Puerto Ricos bona fide residency tests may seem intimidating, but if youre dedicated to starting fresh in the USs sunny Caribbean island territory, the tests are simple. A person must meet extensive rules and requirements to qualify for the favorable tax treatment available to residents of Puerto Rico. 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). 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. In more ways than one, starting a new life in Puerto Rico can be the best investment you ever make. Carlos Fontn, director of the DDEC's office of business incentives in Puerto Rico, said in April, the agency began the first . Another bonus is the 30 free international travel days decree holders are eligible for if they spend more time in Puerto Rico than the US. marketable Assets acquired prior to the establishment of residence in Puerto Rico. At the same time, youll retain your U.S. citizenship and wont forfeit Medicare or Social Security. If you're a US citizen or legal resident, no. 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. These services must not have a connection with Puerto Rico. 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. This property must be the individuals primary residence and not rented out. The goal of tax planning is to legally limit, minimize, and if possible, avoid US tax while also avoiding a tax fraud audit (eggshell or reverse eggshell) or special agent investigation. If the unrecognized gain is US-sourced, it will still generally be taxable in the US despite Puerto Rico Incentives Code 60. 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. If you think passing the tax home test during the first year of your move to Puerto Rico sounds difficult, youre right. Thousands of Americans have already made the move to Puerto Rico, enjoying a 0% income tax rate on capital gains or a 4% corporate tax rate for their business while indulging in the excitement of Puerto Rican culture and cuisine. Residency in Puerto Rico The Guide from 7th Heaven Properties, Can a citizen or permanent resident of the USA live in Puerto Rico? This means that Puerto Rico should be your primary place or residence or your primary place of employment. 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. 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. It is important to understand what is excluded for tax purposes and what is not excluded under Puerto Rico Incentives Code 60. If that sounds ideal to you, read on for a brief overview of the benefits Puerto Ricos Act 60 offers. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. Ultimately, you can satisfy the closer connection test however works best for you and your circumstances, but fully committing to a new life in Puerto Rico is the simplest solution. To benefit from the tax advantages under Act 60-2019 (detailed below) an individual must purchase property in Puerto Rico within 2 years. Therefore, there are multiple ways to satisfy the requirements of the presence test. 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. If youd like to know more about the qualifying tests, consult IRS Publication 570. 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. Its a great bargain. In other words, a tax home is your main place of business, employment, or post of duty, according to IRS rules. 257 of December 10, 2018, which introduced significant amendments to the Puerto Rico Internal Revenue Code ("Puerto Rico Code"); and Act No. You must acquire a grant of tax exemption by applying through Puerto Ricos Industrial Tax Exemption Office. Puerto Rico voter registration is required. 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. Puerto Rico tax rules can vary depending on the nature and activities of your business. What It Means to Be a Resident of Puerto Rico. Lets take the example of a C Corporation, which the IRS recognizes as an independent legal entity. It is expected that individuals who receive their decree before this date will be grandfathered in. Basically, to satisfy the tax home test, keep your officeor your home, as the case may bein Puerto Rico. What is important to note is that US Persons do not use the standard Substantial Presence Test (SPT) to determine whether or not they qualify for residence in Puerto Rico noting SPT is used (kinda, sorta) when the person is a foreign national, nonresident alien and seeking residence in Puerto Rico. If you have decided to make the move and take advantage of Puerto Ricos generous tax incentives, make sure youre really committed. Noting, the Puerto Rico BFR rules are not the same as the Substantial Presence Test BFR rules but the concept is the same. 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. To be defined as a bona fide resident of Puerto Rico, an individual must be able to demonstrate that he/she satisfies 3 key residency requirements relating to the individuals presence in Puerto Rico, having a tax home in Puerto Rico and having closer connections to the territory than anywhere else. You dont need to satisfy them allsatisfying just a single one is sufficient. Bona fide residency is the benchmark to determine commitment to the island, and it is measured by three tests: the presence test, the tax home test, and the closer connection test. Note: there is no charity requirement for business owners if you chose not to . Golding & Golding, A PLC (2023): LawDog Enterprises - All Rights Reserved - No Legal Advice Intended: This website includes information about legal issues and legal developments. 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). 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. 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. Plus, you are obliged to donate at least $10,000 USD to charity. The owner must also take out a reasonable salary for him- or herself, which is subject to normal Puerto Rico income tax rates. You were not present in the US for more than 90 days during the tax year. 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. You did not maintain a tax home outside of Puerto Rico for the last 183 days of the 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. 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. Article 7 of Act 22 protects those trusts created by Act 22 grantees from the forced inheritance provisions of the Puerto Rico Civil Code. To qualify for the exemptions, you must become a bonafide resident of 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. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. Golding & Goldingspecializes exclusivelyin international tax, and specificallyIRS offshore disclosure. Act 60. 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. 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. Finally, exceptions are available for special circumstances, such as medical treatment or disasters. Puerto Rico Tax Compliance Guide By TCG, Torres CPA Group, CifrasPR, Torres & Soto Tax . Legally avoiding the 37% federal rate and the 13.3% California (or other state) rate is a jaw-dropping benefit . If thats the case, the IRS will treat your primary residence as your tax home. 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. doing business in Puerto Rico. However, you cant qualify unless you establish residency on the island. 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. Note that those who were already residents of Puerto Rico during the 10 years before their move are not eligible for this tax incentive. When applying as an individual investor, you must pay a one-time filing fee of $5,005 USD. This assumes you're using an offshore company and thus not subject to Self Employment Tax in the United States. * *This is primarily an issue for US Citizens who do not have citizenship elsewhere. Individual - Residence. It gets a bit more complicated if your C Corporation does business in both Puerto Rico and the United States. 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. Act 60 provides tremendous tax benefits to qualified businesses and individual investors. 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. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. When US taxpayers begin researching how to relinquish their US status, oftentimes they will come across Puerto Rico. Puerto Rico Tax Incentives for Businesses, Puerto Rico Tax Incentives for Individuals, Becoming a Bona Fide Resident of Puerto Rico, Obtaining and Maintaining The Tax Exemption Decree, What Ownership of a Puerto Rico C Corporation Means, What Ownership of a Puerto Rico Export-Service Company Means, Lets Review Key Points and Discuss Next Steps, The Process to Purchase a Used Car in Puerto Rico, How to Obtain Your Puerto Rican Drivers License, 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? There are always exceptions, exclusions, and limitations to be aware of. 5. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. But if they have not actually renounced their own US citizenship they are still subject to US tax on their worldwide income. Long-Term Permanent Residents (LTR) tend to not have this issue, since LTRs already have citizenship in another country. During each year of the 3-year period, you must be present in the relevant territory for at least 60 days. SAN JUAN, Puerto Rico, Nov. 8, 2019 /PRNewswire-PRWeb/ -- Former Governor of Puerto Rico, Ricardo Rossell, signed Act 60-2019, commonly known as the Puerto Rico . 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 . 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. 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. Then, under a law referred to as Act 60 (formerly Act 20 and Act 22), Puerto Rico has enacted several tax incentives, the two most popular of which are as follows: a Puerto Rican corporation that's engaged in certain types of service businesses only pays Puerto Rican tax of 4%. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. 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. What does this mean? Your tax home is the jurisdiction in which your primary place of employment is located. Are you wondering how exactly your business will benefit from relocating to 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. At printing time, the government of Puerto Rico enacted into law: Act No. Of course not. 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. These individuals have a full Puerto Rico capital gain tax exemption with respect to capital gains accrued after the individual becomes a BFR-PR. Firstly, an individual must be present in Puerto Rico for defined period. Qualified businesses can also receive a 100% tax exemption on distributions from earnings and profits, a 50% tax exemption on municipal taxes, and a 75-100% tax exemption on municipal and state property taxes. Thus, to reap the benefits of the ever-popular Act 60 Export Services and Individual Resident Investor tax exemptions, you must hold up your end of the bargain and settle into a life in Puerto Rico. This applies to the primary place where you work and create value. As a U.S. territory, Puerto Rico is subject to tax rules that are different from those of U.S. states. All three are easy to satisfy if you truly commit to a new life in Puerto Rico. 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. 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. Rather, the US person has to become a Bona-Fide Resident of Puerto Rico. 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 contributions of the companies under the Act 20/22 have a positive impact on the local economy. Neither you nor your relatives can control these nonprofit entities. Passing Puerto Ricos bona fide residency tests may seem tough, but if you truly move your whole life to Puerto Rico, its not that difficult. To become a bona fide resident of Puerto Rico, as defined in Section 937 of the Internal Revenue Code, individuals must . /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. What It Means to Be a Resident of 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. 957(c)(1) a bona fide resident of Puerto Rico is not treated as a U.S. person (as defined in Sec. Puerto Rico taxes are very favorable to crypto investors when using Act 60. /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. Thats why IRS has introduced a special exception for your first year in Puerto Rico, contingent on three conditions: 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. If your C Corporation conducts its business in Puerto Rico, then dividends paid to shareholders will be taxed at 0%. purposes only and may not reflect the most current legal developments. 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. 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). 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? A flat 4% corporate tax rate The presence test considers how much time you spend in Puerto Rico. If such appreciation is recognized at any other time, 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. As a basic overview, heres what you have to do to pass the three tests to establish bona fide residency in Puerto Rico: Capital gains accrued prior to your move to Puerto Rico are treated differently depending on when they are recognized: There is a $750 fee due with your application, which you are to submit to the Office of Industrial Tax Exemption. Luckily, you can take your pick from a huge selection of quality housing on the island. 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. 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. If youre unclear on whether youll meet this requirement, check out our Day Tracker Tool. This comes out to $5,110 in application fees and an ongoing $15,005 in annual report filing fees and charitable contributions. Even if youre only in Puerto Rico for an hour on a certain day, that counts as being present in Puerto Rico. Likewise, the incentives offered shall be continuously reviewed in order to identify those that are not cost-effective and to strengthen those that have proven to have an impact and which generate a return on investment for the Treasury. 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. Puerto Rico now requires the individual to purchase residential property within the first two years of becoming a resident. That way, you can satisfy all the tests and achieve bona fide residency even in the year of your move. Earned income is pay for personal services performed, such as wages, salaries, or professional fees. 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. To keep track of your presence days, download our Day Tracker Tool. Conditions (1) through (5) above do not apply to nonresident aliens of the United States. Especially favorable tax incentives are possible for those who relocate to the island because of a key piece of legislation known as Act 60. Lets traverse some of the key points of act 22 for Individuals (Act 20 is for Businesses) (now combined into act 60) as it relates to individuals and investments to US residents who relocate to Puerto Rico and become a bona fide resident (citations refer directly to the act). Think about how your business can flourish with such a low tax burden. Commit to Puerto Rico, and passing the residency tests will be fairly easy. Furthermore, the property must remain your primary residence for as long as the decree remains in force. 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. 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. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. */, Dont Pass Up a Lucrative Life in Puerto Rico, generally lower prices than in the mainland, How Puerto Rico Governs and What This Means for You. 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. attorney to discuss your specific facts and circumstances and to obtain advice on specific legal problems. Upon approval, you will be required to pay a one-time $5,000 acceptance fee. Nov. 8, 2019, 10:00 AM. Puerto Rico Service Exporters Must Document Well to Avoid IRS Ire. This Code is approved with the conviction that it shall improve Puerto Ricos economic competitiveness. TAX EXEMPTION DECREE Where your personal belongings, such as cars, furniture, clothing, and jewelry, are stored, Where organizations that you affiliate with, whether professional, cultural, social, religious, or political, are located, The jurisdiction for which you hold a drivers license, The jurisdiction in which you are registered to vote, Where charitable organizations that you contribute to are located, Which country you put down as your country of residence on official forms, Which forms or documents you file, such as Form W-8BEN or Form W-9. (b) Appreciation after becoming a Resident Individual of Puerto Rico. Foreign Earned Income Exclusion: 0% tax on first $100,000 and 35% tax on $400,000 = $140,000. The Department of Economic Development and Commerce (DDEC, in Spanish) has revoked 121 tax incentive decrees to Act 22 (now Act 60) beneficiaries who failed to submit annual reports to the agency, as the law required. 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. The individual cannot have been a resident of Puerto Rico for at least 10 years prior this is increased from previously in which it was six 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. 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. 1 Puerto Rico Resident CFC & PFIC Tax Planning 2 Puerto Rico Act 60 Can Shapeshift and Terminate 3 Avoiding CFC Status in Puerto Rico has Strict Requirements 4 Other CFCs are still subject to 5471, GILTI and Subpart F 5 Foreign Income is Still Taxable 6 Puerto Rico Trust are Foreign (Even if Accounts and Assets are not) Act 20 allows corporations that export services from the island to pay only 4 percent . Discover: Best Places to Buy Property in Puerto Rico. The non-profit charitable contribution requirement which was previously at $5,000 has been increased to $10,000. 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; } Residents can also benefit from 75% exemption on property tax and construction taxes. 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. The purpose of these measures is to provide incentives to individuals who have not been residents of Puerto Rico to become residents. You were present in Puerto Rico for at least 183 days in the tax year. Contact us today to ask about starting the next exciting chapter of your life on this stunning Caribbean island. 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. Consulting companies, auditing firms, marketing businesses, and more are eligible business types. */, Export Services Tax Incentive For Businesses, 100% tax exemption on distributions from earnings and profits, 75% tax exemption on municipal and state property taxes (small and medium businesses can receive a 100% exemption during their first five years of operation), To qualify, the business model must be concentrated around exporting services outside of Puerto Rico. 4. 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. Lets explore each of these in greater detail. As of 2022, that could result in a tax rate of up to 37%. 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. The term 'resident individual' means an individual who is domiciled in Puerto Rico. Initial consultations 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). Have no significant connection to the USA during the tax year. 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. Group, CifrasPR, Torres CPA Group, CifrasPR, Torres CPA Group, CifrasPR, Torres CPA Group CifrasPR. 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