5%, if such gain is recognized after said 10-year period. Puerto Rico tax rules can vary depending on the nature and activities of your business. Puerto Rico operates with some independent from the US government. Carlos Fontn, director of the DDEC's office of business incentives in Puerto Rico, said in April, the agency began the first . Therefore, there are multiple ways to satisfy the requirements of the presence test. Contact us today to ask about starting the next exciting chapter of your life on this stunning Caribbean island. Chapter 3 of Act 60-2019 - Export Services Tax Incentive. 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. Have no significant connection to the USA during the tax year. The amount of the net long- term capital gain shall be limited to the portion of the gain related to the appreciation of the Securities or other Assets while the Resident Individual Investor resided outside of Puerto Rico. 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. 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. Feb. 9, 2023, 1:45 AM. 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: Then, once becoming a bona fide resident of Puerto Rico, the taxpayer will then begin to acquire income sourced from Puerto Rico so that it is not taxable in the United States. If you're a US citizen or legal resident, no. When you have satisfied all the requirements to become a bona fide Puerto Rico resident, you must file, 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. 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 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. Puerto Rico voter registration is required. 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. 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. Lets explore each of these in greater detail. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. 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. In order to promote investment into Puerto Rico, they developed Act 60 to attract high net-worth individuals and businesses. 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. Contrary to popular belief, just getting a Golden Visa without further action does not reduce an Americans tax liability. One of these is the low 4% corporate tax rate we touched on earlier. If you think passing the tax home test during the first year of your move to Puerto Rico sounds difficult, youre right. 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. Foreign Earned Income Exclusion: 0% tax on first $100,000 and 35% tax on $400,000 = $140,000. 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. Entrepreneurs can save with a 4% corporate tax rate. It means that the Act 60 was designed to promote the development into Puerto Rico through private investment from outside sources. Due to the territorys legal status, moving to Puerto Rico is considered internal migration as opposed to immigration. At printing time, the government of Puerto Rico enacted into law: Act No. 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. Its a great bargain. 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. 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). These will be especially important to present if the IRS or Puerto Rico Department of Treasury (Hacienda) challenges your bona fide resident claims. 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; } 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. A Puerto Rican driver's license is required. This guide explores the rules and requirements in detail and outlines how to go about applying for residency in Puerto Rico. 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. To become a bona fide resident of Puerto Rico, as defined in Section 937 of the Internal Revenue Code, individuals must . Many companies opt to become C Corporations because of the special tax advantages associated with this status. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. Upon approval, you will be required to pay a one-time $5,000 acceptance fee. First and foremost, that means becoming a bona fide resident 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. 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. Lets clarify what we mean when we say these tax breaks apply only to exported services. Therefore, there are multiple ways to satisfy the requirements of the presence test. The total net capital gain generated by a Resident Individual Investor related to any appreciation of Securities or other Assets after said Resident Individual Investor becomes a Resident Individual of Puerto Rico, that is recognized before January 1, 2036, shall be fully exempt from income taxes in Puerto Rico, including the alternate basic tax provided in the Puerto Rico Internal Revenue Code. 1. 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. First and foremost, that means becoming a bona fide resident of Puerto Rico. Note, however, that if youre going for the 549 days in a three-year period condition, you must still physically spend at least 60 days in Puerto Rico each year. You had no significant connection to the US during the tax year. Given that one of the requirements for bona fide Puerto Rican residency is to maintain a tax home in Puerto Rico for the entire tax year, satisfying this test in the year of your move is clearly impossible unless you move on January 1. Act 22 (as amended by Act 60 of 2019), also known as The Individual Investors Act, was approved by the Legislative Assembly of Puerto Rico during 2012. Finally, exceptions are available for special circumstances, such as medical treatment or disasters. 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.) Your tax home is the jurisdiction in which your primary place of employment is located. Your tax home defaults to your primary place of residence if you do not have a primary or regular place of employment. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. 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. If youd like to know more about the qualifying tests, consult IRS Publication 570. TAX EXEMPTION DECREE Demand for Non-CRS Banking as CRS Goes Global Opening bank accounts in countries that do not participate in the Common Reporting Standards (CRS) is sometimes seen as a way to increase privacy. Then, once becoming a bona fide resident of Puerto Rico, the taxpayer will then begin to acquire income sourced from Puerto Rico so that it is not taxable in the United States. 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