Puerto Rico Tax Advantages
Act 60 Puerto Rico
Have questions about how Act 60 Puerto Rico can help you relocate to paradise and save money? We’ve got answers!
Puerto Rico has been a top tax haven for many years, welcoming Americans to the island who wish to live in paradise AND keep more of their money in their pocket! If that sounds ideal to you, then keep reading to learn about the benefits and requirements of Puerto Rico’s Act 60.
ACT 60 OF 2019 - "PUERTO RICO INCENTIVES CODE OF PUERTO RICO”
ACT 60 of 2019, commonly known as the "Puerto Rico Incentives Code," went into effect on January 1, 2020. This new Code consolidates various tax decrees, incentives, subsidies, and benefits, including Act 20 and Act 22 of 2012. Both PR Act 20 and 22 of 2012 are no longer in effect, and all new resident-individual investors must comply with Act 60 of 2019.
There are some changes in the code that new residents should be aware of. For example, Puerto Rico Incentives Code Chapter 2, "Individuals," replaces Act 22 and changes regulations relating to annual charitable donations, real estate purchase, and crypto-assets. In contrast, Chapter 3, “Exports”, replaces Act 20 and governs the exportation of goods and services. It introduces significant changes in employment, oversight, eligible businesses, tax exemptions, and municipal contributions.
Chapter 2 of Act 60 of 2019 - Individual Investors
As an incentive, bona fide PR residents are not subject to U.S. federal income taxes; these are instead subject to Puerto Rican income tax laws and the decrees of the new PR Incentives Code. This means residents of the island can benefit from:
- 100% tax exemption from PR income taxes on all dividends
- 100% tax exemption from PR income taxes on all interest
- 100% tax exemption from PR income taxes on all short- and long-term capital gains
- 100% tax exemption from PR income taxes on all cryptocurrencies
To be eligible for these tax incentives, new residents must:
- Make a $10,000 annual donation. One-half may be a government-approved charity and the other half to any Puerto Rico charity of your choice.
- Purchase their primary residence within two years of the decree. The resident investor must purchase a local residence within two years of the incentives decree. The purchased property must be the grantee's primary residence throughout, and the subject property is rental restricted.
- The resident must live full-time on the island for at least 183 days out of the year.
Chapter 3 of Act 60 of 2019 - Export Services
Specific benefits of Act 60’s chapter 3 include:
- A flat 4% corporate tax rate
- 50% tax exemption on municipal taxes
- 75% tax exemption on municipal and state property taxes
- 100% tax exemption on distributions from earnings and profits
- 100% exemption during their first five years of operation for small and medium-sized businesses.
In order to qualify for these benefits and exemptions the business model must move to PR and concentrate in exporting services outside of PR. Consulting companies, auditing firms, marketing businesses, and other similar business types are eligible.
For those individuals and business owners interested in taking advantage of these incredible tax incentives, they may fill out an official application through The Office of Incentives for Business in Puerto Rico "OIBPR." An application and a $750 fee to the Office of Industrial Tax Exemption is required, and upon approval, a one-time $5,000 acceptance fee is also required.
Acts 20 and 22: Tax Incentives for Investors
If you’re looking for a strong return on your investment, you need to understand the details of Act 20 and Act 22, Puerto Rico tax incentives for business and individual investors. In a recent attempt to strengthen its economy and attract investors, the local government has stepped up its economic and tax incentives for those wanting to do business here.
A self-governing territory of the U.S., Puerto Rico has authority over its internal affairs, including certain exemptions from the Internal Revenue Code. Because corporations within Puerto Rico are viewed as foreign corporations, income generated here is not subject to U.S. corporate taxes. Nor are individual residents of Puerto Rico subject to federal taxes on earned income.
Act 20 for Export Service
- 4% Corporate Tax Rate
- 100% Tax Exemption on Dividends or Profit Distributions
- 100% Tax Exemption on Property Taxes
Act 20 provides Puerto Rico tax incentives for companies establishing and expanding export services. The act encourages research and development investments, as well as grants credits and exemptions for research initiatives from both private and academic sectors. To help companies remain efficient and profitable, Act 20 promotes a decrease in operational and energy spending.
To qualify for Act 20, which carries a 20-year term of exemption with a possible 10-year extension, service providers must apply to the Office of Industrial Tax Exemption of Puerto Rico. Business owners who leave Puerto Rico to return to their native country are subject to applicable tax laws of their country of origin.
Act 22 for Individual Investors
- 4% Corporate Tax Rate
- 100% Tax Exemption on All Dividends and Interest Income
- 100% Tax Exemption on All Capital Gains
In an attempt to attract individuals to move to Puerto Rico, Act 22 allows for a total exemption from Puerto Rico income taxes on all passive income, both realized and accrued, once that individual becomes residents of the country. Any individual investor who becomes a good-faith resident of Puerto Rico (typically anyone living here for more than 183 days per year) on or before December 31, 2035, is eligible.
Qualifying for Act 22 is a matter of obtaining a tax exemption decree from the Secretary of Economic Development and Commerce, which is, in effect, a contract between the government of Puerto Rico and the individual investor. The contract can be revoked for failure to comply with regulations, obligations or terms or for fraudulently representing one’s circumstances.
An Investment in Your Future
In addition to its old-world charm, sun-drenched beaches and crystalline blue seas, Puerto Rico beckons with enticing tax advantages for both individual and business investors. If you’re searching for a better way of life and a better return on your investments, it’s time to understand all the Puerto Rico Tax Code offers.
Give us a call today at 787.796.3172. We have the tax information and the Puerto Rico Real Estate you need!