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. As a side note, this will help solidify US residents in making Puerto Rico their main home because owning property or real estate in a location and claiming it as primary residence goes a long way in showing Puerto Rico is actually the tax home. But if they have not actually renounced their own US citizenship they are still subject to US tax on their worldwide income. Puerto Rico now requires the individual to purchase residential property within the first two years of becoming a resident. 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. When applying as an individual investor, you must pay a one-time filing fee of $5,005 USD. 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. 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. Resident Engineer (Construction) About the Position: Incumbent will serve as the Resident Engineer under the general supervision of the Area Engineer. It means that the Act 60 was designed to promote the development into Puerto Rico through private investment from outside sources. Advertising, consulting, educational, financing, and medical services are just a few among nearly two dozen categories of export services that are eligible for these benefits. 2. As a U.S. territory, Puerto Rico is subject to tax rules that are different from those of U.S. states. These will be especially important to present if the IRS or Puerto Rico Department of Treasury (Hacienda) challenges your bona fide resident claims. However, if your C Corporation derives its revenue from the United States, dividends will be subject to regular federal taxes. Additional small fees may apply. As provided by Puerto Rico Incentives Code 60: What does this mean? The IRS' report to Congress calculated that more than 1,924 applicantscorporations, LLCs, partnerships, and other typeshad been granted tax benefits under the Exports Services Act (formerly known as Act 20) as of March 2020 based on partial information provided by Puerto Rico. PUERTO RICO 787.759.9292 MIAMI 305-677-6626 MCVPR.COM . Then, youll be required to file an annual report each year along with a $300 fee. 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. These free travel days encompass travel outside of the United States but effectively mean that a degree holder need only spend 153 days in Puerto Rico, as long as the extra 30 days are spent outside of the US. Afterward, each year, you will have to make a $10,000 charitable donation and submit an annual report along with a $300 fee. Passing the Presence Test /* Add your own Mailchimp form style overrides in your site stylesheet or in this style block. 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. Financial accounts include bank accounts, crypto asset accounts, certain insurance policies or investment accounts. 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 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 purpose of Puerto Rico Incentives Code 60 is to promote investment in Puerto Rico by providing investment residents with tax breaks. 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. Physical . Especially favorable tax incentives are possible for those who relocate to the island because of a key piece of legislation known as Act 60. Act 60 Updates from Act 22 (Individuals) 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. Puerto Rico voter registration is required. 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 factors that the IRS considers when determining whether you have maintained a closer connection to Puerto Rico than the US during the tax year include the following: Essentially, to pass the closer connection test, you need to move your entire life to Puerto Rico, including your family. 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: 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. Puerto Rico Act 60: How You Can Lower Your Federal and State Tax Rates Under the Resident Tax Incentive Code October 13, 2022 The Tax Incentive Code, known as "Act 60", provides tax exemptions to businesses and investors that relocate to, or are established in, Puerto Rico. This comes out to $5,110 in application fees and an ongoing $15,005 in annual report filing fees and charitable contributions. For example, the salaries of owners and employees are tax deductible. That way, you can satisfy all the tests and achieve bona fide residency even in the year of your move. 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; } As Puerto Rico is a part of the USA but has an independent tax system, residents of Puerto Rico pay taxes to Puerto Rico rather than to the Federal Government and the tax rates compare extremely favorably. But if they have not actually renounced their own US citizenship they are still subject to US tax on their worldwide income no matter where they reside. 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. Are you wondering how exactly your business will benefit from relocating to Puerto Rico? If your export-service company is conducting its activities inside Puerto Rico, it may be eligible for substantial benefits that apply to income received from customers outside of Puerto Rico. To explore your options in more detail, please contact 7th Heaven Properties, the Luxury Caribbean Property Specialist. With proper tax planning and sourcing allocations, a person can feasibly reduce their tax liability to nearly zero on income and assets generated and acquired once becoming a Puerto Rican resident but its not quite that simple. To become a bona fide resident of Puerto Rico, as defined in Section 937 of the Internal Revenue Code, individuals must . Local government has legislated a series of incentives to attract investment, of which EB-5 Visa program participants can also take advantage. 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. 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. 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. 60 of July 1, 2019, known as the Puerto Rico Incentives What It Means to Be a Resident of Puerto Rico. 5. */, 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. */. TIP. 1. Entrepreneurs can save with a 4% corporate tax rate. Its a requirement. Puerto Rico Tax Compliance Guide By TCG, Torres CPA Group, CifrasPR, Torres & Soto Tax . 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. The core motivation of the IRS in administering the, The first of the three tests is perhaps the most complicated. 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. Various factors such as the presence of an individuals permanent home, family, belongings, principal bank and business in Puerto Rico, as well as the existence of professional, cultural, religious, social and political affiliations and links in Puerto Rico, may help to demonstrate a closer connection to Puerto Rico than to anywhere else. Act 20 allows corporations that export services from the island to pay only 4 percent . Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together PRelocate) are law firms, and this is not legal advice. they want to find a way to legally avoid the overbearing US tax rules, while not necessarily expatriating and renouncing their US citizenship. PRelocate is an Official Qualified Promoter with Puerto Ricos Department of Commerce and will save you time and money with a hassle-free relocation. Plus, you are obliged to donate at least $10,000 USD to charity. Consequently, the IRS has identified vulnerabilities with certain individuals who may be excluding income subject to U.S. tax on a filed U.S. income tax return or failing to file and report income . 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. Puerto Rico seeks to move away from its historical focus on manufacturing and become a major services exporter. 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. . Therefore, there are multiple ways to satisfy the requirements of the presence test. No Article, Blog Post or Page may be reproduced or used without express written consent of Golding & Golding. Its recommended to sell or rent out your home in the US, which will not only significantly help pass the closer connection test but also provide some extra cash. 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. All of these benefits and so much more can be yours if you relocate to Puerto Rico. However, in the case of Puerto Rico, all the above tax and other benefits are legally available to residents of Puerto Rico without having to renounce US citizenship. they want to find a way to legally avoid the overbearing US tax rules, while not necessarily expatriating and renouncing their US citizenship. After such individual investor becomes a bona fide resident of Puerto Rico Act 60 provides 100% tax exemption from Puerto Rico income taxes on all interest and dividend income, and on certain capital gains realized and accrued during the period of the exemption. 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). 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. 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. 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. 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. 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. Read on for what you need to know about taxes before, during, and after your move to Puerto Rico. 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. 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 . Citizenship: The most straightforward qualification is the requirement to be a citizen of the United States, living in Puerto Rico. Interestingly, however, under Sec. 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). 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. Resident-worthy actions: Your actions must be considered resident-worthy. Contrary to popular belief, just getting a Golden Visa without further action does not reduce an Americans tax liability. Long-Term Permanent Residents (LTR) tend to not have this issue, since LTRs already have citizenship in another country. 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). Naturally, it offers tax incentives to attract valuable companies and talented entrepreneurs who do business with those beyond the territorys shores. However, individuals deriving income for services performed within Puerto . Not be present in the USA for more than 90 days during the tax year. Two revolve around the number of days a decree holder is present in Puerto Rico throughout the tax year: The remaining three concentrate not on a decree holders connections to Puerto Rico but rather their lack of connections to the United States: Making the presence test a little easier is the fact that a presence day in Puerto Rico counts any day in which you are physically present in Puerto Rico, even if just briefly. 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. Before they will exempt you from regular U.S. tax obligations, the IRS must determine that you have truly made Puerto Rico your home. In order to encourage the transfer of such individuals 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 fully exempt from income taxes in Puerto Rico, including the alternate basic tax provided in the Puerto Rico Internal Revenue Code. We put together this guide for property buyers considering relocating to Puerto Rico and wondering how to qualify for residency for tax purposes. 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. And, if it the income is sourced in Puerto Rico, it would escape tax in the U.S. as well. You had no significant connection to the US during the tax year. Executed lease or transfer of title-proof of real estate ownership is required. Nov. 8, 2019, 10:00 AM. How about moving just yourself? Consulting with a tax advisor would be a good idea as well. attorney to discuss your specific facts and circumstances and to obtain advice on specific legal problems. Chapter 3 of Act 60-2019 - Export Services Tax Incentive. If your C Corporation conducts its business in Puerto Rico, then dividends paid to shareholders will be taxed at 0%. 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. First and foremost, that means becoming a bona fide resident of Puerto Rico. 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) 4. As of 2022, that could result in a tax rate of up to 37%. Where they keep important personal belongings, What jurisdiction their primary bank is in, Where the organizations they affiliate with are located, Maintaining a tax home in Puerto Rico for the last 183 days of the year, Not having been a bona fide resident of Puerto Rico in the three tax years before the year of the move, Achieving bona fide residency in the year of the move and the two years following it. 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