What It Means to Be a Resident of Puerto Rico. Still, Puerto Rico hopes to lure American mainlanders with an income tax of only 4%. If you evacuate or cannot return to Puerto Rico due to disaster, you may also qualify for automatic presence days even though you are physically outside of 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. Special rule for nonresident aliens. What are Puerto Rico Tax Incentives Under New Act 60 (20/22). Act 52-2022 expands and clarifies the existing compliance rules under Act 60-2019. 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. 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. 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? Puerto Rico now requires the individual to purchase residential property within the first two years of becoming a resident. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. The Department of Economic Development and Commerce (DDEC), as . 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 IRS offers five different conditions a decree holder can use to fulfill the presence requirement for bona fide residency. How do I become a resident of Puerto Rico? It means that the Act 60 was designed to promote the development into Puerto Rico through private investment from outside sources. 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 tax rules can vary depending on the nature and activities of your business. Even if youre only in Puerto Rico for an hour on a certain day, that counts as being present in Puerto Rico. Chapter 3 of Act 60-2019 - Export Services Tax Incentive. 1. The core motivation of the IRS in administering the, The first of the three tests is perhaps the most complicated. SAN JUAN, Puerto Rico, Nov. 8, 2019 /PRNewswire-PRWeb/ -- Former Governor of Puerto Rico, Ricardo Rossell, signed Act 60-2019, commonly known as the Puerto Rico . 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. Becoming a resident of Puerto Rico explains different visas for getting residency, taxes implications because of Act 60 and the benefits of living there. But to those considering taking advantage of Puerto Ricos generous tax exemptions without committing to a life on the island, be warned: Integrating into Puerto Rican life isnt just a bonus. 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. 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. 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. Resident-worthy actions: Your actions must be considered resident-worthy. 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. 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. If youve invested in stocks, securities, or cryptocurrency, this may still be a great move for you. 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 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. For example, the salaries of owners and employees are tax deductible. Be present in Puerto Rico for a minimum of 183 days in the tax year. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. Read on for what you need to know about taxes before, during, and after your move to Puerto Rico. https://nomadcapitalist.com/Puerto Rico Act 60 Real Estate Tax Incentives for individual investors is becoming increasingly popular among US persons looking . 2. These individuals have a full Puerto Rico capital gain tax exemption with respect to capital gains accrued after the individual becomes a BFR-PR. The most important consideration for the IRS is that you spend more time in Puerto Rico than in the rest of the United States. 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. Its worth noting that between previous fee increases as well as rising inflation, these figures could easily rise at some point during the next few years. 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. 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. Have no significant connection to the USA during the tax year. What does this mean? Therefore, there are multiple ways to satisfy the requirements of the presence test. Only, For detailed information directly from the IRS about the residency tests, consult, Educators and Trainers Can See Big Tax Breaks in Puerto Rico Under Act 60, Puerto Rico Tax Incentives: Young Entrepreneurs, 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? Creation of Jobs Requirements Businesses with an annual volume, actual or projected, more than three million dollars equivalent; Manufacturing, three . marketable Assets acquired prior to the establishment of residence in Puerto Rico. 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. 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. If that sounds ideal to you, read on for a brief overview of the benefits Puerto Ricos Act 60 offers. Only one of the following conditions must be true: You were present in Puerto Rico for at least 183 days in the tax year. To qualify as a resident of Puerto Rico, an individual must essentially pass 3 key tests as follows. For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) While Puerto Rico is considered part of the United States, it is not a state per se and therefore, the US tax treatment rules are different. Would you like to find out more about how to get residency in Puerto Rico? For all of the Puerto Rico tax incentives, it is necessary to ensure you understand and monitor compliance with residency 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. As provided by Puerto Rico Incentives Code 60: What does this mean? Long-Term Permanent Residents (LTR) tend to not have this issue, since LTRs already have citizenship in another country. Best Places to Buy Property in Puerto Rico. The report's findings concluded with what was already known; Act 20 and Act 22 led to hundreds of millions of dollars of lost U.S. income tax revenue. 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. 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. 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. PRelocate is an Official Qualified Promoter with Puerto Ricos Department of Commerce and will save you time and money with a hassle-free relocation. Rather, the US person has to become a Bona-Fide Resident of Puerto Rico. This tax haven can easily save taxpayers hundreds of thousands of dollars per year (or more) in federal taxes! 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. 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 . How about moving just yourself? The IRS' report to Congress calculated that more than 1,924 applicantscorporations, LLCs, partnerships, and other typeshad been granted tax benefits under the Exports Services Act (formerly known as Act 20) as of March 2020 based on partial information provided by Puerto Rico. That way, you can satisfy all the tests and achieve bona fide residency even in the year of your move. The U.S. will not tax any prior unrealized gains if recognized after 10 years of residence in Puerto Rico. You had no significant connection to the US during the tax year. The tax home test is the most straightforward of the three. they want to find a way to legally avoid the overbearing US tax rules, while not necessarily expatriating and renouncing their US citizenship. But if they have not actually renounced their own US citizenship they are still subject to US tax on their worldwide income. Before they will exempt you from regular U.S. tax obligations, the IRS must determine that you have truly made Puerto Rico your home. Plus, you are obliged to donate at least $10,000 USD to charity. Under Act 60s Investor Resident Individual Tax Incentive (formerly Act 22), an eligible individual investor can receive a 100% tax exemption on interest, dividends, short- and long-term capital gains, and gains on crypto-based assets acquired after moving. Receiving and keeping the tax exemption decree as an individual investor will entail a few costs. Flights to and from Puerto Rico are considered domestic flights, a distinction shared in the Caribbean by only one other island chain: the US Virgin Islands. 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 . Thus, with the tools provided by this Code, this Administration shall keep boosting the economy and attracting private capital to the Island. When filling out the form, you will need to refer to the detailed instructions, which are based on the bona fide residency rules outlined in Publication 570. Puerto Rico is a US territory, and as such, all you need to visit is a Real ID-compliant driver's license or another form of photo identification. Additional small fees may apply. 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. 2 This income also would be excluded from Puerto Rican income tax. Giving up your connection to organizations in the US is also not mandatory, but it is recommended to make connections with Puerto Rico organizations to establish ties in the local community. 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. This means that Puerto Rico should be your primary place or residence or your primary place of employment. Then, under a law referred to as Act 60 (formerly Act 20 and Act 22), Puerto Rico has enacted several tax incentives, the two most popular of which are as follows: a Puerto Rican corporation that's engaged in certain types of service businesses only pays Puerto Rican tax of 4%. Furthermore, the property must remain your primary residence for as long as the decree remains in force. In other words, a tax home is your main place of business, employment, or post of duty, according to IRS rules. Consulting companies, auditing firms, marketing businesses, and more are eligible business types. 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. As you might suspect, its easier to satisfy this requirement if you move to Puerto Rico during the first part of the year. Physical . 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