*/. 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. 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. Puerto Ricos bona fide residency tests may seem intimidating, but if youre dedicated to starting fresh in the USs sunny Caribbean island territory, the tests are simple. What does this mean? 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. 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. This applies to the primary place where you work and create value. It has only one requirement: do not have a tax home outside of Puerto Rico during any part of the tax year. Only one of the following conditions must be true: You were present in Puerto Rico for at least 183 days in the tax year. 2 This income also would be excluded from Puerto Rican income tax. 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. 3. Tax Exemption Period Act 60. 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. 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 must own it yourself or jointly with a spouse. Puerto Rico Residency Requirements Benefits of Puerto Rico Residency Find Out More. 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. Lets clarify what we mean when we say these tax breaks apply only to exported services. To be a bona fide resident of Puerto Rico: While it is meant to test your residency in Puerto Rico, the key concern of the IRS is that you are not spending a lot of time in the US. There are always exceptions, exclusions, and limitations to be aware of. The goal of tax planning is to legally limit, minimize, and if possible, avoid US tax while also avoiding a tax fraud audit (eggshell or reverse eggshell) or special agent investigation. 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). 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. Its no surprise that thousands of Americans who have moved to the island have been thrilled with the tax breaks that have saved them millions of dollars. Think about how your business can flourish with such a low tax burden. If your C Corporation conducts its business in Puerto Rico, then dividends paid to shareholders will be taxed at 0%. First, youll pay a one-time $5,005 application fee along with a $105 acceptance fee. Not be present in the USA for more than 90 days during the tax year. Act 52-2022 expands and clarifies the existing compliance rules under Act 60-2019. 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. 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. In this blog we will highlight some of the major steps you need to take to qualify for Puerto Rico's Act 22. 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. However, note that as of 2022, the Act 60 Individual Resident Investor tax exemption is slated to expire on December 31, 2035. 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. 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. 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. With fewer close connections to the U.S. mainland, youll minimize your risk of an IRS audit. 257 of December 10, 2018, which introduced significant amendments to the Puerto Rico Internal Revenue Code ("Puerto Rico Code"); and Act 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. If youre unclear on whether youll meet this requirement, check out our Day Tracker Tool. Thus, with the tools provided by this Code, this Administration shall keep boosting the economy and attracting private capital to the Island. Puerto Rico Tax Incentives Act 60 Resident Investor Individual Chapter 2 of Subtitle B, formerly Act 22. To be defined as a bona fide resident of Puerto Rico, an individual must be able to demonstrate that he/she satisfies 3 key residency requirements relating to the individuals presence in Puerto Rico, having a tax home in Puerto Rico and having closer connections to the territory than anywhere else. Feb. 9, 2023, 1:45 AM. 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. There are many advantages to becoming a resident of Puerto Rico. This comes out to $5,110 in application fees and an ongoing $15,005 in annual report filing fees and charitable contributions. Are you wondering how exactly your business will benefit from relocating to Puerto Rico? Lets traverse some of the key points of act 22 for Individuals (Act 20 is for Businesses) (now combined into act 60) as it relates to individuals and investments to US residents who relocate to Puerto Rico and become a bona fide resident (citations refer directly to the act). permanent residence, Puerto Rico, Real Estate, residency, Caribbean Citizenship by Investment Real Estate. In order to promote investment into Puerto Rico, they developed Act 60 to attract high net-worth individuals and businesses. 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. Youd be hard-pressed to find a better value home than a U.S. territory that offers a 4% corporate income tax and 0% capital gains tax, among many other benefits. Your tax home is considered to be where your primary or regular place of employment or post of duty is, regardless of where you reside. Currently, such an eligible business with a tax exemption decree in Puerto Rico under Act 60 will enjoy a: 4% income tax rate (2% for 5 years for small businesses, or 1% for pioneer activity) 100% income tax exemption on dividends or profits generated Rather, the US person has to become a Bona-Fide Resident of Puerto Rico. The Code shall create a simple, streamlined, and efficient process that focuses on the client, and shall earn the trust of the people and the private sector by having a transparent process for the granting of incentives. To avoid penalties, this would require a transfer pricing analysis and intercompany agreements to determine the share of profits realized in Puerto Rico vs. on the mainland, as laid out in this guide. 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. they want to find a way to legally avoid the overbearing US tax rules, while not necessarily expatriating and renouncing their US citizenship. 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. In order to encourage the transfer of such individuals to . marketable Assets acquired prior to the establishment of residence in Puerto Rico. Puerto Rico now requires the individual to purchase residential property within the first two years of becoming a resident. This means that Puerto Rico should be your primary place or residence or your primary place of employment. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. For all of the Puerto Rico tax incentives, it is necessary to ensure you understand and monitor compliance with residency requirements. 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. For example, if you leave Puerto Rico to receive or accompany a parent, spouse, child, or stepchild to receive a qualifying medical treatment, you are still counted as present in Puerto Rico. What It Means to Be a Resident of Puerto Rico. Have no significant connection to the USA during the tax year. If youd like to know more about the qualifying tests, consult IRS Publication 570. 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. To qualify as a resident of Puerto Rico, an individual must essentially pass 3 key tests as follows. 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. Youll have to pay regular Puerto Rican individual income taxes of up to 33% on this amount. 957(c)(1) a bona fide resident of Puerto Rico is not treated as a U.S. person (as defined in Sec. 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. Best Places to Buy Property in Puerto Rico. Its a requirement. What does this mean? Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. The tax home test is far more straightforward than the presence test and only encompasses a single condition: maintain your tax home in Puerto Rico throughout the entire tax 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. 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. Legally avoiding the 37% federal rate and the 13.3% California (or other state) rate is a jaw-dropping benefit . Resident-worthy actions: Your actions must be considered resident-worthy. 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. Physical . Plus, you are obliged to donate at least $10,000 USD to charity. When a US person obtains a Golden Visa, they have a second passport (CBI) or travel privileges (RBI). 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. Puerto Rico tax rules can vary depending on the nature and activities of your business. Then, youll be required to file an annual report each year along with a $300 fee. How do I become a resident of Puerto Rico? The contributions of the companies under the Act 20/22 have a positive impact on the local economy. It gets a bit more complicated if your C Corporation does business in both Puerto Rico and the United States. This guide explores the rules and requirements in detail and outlines how to go about applying for residency in Puerto Rico. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. With the Act 60 Export Services Tax Incentive (formerly Act 20), it may only have to pay 4% corporate income tax. https://nomadcapitalist.com/Puerto Rico Act 60 Real Estate Tax Incentives for individual investors is becoming increasingly popular among US persons looking . Thousands of Americans have already made the move to Puerto Rico, enjoying a 0% income tax rate on capital gains or a 4% corporate tax rate for their business while indulging in the excitement of Puerto Rican culture and cuisine. One of these is the low 4% corporate tax rate we touched on earlier. 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