If you are aiming to satisfy the presence test by spending at least 549 days within a three-year period in Puerto Rico, you still must be physically present in Puerto Rico for 60 days per year. 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. Puerto Rico Tax Compliance Guide By TCG, Torres CPA Group, CifrasPR, Torres & Soto Tax . (b) Appreciation after becoming a Resident Individual of Puerto Rico. Have no significant connection to the USA during the tax year. 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. Act 20 offers entities a 4% corporate rate on business . The three tests are the presence test, the tax home test, and the closer connection test. The core motivation of the IRS in administering the, The first of the three tests is perhaps the most complicated. Lets clarify what we mean when we say these tax breaks apply only to exported services. Carlos Fontn, director of the DDEC's office of business incentives in Puerto Rico, said in April, the agency began the first . Your benefits should not be affected even if there are amendments to the legislation during the term of this agreement. 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. 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. For taxable years after December 31, 2016, said capital gain shall be considered income from sources outside of Puerto Rico for purposes of the income tax provided in the Puerto Rico Internal Revenue Code. Thirdly, an individual should not have a closer connection to the USA or to a foreign country than to 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? 1. Under certain conditions, you can also satisfy the presence test if you were located in Puerto Rico for at least 549 days during the current year and the preceding two years. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. 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. Nov. 8, 2019, 10:00 AM. These services must not have a connection with Puerto Rico. What are Puerto Rico Tax Incentives Under New Act 60 (20/22). 957(c)(1) a bona fide resident of Puerto Rico is not treated as a U.S. person (as defined in Sec. Resident Engineer (Construction) About the Position: Incumbent will serve as the Resident Engineer under the general supervision of the Area Engineer. Rather, the US person has to become a Bona-Fide Resident of Puerto Rico. TAX EXEMPTION DECREE 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. */. Your tax home is the jurisdiction in which your primary place of employment is located. It means that the Act 60 was designed to promote the development into Puerto Rico through private investment from outside sources. A flat 4% corporate tax rate Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. All three are easy to satisfy if you truly commit to a new life in Puerto Rico. Of important consequence is the fact that the person cannot have a closer connection to the United States or a second tax home. 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. Residents can also benefit from 75% exemption on property tax and construction taxes. For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) As provided by Puerto Rico Incentives Code 60: This Code is approved with the conviction that it shall improve Puerto Rico's economic competitiveness. Bona fide resident of Puerto Rico. During each year of the 3-year period, you must be present in the relevant territory for at least 60 days. 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; } Likewise, the incentives offered shall be continuously reviewed in order to identify those that are not cost-effective and to strengthen those that have proven to have an impact and which generate a return on investment for the Treasury. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. 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. If you wish, you can follow in their footsteps and escape some of the worst ravages of 2022s surging inflation and anemic economic growth by moving to this low-tax haven. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. The non-profit charitable contribution requirement which was previously at $5,000 has been increased to $10,000. First and foremost, there are some significant tax benefits. In more ways than one, starting a new life in Puerto Rico can be the best investment you ever make. The purpose of Puerto Rico Incentives Code 60 is to promote investment in Puerto Rico by providing investment residents with tax breaks. permanent residence, Puerto Rico, Real Estate, residency, Caribbean Citizenship by Investment Real Estate. 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. Puerto Rico seeks to move away from its historical focus on manufacturing and become a major services exporter. Would you like to find out more about how to get residency in Puerto Rico? Creation of Jobs Requirements Businesses with an annual volume, actual or projected, more than three million dollars equivalent; Manufacturing, three . You should contact an If youd like to know more about the qualifying tests, consult IRS Publication 570. 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. Keep in mind that as the owner of an export-service company, you must pay yourself a reasonable salary based on the services you provide. 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. 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. Then, youll be required to file an annual report each year along with a $300 fee. 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. 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. According to Act 60-2019 (known as the "Puerto Rico Incentives Code") which replaces various historical incentives including Acts 20 and 22, residents of Puerto Rico can enjoy a 4% flat income tax rate and freedom from taxes on capital gains, dividends, interest and royalties. 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. Additional requirements may apply to provide proof of bona fide PR residency-IRS Form 8898. 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 . For detailed information directly from the IRS about the residency tests, consult Publication 570. Act 60. Most Puerto Rico investors who apply for Act 60 or Act 22 must donate to a Puerto Rico charity each year. Act 60 offers a corporate tax rate of 4% to Puerto Rican companies that export services performed in the territory to people or companies . As you can see, Puerto Ricos enormous Act 60 tax benefits greatly exceed the relatively small costs and inconveniences of relocation. Note that you may only receive 30 free days of international travel if you fulfill the following conditions: Certain exemptions also apply. With fewer close connections to the U.S. mainland, youll minimize your risk of an IRS audit. Puerto Rican and foreign companies created investments that transform and accelerate economic development in Puerto Rico thanks to Act 60. 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. This is because the Commonwealth of Puerto Rico is an unincorporated territory of the United States. For all of the Puerto Rico tax incentives, it is necessary to ensure you understand and monitor compliance with residency requirements. If thats the case, the IRS will treat your primary residence as your tax home. The portion of the net long-term capital gain generated by a Resident Individual Investor attributable to any appreciation of the Securities or other Assets owned by such Resident Individual Investor. A Puerto Rican driver's license is required. Discover: Best Places to Buy Property in Puerto Rico. Generally, you are a bona fide resident of one of these territories (the relevant territory) if, during the tax year, you: Do not have a tax home outside the relevant territory, and, Do not have a closer connection to the United States or to a foreign country than to the relevant territory. 4. 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. 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 . The former Governor of Puerto Rico, Ricardo Rossell, signed Act 60-2019, commonly known as the Puerto Rico Incentives Code, into law on July 1, 2019, which came into effect on January 1, 2020. The territory offers some of the most luxurious real estate in the Caribbean, ranging from lavish homes overlooking the ocean to stunning contemporary beachfront condominium residences. 2 This income also would be excluded from Puerto Rican income tax. Passing the Presence Test 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. Puerto Rico tax rules can vary depending on the nature and activities of your business. You had no significant connection to the US during the tax year. If you're a US citizen or legal resident, no. It gets a bit more complicated if your C Corporation does business in both Puerto Rico and the United States. 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. You dont need to satisfy them allsatisfying just a single one is sufficient. Consulting companies, auditing firms, marketing businesses, and more are eligible business types. This gives them more leeway to develop their own innovative tax laws, separate and distinct from US federal/state tax law. 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 fully exempt from income taxes in Puerto Rico, including the alternate basic tax provided in the Puerto Rico Internal Revenue Code. All of these benefits and so much more can be yours if you relocate to 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. To enjoy this lifestyle and benefit from the tax incentives under Act 60-2019 (the Puerto Rico Incentives Code), individuals should be aware of the complex rules and the various residency requirements which now include buying property in Puerto Rico within a defined time period. 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. Act 52-2022 expands and clarifies the existing compliance rules under Act 60-2019. 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.