To become a bona fide resident of Puerto Rico, as defined in Section 937 of the Internal Revenue Code, individuals must . Creation of Jobs Requirements Businesses with an annual volume, actual or projected, more than three million dollars equivalent; Manufacturing, three . 5%, if such gain is recognized after said 10-year period. 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. What if you dont have a primary place of employment? In addition, the Individual Investor must become a resident of Puerto Rico no later than December 31, 2035. To explore your options in more detail, please contact 7th Heaven Properties, the Luxury Caribbean Property Specialist. Puerto Rican and foreign companies created investments that transform and accelerate economic development in Puerto Rico thanks to Act 60. 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. Your tax home is considered to be where your primary or regular place of employment or post of duty is, regardless of where you reside. The closer connection test is perhaps the most reliable in determining your loyalty to 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. Think about how your business can flourish with such a low tax burden. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. Earned income is pay for personal services performed, such as wages, salaries, or professional fees. */. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. Puerto Rico Service Exporters Must Document Well to Avoid IRS Ire. 2. Opening a Puerto Rican bank account is helpful not only for the test but also for your daily life on the island, as is a local drivers license. Lets get some clarity on how the tax situation plays out: To begin with, becoming a resident of Puerto Rico is not as simple as purchasing a property and visiting the PR Coast a few times a year. 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. Can a citizen or permanent resident of the USA live in Puerto Rico? 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 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. 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: Do not have a tax home outside the relevant territory, and, Do not have a closer connection to the United States or to a foreign country than to the relevant territory. If youd like to know more about the qualifying tests, consult IRS Publication 570. Act 60 provides tremendous tax benefits to qualified businesses and individual investors. 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. 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. You must own it yourself or jointly with a spouse. 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. Read on for what you need to know about taxes before, during, and after your move to Puerto Rico. Consulting with a tax advisor would be a good idea as well. The IRS offers five different conditions a decree holder can use to fulfill the presence requirement for bona fide residency. One of these is the low 4% corporate tax rate we touched on earlier. Tax Exemption Period Act 60. Act 60 offers a corporate tax rate of 4% to Puerto Rican companies that export services performed in the territory to people or companies . and representation are limited. Your chances of passing improve considerably as you strengthen banking, social, cultural, or religious ties to the island, identify Puerto Rico as your place of residence, and establish your permanent home there. Be present in Puerto Rico for a minimum of 183 days in the tax year. 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. You must acquire a grant of tax exemption by applying through Puerto Ricos Industrial Tax Exemption Office. Promotion of Puerto Rico as a residency jurisdiction Prevalence of non-resident options via IFEs (discussed below) 1. Not be present in the USA for more than 90 days during the tax year. 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. Still, Puerto Rico hopes to lure American mainlanders with an income tax of only 4%. *Paragraph C refers to 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. marketable Assets acquired prior to the establishment of residence in Puerto Rico. 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). A flat 4% corporate tax rate Act 60 investors must also submit their donation before December 31 and present proof in their annual report in May. 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. 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). We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. It is important to understand what is excluded for tax purposes and what is not excluded under, It is crucial to understand that in order to exclude the income from capital gains and dividends, it should be accrued. First, to pass the presence test, you must satisfy the IRS requirement to be physically located inside Puerto Rico for at least 183 days of the taxable year. TIP. Establishing a Puerto Rico subsidiary and recording the percentage of business income and expenses related to the Puerto Rico entity so that it can be taxed under the Act 60 incentives Application costs You'll have to pay a one-time fee of $750 when you file your initial application. 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. Theyve been delighted to experience the rich culture, delicious food, and wonderful tropical sightseeing opportunities found in Puerto Rico. 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. And since its generous tax incentives are only available to bona fide residents, enjoying the wonders of a Puerto Rican life is imperative. Your tax home is the jurisdiction in which your primary place of employment is located. 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. 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. It gets a bit more complicated if your C Corporation does business in both Puerto Rico and the United States. Act 60. 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. 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. 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. The core motivation of the IRS in administering the, The first of the three tests is perhaps the most complicated. TAX EXEMPTION DECREE SAN JUAN, Puerto Rico (PRWEB) January 17, 2020. Schedule Consultation . There are always exceptions, exclusions, and limitations to be aware of. Local government has legislated a series of incentives to attract investment, of which EB-5 Visa program participants can also take advantage. To keep track of your presence days, download our Day Tracker Tool. Note: there is no charity requirement for business owners if you chose not to . Under Chapter 2 of Act 60 . 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). Luckily, you can take your pick from a huge selection of quality housing on the island. In June 2019, Puerto Rico made substantial changes to its tax incentives that came into effect on January 1, 2020. With beautiful, sunny weather, a vibrant Hispanic culture, and generally lower prices than in the mainland, Puerto Rico offers more than just tax savings. However, you cant qualify unless you establish residency on the island. In this blog we will highlight some of the major steps you need to take to qualify for Puerto Rico's Act 22. 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 Department of Economic Development and Commerce (DDEC), as . 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. 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. Receiving and keeping the tax exemption decree as an individual investor will entail a few costs. 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. they want to find a way to legally avoid the overbearing US tax rules, while not necessarily expatriating and renouncing their US citizenship. 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: Additional requirements may apply to provide proof of bona fide PR residency-IRS Form 8898. 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. Plus, you are obliged to donate at least $10,000 USD to charity. 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. It should be presumed that an individual is a resident of Puerto Rico if they have been present in Puerto Rico for a period of 183 days during the calendar year. Residency in Puerto Rico The Guide from 7th Heaven Properties, Can a citizen or permanent resident of the USA live in Puerto Rico? 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. 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 . The U.S. will not tax any prior unrealized gains if recognized after 10 years of residence in Puerto Rico. With the Act 60 Export Services Tax Incentive (formerly Act 20), it may only have to pay 4% corporate income tax. Consequently, the IRS has identified vulnerabilities with certain individuals who may be excluding income subject to U.S. tax on a filed U.S. income tax return or failing to file and report income . If such appreciation is recognized after December 31, 2035, the net capital gain with respect to said Securities or other Assets shall be subject to income taxes in accordance with the tax treatment provided by the Puerto Rico Internal Revenue Code. 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. If the unrecognized gain is US-sourced, it will still generally be taxable in the US despite Puerto Rico Incentives Code 60. 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