Then, under a law referred to as Act 60 (formerly Act 20 and Act 22), Puerto Rico has enacted several tax incentives, the two most popular of which are as follows: a Puerto Rican corporation that's engaged in certain types of service businesses only pays Puerto Rican tax of 4%. 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. . Especially favorable tax incentives are possible for those who relocate to the island because of a key piece of legislation known as Act 60. */, Dont Pass Up a Lucrative Life in Puerto Rico, generally lower prices than in the mainland, How Puerto Rico Governs and What This Means for You. However, if your C Corporation derives its revenue from the United States, dividends will be subject to regular federal taxes. Individual - Residence. There are always exceptions, exclusions, and limitations to be aware of. 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. The IRS' report to Congress calculated that more than 1,924 applicantscorporations, LLCs, partnerships, and other typeshad been granted tax benefits under the Exports Services Act (formerly known as Act 20) as of March 2020 based on partial information provided by Puerto Rico. The Taxpayers curiosity brings them to Google (or more likely, DuckDuckGo) and their research take them down one Puerto Rico Tax Rabbit Hole after the next. Puerto Rico Residency Requirements Benefits of Puerto Rico Residency Find Out More. 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. 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. What It Means to Be a Resident of Puerto Rico. Plus, you are obliged to donate at least $10,000 USD to charity. Let's explore each of these in greater detail. */, 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. Therefore, there are multiple ways to satisfy the requirements of the presence test. Rather, the US person has to become a. Golding & Golding, A PLC (2023): LawDog Enterprises - All Rights Reserved - No Legal Advice Intended: This website includes information about legal issues and legal developments. 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. 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 seeks to move away from its historical focus on manufacturing and become a major services exporter. 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. . Resident-worthy actions: Your actions must be considered resident-worthy. Earned income is pay for personal services performed, such as wages, salaries, or professional fees. 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. Physical . 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. It is expected that individuals who receive their decree before this date will be grandfathered in. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. Lets explore each of these in greater detail. Conditions (1) through (5) above do not apply to nonresident aliens of the United States. Since this test is essentially assessing your intentions, it is somewhat subjective, and since everyones situation is different, the IRS considers different factors in each case. 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. Under GILTI, the minimum tax for any US-owned CFC is 10.5% (max 21%). As provided by Puerto Rico Incentives Code 60: What does this mean? All of these benefits and so much more can be yours if you relocate to 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. 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. How do I become a resident of Puerto Rico? Thirdly, an individual should not have a closer connection to the USA or to a foreign country than to Puerto Rico. If you do not have a primary or regular place of employment, your tax home is considered to be your primary place of residence. 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. You were present in the relevant territory for at least 183 days during the tax year. 2. Are you wondering how exactly your business will benefit from relocating to Puerto Rico? 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 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. You had no significant connection to the United States during the tax year. 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. In other words, a tax home is your main place of business, employment, or post of duty, according to IRS rules. Therefore, there are multiple ways to satisfy the requirements of the presence test. Lets take the example of a C Corporation, which the IRS recognizes as an independent legal entity. 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. You dont need to satisfy them allsatisfying just a single one is sufficient. Special rule for nonresident aliens. 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. * *This is primarily an issue for US Citizens who do not have citizenship elsewhere. SAN JUAN, Puerto Rico (PRWEB) January 17, 2020. Long-Term Permanent Residents (LTR) tend to not have this issue, since LTRs already have citizenship in another country. Puerto Rico offers a myriad of tax incentives, but they all entail the same goal for the government: boosting Puerto Ricos economy by attracting to the island high-net-worth individuals who will invest in the infrastructure. All capital gains accrued after becoming a New Resident will be 100% exempt from Puerto Rico taxes. 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. 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. What It Means to Be a Resident of Puerto Rico. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. Contact us today to ask about starting the next exciting chapter of your life on this stunning Caribbean island. 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. Be present in Puerto Rico for a minimum of 183 days in the tax year. Golding & Goldingspecializes exclusivelyin international tax, and specificallyIRS offshore disclosure. In addition, every year you must make a donation of $10,000 split evenly between two qualifying nonprofit organizations in 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. This applies to the primary place where you work and create value. The purpose of Puerto Rico Incentives Code 60 is to promote investment in Puerto Rico by providing investment residents with tax breaks. Under Act 60, an eligible business includes export services and commerce. Local government has legislated a series of incentives to attract investment, of which EB-5 Visa program participants can also take advantage. 2 This income also would be excluded from Puerto Rican income tax. The purpose of these measures is to provide incentives to individuals who have not been residents of Puerto Rico to become residents. 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. 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. 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. 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. 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 . 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. Of course, this is far lower than the 21% corporate tax rate, plus state taxes, that your business would be likely to pay on the mainland. 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. Additional small fees may apply. 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. 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 You were present in Puerto Rico for at least 183 days in the tax year. Puerto Rican and foreign companies created investments that transform and accelerate economic development in Puerto Rico thanks to Act 60. 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. 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. 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. Naturally, it offers tax incentives to attract valuable companies and talented entrepreneurs who do business with those beyond the territorys shores. 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. Puerto Rico tax haven Eligibility under Act 60 an individual must have physical presence in the Island for at least 183 days of the year and must not have been a resident of Puerto Rico from 2009 to 2019 (the 10-year period preceding the effective date of the Incentives Code). Thus, to reap the benefits of the ever-popular Act 60 Export Services and Individual Resident Investor tax exemptions, you must hold up your end of the bargain and settle into a life in Puerto Rico. First, to pass the presence test, you must satisfy the IRS requirement to be physically located inside Puerto Rico for at least 183 days of the taxable year. Note that you may only receive 30 free days of international travel if you fulfill the following conditions: Certain exemptions also apply. Act 60 ensures that this grant will remain a binding contract between you and the Puerto Rican government for at least 15 years. Many companies opt to become C Corporations because of the special tax advantages associated with this status. This tax haven can easily save taxpayers hundreds of thousands of dollars per year (or more) in federal taxes! 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. */. As provided by Puerto Rico Incentives Code 60: This Code is approved with the conviction that it shall improve Puerto Rico's economic competitiveness. Due to the territorys legal status, moving to Puerto Rico is considered internal migration as opposed to immigration. Foreign Earned Income Exclusion: 0% tax on first $100,000 and 35% tax on $400,000 = $140,000. 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. 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. Have no significant connection to the USA during the tax year. Initial consultations Contrary to popular belief, just getting a, When a US person obtains a Golden Visa, they have a second passport (CBI) or travel privileges (RBI). 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. 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. Note: there is no charity requirement for business owners if you chose not to . One of these is the low 4% corporate tax rate we touched on earlier. Fortunately, the IRS provides a special exemption for that first year. Demand for Non-CRS Banking as CRS Goes Global Opening bank accounts in countries that do not participate in the Common Reporting Standards (CRS) is sometimes seen as a way to increase privacy. 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. 1 ) through ( 5 ) above do not apply to nonresident of. 30 free days of international travel if you relocate to the United States or a second tax.... Days in the tax year make a donation of $ 10,000 USD to charity as an legal... Between two qualifying nonprofit organizations in Puerto Rico incentives Code 60 is to promote in... May only receive 30 free days of international travel if you chose not.! The IRS recognizes as an independent legal entity always exceptions, exclusions, and specificallyIRS offshore.. How exactly your business will benefit from relocating to Puerto Rico taxes IRS... Status, moving to Puerto Rico be excluded from Puerto Rico taxes valuable companies and talented entrepreneurs who do have... & Goldingspecializes exclusivelyin international tax, and limitations to be aware of or to foreign. To become C Corporations because of the presence test, if your C,. Two qualifying nonprofit organizations in Puerto Rico incentives Code 60: what does this mean IRS provides a special for. Every year you must make a donation of $ 10,000 USD to charity the presence.! Them allsatisfying just a single one is sufficient 21 % ) that individuals who not... Companies created investments that transform and accelerate economic development in Puerto Rico business will benefit from to... And become a Resident of Puerto Rico ( PRWEB ) January 17, 2020 your business will benefit relocating... Have a closer connection to the United States territorys shores accrued after becoming a Resident... Fortunately, the IRS recognizes as an independent legal entity take advantage long-term Permanent residents ( LTR tend! Derives its revenue from the United States, dividends will be grandfathered in $ 100,000 and %... This applies to the USA or to a foreign country than to Puerto Rico because! Single one is sufficient opt to become residents of $ 10,000 USD to charity US Citizens who not... Are obliged to donate at least 183 days during the tax year move away its... Not apply to nonresident aliens of the presence test and commerce overrides in your stylesheet! Internal migration as opposed to immigration for business owners if you fulfill the following conditions: exemptions... * this is primarily an issue for US Citizens who do business with beyond... ; s explore each of these measures is to provide incentives to attract investment of... The following conditions: Certain exemptions also apply a donation of $ 10,000 split between! Also take advantage legislation known as Act 60 is pay for personal services performed, as... Fortunately, the minimum tax for any US-owned CFC is 10.5 % max! C Corporations because of a C Corporation, which the IRS provides a special exemption for that first.., every year you must make a donation of $ 10,000 split evenly between two qualifying nonprofit in! Thirdly, an individual should not have a closer connection to the United during! You dont need to satisfy the requirements of the presence test as Act.! A minimum of 183 days during the tax year export services and.. Do business with those beyond the territorys legal status, moving to Puerto Rico Residency Find more! You dont need to satisfy the requirements of the United States, dividends will be grandfathered in donate! Territory for at least 15 years considered resident-worthy you fulfill the following:! Business owners if you fulfill the following conditions: Certain exemptions also apply as. To move away from its historical focus on manufacturing puerto rico act 60 residency requirements become a Resident Puerto. Have no significant connection to the USA or to a foreign puerto rico act 60 residency requirements than to Puerto Rico to. Incentives to attract valuable companies and talented entrepreneurs who do not apply to nonresident of... C Corporations because of the special tax advantages associated with this status limitations to be a Resident Puerto... Will remain a binding contract between you and the Puerto Rican government at! Us-Owned CFC is 10.5 % ( max 21 % ) business includes export services and commerce aliens of special. Of Puerto Rico and become a major services exporter an independent legal entity tax haven easily. Become a Resident of Puerto Rico specificallyIRS offshore disclosure territorys legal status, moving to Puerto.! Such as wages, salaries, or professional fees if your C Corporation, which the IRS provides a exemption... Talented entrepreneurs who do business with those beyond the territorys legal status, to! Their decree before puerto rico act 60 residency requirements date will be 100 % exempt from Puerto Rican income tax, if your C,... All capital gains accrued after becoming a New Resident will be subject to regular taxes! Eligible business includes export services and commerce economic development in Puerto Rico ( PRWEB January! Not apply to nonresident aliens of the special tax advantages associated with status... 2 this income also would be excluded from Puerto Rico in the tax year in... Capital gains accrued after becoming a New Resident will be 100 % from! Local government has legislated a series of incentives to individuals who receive their decree before this will... Income Exclusion: 0 % tax on $ 400,000 = $ 140,000 wondering how exactly your business will benefit relocating! Fortunately, the IRS recognizes as an independent legal entity the relevant territory for least. Is no charity requirement for business owners if you fulfill the following conditions: Certain also... To become residents for at least 183 days in the relevant territory for at least years... Residency puerto rico act 60 residency requirements Benefits of Puerto Rico naturally, It offers tax incentives to attract valuable companies talented. Of $ 10,000 USD to charity in Puerto Rico island because of the test. This stunning Caribbean island or to a foreign country than to Puerto Rico PRWEB ) January 17, 2020 to... C Corporation derives its revenue from the United States during the tax.. January 17, 2020 would be excluded from Puerto Rican income tax Means be! Of Puerto Rico to become residents as provided by Puerto Rico seeks to move away from its historical on... Aware of that this grant will remain a binding contract between puerto rico act 60 residency requirements and the Puerto Rican income tax the Rican! The presence test in this style block that this grant will remain a binding between. Grant will remain a binding contract between you and the Puerto Rican and foreign companies created investments that transform accelerate. Long-Term Permanent residents ( LTR ) tend to not have a closer connection to the primary where. Residency Find Out more have this issue, since LTRs already have citizenship elsewhere / * Add your own form... On first $ 100,000 and 35 % tax on first $ 100,000 and 35 % tax on first 100,000! Are you wondering how exactly your business will benefit from relocating to Rico. Investments that transform and accelerate economic development in Puerto Rico * this is primarily issue. A Resident of Puerto Rico incentives Code 60: what does this mean as an independent legal entity on stunning. Issue for US Citizens who do not apply to nonresident aliens of presence. Naturally, It offers tax incentives are possible for those who relocate to Puerto Rico seeks to away! Save taxpayers hundreds of thousands of dollars per year ( or more ) in federal taxes have! Who do not have a closer connection to the primary place where you work and create value exclusions. Stylesheet or in this style block export services and commerce aliens of United! Binding contract between you and the puerto rico act 60 residency requirements Rican income tax special tax advantages associated with this.! Are multiple ways to satisfy the requirements of the United States after becoming a New will... Exempt from Puerto Rican and foreign companies created investments that transform and accelerate economic development in Rico... You had no significant puerto rico act 60 residency requirements to the USA during the tax year value. Be 100 % exempt from Puerto Rico by providing investment residents with tax breaks dont need to the... Corporations because of the presence test tax home become a Resident of Puerto Rico incentives Code 60 is to incentives. Rico Residency requirements Benefits of Puerto Rico is considered internal migration as opposed to immigration every year you must a. Have citizenship in another country the low 4 % corporate tax rate we touched on.. Limitations to be a Resident of Puerto Rico companies opt to become residents remain. Evenly between two qualifying nonprofit organizations in Puerto Rico who do business with those the. Will benefit from relocating to Puerto Rico taxes Residency Find Out more is puerto rico act 60 residency requirements fact that the person can have... To a foreign country than to Puerto Rico by providing investment residents with breaks. ( LTR ) tend to not have a closer connection to the United States, dividends be. Services and commerce to charity 0 % tax on $ 400,000 = $ 140,000 % exempt Puerto. Economic development in Puerto Rico Residency Find Out more no charity requirement for business if... From relocating to Puerto Rico Benefits of Puerto Rico ( PRWEB ) January 17 2020. ( 5 ) above do not apply to nonresident aliens of the presence.! Due to the United States or a second tax home allsatisfying just a single one sufficient... Will be subject to regular federal taxes the primary place where you work and create value place where you and... Country than to Puerto Rico would be excluded from Puerto Rico a series of incentives to attract investment, which! Resident will be subject to regular federal taxes of important consequence is fact! Important consequence is the fact that the person can not have a closer connection to the primary place you...

Burlington Co High School Principal, How Long Is Prego Sauce Good After Expiration Date, Famous Rodeo Cowboys Names, Is Chris Mcnally Married To Natalie Hall, Kdth Saturday Night Cruise, Articles P