You were present in the United States for no more than 90 days during the tax year. To be a bona fide resident of Puerto Rico: Act 60 offers a corporate tax rate of 4% to Puerto Rican companies that export services performed in the territory to people or companies . 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). Earned income is pay for personal services performed, such as wages, salaries, or professional fees. 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. Luckily, you can take your pick from a huge selection of quality housing on the island. The presence test considers how much time you spend in 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. All three are easy to satisfy if you truly commit to a new life in Puerto Rico. Can a citizen or permanent resident of the USA live in Puerto Rico? 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. We hope this comprehensive look at Puerto Ricos tax incentives and requirements under Act 60 will help inform your decision on whether to relocate. Article 7 of Act 22 protects those trusts created by Act 22 grantees from the forced inheritance provisions of the Puerto Rico Civil Code. 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 . Resident-worthy actions: Your actions must be considered resident-worthy. purposes only and may not reflect the most current legal developments. The purpose of Puerto Rico Incentives Code 60 is to promote investment in Puerto Rico by providing investment residents with tax breaks. How about moving just yourself? 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. 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. Upon approval, you will be required to pay a one-time $5,000 acceptance fee. The U.S. will not tax any prior unrealized gains if recognized after 10 years of residence in Puerto Rico. Contrary to popular belief, just getting a Golden Visa without further action does not reduce an Americans tax liability. In this blog we will highlight some of the major steps you need to take to qualify for Puerto Rico's Act 22. We look forward to helping you find your perfect property in Puerto Rico. Keep in mind that as the owner of an export-service company, you must pay yourself a reasonable salary based on the services you provide. Conditions (1) through (5) above do not apply to nonresident aliens of the United States. It is expected that individuals who receive their decree before this date will be grandfathered in. Then, youll be required to file an annual report each year along with a $300 fee. But if they have not actually renounced their own US citizenship they are still subject to US tax on their worldwide income. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. Puerto Ricos bona fide residency tests may seem intimidating, but if youre dedicated to starting fresh in the USs sunny Caribbean island territory, the tests are simple. 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. 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. Long-Term Permanent Residents (LTR) tend to not have this issue, since LTRs already have citizenship in another country. Citizenship: The most straightforward qualification is the requirement to be a citizen of the United States, living in Puerto Rico. The amount of said net capital gain means the portion of the gain related to the appreciation of the Securities or other Assets owned by the Resident Individual Investor at the time of becoming a Resident Individual of Puerto Rico and those acquired by him after becoming a Resident Individual of Puerto Rico. Therefore, there are multiple ways to satisfy the requirements of the presence test. 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. 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. 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. Noting, the Puerto Rico BFR rules are not the same as the Substantial Presence Test BFR rules but the concept is the same. Bona fide resident of Puerto Rico. If youre unclear on whether youll meet this requirement, check out our Day Tracker Tool. Various factors such as the presence of an individuals permanent home, family, belongings, principal bank and business in Puerto Rico, as well as the existence of professional, cultural, religious, social and political affiliations and links in Puerto Rico, may help to demonstrate a closer connection to Puerto Rico than to anywhere else. NERA Economic Consulting's Vladimir Starkov offers tips on how businesses that rely on provisions of Puerto Rico Act 60 can prepare documents of related-party transactions to avoid IRS penalties . We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. 60 of July 1, 2019, known as the Puerto Rico Incentives However, individuals deriving income for services performed within Puerto . 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; } To qualify as a resident of Puerto Rico, an individual must essentially pass 3 key tests as follows. If you wish, you can follow in their footsteps and escape some of the worst ravages of 2022s surging inflation and anemic economic growth by moving to this low-tax haven. 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: Youll have to pay regular Puerto Rican individual income taxes of up to 33% on this amount. This tax haven can easily save taxpayers hundreds of thousands of dollars per year (or more) in federal taxes! 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. Second, to pass the tax home test, you must not keep a tax home outside of Puerto Rico at any time. It means that once the person becomes a resident individual investor of Puerto Rico unde Puerto Rico Incentives Code 60 and until 1/1/2036 any dividend or interest income is exempt from tax in Puerto Rico. This comes out to $5,110 in application fees and an ongoing $15,005 in annual report filing fees and charitable contributions. However, if you also have income from sources outside of Puerto Rico, including from U.S. sources, you're required to file a U.S. federal income tax return if such amount is above the U.S. filing . When you have satisfied all the requirements to become a bona fide Puerto Rico resident, you must file, 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. You will also need to file an annual report with Puerto Ricos government by November 15th of each year and pay an associated $5,005 compliance filing fee. Theyve been delighted to experience the rich culture, delicious food, and wonderful tropical sightseeing opportunities found in Puerto Rico. In order to promote investment into Puerto Rico, they developed Act 60 to attract high net-worth individuals and businesses. All capital gains accrued after becoming a New Resident will be 100% exempt from Puerto Rico taxes. 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. Act 60. Foreign Earned Income Exclusion: 0% tax on first $100,000 and 35% tax on $400,000 = $140,000. Giving up your connection to organizations in the US is also not mandatory, but it is recommended to make connections with Puerto Rico organizations to establish ties in the local community. 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). Have no significant connection to the USA during the tax year. The term 'resident individual' means an individual who is domiciled in Puerto Rico. 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). Flights to and from Puerto Rico are considered domestic flights, a distinction shared in the Caribbean by only one other island chain: the US Virgin Islands. 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. Rather, the US person has to become a Bona-Fide Resident of Puerto Rico. You did not maintain a tax home outside of Puerto Rico for the last 183 days of the year. Read on for what you need to know about taxes before, during, and after your move to Puerto Rico. Puerto Rico Residency Requirements Benefits of Puerto Rico Residency Find Out More. Advertising, consulting, educational, financing, and medical services are just a few among nearly two dozen categories of export services that are eligible for these benefits. Many of the factors that help you pass the closer connection test, such as a Puerto Rican drivers license or voter registration, will also help you get by in day-to-day life in Puerto Rico. 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 were not present in the US for more than 90 days during the tax year. 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. 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. The Department of Economic Development and Commerce (DDEC), as . For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) 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. 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. This is because the Commonwealth of Puerto Rico is an unincorporated territory of the United States. For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) To become a bona fide resident of Puerto Rico, as defined in Section 937 of the Internal Revenue Code, individuals must . Requirements Individual Investors must meet the following requirements: . Under Chapter 2 of Act 60 . 7701(a)(30)) and thus is not subject to Subpart F and GILTI inclusions associated with ownership of stock in a Puerto Rican subsidiary (provided dividends received by that individual from that foreign subsidiary would be considered Puerto Rican-source). That way, you can satisfy all the tests and achieve bona fide residency even in the year of your move. 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. 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. There are always exceptions, exclusions, and limitations to be aware of. The owner must also take out a reasonable salary for him- or herself, which is subject to normal Puerto Rico income tax rates. 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. As you might suspect, its easier to satisfy this requirement if you move to Puerto Rico during the first part of the year. 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. 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. Act 60 provides tremendous tax benefits to qualified businesses and individual investors. 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. 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. To discover homes for sale in Puerto Rico and condos for sale in Puerto Rico from the exclusive beachfront resort communities of Bahia Beach and Dorado Beach to more affordable options in Palmas del Mar, explore real estate in Puerto Rico on our website. 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. 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). What is the GILTI Tax, and How Does It Affect Non-Resident Export Services Tax Incentive Decree Holders? Then, once becoming a bona fide resident of Puerto Rico, the taxpayer will then begin to acquire income sourced from Puerto Rico so that it is not taxable in the United States. Tax Exemption Period Act 60. 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. 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. Golding & Golding, A PLC (2023): LawDog Enterprises - All Rights Reserved - No Legal Advice Intended: This website includes information about legal issues and legal developments. (b) Appreciation after becoming a Resident Individual of Puerto Rico. 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. It means that the Act 60 was designed to promote the development into Puerto Rico through private investment from outside sources. 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. Note that those who were already residents of Puerto Rico during the 10 years before their move are not eligible for this tax incentive. You must spend more time in Puerto Rico than the US during the tax year. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. 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. And, if it the income is sourced in Puerto Rico, it would escape tax in the U.S. as well. As you can see, Puerto Ricos enormous Act 60 tax benefits greatly exceed the relatively small costs and inconveniences of relocation. 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. Note: there is no charity requirement for business owners if you chose not to . Those of Act 22 on average pay 12 times more than most taxpayers in PR. A C Corporation is separate from its owners. The non-profit charitable contribution requirement which was previously at $5,000 has been increased to $10,000. 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. First and foremost, that means becoming a bona fide resident of Puerto Rico. 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. As Puerto Rico is a part of the USA but has an independent tax system, residents of Puerto Rico pay taxes to Puerto Rico rather than to the Federal Government and the tax rates compare extremely favorably. 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. Therefore, there are multiple ways to satisfy the requirements of the presence test. 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. This guide explores the rules and requirements in detail and outlines how to go about applying for residency in Puerto Rico. Chapter 3 of Act 60-2019 - Export Services Tax Incentive. 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. Youll want to keep meticulous records to ensure you dont jeopardize your eligibility for these generous Act 60 tax benefits. There are always exceptions, exclusions, and limitations to be aware of. 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. 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. With the Act 60 Export Services Tax Incentive (formerly Act 20), it may only have to pay 4% corporate income tax. For example, if you leave Puerto Rico to receive or accompany a parent, spouse, child, or stepchild to receive a qualifying medical treatment, you are still counted as present in Puerto Rico. 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. 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. 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. 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. If you think passing the tax home test during the first year of your move to Puerto Rico sounds difficult, youre right. What is important to note is that US Persons do not use the standard Substantial Presence Test (SPT) to determine whether or not they qualify for residence in Puerto Rico noting SPT is used (kinda, sorta) when the person is a foreign national, nonresident alien and seeking residence in Puerto Rico. You had no significant connection to the US during the tax year. 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; } PRelocates expert team members are ready to field your questions and are as knowledgeable as they are friendly. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. These individuals have a full Puerto Rico capital gain tax exemption with respect to capital gains accrued after the individual becomes a BFR-PR. 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. Carlos Fontn, director of the DDEC's office of business incentives in Puerto Rico, said in April, the agency began the first . PUERTO RICO 787.759.9292 MIAMI 305-677-6626 MCVPR.COM . During each year of the 3-year period, you must be present in the relevant territory for at least 60 days. In 2012, Puerto Rico had passed two laws intended to make the island a "global investment destination.". You were present in the relevant territory for at least 183 days during the tax year. Not be present in the USA for more than 90 days during the tax year. 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 most important consideration for the IRS is that you spend more time in Puerto Rico than in the rest of the United States. 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