A Puerto Rican driver's license is required. 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. 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. We elaborate on that at the end of the post. Act 20 offers entities a 4% corporate rate on business . Be present in Puerto Rico for a minimum of 183 days in the tax year. It means that the Act 60 was designed to promote the development into Puerto Rico through private investment from outside sources. 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. Individual - Residence. With the right structuring, one could essentially lower their effective tax rate from as high as 50% or more to 0% under the right circumstances, by moving to the island. However, if your C Corporation derives its revenue from the United States, dividends will be subject to regular federal taxes. 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; } To benefit from the tax advantages under Act 60-2019 (detailed below) an individual must purchase property in Puerto Rico within 2 years. If that sounds ideal to you, read on for a brief overview of the benefits Puerto Ricos Act 60 offers. The presence test also grants you 30 automatic presence days of international travel (i.e., travel not to the US) per tax year, which means you actually only need to be present in Puerto Rico for 153 days per year as long as you are traveling outside of the US. 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. 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 . No Article, Blog Post or Page may be reproduced or used without express written consent of Golding & Golding. https://nomadcapitalist.com/Puerto Rico Act 60 Real Estate Tax Incentives for individual investors is becoming increasingly popular among US persons looking . 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 tax rules can vary depending on the nature and activities of your business. This gives them more leeway to develop their own innovative tax laws, separate and distinct from US federal/state tax law. 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. As a basic overview, heres what you have to do to pass the three tests to establish bona fide residency in Puerto Rico: Capital gains accrued prior to your move to Puerto Rico are treated differently depending on when they are recognized: There is a $750 fee due with your application, which you are to submit to the Office of Industrial Tax Exemption. Fortunately, the IRS provides a special exemption for that first year. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. 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. Residents can also benefit from 75% exemption on property tax and construction taxes. 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. 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. * *This is primarily an issue for US Citizens who do not have citizenship elsewhere. 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. Qualified businesses can also receive a 100% tax exemption on distributions from earnings and profits, a 50% tax exemption on municipal taxes, and a 75-100% tax exemption on municipal and state property taxes. 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). Selling or renting out your home in the US is also a good idea, as not having a home readily available in the US will certainly boost your standing in the assessment of a closer connection. As provided by Puerto Rico Incentives Code 60: This Code is approved with the conviction that it shall improve Puerto Rico's economic competitiveness. In more ways than one, starting a new life in Puerto Rico can be the best investment you ever make. Its a requirement. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. 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. Therefore, it is important to note that the Taxpayer must plan to try to keep their income sourced in Puerto Rico to avoid any unnecessary pitfalls. However, individuals deriving income for services performed within Puerto . 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. 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. 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. Even if youre only in Puerto Rico for an hour on a certain day, that counts as being present in Puerto Rico. Would you like to find out more about how to get residency in Puerto Rico? 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. The first of the three tests is perhaps the most complicated. In order to promote investment into Puerto Rico, they developed Act 60 to attract high net-worth individuals and businesses. 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. This incentive is available to any individual that wasn't a bona fide resident of Puerto Rico between January 17, 2006, and January 17, 2012 (these dates have varied at different times and should be confirmed at the time of application to confirm eligibility) and moves to PR. 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. All capital gains accrued after becoming a New Resident will be 100% exempt from Puerto Rico taxes. The amount of the net long- term capital gain shall be limited to the portion of the gain related to the appreciation of the Securities or other Assets while the Resident Individual Investor resided outside of Puerto Rico. If you're a bona fide resident of Puerto Rico during the entire tax year, you generally aren't required to file a U.S. federal income tax return if your only income is from sources within Puerto Rico. Puerto Rico enjoys fiscal autonomy, which means that it can offer very attractive tax incentives not available on the mainland U.S., with the advantages of being in a U.S. environment. 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? and representation are limited. Youll want to keep meticulous records to ensure you dont jeopardize your eligibility for these generous Act 60 tax benefits. You were not a bona fide resident of Puerto Rico in any of the three tax years immediately preceding the tax year of the move. 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. 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. This means that Puerto Rico should be your primary place or residence or your primary place of employment. 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. 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. 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. Lets take the example of a C Corporation, which the IRS recognizes as an independent legal entity. 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). Consulting companies, auditing firms, marketing businesses, and more are eligible business types. Puerto Rico seeks to move away from its historical focus on manufacturing and become a major services exporter. To qualify as a resident of Puerto Rico, an individual must essentially pass 3 key tests as follows. TIP. 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 . 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. All of these benefits and so much more can be yours if you relocate to Puerto Rico. Long-Term Permanent Residents (LTR) tend to not have this issue, since LTRs already have citizenship in another country. For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) Such materials are for informational PUERTO RICO 787.759.9292 MIAMI 305-677-6626 MCVPR.COM . You were present in Puerto Rico for at least 183 days in the tax year. 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. 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). Act 22 (as amended by Act 60 of 2019), also known as The Individual Investors Act, was approved by the Legislative Assembly of Puerto Rico during 2012. The purpose of Puerto Rico Incentives Code 60 is to promote investment in Puerto Rico by providing investment residents with tax breaks. 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. For detailed information directly from the IRS about the residency tests, consult Publication 570. 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. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. This is ensured by Act 60-2019 (formerly known as Act 22). What are Puerto Rico Tax Incentives Under New Act 60 (20/22). 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