Tax Residency (Act 20 & Act 22)
Although it is a territory of the United States, Puerto Rico has its own tax system and its residents are not subject to federal taxes.
This is because Section 933 of the US Tax Code excludes Puerto Rico-source income from US tax.
By moving to Puerto Rico, Americans can run their business or manage their international investments in a much more favorable tax climate.
If you are an investor and you move to Puerto Rico, under Act 22, you may enjoy a zero tax rate on certain interest, dividends and capital gains income. This zero tax rate applies only to income and profits derived from investments made after becoming a resident.
Income and profits accrued before the residency was established, but which have not yet been taxed, may be subject to the normal 10% capital gains tax. For investments sold after 10 years, but before the end of 2035, the tax rate drops to 5%.
If you are a stock trader, venture capitalist, cryptocurrency investor, etc., you may eliminate taxes completely.
If you are an entrepreneur with a service-oriented online business, under Act 20, you may move to and incorporate in Puerto Rico and pay a 4% corporate tax rate on qualifying export services income, or a 3% CIT when more than 90% of the eligible business’ gross income is derived from export services.
So you may set up your international business in Puerto Rico, pay yourself some salary taxed at Puerto Rico’s standard income tax rate, pay 4% corporate income tax and get the dividends tax-free.
These tax advantages are especially attractive for crypto and blockchain entrepreneurs and investors.
Given its global scope, several renowned crypto companies are moving to the island, which may become a blockchain hub. The government of Puerto Rico has already expressed its intention to attract this industry and has already created an advisory council on the matter.
To qualify for the exemptions, you must become a bonafide resident of Puerto Rico. This implies residing on the island for more than 183 days per year, filling out IRS forms, such as form 8898 and applying for a tax exemption decree from the Secretary of Economic Development and Commerce of Puerto Rico.
The tax exemption decree will provide details of the tax treatment and shall be considered a contract between you, as a Resident Individual Investor, and the Puerto Rican government. Once granted, the tax-exemption will be valid until 2035.
But the most important fact is that you really have to move there. It must be seen as a permanent move. Your physical residence must be in Puerto Rico.
Also, it may not be such a bad idea to move to Puerto Rico. You will enjoy a tropical climate with average temperatures of 28° C throughout the year, with very little seasonal change, beautiful beaches, majestic mountains and good food.
In addition there is a large expatriate and American community, so you can move without too many language barriers.
No nationality is officially restricted
Dual citizenship is recognized in Puerto Rico. You are not required to renounce your previous nationality to become a citizen of Puerto Rico.
Puerto Rico is an unincorporated territory of the United States and does not have its own citizenship and passport. Dual citizenship is recognized in the United States. You are not required to renounce your previous nationality to become a citizen of United States.
- dual citizenship Yes
- Family members included Yes
- land ownership Yes
- Physical residence required Yes
- Personal visit required Yes
- Language skills required No
- Interview required No
- Investment Single -
- Investment Family 4 -
- Minimum annual income -
- Time to citizenship
- Time to permanent residency
- Visa-free countries
- Financing available No
Its west coast is located approximately 1536 kilometers southeast of the coast of Florida. The archipelago of Puerto Rico includes the main island of Puerto Rico and a number of smaller cays and islands, of which the largest are Mona, Vieques and Culebra. It is populated by 3.6 million inhabitants and its capital is San Juan. Its official languages are Spanish and English and its official currency is the US Dollar.
Despite its small size and limited availability of natural resources that can be exploited economically, Puerto Rico’s productivity is exceptionally high, with the highest nominal per capita income in Latin America.
Puerto Rico imports 85% of the food it consumes and all its energy. It does not have any coal, natural gas, or oil reserves. Manufacturing is the largest economic sector of the island - almost half of its GDP. Its major industries are pharmaceuticals, textiles, petrochemicals, and electronics.
Tourism is another of its main sources of wealth, with about 5 million tourists visiting the territory annually. The financial sector is an economic bloc of great importance for its economy, which is integrated into the American financial system, being governed under its regulations, and part of the jurisdiction of the Federal Reserve Bank of New York.
Visa Free Travel
In accordance with the Puerto Rico’s Acts 22 and 138, the so-called Individual Investors Act, residents may be eligible for a tax-exemption on their passive income such as dividends, interests and capital gains.
By moving your investments or your company to Puerto Rico, investment income may be exempt from local taxes, and if it is not sourced from the mainland US, it may not be subject to US Federal personal income taxes.
To qualify for the exemptions, you must have not resided in Puerto Rico in the previous 6 years, and become a bonafide resident of Puerto Rico. This implies residing in the island for more than 183 days per year, filling out IRS forms, such as form 8898, and applying for a tax exemption decree from the Secretary of Economic Development and Commerce of Puerto Rico.
The tax exemption decree will provide details of the tax treatment and shall be considered a contract between you, as Resident Individual Investor, and the Puerto Rico government.
Once granted, the tax-exemption will be valid until 2035.
In addition, if you are an entrepreneur with a service-oriented online business, you may move to and incorporate in Puerto Rico.
Puerto Rico’s Act 20 provides a 4% corporate tax rate on qualifying export services income or 3% CIT when more than 90% of the eligible business’ gross income is derived from export services, and such services are considered strategic services, according to the criteria established in Act No. 20.
Puerto Rico has recently amended Act 20, waiving the 5 employees requirement for businesses to qualify for this tax regime.
So you can set up your international business in Puerto Rico, pay 4% corporate income tax and get the dividends tax-free.
- Property tax Yes
- Transfer tax No
- Inheritance tax No
- Net worth tax No
- CFC law No
- Tax residency days 183
- Personal income tax rate 33%
- Capital Gains tax rate 0%
- Investment income tax rate 0%
- Territorial taxation Yes
ProceduresPlease sign in to view
Our qualified accountant in Puerto Rico will handle all paperwork, and guide you through each step of the process to ensure that it is as fast, efficient and pain-free as possible.
First, our CPAs will assess your financial and tax situation, to advise you on your tax obligations after moving to Puerto Rico.
We will send you the application forms and provide assistance to complete the IRS forms, such as form 8898, and to fill the application for a tax exemption decree from the Secretary of Economic Development and Commerce of Puerto Rico.
The whole process takes within 1-2 months