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. The purpose of Puerto Rico Incentives Code 60 is to promote investment in Puerto Rico by providing investment residents with tax breaks. In this blog we will highlight some of the major steps you need to take to qualify for Puerto Rico's Act 22. For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) Requirements Individual Investors must meet the following requirements: . Act 52-2022 expands and clarifies the existing compliance rules under Act 60-2019. Even if youre only in Puerto Rico for an hour on a certain day, that counts as being present in Puerto Rico. 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. To qualify for the exemptions, you must become a bonafide resident of Puerto Rico. 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. 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. Act 20 allows corporations that export services from the island to pay only 4 percent . Physical . 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. 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. The non-profit charitable contribution requirement which was previously at $5,000 has been increased to $10,000. The IRS is primarily concerned about how much time a decree holder spends in Puerto Rico compared to in the United States, so feel free to travel abroadjust be wary of how much time you spend in the US. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. Second, to pass the tax home test, you must not keep a tax home outside of Puerto Rico at any time. Would you like to find out more about how to get residency in 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 Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. 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. This comes out to $5,110 in application fees and an ongoing $15,005 in annual report filing fees and charitable contributions. 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. Just be sure to comply with the presence test, the tax home test, the closer connection test, and the residence test if this is the right move for you. You dont need to satisfy them allsatisfying just a single one is sufficient. 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. For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) 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 . (b) Appreciation after becoming a Resident Individual of Puerto Rico. Puerto Rico Act 60: How You Can Lower Your Federal and State Tax Rates Under the Resident Tax Incentive Code October 13, 2022 The Tax Incentive Code, known as "Act 60", provides tax exemptions to businesses and investors that relocate to, or are established in, Puerto Rico. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. Consulting companies, auditing firms, marketing businesses, and more are eligible business types. Under Chapter 2 of Act 60 . The IRS offers five different conditions a decree holder can use to fulfill the presence requirement for bona fide residency. 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. In June 2019, Puerto Rico made substantial changes to its tax incentives that came into effect on January 1, 2020. Golding & Goldingspecializes exclusivelyin international tax, and specificallyIRS offshore disclosure. 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. It is important to understand what is excluded for tax purposes and what is not excluded under Puerto Rico Incentives Code 60. Initial consultations 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. 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. 2 This income also would be excluded from Puerto Rican income tax. You must spend more time in Puerto Rico than the US during the tax year. 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. (a) Appreciation Before Becoming a Resident Individual of Puerto Rico. Many companies opt to become C Corporations because of the special tax advantages associated with this status. It has only one requirement: do not have a tax home outside of Puerto Rico during any part of the tax year. Puerto Rico's Act 60: 30% tax on first $100,000 = $30,000 and 4% of $400,000 = $16,000, for a total tax of $46,000. doing business in Puerto Rico. Fortunately, the IRS provides a special exemption for that first year. 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. Upon approval, you will be required to pay a one-time $5,000 acceptance fee. If you leave your family in the US, it will be quite difficult to pass the closer connection test, unless you satisfy all the other requirements listed. 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. Foreign Earned Income Exclusion: 0% tax on first $100,000 and 35% tax on $400,000 = $140,000. 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 before becoming a Resident Individual of Puerto Rico, which appreciation is recognized ten (10) years after becoming a Resident Individual of Puerto Rico and before January 1, 2036, shall be subject to a five percent (5%) tax, in lieu of any other tax imposed under the Puerto Rico Internal Revenue Code and shall not be subject to the alternate basic tax provided in Subsection A of the Puerto Rico Internal Revenue Code. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. Are you wondering how exactly your business will benefit from relocating to Puerto Rico? Your tax home is the jurisdiction in which your primary place of employment is located. To qualify as a resident of Puerto Rico, an individual must essentially pass 3 key tests as follows. 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. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. This is because the Commonwealth of Puerto Rico is an unincorporated territory of the United States. What It Means to Be a Resident of Puerto Rico. Lets clarify what we mean when we say these tax breaks apply only to exported services. There are always exceptions, exclusions, and limitations to be aware of. If youve invested in stocks, securities, or cryptocurrency, this may still be a great move for you. And since its generous tax incentives are only available to bona fide residents, enjoying the wonders of a Puerto Rican life is imperative. Golding & Golding, A PLC (2023): LawDog Enterprises - All Rights Reserved - No Legal Advice Intended: This website includes information about legal issues and legal developments. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. 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. Puerto Rico remains keenly interested in attracting high-net-worth individuals and businesses to stimulate economic growth. When US taxpayers begin researching how to relinquish their US status, oftentimes they will come across Puerto Rico. If you're a US citizen or legal resident, no. 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. To benefit from the tax advantages under Act 60-2019 (detailed below) an individual must purchase property in Puerto Rico within 2 years. they want to find a way to legally avoid the overbearing US tax rules, while not necessarily expatriating and renouncing their US citizenship. Theyve also found that Puerto Rico is convenient, with many regular flights to the mainland, plentiful U.S. retailers, and a U.S.-based legal system. 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. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. . 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. 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. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. 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). PRelocates expert team members are ready to field your questions and are as knowledgeable as they are friendly. 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. 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. In addition, the Individual Investor must become a resident of Puerto Rico no later than December 31, 2035. 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. 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. Residents of Puerto Rico can also enjoy a high quality of life with a year-round warm climate and breathtakingly beautiful surroundings. Local government has legislated a series of incentives to attract investment, of which EB-5 Visa program participants can also take advantage. purposes only and may not reflect the most current legal developments. 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. * *This is primarily an issue for US Citizens who do not have citizenship elsewhere. A person must meet extensive rules and requirements to qualify for the favorable tax treatment available to residents of Puerto Rico. Additional small fees may apply. 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. The IRS's new campaign addresses taxpayers who have claimed benefits through Puerto Rico Act 60, without meeting the requirements of section 937, Residence and Source Rules Involving Possessions. 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. 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. It means that the Act 60 was designed to promote the development into Puerto Rico through private investment from outside sources. Most Puerto Rico investors who apply for Act 60 or Act 22 must donate to a Puerto Rico charity each year. */. if an individual is granted Puerto Rico tax exemption under the act, long term gains as a result of investments made after becoming a resident will be exempt from tax in Puerto Rico. Consulting with a tax advisor would be a good idea as well. And, if it the income is sourced in Puerto Rico, it would escape tax in the U.S. as well. This gives them more leeway to develop their own innovative tax laws, separate and distinct from US federal/state tax law. Discover: Best Places to Buy Property in Puerto Rico. Its a great bargain. These free travel days encompass travel outside of the United States but effectively mean that a degree holder need only spend 153 days in Puerto Rico, as long as the extra 30 days are spent outside of the US. First and foremost, there are some significant tax benefits. 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. Therefore, there are multiple ways to satisfy the requirements of the presence test. 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 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? PUERTO RICO 787.759.9292 MIAMI 305-677-6626 MCVPR.COM . Like with Act 22 donations, the nonprofit entities must operate in Puerto Rico and not be run by the investor or their family, spouse, or partner. Your benefits should not be affected even if there are amendments to the legislation during the term of this agreement. Creation of Jobs Requirements Businesses with an annual volume, actual or projected, more than three million dollars equivalent; Manufacturing, three . 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. Puerto Rico Residency Requirements Benefits of Puerto Rico Residency Find Out More. When a US person obtains a Golden Visa, they have a second passport (CBI) or travel privileges (RBI). 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. 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). 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. Can a citizen or permanent resident of the USA live in Puerto Rico? The contributions of the companies under the Act 20/22 have a positive impact on the local economy. 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: Puerto Rico seeks to move away from its historical focus on manufacturing and become a major services exporter. 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. The first of the three tests is perhaps the most complicated. 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. Form 8898 is used to officially declare the beginning or cessation of bona fide residency in a U.S. possession, determined by the three above-mentioned tests. What does this mean? 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 . Act 60 investors must also submit their donation before December 31 and present proof in their annual report in May. 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. Note: there is no charity requirement for business owners if you chose not to . If the unrecognized gain is US-sourced, it will still generally be taxable in the US despite Puerto Rico Incentives Code 60. 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. It gets a bit more complicated if your C Corporation does business in both Puerto Rico and the United States. Think about how your business can flourish with such a low tax burden. 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. We put together this guide for property buyers considering relocating to Puerto Rico and wondering how to qualify for residency for tax purposes. Plus, you are obliged to donate at least $10,000 USD to charity. The Resident Tax Incentive Code, known as "Act 60" provides tax exemptions to businesses and investors that relocate to, or are established in, Puerto Rico. Conditions (1) through (5) above do not apply to nonresident aliens of the United States. 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. There are many advantages to becoming a resident of Puerto Rico. 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. Lets explore the tax implications of Puerto Rico Incentives Code 60 (Prior Acts 20/22) including pitfalls and tripwires for US individuals to be aware of before relocating to Puerto Rico. PRelocate is an Official Qualified Promoter with Puerto Ricos Department of Commerce and will save you time and money with a hassle-free relocation. When applying as an individual investor, you must pay a one-time filing fee of $5,005 USD. The three tests are the presence test, the tax home test, and the closer connection test. Basically, to satisfy the tax home test, keep your officeor your home, as the case may bein Puerto Rico. That way, you can satisfy all the tests and achieve bona fide residency even in the year of your move. Additional requirements may apply to provide proof of bona fide PR residency-IRS Form 8898. How you choose to pass the closer connections test depends on your individual circumstances, but you should aim to build up a life in Puerto Rico to the best of your ability. You were present in the United States for no more than 90 days during the tax year. During each year of the 3-year period, you must be present in the relevant territory for at least 60 days. 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. However, individuals deriving income for services performed within Puerto . Tax Exemption Period Act 60. 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. 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. 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. 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. We elaborate on that at the end of the post. As you can see, Puerto Ricos enormous Act 60 tax benefits greatly exceed the relatively small costs and inconveniences of relocation. To explore your options in more detail, please contact 7th Heaven Properties, the Luxury Caribbean Property Specialist. The purpose of these measures is to provide incentives to individuals who have not been residents of Puerto Rico to become residents. You were present in Puerto Rico for at least 549 days in the three-year period of the current tax year and the two previous tax years and were in Puerto Rico for at least 60 days in each tax year during that 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 . /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. *This is primarily an issue for US Citizens who do not have citizenship elsewhere. This is ensured by Act 60-2019 (formerly known as Act 22). A flat 4% corporate tax rate In 2012, Puerto Rico had passed two laws intended to make the island a "global investment destination.". 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. Puerto Rico Tax Compliance Guide By TCG, Torres CPA Group, CifrasPR, Torres & Soto Tax . Therefore, there are multiple ways to satisfy the requirements of the presence test. 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 Governor of Puerto Rico has enacted Act 52 of 30 June 2022 (Act 52-2022), which allows companies to elect a 10.5% tax on industrial development income from sales of goods and services instead of the 4% excise tax on foreign corporations, which the latest United States (US) foreign tax credit rules do not consider creditable. Act 52-2022 requires Puerto Rico resident individuals to report financial accounts that are held outside of Puerto Rico or outside of the United States and had a balance over $10,000 during the tax year. Contrary to popular belief, just getting a Golden Visa without further action does not reduce an Americans tax liability. TAX EXEMPTION DECREE To keep track of your presence days, download our Day Tracker Tool. Rather, the US person has to become a Bona-Fide Resident of Puerto Rico. Passing the Presence Test 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. You had no significant connection to the United States during the tax year. Such materials are for informational In order to encourage the transfer of such individuals to . 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. Keep a tax home test, and limitations to be aware of has one. Both Puerto Rico, the tax advantages under Act 60-2019 ( formerly known as 22... 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