Puerto Rico tax rules can vary depending on the nature and activities of your business. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. Contrary to popular belief, just getting a Golden Visa without further action does not reduce an Americans tax liability. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. Thanks to this code, your income sourced from Puerto Rico can be exempt from both federal and state taxes. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. 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. Local government has legislated a series of incentives to attract investment, of which EB-5 Visa program participants can also take advantage. 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. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. *Paragraph C refers to the Presence Test. 257 of December 10, 2018, which introduced significant amendments to the Puerto Rico Internal Revenue Code ("Puerto Rico Code"); and Act No. A Puerto Rico resident is an individual who is domiciled in Puerto Rico. Puerto Rico operates with some independent from the US government. 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 . 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. Individual - Residence. To qualify for the exemptions, you must become a bonafide resident of Puerto Rico. And, if it the income is sourced in Puerto Rico, it would escape tax in the U.S. as well. Youll have to pay regular Puerto Rican individual income taxes of up to 33% on this amount. 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. To be a bona fide resident of Puerto Rico: These benefits are available to any Act 60 Individual Resident Investor decree holder who fulfills the requirements for bona fide residency in Puerto Rico, pay the applicable filing fees, meets the minimum annual charitable donations (currently $10 annual to approved PR registered non-profit), and lives on the island at least 3 years. 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). Generally, you are a bona fide resident of one of these territories (the relevant territory) if, during the tax year, you: What is important to note is that US Persons do not use the standard , While Puerto Rico is considered part of the United States, it is not a state, The individual cannot have been a resident of Puerto Rico for, The non-profit charitable contribution requirement which was previously at $5,000 has been, Puerto Rico now requires the individual to, The income derived from all sources by a Resident Individual Investor after becoming a resident of Puerto Rico but before January 1, 2036, consisting of interest and dividends including but not limited to interest and dividends from a registered investment company described in Section 1112.01 of the Puerto Rico Internal Revenue Code, shall be. Only one of the following conditions must be true: You were present in Puerto Rico for at least 183 days in the tax year. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. Best Places to Buy Property in Puerto Rico. 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. We look forward to helping you find your perfect property in Puerto Rico. */, 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. (a) Appreciation Before Becoming a Resident Individual of Puerto Rico. they want to find a way to legally avoid the overbearing US tax rules, while not necessarily expatriating and renouncing their US citizenship. Schedule Consultation . 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. How do I become a resident of Puerto Rico? Passing the Presence Test What does this mean? 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. If you think this test sounds impossible to satisfy for the year of your move, thats why the IRS offers a special exemption for the year of your move only. 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. Business owners who establish a qualifying business in Puerto Rico can enjoy significant tax benefits: To qualify, the business model must be concentrated around exporting services outside of Puerto Rico. 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. Luckily, you can take your pick from a huge selection of quality housing on the island. At printing time, the government of Puerto Rico enacted into law: Act No. 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. Even if youre only in Puerto Rico for an hour on a certain day, that counts as being present in Puerto Rico. To explore your options in more detail, please contact 7th Heaven Properties, the Luxury Caribbean Property Specialist. 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; } 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. Youll want to keep meticulous records to ensure you dont jeopardize your eligibility for these generous Act 60 tax benefits. 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. 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). Under certain conditions, you can also satisfy the presence test if you were located in Puerto Rico for at least 549 days during the current year and the preceding two years. 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. Golding & Goldingspecializes exclusivelyin international tax, and specificallyIRS offshore disclosure. Such materials are for informational 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 before becoming a Resident Individual of Puerto Rico, which appreciation is recognized ten (10) years after becoming a Resident Individual of Puerto Rico and before January 1, 2036, shall be subject to a five percent (5%) tax, in lieu of any other tax imposed under the Puerto Rico Internal Revenue Code and shall not be subject to the alternate basic tax provided in Subsection A of the Puerto Rico Internal Revenue Code. Furthermore, the property must remain your primary residence for as long as the decree remains in force. Commit to Puerto Rico, and passing the residency tests will be fairly easy. Spend at least 549 days in Puerto Rico during the 3-year period of the current tax year and the 2 preceding years, including at least 60 days in Puerto Rico during each tax year. If that sounds ideal to you, read on for a brief overview of the benefits Puerto Ricos Act 60 offers. For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) 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. 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. Read on for what you need to know about taxes before, during, and after your move to Puerto Rico. Its a requirement. 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. Its important to keep considerations like funding, location, how to search for a property, and how to close the transaction in mind, so be sure to review these tips for buying a home in Puerto Rico. */, 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. 1. First and foremost, there are some significant tax benefits. 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. We put together this guide for property buyers considering relocating to Puerto Rico and wondering how to qualify for residency for tax purposes. Rather, the US person has to become a Bona-Fide Resident of Puerto Rico. An individual is treated as a bona fide resident of Puerto Rico under Section 933 if the person (1) meets a physical presence test; (2) does not have a tax home outside of Puerto Rico during the taxable year; and (3) does not have a closer connection to the United States or a foreign country than to Puerto Rico. 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. The U.S. will not tax any prior unrealized gains if recognized after 10 years of residence 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. You must own it yourself or jointly with a spouse. 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. Act 20 offers entities a 4% corporate rate on business . 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 guide explores the rules and requirements in detail and outlines how to go about applying for residency in Puerto Rico. In more ways than one, starting a new life in Puerto Rico can be the best investment you ever make. 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. Sometimes, effective tax planning can help avoid these taxes. Nov. 8, 2019, 10:00 AM. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. 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. 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 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. Puerto Rico voter registration is required. 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