This tax haven can easily save taxpayers hundreds of thousands of dollars per year (or more) in federal taxes! A C Corporation is separate from its owners. In 2012, Puerto Rico had passed two laws intended to make the island a "global investment destination.". How do I become a resident of Puerto Rico? If youd like to know more about the qualifying tests, consult IRS Publication 570. 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). 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. However, if your C Corporation derives its revenue from the United States, dividends will be subject to regular federal taxes. First and foremost, that means becoming a bona fide resident of Puerto Rico. These services must not have a connection with Puerto Rico. As a U.S. territory, Puerto Rico is subject to tax rules that are different from those of U.S. states. 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. 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. Only, For detailed information directly from the IRS about the residency tests, consult, Educators and Trainers Can See Big Tax Breaks in Puerto Rico Under Act 60, Puerto Rico Tax Incentives: Young Entrepreneurs, 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? 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. Article 7 of Act 22 protects those trusts created by Act 22 grantees from the forced inheritance provisions of the Puerto Rico Civil Code. Under Act 60, an eligible business includes export services and commerce. 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. Youll also use Form 8898 to inform the IRS of your new residency status. For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) Noting, the Puerto Rico BFR rules are not the same as the Substantial Presence Test BFR rules but the concept is the same. 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). Executed lease or transfer of title-proof of real estate ownership is required. 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. Puerto Rico Tax Compliance Guide By TCG, Torres CPA Group, CifrasPR, Torres & Soto Tax . 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. This means that Puerto Rico should be your primary place or residence or your primary place of employment. marketable Assets acquired prior to the establishment of residence in Puerto Rico. Thus, with the tools provided by this Code, this Administration shall keep boosting the economy and attracting private capital to the Island. 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. Neither you nor your relatives can control these nonprofit entities. *This is primarily an issue for US Citizens who do not have citizenship elsewhere. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. If you have decided to make the move and take advantage of Puerto Ricos generous tax incentives, make sure youre really committed. 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? 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. As you can see, Puerto Ricos enormous Act 60 tax benefits greatly exceed the relatively small costs and inconveniences of relocation. Owners of existing businesses can qualify for the Act 60 business tax incentives in one of two ways: Youll have to pay a one-time fee of $750 when you file your initial application. 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. You are a bona fide resident of Puerto Rico for the year of your move plus the two proceeding years. 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. In more ways than one, starting a new life in Puerto Rico can be the best investment you ever make. Weve covered the main ones, but take a look at all of these additional tax incentives that may also apply, depending on the nature of your business. When a US person obtains a Golden Visa, they have a second passport (CBI) or travel privileges (RBI). 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). The tax home test is the most straightforward of the three. 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. 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. It has only one requirement: do not have a tax home outside of Puerto Rico during any part of the tax year. The non-profit charitable contribution requirement which was previously at $5,000 has been increased to $10,000. The tax incentives enjoyed by Individual Resident Investors in Puerto Rico are perhaps the most impressive of all Puerto Rican tax incentives: Just keep in mind that to qualify for these generous incentives, you must become a bona fide resident of Puerto Rico, which involves spending the majority of your time in Puerto Rico, making Puerto Rico your tax home, and establishing closer connections in Puerto Rico than in the US. However, in the case of Puerto Rico, all the above tax and other benefits are legally available to residents of Puerto Rico without having to renounce US citizenship. Lets take the example of a C Corporation, which the IRS recognizes as an independent legal entity. 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. Not earn more than $3,000 in earned income in the USA during the tax year and be present in Puerto Rico for more days than in the USA. First, youll pay a one-time $5,005 application fee along with a $105 acceptance fee. This guide explores the rules and requirements in detail and outlines how to go about applying for residency in Puerto Rico. Of important consequence is the fact that the person cannot have a closer connection to the United States or a second tax home. If your C Corporation conducts its business in Puerto Rico, then dividends paid to shareholders will be taxed at 0%. Even if youre only in Puerto Rico for an hour on a certain day, that counts as being present in Puerto Rico. If the unrecognized gain is US-sourced, it will still generally be taxable in the US despite Puerto Rico Incentives Code 60. Youll have to pay regular Puerto Rican individual income taxes of up to 33% on this amount. You did not maintain a tax home outside of Puerto Rico for the last 183 days of the year. Those of Act 22 on average pay 12 times more than most taxpayers in PR. 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. 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. The core motivation of the IRS in administering the, The first of the three tests is perhaps the most complicated. Many companies opt to become C Corporations because of the special tax advantages associated with this status. 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. Residency in Puerto Rico The Guide from 7th Heaven Properties, Can a citizen or permanent resident of the USA live in Puerto Rico? Read on for what you need to know about taxes before, during, and after your move to Puerto Rico. 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. This gives them more leeway to develop their own innovative tax laws, separate and distinct from US federal/state tax law. You must spend more time in Puerto Rico than the US during 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 term 'resident individual' means an individual who is domiciled in Puerto Rico. The territory offers some of the most luxurious real estate in the Caribbean, ranging from lavish homes overlooking the ocean to stunning contemporary beachfront condominium residences. 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. Financial accounts include bank accounts, crypto asset accounts, certain insurance policies or investment accounts. Think about how your business can flourish with such a low tax burden. Would you like to find out more about how to get residency in Puerto Rico? Puerto Rico is a US territory, and as such, all you need to visit is a Real ID-compliant driver's license or another form of photo identification. 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. As provided by Puerto Rico Incentives Code 60: What does this mean? /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. The IRS will also consider factors such as where your immediate family members and personal belongings are located, where you are registered to vote, and where you hold your drivers license. As you might suspect, its easier to satisfy this requirement if you move to Puerto Rico during the first part of the year. 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. As the US taxes citizens on their worldwide income, some individuals have felt the need to renounce their US citizenship and move abroad to minimize their tax burden. 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. 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? Second, to pass the tax home test, you must not keep a tax home outside of Puerto Rico at any time. */. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. 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. Under Act 60s Investor Resident Individual Tax Incentive (formerly Act 22), an eligible individual investor can receive a 100% tax exemption on interest, dividends, short- and long-term capital gains, and gains on crypto-based assets acquired after moving. Act 60 ensures that this grant will remain a binding contract between you and the Puerto Rican government for at least 15 years. 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. We elaborate on that at the end of the post. You were present in the United States for no more than 90 days 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. Discover: Best Places to Buy Property in Puerto Rico. Lets explore each of these in greater detail. Its a requirement. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. 2. 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; } The most important consideration for the IRS is that you spend more time in Puerto Rico than in the rest of the United States. Before they will exempt you from regular U.S. tax obligations, the IRS must determine that you have truly made Puerto Rico your home. 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