This assumes you're using an offshore company and thus not subject to Self Employment Tax in the United States. To explore your options in more detail, please contact 7th Heaven Properties, the Luxury Caribbean Property Specialist. The term 'resident individual' means an individual who is domiciled in Puerto Rico. Have no significant connection to the USA during the tax year. 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. It means that the Act 60 was designed to promote the development into Puerto Rico through private investment from outside sources. Fourth, to pass the residence test, youll need to buy property in Puerto Rico to use as your principal residence within two years of obtaining this special tax decree. In addition, the income derived by a Resident Individual Investor after becoming a resident of Puerto Rico, but before January 1, 2036, consisting of interest, financing charges, dividends or partnership interest received from International Banking Entities authorized under the Banking Center Act, shall be fully exempt from income taxes in Puerto Rico, including the alternate basic tax provided in the Puerto Rico Internal Revenue Code. Puerto Rico Incentives Code 60 for prior Acts 20/20: Many high-net worth Taxpayers are (understandably) upset about the massive U.S. taxes levied on their employment, investment, and corporate income. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. There are many advantages to becoming a resident of Puerto Rico. 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. 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. PRelocates expert team members are ready to field your questions and are as knowledgeable as they are friendly. 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. Puerto Rico Tax Incentives Act 60 Resident Investor Individual Chapter 2 of Subtitle B, formerly Act 22. Physical . 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. Under Chapter 2 of Act 60 . When applying as an individual investor, you must pay a one-time filing fee of $5,005 USD. Local government has legislated a series of incentives to attract investment, of which EB-5 Visa program participants can also take advantage. Second, to pass the tax home test, you must not keep a tax home outside of Puerto Rico at any time. We hope this comprehensive look at Puerto Ricos tax incentives and requirements under Act 60 will help inform your decision on whether to relocate. Especially favorable tax incentives are possible for those who relocate to the island because of a key piece of legislation known as Act 60. permanent residence, Puerto Rico, Real Estate, residency, Caribbean Citizenship by Investment Real Estate. A nonresident alien individual (as defined in section 7701(b)(1)(B)) satisfies the requirements of this paragraph (c) for a taxable year if during that taxable year that individual satisfies the substantial presence test of 301.7701(b)-1(c) of this chapter (except for the substitution of the name of the relevant possession for the term United States where appropriate). PUERTO RICO 787.759.9292 MIAMI 305-677-6626 MCVPR.COM . Executed lease or transfer of title-proof of real estate ownership is required. attorney to discuss your specific facts and circumstances and to obtain advice on specific legal problems. */, Export Services Tax Incentive For Businesses, 100% tax exemption on distributions from earnings and profits, 75% tax exemption on municipal and state property taxes (small and medium businesses can receive a 100% exemption during their first five years of operation), To qualify, the business model must be concentrated around exporting services outside of Puerto Rico. Find out how to become resident in Puerto Rico, from the requirements to the tax advantages of living in this tropical US territory. 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. 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. Additional requirements may apply to provide proof of bona fide PR residency-IRS Form 8898. The Incentives Code consolidates various tax decrees, incentives, subsidies, and benefits, including . 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. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. All of these benefits and so much more can be yours if you relocate to Puerto Rico. If saving big on income taxes while soaking up the sun on a U.S.-owned Caribbean island sounds like a dream life to you, relocating to Puerto Rico under the Act 60 tax exemptions may be right for you. Furthermore, the property must remain your primary residence for as long as the decree remains in force. If your export-service company is conducting its activities inside Puerto Rico, it may be eligible for substantial benefits that apply to income received from customers outside of Puerto Rico. You had earned income in the United States of no more than a total of $3,000 and were present for more days in the relevant territory than in the United States during the tax year. The first of the three tests is perhaps the most complicated. Even if youre only in Puerto Rico for an hour on a certain day, that counts as being present 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. Are you wondering how exactly your business will benefit from relocating to Puerto Rico? 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. 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 . If that sounds ideal to you, read on for a brief overview of the benefits Puerto Ricos Act 60 offers. 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. If you think passing the tax home test during the first year of your move to Puerto Rico sounds difficult, youre right. 4. Bona fide resident of Puerto Rico. Finally, exceptions are available for special circumstances, such as medical treatment or disasters. The Department of Economic Development and Commerce (DDEC), as . For example, the salaries of owners and employees are tax deductible. 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. 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. 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. First and foremost, that means becoming a bona fide resident of Puerto Rico. Golding & Goldingspecializes exclusivelyin international tax, and specificallyIRS offshore disclosure. In order to promote investment into Puerto Rico, they developed Act 60 to attract high net-worth individuals and businesses. This applies to the primary place where you work and create value. If youve invested in stocks, securities, or cryptocurrency, this may still be a great move for you. 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. Conditions (1) through (5) above do not apply to nonresident aliens of the United States. We elaborate on that at the end of the post. Your benefits should not be affected even if there are amendments to the legislation during the term of this agreement. 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. and representation are limited. 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. First, youll pay a one-time $5,005 application fee along with a $105 acceptance fee. For detailed information directly from the IRS about the residency tests, consult Publication 570. 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. Not be present in the USA for more than 90 days during the tax year. * *This is primarily an issue for US Citizens who do not have citizenship elsewhere. The restrictions may have been modified to require only that the investor have spent more time in Puerto Rico than any other single place in the world. 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. All three are easy to satisfy if you truly commit to a new life in Puerto Rico. The core motivation of the IRS in administering the, The first of the three tests is perhaps the most complicated. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. 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. 257 of December 10, 2018, which introduced significant amendments to the Puerto Rico Internal Revenue Code ("Puerto Rico Code"); and Act No. That way, you can satisfy all the tests and achieve bona fide residency even in the year of your move. 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. To become a bona fide resident of Puerto Rico, as defined in Section 937 of the Internal Revenue Code, individuals must . 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. Of important consequence is the fact that the person cannot have a closer connection to the United States or a second tax home. 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. 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). For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) You are a bona fide resident of Puerto Rico for the year of your move plus the two proceeding years. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. 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. If you do not have a primary or regular place of employment, your tax home is considered to be your primary place of residence. Act 60 ensures that this grant will remain a binding contract between you and the Puerto Rican government for at least 15 years. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. 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. 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; } they want to find a way to legally avoid the overbearing US tax rules, while not necessarily expatriating and renouncing their US citizenship. A person will be considered a bona fide resident of Puerto Rico under Section 933 if he/she (1) passes a physical presence test; (2) is not a tax resident outside of Puerto Rico during the tax year; and (3) has no closer connection to the United States or any country other than Puerto Rico. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. However, individuals deriving income for services performed within Puerto . With beautiful, sunny weather, a vibrant Hispanic culture, and generally lower prices than in the mainland, Puerto Rico offers more than just tax savings. Article 7 of Act 22 protects those trusts created by Act 22 grantees from the forced inheritance provisions of the Puerto Rico Civil Code. 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: The territory boasts hundreds of miles of golden sand beaches, world-class golf courses and excellent conditions for all kinds of water sports such as scuba diving and snorkeling, surfing, kayaking and paddle boarding. 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. Of course not. To benefit from the tax advantages under Act 60-2019 (detailed below) an individual must purchase property in Puerto Rico within 2 years. 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