The presence test considers how much time you spend in Puerto Rico. Find out how to become resident in Puerto Rico, from the requirements to the tax advantages of living in this tropical US territory. It is expected that individuals who receive their decree before this date will be grandfathered in. Lets take the example of a C Corporation, which the IRS recognizes as an independent legal entity. /* 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. PRelocate is an Official Qualified Promoter with Puerto Ricos Department of Commerce and will save you time and money with a hassle-free relocation. Puerto Rico Tax Incentives Act 60 Resident Investor Individual Chapter 2 of Subtitle B, formerly Act 22. 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. A U.S. taxpayer who is a bona fide resident of Puerto Rico for an entire taxable year is able to exclude from U.S. federal income tax under 933 (1) Puerto Rican-source interest and dividends, and (possibly) worldwide capital gains. 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. How about moving just yourself? Youll want to keep meticulous records to ensure you dont jeopardize your eligibility for these generous Act 60 tax benefits. Not be present in the USA for more than 90 days during the tax year. Puerto Rico voter registration is required. Residents can also benefit from 75% exemption on property tax and construction taxes. We elaborate on that at the end of the post. You should contact an Puerto Rico tax rules can vary depending on the nature and activities of your business. Thanks to this code, your income sourced from Puerto Rico can be exempt from both federal and state taxes. Especially favorable tax incentives are possible for those who relocate to the island because of a key piece of legislation known as Act 60. This incentive is available to any individual that wasn't a bona fide resident of Puerto Rico between January 17, 2006, and January 17, 2012 (these dates have varied at different times and should be confirmed at the time of application to confirm eligibility) and moves to PR. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. Many companies opt to become C Corporations because of the special tax advantages associated with this status. 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. In more ways than one, starting a new life in Puerto Rico can be the best investment you ever make. 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). Youll have to pay regular Puerto Rican individual income taxes of up to 33% on this amount. You are a bona fide resident of Puerto Rico for the year of your move plus the two proceeding years. 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. 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. 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. 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. 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. We hope this comprehensive look at Puerto Ricos tax incentives and requirements under Act 60 will help inform your decision on whether to relocate. Plus, you are obliged to donate at least $10,000 USD to charity. 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. 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. 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. Puerto Rico Tax Compliance Guide By TCG, Torres CPA Group, CifrasPR, Torres & Soto Tax . Most Puerto Rico investors who apply for Act 60 or Act 22 must donate to a Puerto Rico charity each year. If the unrecognized gain is US-sourced, it will still generally be taxable in the US despite Puerto Rico Incentives Code 60. 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. Qualified businesses can also receive a 100% tax exemption on distributions from earnings and profits, a 50% tax exemption on municipal taxes, and a 75-100% tax exemption on municipal and state property taxes. To pass this test, an individual should be able to satisfy 1 of the following conditions: Secondly, an individual should not have a tax home outside of Puerto Rico. Therefore, there are multiple ways to satisfy the requirements of the presence test. 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. 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). What is the GILTI Tax, and How Does It Affect Non-Resident Export Services Tax Incentive Decree Holders? Lets clarify what we mean when we say these tax breaks apply only to exported services. Act 60 ensures that this grant will remain a binding contract between you and the Puerto Rican government for at least 15 years. 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. 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. As you might suspect, its easier to satisfy this requirement if you move to Puerto Rico during the first part of the year. 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. Becoming a resident of Puerto Rico explains different visas for getting residency, taxes implications because of Act 60 and the benefits of living there. 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. 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). 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. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. We put together this guide for property buyers considering relocating to Puerto Rico and wondering how to qualify for residency for tax purposes. There are always exceptions, exclusions, and limitations to be aware of. *Paragraph C refers to the Presence Test. 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. All three are easy to satisfy if you truly commit to a new life in Puerto Rico. As a U.S. territory, Puerto Rico is subject to tax rules that are different from those of U.S. states. 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. Additional small fees may apply. Consulting with a tax advisor would be a good idea as well. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. 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; } 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). 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. Upon approval, you will be required to pay a one-time $5,000 acceptance fee. 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. 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. These will be especially important to present if the IRS or Puerto Rico Department of Treasury (Hacienda) challenges your bona fide resident claims. 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 Act 60, an eligible business includes export services and commerce. */. 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. 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. Where they keep important personal belongings, What jurisdiction their primary bank is in, Where the organizations they affiliate with are located, Maintaining a tax home in Puerto Rico for the last 183 days of the year, Not having been a bona fide resident of Puerto Rico in the three tax years before the year of the move, Achieving bona fide residency in the year of the move and the two years following it. The IRS's new campaign addresses taxpayers who have claimed benefits through Puerto Rico Act 60, without meeting the requirements of section 937, Residence and Source Rules Involving Possessions. 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. Therefore, there are multiple ways to satisfy the requirements of the presence test. 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. Even if you are in the US or another country for part of the day, if you were physically present in Puerto Rico even briefly, you are counted as being present that day. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. You were not present in the US for more than 90 days during the tax year. 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. . The contributions of the companies under the Act 20/22 have a positive impact on the local economy. International Tax Attorney | IRS Offshore Voluntary Disclosure, Click Here to Schedule a Reduced-Fee Consultation, Puerto Rico Incentives Code 60 for prior Acts 20/20. 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. purposes only and may not reflect the most current legal developments. Passing the Presence Test 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 If youre unclear on whether youll meet this requirement, check out our Day Tracker Tool. 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. Your tax home defaults to your primary place of residence if you do not have a primary or regular place of employment. 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. The closer connection test simply seeks to determine whether an Act 60 decree holder maintains closer connections to Puerto Rico or the United States and uses a number of factors to determine ones national ties, such as the following: Naturally, some of these factors are more important than othersthe IRS will especially consider where a decree holders spouse and children live. 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