Puerto Rico TAX INCENTIVES
ACT 20, ACT 22 AND ACT 60
Back in 2012, Puerto Rico made two special laws, Act 20 and Act 22, to make the island more appealing for wealthy people and businesses.
Act 20: Makes Puerto Rico a global service hub, attracting businesses to offer services to non-residents and boost economic growth.
Under Act No. 20, investment banking and financial services enjoy significant tax benefits:
- A maximum tax rate of 4% on income related to the exportation of services.
- A 100% exemption from income tax on dividends or profit distributions.
- A 60% exemption from municipal license taxes.
- A 90% exemption from real and property taxes.
- A 20-year tax decree, which can be renewed for an additional 10 years.
Act 22: Aimed to boost investment in Puerto Rico by giving residents tax exemptions on dividends, interest, capital gains, and crypto assets, provided they lived on the island.
For new residents who haven’t lived in Puerto Rico from 2006 to 2012, here are the requirements:
- Being physically present in Puerto Rico for at least 183 days during the tax year automatically presumes residence in Puerto Rico for tax purposes.
According to Section 937 of the U.S. Internal Revenue Service Code, additional guidance on being a bona fide resident generally includes:
- Having no primary place of business or employment outside Puerto Rico during the tax year.
- Demonstrating a stronger connection to Puerto Rico than to the United States or any foreign country.
On January 1, 2020, Puerto Rico consolidated Act 20 and Act 22 into Act 60, introducing changes to qualification requirements.
Puerto Rico’s unique status as an unincorporated territory with commonwealth status allows it to establish its own tax laws independently of U.S. federal and state laws, fostering economic growth through Act 60. Notable updates include Act 20 now requiring businesses with over $3 million in annual revenue to employ a full-time Puerto Rican resident.
Property and municipal taxes have been reduced, and blockchain-related services are now eligible. Act 22 now mandates property purchase in Puerto Rico as the primary residence and annual charitable donations. Tax exemptions for both businesses and individuals are now valid for 15 years, with an option for a 15-year extension, all contributing to Puerto Rico’s economic revitalization.
ACT 60: Puerto Rico Tax Perks for Resident Investors
Puerto Rico’s tax laws offer exemptions to people who move to the island and make it their home. To qualify, you need to become a resident by December 31, 2035, and not have lived in Puerto Rico between 2006 and 2012.
Tax Benefits Include:
- No taxes on certain passive income (like interest and dividends).
- No federal taxes on income earned in Puerto Rico.
- A low 5% income tax rate on profits from selling stocks or assets.
- No taxes on the increased value of stocks or assets after becoming a resident.
To Qualify for These Tax Benefits:
- You must have a bank account in Puerto Rico.
- Make an annual $10,000 donation to a Puerto Rico Treasury-authorized nonprofit, with $5,000 going to help children in need.
- Purchase a residential property from someone not in your family within two years.
Moving to Puerto Rico as a bona fide resident comes with valuable tax benefits.
ACT 60: Tax Benefits for Export Services and Commerce
Act 60 offers businesses in export services and commerce:
- A low 4% income tax rate.
- No income tax on profits shared with shareholders.
- Significant property tax reductions (75%) for both real and personal property used in these services.
- Half off on municipal taxes.
Businesses can qualify by applying for a 15-year tax concession in Puerto Rico.
Eligible services for these incentives include a wide range of activities:
- Research and development.
- Consulting services in various fields.
- Creative industries, covering design, arts, and media.
- Construction and project management services.
- Professional services like legal, tax, and accounting.
- Centralized management and data processing.
- Telecommunications.
- Call centers.
- Shared service centers.
- Storage and distribution.
- Hospitals and laboratory services.
- Investment banking and financial services.
- Any other service determined to be eligible by the Secretary, with advice from the Secretary of the Treasury.
Puerto Rico has introduced robust laws to attract new businesses and wealthy individuals. Being a U.S. territory, Puerto Rico offers special incentives that you won’t find elsewhere. If you’re open to becoming a real resident in Puerto Rico, you can substantially reduce your income, capital gains, and dividend taxes. We’re here to provide you with the best support when you decide to make the move to Puerto Rico and enjoy these tax benefits. We can assist you in finding the property that suits your needs.
For more information you can visit https://www.the2022actsociety.org/tax-incentives/act-22/ and/or https://l60pr.com/capitulos-l60/.