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. 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. 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). 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. Therefore, there are multiple ways to satisfy the requirements of the presence test. And, if it the income is sourced in Puerto Rico, it would escape tax in the U.S. as well. A Puerto Rican driver's license is required. This is important, because under the previous version of the rule, there was no need to actually purchase property. 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. Additional small fees may apply. 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. Act 20 offers entities a 4% corporate rate on business . The report's findings concluded with what was already known; Act 20 and Act 22 led to hundreds of millions of dollars of lost U.S. income tax revenue. Rather, the US person has to become a. 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. Thus, with the tools provided by this Code, this Administration shall keep boosting the economy and attracting private capital to the Island. * *This is primarily an issue for US Citizens who do not have citizenship elsewhere. With the Act 60 Export Services Tax Incentive (formerly Act 20), it may only have to pay 4% corporate income tax. 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. 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. These services must not have a connection with Puerto Rico. The purpose of Puerto Rico Incentives Code 60 is to promote investment in Puerto Rico by providing investment residents with tax breaks. 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. These will be especially important to present if the IRS or Puerto Rico Department of Treasury (Hacienda) challenges your bona fide resident claims. Each year, the island welcomes new, ambitious Americans and others who wish to keep more of their money while enjoying the island lifestyle Puerto Rico offers. 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. permanent residence, Puerto Rico, Real Estate, residency, Caribbean Citizenship by Investment Real Estate. How about moving just yourself? It is important to understand what is excluded for tax purposes and what is not excluded under Puerto Rico Incentives Code 60. The core motivation of the IRS in administering the, The first of the three tests is perhaps the most complicated. Puerto Rico seeks to move away from its historical focus on manufacturing and become a major services exporter. For example, the salaries of owners and employees are tax deductible. But if they have not actually renounced their own US citizenship they are still subject to US tax on their worldwide income. What does this mean? 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. Form 8898 is used to officially declare the beginning or cessation of bona fide residency in a U.S. possession, determined by the three above-mentioned tests. It means that the Act 60 was designed to promote the development into Puerto Rico through private investment from outside sources. 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. How you choose to pass the closer connections test depends on your individual circumstances, but you should aim to build up a life in Puerto Rico to the best of your ability. 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. Citizenship: The most straightforward qualification is the requirement to be a citizen of the United States, living in Puerto Rico. 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. 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. However, you cant qualify unless you establish residency on the island. 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 . Upon approval, you will be required to pay a one-time $5,000 acceptance fee. 257 of December 10, 2018, which introduced significant amendments to the Puerto Rico Internal Revenue Code ("Puerto Rico Code"); and Act No. Lets clarify what we mean when we say these tax breaks apply only to exported services. Would you like to find out more about how to get residency in Puerto Rico? What is a Board-Certified Tax Law Specialist. SAN JUAN, Puerto Rico (PRWEB) January 17, 2020. In June 2019, Puerto Rico made substantial changes to its tax incentives that came into effect on January 1, 2020. 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. To benefit from the tax advantages under Act 60-2019 (detailed below) an individual must purchase property in Puerto Rico within 2 years. We elaborate on that at the end of the post. 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. Therefore, there are multiple ways to satisfy the requirements of the presence test. Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction. 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. 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. What are Puerto Rico Tax Incentives Under New Act 60 (20/22). */, 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. 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. 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. The purpose of Puerto Rico Incentives Code 60 is to promote investment in Puerto Rico by providing investment residents with tax breaks. You should contact an According to Act 60-2019 (known as the "Puerto Rico Incentives Code") which replaces various historical incentives including Acts 20 and 22, residents of Puerto Rico can enjoy a 4% flat income tax rate and freedom from taxes on capital gains, dividends, interest and royalties. 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. All three are easy to satisfy if you truly commit to a new life in Puerto Rico. That way, you can satisfy all the tests and achieve bona fide residency even in the year of your move. Only one of the following conditions must be true: You were present in Puerto Rico for at least 183 days in the tax year. 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. Plus, you are obliged to donate at least $10,000 USD to charity. Before they will exempt you from regular U.S. tax obligations, the IRS must determine that you have truly made Puerto Rico your home. When you have satisfied all the requirements to become a bona fide Puerto Rico resident, you must file, 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. 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). 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