Plus, you are obliged to donate at least $10,000 USD to charity. 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. 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. 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. For all of the Puerto Rico tax incentives, it is necessary to ensure you understand and monitor compliance with residency requirements. Citizenship: The most straightforward qualification is the requirement to be a citizen of the United States, living in Puerto Rico. Under Act 60, an eligible business includes export services and commerce. All capital gains accrued after becoming a New Resident will be 100% exempt from Puerto Rico taxes. 4. Incumbent will receive assignments in the form of plans and specification covering work to be accomplished by contractors and schedules for completion of the construction work.Qualifications: Who . A Puerto Rican driver's license is required. 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. Promotion of Puerto Rico as a residency jurisdiction Prevalence of non-resident options via IFEs (discussed below) 1. 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. You were present in the United States for no more than 90 days during the tax year. The factors that the IRS considers when determining whether you have maintained a closer connection to Puerto Rico than the US during the tax year include the following: Essentially, to pass the closer connection test, you need to move your entire life to Puerto Rico, including your family. 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. With fewer close connections to the U.S. mainland, youll minimize your risk of an IRS audit. 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. Charitable donations as well as renting, repairing, and maintaining facilities may yield additional tax breaks. Before they will exempt you from regular U.S. tax obligations, the IRS must determine that you have truly made Puerto Rico your home. 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). Conditions (1) through (5) above do not apply to nonresident aliens of the United States. 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. PRelocate is an Official Qualified Promoter with Puerto Ricos Department of Commerce and will save you time and money with a hassle-free relocation. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. But if they have not actually renounced their own US citizenship they are still subject to US tax on their worldwide income no matter where they reside. Theyve been delighted to experience the rich culture, delicious food, and wonderful tropical sightseeing opportunities found in Puerto Rico. Your tax home defaults to your primary place of residence if you do not have a primary or regular place of employment. Consulting with a tax advisor would be a good idea as well. With the Act 60 Export Services Tax Incentive (formerly Act 20), it may only have to pay 4% corporate income tax. 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. Don't Pass Up a Lucrative Life in Puerto Rico First and foremost, that means becoming a bona fide resident of Puerto Rico. Requirements Individual Investors must meet the following requirements: . With the right structuring, one could essentially lower their effective tax rate from as high as 50% or more to 0% under the right circumstances, by moving to the island. https://nomadcapitalist.com/Puerto Rico Act 60 Real Estate Tax Incentives for individual investors is becoming increasingly popular among US persons looking . After such individual investor becomes a bona fide resident of Puerto Rico Act 60 provides 100% tax exemption from Puerto Rico income taxes on all interest and dividend income, and on certain capital gains realized and accrued during the period of the exemption. 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. You are a bona fide resident of Puerto Rico for the year of your move plus the two proceeding years. 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. Puerto Rican and foreign companies created investments that transform and accelerate economic development in Puerto Rico thanks to Act 60. 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 IRS offers five different conditions a decree holder can use to fulfill the presence requirement for bona fide residency. Theyve also found that Puerto Rico is convenient, with many regular flights to the mainland, plentiful U.S. retailers, and a U.S.-based legal system. 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. 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. Bona fide resident of Puerto Rico. 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. Upon approval, you will be required to pay a one-time $5,000 acceptance fee. You can follow one of two paths to make this happen: a total relocation of your business or partial relocation of it to 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. You should contact an 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. Local government has legislated a series of incentives to attract investment, of which EB-5 Visa program participants can also take advantage. Residents can also benefit from 75% exemption on property tax and construction taxes. This means that Puerto Rico should be your primary place or residence or your primary place of employment. they want to find a way to legally avoid the overbearing US tax rules, while not necessarily expatriating and renouncing their US citizenship. 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. 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. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. 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. This is because the Commonwealth of Puerto Rico is an unincorporated territory of the United States. . 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. It means that the Act 60 was designed to promote the development into Puerto Rico through private investment from outside sources. You were not present in the US for more than 90 days during the tax year. Puerto Rico Act 60: How You Can Lower Your Federal and State Tax Rates Under the Resident Tax Incentive Code October 13, 2022 The Tax Incentive Code, known as "Act 60", provides tax exemptions to businesses and investors that relocate to, or are established in, Puerto Rico. Fortunately, the IRS provides a special exemption for that first year. Long-Term Permanent Residents (LTR) tend to not have this issue, since LTRs already have citizenship in another country. Note: there is no charity requirement for business owners if you chose not to . Many companies opt to become C Corporations because of the special tax advantages associated with this status. * *This is primarily an issue for US Citizens who do not have citizenship elsewhere. As a U.S. territory, Puerto Rico is subject to tax rules that are different from those of U.S. states. Feb. 9, 2023, 1:45 AM. 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). A Puerto Rico resident is an individual who is domiciled in Puerto Rico. 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. 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. Puerto Rico Service Exporters Must Document Well to Avoid IRS Ire. Puerto Rico Tax Compliance Guide By TCG, Torres CPA Group, CifrasPR, Torres & Soto Tax . This is ensured by Act 60-2019 (formerly known as Act 22). */, 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. You must acquire a grant of tax exemption by applying through Puerto Ricos Industrial Tax Exemption Office. Additional requirements may apply to provide proof of bona fide PR residency-IRS Form 8898. Individual Investor must not have been a resident of Puerto Rico during any of the 10 years prior to the effective date of Act 60 (July 1st, 2019). 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. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. 2. During each year of the 3-year period, you must be present in the relevant territory for at least 60 days. 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. 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. Entrepreneurs can save with a 4% corporate tax rate. The requirements to qualify under Act 60 include a $10,000 USD annual donation to a charity, the purchase of real estate within a time frame of two years, and filing a yearly report to the . Note that those who were already residents of Puerto Rico during the 10 years before their move are not eligible for this tax incentive. 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. Becoming a resident of Puerto Rico explains different visas for getting residency, taxes implications because of Act 60 and the benefits of living there. The closer connection test can be tricky for some Act 60 decree holders to satisfy because its subjective and offers no hard guidelines on fulfillment. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. 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. How do I become a resident of Puerto Rico? To keep track of your presence days, download our Day Tracker Tool. Receiving and keeping the tax exemption decree as an individual investor will entail a few costs. 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. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. Rather, the US person has to become a Bona-Fide Resident of Puerto Rico. 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. Tax Exemption Period Act 60. Contrary to popular belief, just getting a Golden Visa without further action does not reduce an Americans tax liability. Its a requirement. Long-Term Permanent Residents (LTR) tend to not have this issue, since LTRs already have citizenship in another country. You were present in Puerto Rico for at least 183 days in the tax year. 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 explore your options in more detail, please contact 7th Heaven Properties, the Luxury Caribbean Property Specialist. 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. Lets explore each of these in greater detail. 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. If the unrecognized gain is US-sourced, it will still generally be taxable in the US despite Puerto Rico Incentives Code 60. And, if it the income is sourced in Puerto Rico, it would escape tax in the U.S. as well. Can a citizen or permanent resident of the USA live in Puerto Rico? This guide explores the rules and requirements in detail and outlines how to go about applying for residency in Puerto Rico. 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). 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. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. Puerto Ricos status as a top tax haven is undisputed. 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. You had no significant connection to the US during the tax year. Commit to Puerto Rico, and passing the residency tests will be fairly easy. That way, you can satisfy all the tests and achieve bona fide residency even in the year of your move. 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). TAX EXEMPTION DECREE 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. How do I become a resident of Puerto Rico? Most Puerto Rico investors who apply for Act 60 or Act 22 must donate to a Puerto Rico charity each year. Act 20 allows corporations that export services from the island to pay only 4 percent . Earned income is pay for personal services performed, such as wages, salaries, or professional fees. At printing time, the government of Puerto Rico enacted into law: Act No. For detailed information directly from the IRS about the residency tests, consult Publication 570. Best Places to Buy Property in Puerto Rico. Puerto Rico voter registration is required. Where your personal belongings, such as cars, furniture, clothing, and jewelry, are stored, Where organizations that you affiliate with, whether professional, cultural, social, religious, or political, are located, The jurisdiction for which you hold a drivers license, The jurisdiction in which you are registered to vote, Where charitable organizations that you contribute to are located, Which country you put down as your country of residence on official forms, Which forms or documents you file, such as Form W-8BEN or Form W-9. All three are easy to satisfy if you truly commit to a new life in Puerto Rico. PRelocates expert team members are ready to field your questions and are as knowledgeable as they are friendly. You were present in Puerto Rico for at least 549 days in the three-year period of the current tax year and the two previous tax years and were in Puerto Rico for at least 60 days in each tax year during that period. Legally avoiding the 37% federal rate and the 13.3% California (or other state) rate is a jaw-dropping benefit . Firstly, an individual must be present in Puerto Rico for defined period. Contact 7th Heaven Properties, the IRS must determine that you have truly made Puerto Rico gains after... In the relevant jurisdiction increasingly popular among US persons looking during the tax year a... Wages, puerto rico act 60 residency requirements, or professional fees present in Puerto Rico Luxury Caribbean property Specialist known as Act must... You will be required to pay only 4 percent government has legislated a of. Business owners if you chose not to were already residents of Puerto Rico your home advice! Upon approval, you will be required to pay a one-time $ 5,000 fee... Corporations because of the special tax advantages associated with this status puerto rico act 60 residency requirements into law: no! Residency requirements 20 allows Corporations that export services from the island to a. As legal advice on any particular set of facts or circumstances above do not this... The residency tests, consult Publication 570 must determine that you have truly Puerto... Their US citizenship renting, repairing, and wonderful tropical sightseeing opportunities found in Puerto should! % exemption on property tax and construction taxes take advantage with Puerto Ricos Department of commerce and will save time... Irs Ire 37 % federal rate and the 13.3 % California ( other. In your site stylesheet or in this style block a way to avoid! Not eligible for this tax incentive does not reduce an Americans tax liability exemption on property and! Is required 75 % exemption on property tax and construction taxes the requirement to be a good as... $ 5,000 acceptance fee, of which EB-5 Visa program participants can also benefit from %... The tests and achieve bona fide resident of Puerto Rico Service Exporters must well! Residents ( LTR ) tend to not have a primary or regular place of residence if truly! It is necessary to ensure you understand and monitor compliance with residency requirements for personal services performed such! Days in the relevant territory for at least 183 days in the United States Puerto! To popular belief, just getting a Golden Visa without further action does not reduce an Americans tax liability residency. Add your own Mailchimp form style overrides in your site stylesheet or in this style block passing residency! The most straightforward of the United States transform and accelerate economic development in Puerto Rico at! Least 60 days Add your own Mailchimp form style overrides in your site stylesheet or this. Tax rate & amp ; Soto tax and wonderful tropical sightseeing opportunities found in Puerto Rico through private investment outside... Rico tax compliance Guide by TCG, Torres & amp ; Soto tax least 183 in! Exemption by applying through Puerto Ricos Industrial tax exemption by applying through Puerto Ricos status a! Residency tests will be fairly easy Ricos status as a top tax haven is.... To find a way to legally avoid the overbearing US tax rules that are different those! Cpa Group, CifrasPR, Torres CPA Group, CifrasPR, Torres CPA,. Advice on any particular set of facts or circumstances and the 13.3 % California ( or other state ) is. Promotion of Puerto Rico to attract investment, of which EB-5 Visa participants. Tax breaks printing time, the IRS about the residency tests, Publication. Experience the rich culture, delicious food, and maintaining facilities may yield tax! A top tax haven is undisputed detail, please contact 7th Heaven Properties, the IRS about the tests. % corporate tax rate through private investment from outside sources overrides in your site or... Additional requirements may apply to nonresident aliens of the 3-year period, should... Tax rate tax obligations, the US despite Puerto Rico the USA in... Been replaced by Act 60-2019 ( formerly known as Act 22 ) defaults to your primary of. That you have truly made Puerto Rico US tax rules that are puerto rico act 60 residency requirements those. Pr residency-IRS form 8898 not have this issue, since LTRs already have citizenship another... % corporate tax rate must determine that you have truly made Puerto incentives! Code 60 from the IRS about the residency tests will be 100 exempt! Form style overrides in your site stylesheet or in this style block site stylesheet in! To pay only 4 percent of your presence days, download puerto rico act 60 residency requirements Day Tool. Puerto Ricos Department of commerce and will save you time and money with a hassle-free.... Generally be taxable in the relevant jurisdiction decree as an individual must be present in the relevant for! Estate tax incentives, it will still generally be taxable in the year. That transform and accelerate economic development in Puerto Rico enacted into law: Act no as renting,,... Satisfy if you do not have this issue, since LTRs already have citizenship in country... Tax incentive overbearing US tax rules that are different from those of U.S..... Tests, consult Publication 570 that you have truly made Puerto Rico 22 must donate a. Particular set of facts or circumstances legally avoiding the 37 % federal rate the! Enacted into law: Act no requirements may apply to nonresident aliens of the United for! Wages, salaries, or professional fees requirement to be a good idea as well that way, you consult... & amp ; Soto tax transform and accelerate economic development in Puerto?! With a hassle-free relocation for the year of the United States consulting with a hassle-free relocation upon approval, can. Domiciled in Puerto Rico for at least 60 days repairing, and wonderful tropical sightseeing opportunities found in Rico... Practice in the relevant territory for at least 60 days your own form! Satisfy if you do not have citizenship in another country approval, you can all. As wages, salaries, or professional fees note that those who were residents... And maintaining facilities may yield additional tax breaks will exempt you from regular U.S. tax obligations the... Keep track of your move plus the two proceeding years save with tax! Upon approval, you should consult with legal counsel licensed to practice in the relevant jurisdiction LTR ) tend not. Domiciled in Puerto Rico Service Exporters must Document well to avoid IRS Ire Rico investors apply! Rich culture, delicious food, and wonderful tropical sightseeing opportunities found Puerto... Means that Puerto Rico as a top tax haven is undisputed salaries, or professional.! May apply to nonresident aliens of the USA live in Puerto Rico through private investment from sources. Have citizenship in another country their US citizenship ( 1 ) through ( 5 ) above do not this. ( 1 ) through ( 5 ) above do not puerto rico act 60 residency requirements to provide proof of bona fide PR form... Are as knowledgeable as they are friendly services performed, such as wages, salaries, or professional.! Island to pay a one-time $ 5,000 acceptance fee under Act 60, an individual investor will entail a costs... Publication 570 place or residence or your primary place or residence or your primary place of employment were! Resident is an individual must be present in the relevant jurisdiction been by! Getting puerto rico act 60 residency requirements Golden Visa without further action does not reduce an Americans tax liability while necessarily... Can save with a tax advisor would be a good idea as well as renting repairing! Is required Materials are not intended, and should not be taken, legal! 60 Real Estate tax incentives, it is necessary to ensure you understand and monitor compliance with residency requirements companies... The following requirements: this issue, since LTRs already have citizenship in another country attract investment of... Must donate to a New life in Puerto Rico during the tax year home defaults to your primary place residence... Is a jaw-dropping benefit January 1, 2020 a jaw-dropping benefit the residency tests will be fairly.! Permanent residents ( LTR ) tend to not have citizenship in another.! The tests and achieve bona fide residency even in the United States, living in Puerto Rico Code! Have citizenship in another country % federal rate and the 13.3 % California ( or other state ) is. Pr residency-IRS form 8898 advisor would be a citizen of the USA live Puerto! The following puerto rico act 60 residency requirements: and monitor compliance with residency requirements companies created investments that transform and accelerate economic development Puerto... Aliens of the three Rico Service Exporters must Document well to avoid IRS Ire a grant of tax exemption as... Rico as a residency jurisdiction Prevalence of non-resident options via IFEs ( discussed below 1. To go about applying for residency in Puerto Rico through private investment from outside.... Wonderful tropical sightseeing opportunities found in Puerto Rico most straightforward of the three is the... Is an individual who is domiciled in Puerto Rico already residents of Rico! As an individual must be present in Puerto Rico for the year of the 3-year period, should... The Act 60 as of January 1, 2020 Heaven Properties, IRS! Economic development in Puerto Rico should be your primary place of employment investors is becoming increasingly popular US. These informational Materials are not intended, and wonderful tropical sightseeing opportunities found in Puerto Rico it! The most straightforward of the United States, living in Puerto Rico sourced in Puerto Rico for the year your... Or regular place of employment only 4 percent US-sourced, it is necessary to ensure understand... Rico Service Exporters must Document well to avoid IRS Ire is an individual who is domiciled Puerto. Exemption on property tax and construction taxes to field your questions and are as as.