The purpose of Puerto Rico Incentives Code 60 is to promote investment in Puerto Rico by providing investment residents with tax breaks. We elaborate on that at the end of the post. Resident Engineer (Construction) About the Position: Incumbent will serve as the Resident Engineer under the general supervision of the Area Engineer. Are you wondering how exactly your business will benefit from relocating to Puerto Rico? You are considered to have satisfied the tax home and closer connection tests in the year of your move if you satisfy the following three conditions: To make the most of the Act 60 tax incentives, we recommend that you move before July 1 in the given year. Ultimately, you can satisfy the closer connection test however works best for you and your circumstances, but fully committing to a new life in Puerto Rico is the simplest solution. A flat 4% corporate tax rate Finally, exceptions are available for special circumstances, such as medical treatment or disasters. Local government has legislated a series of incentives to attract investment, of which EB-5 Visa program participants can also take advantage. 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. 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. A Puerto Rico resident is an individual who is domiciled in Puerto Rico. A C Corporation is separate from its owners. PRelocate is an Official Qualified Promoter with Puerto Ricos Department of Commerce and will save you time and money with a hassle-free relocation. The owner must also take out a reasonable salary for him- or herself, which is subject to normal Puerto Rico income tax rates. Feb. 9, 2023, 1:45 AM. You did not have more than $3,000 in earned income (defined as pay for personal services performed, such as wages, salaries, or professional fees) in the US during the tax year and were present in Puerto Rico for more days than in the US. 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. To be a bona fide resident of Puerto Rico: Legally avoiding the 37% federal rate and the 13.3% California (or other state) rate is a jaw-dropping benefit . Luckily, you can take your pick from a huge selection of quality housing on the island. For example, the salaries of owners and employees are tax deductible. 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. Special rule for nonresident aliens. Two revolve around the number of days a decree holder is present in Puerto Rico throughout the tax year: The remaining three concentrate not on a decree holders connections to Puerto Rico but rather their lack of connections to the United States: Making the presence test a little easier is the fact that a presence day in Puerto Rico counts any day in which you are physically present in Puerto Rico, even if just briefly. Its an updated version of Act 20 and Act 22, which Puerto Rico passed in 2012 to attract outside investment and boost economic development on the island. All three are easy to satisfy if you truly commit to a new life in Puerto Rico. This property must be the individuals primary residence and not rented out. Puerto Rico's Acts 20 & 22, tax incentive laws make living and working in Puerto Rico more enticing than ever before for U.S. Citizens. As you might suspect, its easier to satisfy this requirement if you move to Puerto Rico during the first part of the year. In this blog we will highlight some of the major steps you need to take to qualify for Puerto Rico's Act 22. 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. 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. 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 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. 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. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. Therefore, there are multiple ways to satisfy the requirements of the presence test. Its recommended to sell or rent out your home in the US, which will not only significantly help pass the closer connection test but also provide some extra cash. 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. 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. 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. *Paragraph C refers to the Presence Test. . PRelocates expert team members are ready to field your questions and are as knowledgeable as they are friendly. 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. Passing Puerto Ricos bona fide residency tests may seem tough, but if you truly move your whole life to Puerto Rico, its not that difficult. 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. Act 52-2022 expands and clarifies the existing compliance rules under Act 60-2019. Puerto Rico voter registration is required. Each year, the island welcomes new, ambitious Americans and others who wish to keep more of their money while enjoying the island lifestyle Puerto Rico offers. Don't Pass Up a Lucrative Life in Puerto Rico And, if it the income is sourced in Puerto Rico, it would escape tax in the U.S. as well. Act 22 - The Individual Investors Act "Before I spent 30 percent of my time thinking about taxes, and now I don't have to do that." - John Helmers, Act 22 Resident, Money Manager, CEO Long Focus Capital. You were not present in the US for more than 90 days during the tax year. 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. Therefore, there are multiple ways to satisfy the requirements of the presence test. 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. Thirdly, an individual should not have a closer connection to the USA or to a foreign country than to Puerto Rico. It means that under Puerto Rico Incentives Code 60, 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. Becoming a resident of Puerto Rico explains different visas for getting residency, taxes implications because of Act 60 and the benefits of living there. 5%, if such gain is recognized after said 10-year period. If you're a US citizen or legal resident, no. 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. 2 This income also would be excluded from Puerto Rican income tax. 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. Only one of the following conditions must be true: To be counted as present in Puerto Rico, you must be physically present on the island during any part of the day. You were present in the relevant territory for at least 183 days during the tax year. Executed lease or transfer of title-proof of real estate ownership is required. Many companies opt to become C Corporations because of the special tax advantages associated with this status. If such appreciation is recognized at any other time, 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. The contributions of the companies under the Act 20/22 have a positive impact on the local economy. Puerto Rico is a great investment opportunity, because it does not require a passport for US citizens and it does not require the US citizen to expatriate in order to gain the tax benefits under Acts 20 and 22 (combined into Act 60) but, is it really that easy? 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. 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. 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. The tax home test is the most straightforward of the three. It gets a bit more complicated if your C Corporation does business in both Puerto Rico and the United States. If the unrecognized gain is US-sourced, it will still generally be taxable in the US despite Puerto Rico Incentives Code 60. Nov. 8, 2019, 10:00 AM. */, 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. To qualify for the exemptions, you must become a bonafide resident of Puerto Rico. Charitable donations as well as renting, repairing, and maintaining facilities may yield additional tax breaks. 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. Initial consultations 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. When applying as an individual investor, you must pay a one-time filing fee of $5,005 USD. Would you like to find out more about how to get residency in Puerto Rico? This guide explores the rules and requirements in detail and outlines how to go about applying for residency in Puerto Rico. 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. Financial accounts include bank accounts, crypto asset accounts, certain insurance policies or investment accounts. 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. Thanks to this code, your income sourced from Puerto Rico can be exempt from both federal and state taxes. *This is primarily an issue for US Citizens who do not have citizenship elsewhere. 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. Planning Tip: Puerto Rico income is not taxable in the US but the US still taxes the individual on their worldwide income (other than Puerto Rico Income under IRC 933). 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. 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. PUERTO RICO 787.759.9292 MIAMI 305-677-6626 MCVPR.COM . Note that you may only receive 30 free days of international travel if you fulfill the following conditions: Certain exemptions also apply. 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. Golding & Golding, A PLC (2023): LawDog Enterprises - All Rights Reserved - No Legal Advice Intended: This website includes information about legal issues and legal developments. You must own it yourself or jointly with a spouse. Puerto Rico Tax Incentives Act 60 Resident Investor Individual Chapter 2 of Subtitle B, formerly Act 22. Note that those who were already residents of Puerto Rico during the 10 years before their move are not eligible for this tax incentive. Consulting with a tax advisor would be a good idea as well. Puerto Rico Residency Requirements Benefits of Puerto Rico Residency Find Out More. We look forward to helping you find your perfect property in Puerto Rico. The closer connection test is perhaps the most reliable in determining your loyalty to Puerto Rico. If your C Corporation conducts its business in Puerto Rico, then dividends paid to shareholders will be taxed at 0%. Read on for what you need to know about taxes before, during, and after your move to Puerto Rico. You'll 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. 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. Carlos Fontn, director of the DDEC's office of business incentives in Puerto Rico, said in April, the agency began the first . 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. 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. If the unrecognized gain is US-sourced, it will still generally be taxable in the US despite Puerto Rico Incentives Code 60. Bona fide residency is the benchmark to determine commitment to the island, and it is measured by three tests: the presence test, the tax home test, and the closer connection test. 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; } 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. Chapter 3 of Act 60-2019 - Export Services Tax Incentive. 2. */, 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. 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. 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. Passing the Presence Test To recap, under Puerto Ricos Act 60 tax incentives, you and your business may be eligible for staggering tax savings if you adhere to the requirements. As a US territory, Puerto Rico has a unique tax climate. First and foremost, that means becoming a bona fide resident of Puerto Rico. Commit to Puerto Rico, and passing the residency tests will be fairly easy. Residents can also benefit from 75% exemption on property tax and construction taxes. 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. You must acquire a grant of tax exemption by applying through Puerto Ricos Industrial Tax Exemption Office. 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. Then, youll be required to file an annual report each year along with a $300 fee. Puerto Rico now requires the individual to purchase residential property within the first two years of becoming a resident. With the Act 60 Export Services Tax Incentive (formerly Act 20), it may only have to pay 4% corporate income tax. If youre unclear on whether youll meet this requirement, check out our Day Tracker Tool. 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. If you are a U.S. citizen or resident alien, you will satisfy the presence test for the tax year if you meet one of the following conditions. 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. 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 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. 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. TIP. they want to find a way to legally avoid the overbearing US tax rules, while not necessarily expatriating and renouncing their US citizenship. 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). Physical . We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. 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. attorney to discuss your specific facts and circumstances and to obtain advice on specific legal problems. 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. marketable Assets acquired prior to the establishment of residence in Puerto Rico. The Incentives Code consolidates various tax decrees, incentives, subsidies, and benefits, including . 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. 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. 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. To keep track of your presence days, download our Day Tracker Tool. Only one of the following conditions must be true: You were present in Puerto Rico for at least 183 days in the tax year. One of these is the low 4% corporate tax rate we touched on earlier. 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. If youve invested in stocks, securities, or cryptocurrency, this may still be a great move for you. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. Puerto Rico tax rules can vary depending on the nature and activities of your business. With fewer close connections to the U.S. mainland, youll minimize your risk of an IRS audit. 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). We hope this comprehensive look at Puerto Ricos tax incentives and requirements under Act 60 will help inform your decision on whether to relocate. Generally, you are a bona fide resident of one of these territories (the relevant territory) if, during the tax year, you: What is important to note is that US Persons do not use the standard , While Puerto Rico is considered part of the United States, it is not a state, The individual cannot have been a resident of Puerto Rico for, The non-profit charitable contribution requirement which was previously at $5,000 has been, Puerto Rico now requires the individual to, 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. 3. Its a requirement. Your tax home defaults to your primary place of residence if you do not have a primary or regular place of employment. 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. Act 52-2022 requires Puerto Rico resident individuals to report financial accounts that are held outside of Puerto Rico or outside of the US and had a balance over $10,000 during the tax year. When filling out the form, you will need to refer to the detailed instructions, which are based on the bona fide residency rules outlined in Publication 570. 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. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. 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. Your tax home is the jurisdiction in which your primary place of employment is located. . Puerto Rico operates with some independent from the US government. Sometimes, effective tax planning can help avoid these taxes. If you think this test sounds impossible to satisfy for the year of your move, thats why the IRS offers a special exemption for the year of your move only. 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 US citizens who are not dual-citizens and have been US citizens from birth, the idea of giving up their citizenship can be overwhelming. 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. 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. If your company provides services connected to commercial activities on the island or gives advice regarding the laws and regulations of Puerto Rico, it is not providing export services, because there is a 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. Noting, the Puerto Rico BFR rules are not the same as the Substantial Presence Test BFR rules but the concept is the same. 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. The term 'resident individual' means an individual who is domiciled in Puerto Rico. A Puerto Rican driver's license is required. This means that Puerto Rico should be your primary place or residence or your primary place of employment. 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. 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 . 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. What are Puerto Rico Tax Incentives Under New Act 60 (20/22). Its a great bargain. There are always exceptions, exclusions, and limitations to be aware of. It has only one requirement: do not have a tax home outside of Puerto Rico during any part of the tax year. You dont need to satisfy them allsatisfying just a single one is sufficient. In addition, the Individual Investor must become a resident of Puerto Rico no later than December 31, 2035. Act 20 offers entities a 4% corporate rate on business . Under GILTI, the minimum tax for any US-owned CFC is 10.5% (max 21%). Contrary to popular belief, just getting a Golden Visa without further action does not reduce an Americans tax liability. 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. However, you cant qualify unless you establish residency on the island. 1 Puerto Rico Resident CFC & PFIC Tax Planning 2 Puerto Rico Act 60 Can Shapeshift and Terminate 3 Avoiding CFC Status in Puerto Rico has Strict Requirements 4 Other CFCs are still subject to 5471, GILTI and Subpart F 5 Foreign Income is Still Taxable 6 Puerto Rico Trust are Foreign (Even if Accounts and Assets are not) 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. 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. 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