Executed lease or transfer of title-proof of real estate ownership is required. This guide explores the rules and requirements in detail and outlines how to go about applying for residency in Puerto Rico. You were present in Puerto Rico for at least 183 days in the tax year. doing business in Puerto Rico. It is expected that individuals who receive their decree before this date will be grandfathered in. With beautiful, sunny weather, a vibrant Hispanic culture, and generally lower prices than in the mainland, Puerto Rico offers more than just tax savings. 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. Fortunately, the IRS provides a special exemption for that first year. As provided by Puerto Rico Incentives Code 60: What does this mean? This property must be the individuals primary residence and not rented out. 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. 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. 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%. 3. 2. Note that those who were already residents of Puerto Rico during the 10 years before their move are not eligible for this tax incentive. Rather, the US person has to become a Bona-Fide Resident of Puerto Rico. 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. Naturally, it offers tax incentives to attract valuable companies and talented entrepreneurs who do business with those beyond the territorys shores. Would you like to find out more about how to get residency in Puerto Rico? Youll want to keep meticulous records to ensure you dont jeopardize your eligibility for these generous Act 60 tax benefits. You must own it yourself or jointly with a spouse. 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). Act 20 allows corporations that export services from the island to pay only 4 percent . Like with Act 22 donations, the nonprofit entities must operate in Puerto Rico and not be run by the investor or their family, spouse, or partner. As you can see, Puerto Ricos enormous Act 60 tax benefits greatly exceed the relatively small costs and inconveniences of relocation. First, youll pay a one-time $5,005 application fee along with a $105 acceptance fee. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. What does this mean? Lets clarify what we mean when we say these tax breaks apply only to exported services. Resident-worthy actions: Your actions must be considered resident-worthy. 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. It is crucial to understand that in order to exclude the income from capital gains and dividends, it should be accrued after arriving in Puerto Rico and acquiring dividends and capital gains as a Resident of Puerto Rico. With the Act 60 Export Services Tax Incentive (formerly Act 20), it may only have to pay 4% corporate income tax. 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). 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. 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. Achieving bona fide residency in the year of the move and the two years following it This means that as long as you move to Puerto Rico before July 1, you can become a bona fide Puerto Rican resident in your first year on the island and reap the benefits of your Act 60 decree immediately. In addition, every year you must make a donation of $10,000 split evenly between two qualifying nonprofit organizations in Puerto Rico. *Paragraph C refers to the Presence Test. The amount of the net long- term capital gain shall be limited to the portion of the gain related to the appreciation of the Securities or other Assets while the Resident Individual Investor resided outside of Puerto Rico. Conditions (1) through (5) above do not apply to nonresident aliens of the United States. If saving big on income taxes while soaking up the sun on a U.S.-owned Caribbean island sounds like a dream life to you, relocating to Puerto Rico under the Act 60 tax exemptions may be right for you. And, if it the income is sourced in Puerto Rico, it would escape tax in the U.S. as well. 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. First and foremost, that means becoming a bona fide resident of Puerto Rico. For all of the Puerto Rico tax incentives, it is necessary to ensure you understand and monitor compliance with residency requirements. Note that you may only receive 30 free days of international travel if you fulfill the following conditions: Certain exemptions also apply. 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. If you do not have a primary or regular place of employment, your tax home is considered to be your primary place of residence. This implies residing on the island for more than 183 days per year, filling out IRS forms, such as form 8898 and applying for a tax exemption decree from the Secretary of Economic Development and Commerce of Puerto Rico. 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. To qualify as a resident of Puerto Rico, an individual must essentially pass 3 key tests as follows. 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; } Earned income is pay for personal services performed, such as wages, salaries, or professional fees. 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. Third, to pass the closer connection test, you must convince the IRS that you have stronger ties to Puerto Rico than to the rest of the United States. Puerto Ricos status as a top tax haven is undisputed. How do I become a resident of Puerto Rico? 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. When a US person obtains a Golden Visa, they have a second passport (CBI) or travel privileges (RBI). Residents can also benefit from 75% exemption on property tax and construction taxes. The purpose of Puerto Rico Incentives Code 60 is to promote investment in Puerto Rico by providing investment residents with tax breaks. This is ensured by Act 60-2019 (formerly known as Act 22). Golding & Goldingspecializes exclusivelyin international tax, and specificallyIRS offshore disclosure. The Incentives Code consolidates various tax decrees, incentives, subsidies, and benefits, including . Think about how your business can flourish with such a low tax burden. 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. 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. 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. 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. Consulting companies, auditing firms, marketing businesses, and more are eligible business types. 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. However, this is a rule of thumb, and others have retained their status with fewer than 183 days on the islands soil in the wake of major natural disaster declarations. 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. 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. 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. 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. Promotion of Puerto Rico as a residency jurisdiction Prevalence of non-resident options via IFEs (discussed below) 1. 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. permanent residence, Puerto Rico, Real Estate, residency, Caribbean Citizenship by Investment Real Estate. To enjoy this lifestyle and benefit from the tax incentives under Act 60-2019 (the Puerto Rico Incentives Code), individuals should be aware of the complex rules and the various residency requirements which now include buying property in Puerto Rico within a defined time period. As a US territory, Puerto Rico has a unique tax climate. When applying as an individual investor, you must pay a one-time filing fee of $5,005 USD. 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. 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. Before they will exempt you from regular U.S. tax obligations, the IRS must determine that you have truly made Puerto Rico your home. The Governor of Puerto Rico has enacted Act 52 of 30 June 2022 (Act 52-2022), which allows companies to elect a 10.5% tax on industrial development income from sales of goods and services instead of the 4% excise tax on foreign corporations, which the latest United States (US) foreign tax credit rules do not consider creditable. TIP. attorney to discuss your specific facts and circumstances and to obtain advice on specific legal problems. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. Passing the Presence Test 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. The IRS offers five different conditions a decree holder can use to fulfill the presence requirement for bona fide residency. 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. PUERTO RICO 787.759.9292 MIAMI 305-677-6626 MCVPR.COM . Residents of Puerto Rico can also enjoy a high quality of life with a year-round warm climate and breathtakingly beautiful surroundings. Have no significant connection to the USA during the tax year. 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). Even if youre only in Puerto Rico for an hour on a certain day, that counts as being present in Puerto Rico. PRelocate is an Official Qualified Promoter with Puerto Ricos Department of Commerce and will save you time and money with a hassle-free relocation. Act 60 offers a corporate tax rate of 4% to Puerto Rican companies that export services performed in the territory to people or companies . 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. Person has to become a resident of Puerto Rico Incentives Code 60 is to promote in! 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