For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) How do I become a resident of Puerto Rico? /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. Puerto Rico seeks to move away from its historical focus on manufacturing and become a major services exporter. doing business in Puerto Rico. This is important, because under the previous version of the rule, there was no need to actually purchase property. Bona fide resident of Puerto Rico. All three are easy to satisfy if you truly commit to a new life in Puerto Rico. As provided by Puerto Rico Incentives Code 60: What does this mean? This is an important point because if your company does business with other entities that are based on the island, youll risk losing your tax exemption. 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%. All of these benefits and so much more can be yours if you relocate to Puerto Rico. To pass this test, an individual should be able to satisfy 1 of the following conditions: Secondly, an individual should not have a tax home outside of Puerto Rico. Your tax home is the jurisdiction in which your primary place of employment is located. 2 This income also would be excluded from Puerto Rican income tax. 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. However, individuals deriving income for services performed within Puerto . 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. This assumes you're using an offshore company and thus not subject to Self Employment Tax in the United States. 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. If you wish, you can follow in their footsteps and escape some of the worst ravages of 2022s surging inflation and anemic economic growth by moving to this low-tax haven. Puerto Rico Service Exporters Must Document Well to Avoid IRS Ire. 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. Puerto Rico's Act 60: 30% tax on first $100,000 = $30,000 and 4% of $400,000 = $16,000, for a total tax of $46,000. 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; } Act 60 offers a corporate tax rate of 4% to Puerto Rican companies that export services performed in the territory to people or companies . Lets clarify what we mean when we say these tax breaks apply only to exported services. Even if youre only in Puerto Rico for an hour on a certain day, that counts as being present in Puerto Rico. 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. 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. 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. Puerto Rico operates with some independent from the US government. 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). 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 . What It Means to Be a Resident of Puerto Rico. This is ensured by Act 60-2019 (formerly known as Act 22). Under Act 60, an eligible business includes export services and commerce. 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. It is expected that individuals who receive their decree before this date will be grandfathered in. Fortunately, the IRS provides a special exemption for that first year. We look forward to helping you find your perfect property in Puerto Rico. 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 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 closer connection test is perhaps the most reliable in determining your loyalty to Puerto Rico. 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. 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). 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). Discover: Best Places to Buy Property in Puerto Rico. To explore your options in more detail, please contact 7th Heaven Properties, the Luxury Caribbean Property Specialist. To avoid penalties, this would require a transfer pricing analysis and intercompany agreements to determine the share of profits realized in Puerto Rico vs. on the mainland, as laid out in this guide. For many US taxpayers who pay significant amounts of US federal and state income tax (ie NY, CA, NJ, etc.) Thus, with the tools provided by this Code, this Administration shall keep boosting the economy and attracting private capital to the Island. Would you like to find out more about how to get residency in Puerto Rico? These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. The IRS offers five different conditions a decree holder can use to fulfill the presence requirement for bona fide residency. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. 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. That way, you can satisfy all the tests and achieve bona fide residency even in the year of your move. 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. Youll also use Form 8898 to inform the IRS of your new residency status. Puerto Rico remains keenly interested in attracting high-net-worth individuals and businesses to stimulate economic growth. 60 of July 1, 2019, known as the Puerto Rico Incentives First, youll pay a one-time $5,005 application fee along with a $105 acceptance fee. What It Means to Be a Resident of Puerto Rico. Before they will exempt you from regular U.S. tax obligations, the IRS must determine that you have truly made Puerto Rico your home. A Puerto Rico resident is an individual who is domiciled in Puerto Rico. 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 . 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. As a US territory, Puerto Rico has a unique tax climate. 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. 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. 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. 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. Thus, in the most ideal of situations, the taxpayer will move to Puerto Rico and become a Bona-Fide resident without having realized but unrecognized gain already. In addition, every year you must make a donation of $10,000 split evenly between two qualifying nonprofit organizations in Puerto Rico. The purpose of Puerto Rico Incentives Code 60 is to promote investment in Puerto Rico by providing investment residents with tax breaks. Youll become a bona fide resident and be eligible for Act 60 tax benefits if you pass four qualifying tests: the presence test, the tax home test, the closer connection test, and the residence test. 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). The Code shall create a simple, streamlined, and efficient process that focuses on the client, and shall earn the trust of the people and the private sector by having a transparent process for the granting of incentives. A C Corporation is separate from its owners. 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. 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. 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. Youll want to keep meticulous records to ensure you dont jeopardize your eligibility for these generous Act 60 tax benefits. 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. Carlos Fontn, director of the DDEC's office of business incentives in Puerto Rico, said in April, the agency began the first . 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. 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. You'll become a bona fide resident and be eligible for Act 60 tax benefits if you pass four qualifying tests: the presence test, the tax home test, the closer connection test, and the residence test. If youve invested in stocks, securities, or cryptocurrency, this may still be a great move for you. 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. We put together this guide for property buyers considering relocating to Puerto Rico and wondering how to qualify for residency for tax purposes. Don't Pass Up a Lucrative Life in Puerto Rico PRelocate is an Official Qualified Promoter with Puerto Ricos Department of Commerce and will save you time and money with a hassle-free relocation. With beautiful, sunny weather, a vibrant Hispanic culture, and generally lower prices than in the mainland, Puerto Rico offers more than just tax savings. Not be present in the USA for more than 90 days during the tax year. Initial consultations Commit to Puerto Rico, and passing the residency tests will be fairly easy. 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. Residency in Puerto Rico The Guide from 7th Heaven Properties, Can a citizen or permanent resident of the USA live in Puerto Rico? 257 of December 10, 2018, which introduced significant amendments to the Puerto Rico Internal Revenue Code ("Puerto Rico Code"); and Act No. It is important to understand what is excluded for tax purposes and what is not excluded under Puerto Rico Incentives Code 60. Therefore, there are multiple ways to satisfy the requirements of the presence test. However, you cant qualify unless you establish residency on the island. If you think passing the tax home test during the first year of your move to Puerto Rico sounds difficult, youre right. 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. 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