Can a citizen or permanent resident of the USA live in 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. Consulting companies, auditing firms, marketing businesses, and more are eligible business types. You dont need to satisfy them allsatisfying just a single one is sufficient. 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. If you do not have a primary or regular place of employment, your tax home is considered to be your primary place of residence. Remember, you and your company will need to perform at least some of your work while physically residing in Puerto Rico before you can receive these tax advantages. This assumes you're using an offshore company and thus not subject to Self Employment Tax in the United States. Those of Act 22 on average pay 12 times more than most taxpayers in PR. This applies to the primary place where you work and create value. Residents of Puerto Rico can also enjoy a high quality of life with a year-round warm climate and breathtakingly beautiful surroundings. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. Consulting companies, auditing firms, marketing businesses, and, How to qualify for the Act 60 Export Services Tax Incentive, Moving the entire company, including employees, to Puerto Rico and ceasing all operations in the United States, 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, Individual Resident Investor Tax Incentive, 100% tax exemption from Puerto Rico income taxes on all dividends, 100% tax exemption from Puerto Rico income taxes on all interest, 100% tax exemption from Puerto Rico income taxes on all short-term and long-term capital gains, 100% tax exemption from Puerto Rico income taxes on all cryptocurrencies and other crypto assets, Just keep in mind that to qualify for these generous incentives, you must become a, Be physically present in Puerto Rico for at least 183 days of each tax year, Make Puerto Rico your tax home by establishing your office or primary place of work there, Buy property in Puerto Rico, move your family and possessions there, get a Puerto Rican drivers license, register to vote in Puerto Rico, and do other things that demonstrate your commitment to a life on the island, Capital gains before moving to Puerto Rico, If the gains are recognized within 10 years of your move, they are taxed at the U.S. rate, If the gains are recognized after 10 years of your move, they are taxed at Puerto Ricos preferential 5% flat tax rate, and you do not owe U.S. taxes on them, Applying for the Individual Resident Investor Act, Why EB-5 Investors Should Consider Moving to Puerto Rico, How to Obtain or Renew Your Annual Vehicle Registration (Marbete) in Puerto Rico, 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? Moving to Puerto Rico can be a dream come true for individual U.S. investors and businesses seeking to lower their taxes, as long as they follow certain requirements. With the Act 60 Export Services Tax Incentive (formerly Act 20), it may only have to pay 4% corporate income tax. However, individuals deriving income for services performed within Puerto . Noting, the Puerto Rico BFR rules are not the same as the Substantial Presence Test BFR rules but the concept is the same. Its worth noting that between previous fee increases as well as rising inflation, these figures could easily rise at some point during the next few years. For all of the Puerto Rico tax incentives, it is necessary to ensure you understand and monitor compliance with residency requirements. 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. 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. That way, you can satisfy all the tests and achieve bona fide residency even in the year of your move. For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) Its no surprise that thousands of Americans who have moved to the island have been thrilled with the tax breaks that have saved them millions of dollars. 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. 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? To discover homes for sale in Puerto Rico and condos for sale in Puerto Rico from the exclusive beachfront resort communities of Bahia Beach and Dorado Beach to more affordable options in Palmas del Mar, explore real estate in Puerto Rico on our website. Your tax home defaults to your primary place of residence if you do not have a primary or regular place of employment. Charitable donations as well as renting, repairing, and maintaining facilities may yield additional tax breaks. Even if youre only in Puerto Rico for an hour on a certain day, that counts as being present in Puerto Rico. You should contact an If that sounds ideal to you, read on for a brief overview of the benefits Puerto Ricos Act 60 offers. The presence test also grants you 30 automatic presence days of international travel (i.e., travel not to the US) per tax year, which means you actually only need to be present in Puerto Rico for 153 days per year as long as you are traveling outside of the US. Under Chapter 2 of Act 60 . 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. 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. As provided by Puerto Rico Incentives Code 60: This Code is approved with the conviction that it shall improve Puerto Rico's economic competitiveness. 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. Carlos Fontn, director of the DDEC's office of business incentives in Puerto Rico, said in April, the agency began the first . 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; } 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. 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. Its a requirement. What does this mean? */. 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. You were present in Puerto Rico for at least 183 days in the tax year. What It Means to Be a Resident of Puerto Rico. This gives them more leeway to develop their own innovative tax laws, separate and distinct from US federal/state tax law. 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. The former Governor of Puerto Rico, Ricardo Rossell, signed Act 60-2019, commonly known as the Puerto Rico Incentives Code, into law on July 1, 2019, which came into effect on January 1, 2020. All three are easy to satisfy if you truly commit to a new life in Puerto Rico. When filling out the form, you will need to refer to the detailed instructions, which are based on the bona fide residency rules outlined in Publication 570. 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. You were present in the relevant territory for at least 549 days during the 3-year period that includes the current tax year and the 2 immediately preceding tax years. 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. doing business in Puerto Rico. 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. 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. With beautiful, sunny weather, a vibrant Hispanic culture, and generally lower prices than in the mainland, Puerto Rico offers more than just tax savings. 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. 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. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. Local government has legislated a series of incentives to attract investment, of which EB-5 Visa program participants can also take advantage. Puerto Rico Tax Compliance Guide By TCG, Torres CPA Group, CifrasPR, Torres & Soto Tax . The IRS offers five different conditions a decree holder can use to fulfill the presence requirement for bona fide residency. Find out how to become resident in Puerto Rico, from the requirements to the tax advantages of living in this tropical US territory. 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. If you are a U.S. citizen or resident alien, you will satisfy the presence test for the tax year if you meet one of the following conditions. You must spend more time in Puerto Rico than the US during the tax year. Third, to pass the closer connection test, you must convince the IRS that you have stronger ties to Puerto Rico than to the rest of the United States. Act 60 ensures that this grant will remain a binding contract between you and the Puerto Rican government for at least 15 years. 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. You were present in the United States for no more than 90 days during the tax year. 1. The purpose of Puerto Rico Incentives Code 60 is to promote investment in Puerto Rico by providing investment residents with tax breaks. If you're a US citizen or legal resident, no. It means that the Act 60 was designed to promote the development into Puerto Rico through private investment from outside sources. Creation of Jobs Requirements Businesses with an annual volume, actual or projected, more than three million dollars equivalent; Manufacturing, three . 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. 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. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. 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. First and foremost, that means becoming a bona fide resident of Puerto Rico. As you might suspect, its easier to satisfy this requirement if you move to Puerto Rico during the first part of the year. Don't Pass Up a Lucrative Life in Puerto Rico Executed lease or transfer of title-proof of real estate ownership is required. The term 'resident individual' means an individual who is domiciled in Puerto Rico. With fewer close connections to the U.S. mainland, youll minimize your risk of an IRS audit. However, this is a rule of thumb, and others have retained their status with fewer than 183 days on the islands soil in the wake of major natural disaster declarations. 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. 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. Puerto Rico tax haven Eligibility under Act 60 an individual must have physical presence in the Island for at least 183 days of the year and must not have been a resident of Puerto Rico from 2009 to 2019 (the 10-year period preceding the effective date of the Incentives Code). 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. 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. 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. Only one of the following conditions must be true: You were present in Puerto Rico for at least 183 days in the tax year. NERA Economic Consulting's Vladimir Starkov offers tips on how businesses that rely on provisions of Puerto Rico Act 60 can prepare documents of related-party transactions to avoid IRS penalties . And, if it the income is sourced in Puerto Rico, it would escape tax in the U.S. as well. Long-Term Permanent Residents (LTR) tend to not have this issue, since LTRs already have citizenship in another country. If you are aiming to satisfy the presence test by spending at least 549 days within a three-year period in Puerto Rico, you still must be physically present in Puerto Rico for 60 days per year. Passing the Presence Test Thirdly, an individual should not have a closer connection to the USA or to a foreign country than to Puerto Rico. Contact us today to ask about starting the next exciting chapter of your life on this stunning Caribbean island. 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