As you might suspect, its easier to satisfy this requirement if you move to Puerto Rico during the first part of the year. If your C Corporation conducts its business in Puerto Rico, then dividends paid to shareholders will be taxed at 0%. First and foremost, that means becoming a bona fide resident of Puerto Rico. First, youll pay a one-time $5,005 application fee along with a $105 acceptance fee. You are a bona fide resident of Puerto Rico for the year of your move plus the two proceeding years. *This is primarily an issue for US Citizens who do not have citizenship elsewhere. 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. The core motivation of the IRS in administering the bona fide residency tests is to make sure that you intend to stay in Puerto Rico for an extended period of time and that you spend limited time in the US during your period of bona fide residency. 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 . 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. You had earned income in the United States of no more than a total of $3,000 and were present for more days in the relevant territory than in the United States during the tax year. Best Places to Buy Property in Puerto Rico. So, even though Puerto Rico will only charge you 4% corporate tax, the US will take at least another 6.5% from your CFC if you . Upon approval, you will be required to pay a one-time $5,000 acceptance fee. A Puerto Rico resident is an individual who is domiciled 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. Contact us today to ask about starting the next exciting chapter of your life on this stunning Caribbean island. they want to find a way to legally avoid the overbearing US tax rules, while not necessarily expatriating and renouncing their US citizenship. The amount of said net capital gain means the portion of the gain related to the appreciation of the Securities or other Assets owned by the Resident Individual Investor at the time of becoming a Resident Individual of Puerto Rico and those acquired by him after becoming a Resident Individual of Puerto Rico. 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 20 offers entities a 4% corporate rate on business . 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. A Puerto Rican driver's license is required. 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. 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. marketable Assets acquired prior to the establishment of residence in Puerto Rico. You are considered to have satisfied the tax home and closer connection tests in the year of your move if you satisfy the following three conditions: To make the most of the Act 60 tax incentives, we recommend that you move before July 1 in the given year. 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 present in the relevant territory for at least 183 days during the tax year. 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. For detailed information directly from the IRS about the residency tests, consult Publication 570. We recommend moving this block and the preceding CSS link to the HEAD of your HTML file. Puerto Rico offers a myriad of tax incentives, but they all entail the same goal for the government: boosting Puerto Ricos economy by attracting to the island high-net-worth individuals who will invest in the infrastructure. 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. Executed lease or transfer of title-proof of real estate ownership is required. Have no significant connection to the USA during the tax year. PRelocate does not assume any responsibility for the contents of, or the consequences of using, any version of any real estate or other document templates or any spreadsheets found on our website (together, the Materials). 957(c)(1) a bona fide resident of Puerto Rico is not treated as a U.S. person (as defined in Sec. What It Means to Be a Resident of Puerto Rico. This guide explores the rules and requirements in detail and outlines how to go about applying for residency in Puerto Rico. PUERTO RICO 787.759.9292 MIAMI 305-677-6626 MCVPR.COM . In addition, every year you must make a donation of $10,000 split evenly between two qualifying nonprofit organizations in Puerto Rico. 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. Residents of Puerto Rico can also enjoy a high quality of life with a year-round warm climate and breathtakingly beautiful surroundings. 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; } If you think this test sounds impossible to satisfy for the year of your move, thats why the IRS offers a special exemption for the year of your move only. First and foremost, there are some significant tax benefits. 5. For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) Before they will exempt you from regular U.S. tax obligations, the IRS must determine that you have truly made Puerto Rico your home. At printing time, the government of Puerto Rico enacted into law: Act No. 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; } Act 52-2022 requires Puerto Rico resident individuals to report financial accounts that are held outside of Puerto Rico or outside of the US and had a balance over $10,000 during the tax year. 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. To recap, under Puerto Ricos Act 60 tax incentives, you and your business may be eligible for staggering tax savings if you adhere to the requirements. 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). Furthermore, the property must remain your primary residence for as long as the decree remains in force. 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. The IRS's new campaign addresses taxpayers who have claimed benefits through Puerto Rico Act 60, without meeting the requirements of section 937, Residence and Source Rules Involving Possessions. You were not present in the US for more than 90 days during the tax year. 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. 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. This means that Puerto Rico should be your primary place or residence or your primary place of employment. Then, youll be required to file an annual report each year along with a $300 fee. Special rule for nonresident aliens. If youd like to know more about the qualifying tests, consult IRS Publication 570. It means that under Puerto Rico Incentives Code 60, if an individual is granted Puerto Rico tax exemption under the act, long term gains as a result of investments made after becoming a resident will be exempt from tax in 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. 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. It is expected that individuals who receive their decree before this date will be grandfathered in. 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. Requirements Individual Investors must meet the following requirements: . 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. 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. Act 60 provides tremendous tax benefits to qualified businesses and individual investors. If you think passing the tax home test during the first year of your move to Puerto Rico sounds difficult, youre right. 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. 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. Incumbent will receive assignments in the form of plans and specification covering work to be accomplished by contractors and schedules for completion of the construction work.Qualifications: Who . Opening a Puerto Rican bank account is helpful not only for the test but also for your daily life on the island, as is a local drivers license. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. 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. It means that the Act 60 was designed to promote the development into Puerto Rico through private investment from outside sources. 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. The most important consideration for the IRS is that you spend more time in Puerto Rico than in the rest of the United States. 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). Flights to and from Puerto Rico are considered domestic flights, a distinction shared in the Caribbean by only one other island chain: the US Virgin Islands. 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. Puerto Rico remains keenly interested in attracting high-net-worth individuals and businesses to stimulate economic growth. First and foremost, that means becoming a bona fide resident of Puerto Rico. Creation of Jobs Requirements Businesses with an annual volume, actual or projected, more than three million dollars equivalent; Manufacturing, three . Not earn more than $3,000 in earned income in the USA during the tax year and be present in Puerto Rico for more days than in the USA. 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. However, you cant qualify unless you establish residency on the island. Act 20 and 22 tax incentives have been replaced by Act 60 as of January 1, 2020. (a) Appreciation Before Becoming a Resident Individual of Puerto Rico. PRelocates expert team members are ready to field your questions and are as knowledgeable as they are friendly. permanent residence, Puerto Rico, Real Estate, residency, Caribbean Citizenship by Investment Real Estate. 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? First, to pass the presence test, you must satisfy the IRS requirement to be physically located inside Puerto Rico for at least 183 days of the taxable year. 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. 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. You had no significant connection to the United States during the tax year. If you have decided to make the move and take advantage of Puerto Ricos generous tax incentives, make sure youre really committed. 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. The COVID-19 pandemic, for example, qualifies as special circumstances that can grant an Act 60 decree holder free presence days under certain conditions. Additional requirements may apply to provide proof of bona fide PR residency-IRS Form 8898. Those who wait until 2036 to apply for the incentive and become Puerto Rican residents wont receive the same benefits unless new legislation is passed. Commit to Puerto Rico, and passing the residency tests will be fairly easy. 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 . */, 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. Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. Contrary to popular belief, just getting a Golden Visa without further action does not reduce an Americans tax liability. 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. 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). Your benefits should not be affected even if there are amendments to the legislation during the term of this agreement. To qualify for the exemptions, you must become a bonafide resident of Puerto Rico. Youd be hard-pressed to find a better value home than a U.S. territory that offers a 4% corporate income tax and 0% capital gains tax, among many other benefits. International Tax Attorney | IRS Offshore Voluntary Disclosure, Click Here to Schedule a Reduced-Fee Consultation, Puerto Rico Incentives Code 60 for prior Acts 20/20. 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. Consulting companies, auditing firms, marketing businesses, and more are eligible business types. The first of the three tests is perhaps the most complicated. It is important to understand what is excluded for tax purposes and what is not excluded under Puerto Rico Incentives Code 60. In 2012, Puerto Rico had passed two laws intended to make the island a "global investment destination.". The non-profit charitable contribution requirement which was previously at $5,000 has been increased to $10,000. As of 2022, that could result in a tax rate of up to 37%. Nov. 8, 2019, 10:00 AM. 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. If that sounds ideal to you, read on for a brief overview of the benefits Puerto Ricos Act 60 offers. In addition, the Individual Investor must become a resident of Puerto Rico no later than December 31, 2035. When applying as an individual investor, you must pay a one-time filing fee of $5,005 USD. 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