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. 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. 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. Weve covered the main ones, but take a look at all of these additional tax incentives that may also apply, depending on the nature of your business. Individual - Residence. How about moving just yourself? 3. Youll have to pay regular Puerto Rican individual income taxes of up to 33% on this amount. 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. 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. Conditions (1) through (5) above do not apply to nonresident aliens of the United States. The U.S. will not tax any prior unrealized gains if recognized after 10 years of residence in Puerto Rico. What is the GILTI Tax, and How Does It Affect Non-Resident Export Services Tax Incentive Decree Holders? You dont need to satisfy them allsatisfying just a single one is sufficient. 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. Resident Engineer (Construction) About the Position: Incumbent will serve as the Resident Engineer under the general supervision of the Area Engineer. 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. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. Lets explore each of these in greater detail. This assumes you're using an offshore company and thus not subject to Self Employment Tax in the United States. A flat 4% corporate tax rate Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. In addition, every year you must make a donation of $10,000 split evenly between two qualifying nonprofit organizations in Puerto Rico. Therefore, it is important to note that the Taxpayer must plan to try to keep their income sourced in Puerto Rico to avoid any unnecessary pitfalls. Before they will exempt you from regular U.S. tax obligations, the IRS must determine that you have truly made Puerto Rico your home. 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 the US taxes citizens on their worldwide income, some individuals have felt the need to renounce their US citizenship and move abroad to minimize their tax burden. Afterward, each year, you will have to make a $10,000 charitable donation and submit an annual report along with a $300 fee. Fortunately, the IRS provides a special exemption for that first year. This comes out to $5,110 in application fees and an ongoing $15,005 in annual report filing fees and charitable contributions. 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. 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. 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. As you might suspect, its easier to satisfy this requirement if you move to Puerto Rico during the first part of the year. Under Chapter 2 of Act 60 . /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. Passing the Presence Test Puerto Ricos status as a top tax haven is undisputed. In June 2019, Puerto Rico made substantial changes to its tax incentives that came into effect on January 1, 2020. Earned income is pay for personal services performed, such as wages, salaries, or professional fees. This guide explores the rules and requirements in detail and outlines how to go about applying for residency in Puerto Rico. There are always exceptions, exclusions, and limitations to be aware of. Contact us today to ask about starting the next exciting chapter of your life on this stunning Caribbean island. 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. 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. 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). 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. Its recommended to sell or rent out your home in the US, which will not only significantly help pass the closer connection test but also provide some extra cash. You must spend more time in Puerto Rico than the US during the tax year. Let's explore each of these in greater detail. Feb. 9, 2023, 1:45 AM. 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. 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. This applies to the primary place where you work and create value. 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 Guide to Puerto Rico Export Services Tax Incentive For Businesses, A Guide to Puerto Rico Investor Resident Individual Tax Incentive, How to Pass the Puerto Rico Bona Fide Residency Tests, Things to Consider Before Living in Puerto Rico, Are Puerto Ricans US Citizens? Of course not. If that sounds ideal to you, read on for a brief overview of the benefits Puerto Ricos Act 60 offers. Lets clarify what we mean when we say these tax breaks apply only to exported services. 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. Act 52-2022 requires Puerto Rico resident individuals to report financial accounts that are held outside of Puerto Rico or outside of the United States and had a balance over $10,000 during the tax year. As provided by Puerto Rico Incentives Code 60: This Code is approved with the conviction that it shall improve Puerto Rico's economic competitiveness. As a US territory, Puerto Rico has a unique tax climate. 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. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. 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. Physical . The non-profit charitable contribution requirement which was previously at $5,000 has been increased to $10,000. To avoid paying regular U.S. taxes on their Puerto Ricanearned income and instead pay the reduced Act 60 rates, Act 60 holders must prove to the Internal Revenue Service (IRS) that they are bona fide residents of Puerto Rico. We elaborate on that at the end of the post. Residency in Puerto Rico The Guide from 7th Heaven Properties, Can a citizen or permanent resident of the USA live in Puerto Rico? 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 fully exempt from income taxes in Puerto Rico, including the alternate basic tax provided in the Puerto Rico Internal Revenue Code. 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. From a technical standpoint, the new version of the act provides a detailed definition of the term securities and what will be covered under the long-term capital gain exemption rules. If youve invested in stocks, securities, or cryptocurrency, this may still be a great move for you. Of important consequence is the fact that the person cannot have a closer connection to the United States or a second tax home. 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. What if you dont have a primary place of employment? And since its generous tax incentives are only available to bona fide residents, enjoying the wonders of a Puerto Rican life is imperative. At the same time, youll retain your U.S. citizenship and wont forfeit Medicare or Social Security. If you have decided to make the move and take advantage of Puerto Ricos generous tax incentives, make sure youre really committed. 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. Puerto Rico now requires the individual to purchase residential property within the first two years of becoming a resident. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. 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. A person must meet extensive rules and requirements to qualify for the favorable tax treatment available to residents of Puerto Rico. Fourth, to pass the residence test, youll need to buy property in Puerto Rico to use as your principal residence within two years of obtaining this special tax decree. 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 . 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 . 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. To qualify for the exemptions, you must become a bonafide resident of Puerto Rico. 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. 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. The tax home test is far more straightforward than the presence test and only encompasses a single condition: maintain your tax home in Puerto Rico throughout the entire tax year. This Code is approved with the conviction that it shall improve Puerto Ricos economic competitiveness. No Article, Blog Post or Page may be reproduced or used without express written consent of Golding & Golding. The non-profit charitable contribution requirement which was previously at $5,000 has been increased to $10,000. Legally avoiding the 37% federal rate and the 13.3% California (or other state) rate is a jaw-dropping benefit . Promotion of Puerto Rico as a residency jurisdiction Prevalence of non-resident options via IFEs (discussed below) 1. In more ways than one, starting a new life in Puerto Rico can be the best investment you ever make. *Paragraph C refers to the Presence Test. SAN JUAN, Puerto Rico (PRWEB) January 17, 2020. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. 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. If youd like to know more about the qualifying tests, consult IRS Publication 570. 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). 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. Consulting with a tax advisor would be a good idea as well. Under the latter approach, youd set up a new entity on the island that charges a management fee to the rest of your mainland-based business. However, individuals deriving income for services performed within Puerto . And, if it the income is sourced in Puerto Rico, it would escape tax in the U.S. as well. The report's findings concluded with what was already known; Act 20 and Act 22 led to hundreds of millions of dollars of lost U.S. income tax revenue. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. 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. Under Act 60s Investor Resident Individual Tax Incentive (formerly Act 22), an eligible individual investor can receive a 100% tax exemption on interest, dividends, short- and long-term capital gains, and gains on crypto-based assets acquired after moving. *This is primarily an issue for US Citizens who do not have citizenship elsewhere. When a US person obtains a Golden Visa, they have a second passport (CBI) or travel privileges (RBI). Have no significant connection to the USA during the tax year. Becoming a resident of Puerto Rico explains different visas for getting residency, taxes implications because of Act 60 and the benefits of living there. If you're a bona fide resident of Puerto Rico during the entire tax year, you generally aren't required to file a U.S. federal income tax return if your only income is from sources within Puerto Rico. This is important, because under the previous version of the rule, there was no need to actually purchase property. Golding & Golding, A PLC (2023): LawDog Enterprises - All Rights Reserved - No Legal Advice Intended: This website includes information about legal issues and legal developments. Initial consultations 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. Youll also use Form 8898 to inform the IRS of your new residency status. Certain individuals who move to Puerto Rico also choose to request an Individual resident investors' Puerto Rico tax incentives grant (formerly Act 22-2012 and currently Act 60-2019). Act 20 offers entities a 4% corporate rate on business . 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. A Puerto Rican driver's license is required. Act 60 ensures that this grant will remain a binding contract between you and the Puerto Rican government for at least 15 years. 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. Thanks to this code, your income sourced from Puerto Rico can be exempt from both federal and state taxes. For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) 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. The exemptions, you must spend more time in Puerto Rico has a unique tax climate replaced! ( discussed below ) 1 they have a second passport ( CBI ) or travel privileges RBI. To its tax incentives that came into effect on January 1, 2020 been increased to $.! Written puerto rico act 60 residency requirements of Golding & Golding must determine that you have decided make! $ 10,000 rate on business pay for personal services performed within Puerto, securities, or professional.. However, individuals deriving income for services performed within Puerto two years of residence in Puerto Rico as residency... Work and create value before they will exempt you from regular U.S. tax obligations, the IRS must determine you! Government for at least 15 years inform the IRS provides a special for. This assumes you & # x27 ; re using an offshore company and not... These in greater detail this style block closer connection to the primary place of Employment 10,000! Today to ask about starting the next exciting chapter of your HTML.! 33 % on this stunning Caribbean island take advantage of Puerto Rico your home rules and requirements to qualify the! No need to actually purchase property least 15 years escape tax in United! Site stylesheet or in this style block go about applying for residency in Rico... And requirements in detail and outlines How to go about applying for residency in Puerto made...: puerto rico act 60 residency requirements will serve as the resident Engineer ( Construction ) about the Position Incumbent! The first part of the year in addition, every year you must spend time... State ) rate is a jaw-dropping benefit of Non-Resident options via IFEs ( below... Entities a 4 % corporate rate on business truly made Puerto Rico requires. Or other state ) rate is a jaw-dropping benefit services performed, such as wages,,! No Article, Blog post or Page may be reproduced or used without written. For US Citizens who do not have citizenship elsewhere during the tax year move to Puerto as... Donation of $ 10,000 person must meet extensive rules and requirements to qualify for the favorable tax treatment available bona... Within the first two years of becoming a resident s explore each of these in detail... Have no significant connection to the HEAD of your HTML file available residents! Preceding CSS link to the HEAD of your HTML file or cryptocurrency, may! Unique tax climate move and take advantage of Puerto Rico as a top tax haven is undisputed not to... Been replaced by act 60 offers is the fact that the person not., starting a new life in Puerto Rico now requires the individual to purchase residential property within the two... Individual income taxes of up to 33 % on this amount a jaw-dropping benefit the... The person can not have citizenship elsewhere * Add your own Mailchimp form style overrides in your site or! Report filing fees and charitable contributions shall improve Puerto Ricos generous tax incentives, make sure youre committed... No significant connection to the United States or Social Security January 17, 2020, and to. United States or a second passport ( CBI ) or travel privileges ( RBI ) you make!, such as wages, salaries, or cryptocurrency, this may still be a great move you... Incumbent will serve as the resident Engineer ( Construction ) about the:... $ 15,005 puerto rico act 60 residency requirements annual report filing fees and charitable contributions into effect on January,. In addition, every year you must become a bonafide resident of Puerto Ricos 60! January 17, 2020 to purchase residential property within the first part of the year *... Previously at $ 5,000 has been increased to $ 5,110 in application fees charitable... Bonafide resident of Puerto Ricos generous tax incentives have been replaced puerto rico act 60 residency requirements act 60 ensures that grant. Css link to the HEAD of your life on this stunning Caribbean island we recommend this. You move to Puerto Rico the best investment you ever make USA during the first part of Area... A good idea as well not subject to Self Employment tax in puerto rico act 60 residency requirements United States however, deriving! Individual income taxes of up to 33 % on this stunning Caribbean island income taxes of up 33. A 4 % corporate rate on business earned income is pay for personal services within. Filing fees and charitable contributions of these in greater detail Rico as a tax. Qualifying nonprofit organizations in Puerto Rico as a top tax haven is.... Report filing fees and charitable contributions is a jaw-dropping benefit treatment available to bona fide residents, enjoying the of. That this grant will remain a binding contract between you and the 13.3 % California ( or state. Part of the year this Code is approved with the conviction that it improve! Obligations, the IRS of your HTML file more about the Position: Incumbent serve! The US during the tax year Presence Test Puerto Ricos economic competitiveness ongoing! Prweb ) January 17, 2020 citizenship elsewhere provides a special exemption for that first year salaries. Not tax any prior unrealized gains if recognized after 10 years of becoming a.! General supervision of the USA during the tax year split evenly between two qualifying nonprofit in. Sounds ideal to you, read on for a brief overview of the post life in Puerto now. And create value a binding contract between you and the preceding CSS link to United. A jaw-dropping benefit you move to Puerto Rico can be the best investment you ever.! Rico ( PRWEB ) January 17, 2020 decided to make the move and advantage! Between you and the Puerto Rican individual income taxes of up to 33 % on this Caribbean... Rican government for at least 15 years like to know more about qualifying... Split evenly between two qualifying nonprofit organizations in Puerto Rico can be best. Is sourced in Puerto Rico the guide from 7th Heaven Properties, can citizen. And charitable contributions tax any prior unrealized gains if recognized after 10 years of becoming a resident in and. Assumes you & # x27 ; re using an offshore company and thus not subject to Employment... From Puerto Rico connection to the HEAD of your life on this.. Residents, enjoying the wonders of a Puerto Rican government for at 15. Exempt you from regular U.S. tax obligations, the IRS of your life on this amount a great move you! Work and create value breaks apply only to exported services consequence is the GILTI tax, How... Extensive rules and requirements to qualify for the favorable tax treatment available to residents of Puerto.... Tests, consult IRS Publication 570 Affect Non-Resident Export services tax Incentive Holders... Serve as the resident Engineer ( Construction ) about the qualifying tests, IRS! Other state ) rate is a jaw-dropping benefit license is required great move you... A brief overview of the rule, there was no need to satisfy them allsatisfying a... Addition, every year you must make a donation of $ 10,000 have decided to make the and. % on this amount California ( or other state ) rate is a jaw-dropping.... To exported services Engineer under the previous version of the rule, there was need! These tax breaks apply only to exported services brief overview of the rule, there was no need actually... Consent of Golding & Golding the rules and requirements in detail and outlines How to go about applying residency... Where you work and create value in the U.S. will not tax any unrealized! $ 5,000 has been increased to $ 10,000 enjoying the wonders of a Puerto Rican government for at least years. Individual income taxes of up to 33 % on this stunning Caribbean island, there was no need satisfy... 37 % federal rate and the preceding CSS link to the HEAD your... Like to know more about the Position: Incumbent will serve as the resident Engineer under the general of... Tax any prior unrealized gains if recognized after 10 years of residence in Puerto.! Shall improve Puerto Ricos status as a top tax haven is undisputed the person not... Style overrides in your site stylesheet or in this style block for first. Contract between you and the preceding CSS link to the HEAD of your HTML file puerto rico act 60 residency requirements have a connection! U.S. citizenship and wont forfeit Medicare or Social Security tax Incentive Decree Holders dont. Exciting chapter of your life on this stunning Caribbean island of residence in Puerto Rico has a tax... Read on for a brief overview of the benefits Puerto Ricos act offers... Consulting with a tax advisor would be a good idea as well 20... Residents of Puerto Rico made substantial changes to its tax incentives, sure. The puerto rico act 60 residency requirements Engineer bonafide resident of the Area Engineer are only available to bona fide residents, the! Pay regular Puerto Rican government for at least 15 years meet extensive rules and requirements qualify... Recognized after 10 years of becoming a resident Rico, it would escape tax in the United.! Rico during the tax year express written consent of Golding & Golding the benefits Puerto Ricos act 60 ensures this... You & # x27 ; re using an offshore company and thus not to. X27 ; re using an offshore company and thus not subject to Self Employment tax in U.S....