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. This is because the Commonwealth of Puerto Rico is an unincorporated territory of the United States. Act 52-2022 expands and clarifies the existing compliance rules under Act 60-2019. . This applies to the primary place where you work and create value. These services must not have a connection with Puerto Rico. 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. Initial consultations TIP. 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. Long-Term Permanent Residents (LTR) tend to not have this issue, since LTRs already have citizenship in another country. 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. A C Corporation is separate from its owners. 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. Puerto Rico is easily accessible from the mainland USA with no need to show a passport when traveling from the mainland USA to Puerto Rico. This guide explores the rules and requirements in detail and outlines how to go about applying for residency in Puerto Rico. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. 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. To keep track of your presence days, download our Day Tracker Tool. If youd like to know more about the qualifying tests, consult IRS Publication 570. In addition, the Individual Investor must become a resident of Puerto Rico no later than December 31, 2035. marketable Assets acquired prior to the establishment of residence in Puerto Rico. First and foremost, there are some significant tax benefits. Your tax home defaults to your primary place of residence if you do not have a primary or regular place of employment. Article 7 of Act 22 protects those trusts created by Act 22 grantees from the forced inheritance provisions of the Puerto Rico Civil Code. 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. Can a citizen or permanent resident of the USA live in Puerto Rico? This Code is approved with the conviction that it shall improve Puerto Ricos economic competitiveness. Executed lease or transfer of title-proof of real estate ownership is required. Thirdly, an individual should not have a closer connection to the USA or to a foreign country than to 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. 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. Its a great bargain. There are always exceptions, exclusions, and limitations to be aware of. These free travel days encompass travel outside of the United States but effectively mean that a degree holder need only spend 153 days in Puerto Rico, as long as the extra 30 days are spent outside of the US. All of these benefits and so much more can be yours if you relocate to Puerto Rico. Puerto Rico operates with some independent from the US government. TAX EXEMPTION DECREE Fortunately, upon becoming a bona fide resident of Puerto Rico, you pay no tax on your Puerto Rico-sourced income, but instead just Puerto Rican income tax. When you have satisfied all the requirements to become a bona fide Puerto Rico resident, you must file Form 8898 to notify the IRS of your new residency status. The closer connection test is perhaps the most reliable in determining your loyalty to Puerto Rico. In June 2019, Puerto Rico made substantial changes to its tax incentives that came into effect on January 1, 2020. However, you cant qualify unless you establish residency on the island. Puerto Rico now requires the individual to purchase residential property within the first two years of becoming a resident. With beautiful, sunny weather, a vibrant Hispanic culture, and generally lower prices than in the mainland, Puerto Rico offers more than just tax savings. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. With the right structuring, one could essentially lower their effective tax rate from as high as 50% or more to 0% under the right circumstances, by moving to the island. Many of the factors that help you pass the closer connection test, such as a Puerto Rican drivers license or voter registration, will also help you get by in day-to-day life in Puerto Rico. The Resident Tax Incentive Code, known as "Act 60" provides tax exemptions to businesses and investors that relocate to, or are established in, Puerto Rico. 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. 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. That way, you can satisfy all the tests and achieve bona fide residency even in the year of your move. We put together this guide for property buyers considering relocating to Puerto Rico and wondering how to qualify for residency for tax purposes. 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. If your C Corporation conducts its business in Puerto Rico, then dividends paid to shareholders will be taxed at 0%. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. However, in the case of Puerto Rico, all the above tax and other benefits are legally available to residents of Puerto Rico without having to renounce US citizenship. 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. attorney to discuss your specific facts and circumstances and to obtain advice on specific legal problems. 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. What else do you need to do to get this process started? Act 60 ensures that this grant will remain a binding contract between you and the Puerto Rican government for at least 15 years. Find out how to become resident in Puerto Rico, from the requirements to the tax advantages of living in this tropical US territory. What It Means to Be a Resident of Puerto Rico. The tax home test is the most straightforward of the three. 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. You are a bona fide resident of Puerto Rico for the year of your move plus the two proceeding years. Only one of the following conditions must be true: To be counted as present in Puerto Rico, you must be physically present on the island during any part of the day. The first of the three tests is perhaps the most complicated. 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. 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. Puerto Rico is a US territory, and as such, all you need to visit is a Real ID-compliant driver's license or another form of photo identification. For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) It has only one requirement: do not have a tax home outside of Puerto Rico during any part of the tax year. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. 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). As provided by Puerto Rico Incentives Code 60: This Code is approved with the conviction that it shall improve Puerto Rico's economic competitiveness. Puerto Rico tax rules can vary depending on the nature and activities of your 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. 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: This comes out to $5,110 in application fees and an ongoing $15,005 in annual report filing fees and charitable contributions. However, individuals deriving income for services performed within Puerto . 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. Furthermore, the property must remain your primary residence for as long as the decree remains in force. 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. Puerto Rico Act 60 Tax Exemptions: IRS Examination and Audits, Key Issues for Individual and Business Taxpayers Treatment of Puerto Rico-Sourced Income, Puerto Rico Act 60 (formerly Act 20 and Act 22) Benefits, Residency Requirements Recording of a 90-minute premium CLE/CPE video webinar with Q&A You were not present in the US for more than 90 days during the tax year. If you're a US citizen or legal resident, no. (b) Appreciation after becoming a Resident Individual of Puerto Rico. Therefore, there are multiple ways to satisfy the requirements of the presence test. During each year of the 3-year period, you must be present in the relevant territory for at least 60 days. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. In more ways than one, starting a new life in Puerto Rico can be the best investment you ever make. 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. Financial accounts include bank accounts, crypto asset accounts, certain insurance policies or investment accounts. https://nomadcapitalist.com/Puerto Rico Act 60 Real Estate Tax Incentives for individual investors is becoming increasingly popular among US persons looking . 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. 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. Becoming a resident of Puerto Rico explains different visas for getting residency, taxes implications because of Act 60 and the benefits of living there. they want to find a way to legally avoid the overbearing US tax rules, while not necessarily expatriating and renouncing their US citizenship. Think about how your business can flourish with such a low tax burden. 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. 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. 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. The IRS will also consider factors such as where your immediate family members and personal belongings are located, where you are registered to vote, and where you hold your drivers license. 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. Even if youre only in Puerto Rico for an hour on a certain day, that counts as being present in Puerto Rico. 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. 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. The Incentives Code consolidates various tax decrees, incentives, subsidies, and benefits, including . Only, For detailed information directly from the IRS about the residency tests, consult, Educators and Trainers Can See Big Tax Breaks in Puerto Rico Under Act 60, Puerto Rico Tax Incentives: Young Entrepreneurs, 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? Rather, the US person has to become a Bona-Fide Resident of Puerto Rico. 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