If you are thinking about moving to Puerto Rico you have probably heard of Act 20 and Act 22. These two laws got a lot of attention when they were passed in 2012. Now Act 60 is the law that is attracting professionals, investors and business owners to the island. The tax benefits are real but there are also rules to follow the IRS will be. You will have to get used to a new way of life.
This guide will tell you what these laws really offer, who can use them and what it takes to move to Puerto Rico.
From Act 20 and Act 22 to Act 60
On January 1, 2020 Act 20 and Act 22 became part of the Puerto Rico Incentives Code 60, which is now called Act 60. Act 20 is also known as the Export Services Act. It helped businesses that provided services to countries by giving them a low tax rate of 4%. These businesses also did not have to pay taxes on the money they made from investments, as well as they could avoid property and municipal taxes.
Act 22, on the other hand, was for investors. It helped them by not making them pay taxes on the money they made from investments that they did not actively work for.
What the Individual Investor Incentive Covers
People who are new to Puerto Rico and live there can get a break on their taxes. Puerto Rico does not charge them taxes on the money they get from things like dividends, interest and selling things for a profit whether they owned them for a time or a long time. This also includes cryptocurrencies and other crypto assets. To get this tax break the person has to live in Puerto Rico and start getting this income after they move there as long as they do this before January 1 2036.
This is important for people from the United States because the US government does not tax the money they get from Puerto Rico. The US government still taxes them on all the other money they get from other places. To avoid paying taxes the money has to really come from Puerto Rico.
A Plus Moving services will help you make your move smooth. Our team will take care of moving your belongings and free your mind for more important details of the move. Call us today at (800) 919-6332!
Capital Gains From Before the Move
If we are talking about pre-moved gains, it is handled differently. If you sell something and make a profit within ten years of moving to Puerto Rico, you only have to pay the US tax rate on that profit. If you wait until after ten years of living in Puerto Rico. Before January 1, 2036 you only have to pay a flat tax rate of 5% to Puerto Rico.
What Businesses Qualify Under Act 20
To qualify for this a business has to provide services. It must be based in Puerto Rico, but the main income must come from customers outside of the island.
Note
The business that sells things outside of Puerto Rico has to get at least 80% of its money from doing that. If a business makes more than $3 million it might be able to pay a smaller rate of 2% for the first five years. (mcvpr.com)
Residency Requirements – The Part That Trips People Up
This is where many applicants run into problems. Residency is not symbolic.
Applicants must show they are genuine residents of Puerto Rico by spending a significant amount of time on the island and contributing to the community.
Key requirements under Act 60:
- Spend at least 183 days per year on the island
- Spend fewer than 90 days on the US mainland
- Puerto Rico must be your primary residence
- Within two years of receiving the grant, the Individual Investor must purchase real property in Puerto Rico for use as their principal residence (mcvpr.com)
- Make an annual donation of a minimum of $10,000 to local nonprofit entities – half of which must go to organizations that work to eradicate child poverty (mcvpr.com)
IRS Enforcement Is Real
The IRS has been taking a closer look at people who use Puerto Rico’s tax breaks. They have been taking action against people who do not follow the rules of Act 60. The IRS found over 100 people, including cryptotraders and funds managers, who they think claimed Puerto Rico’s tax incentives illegally.
So, if your main reason for moving to the Puerto Rico is the tax breaks, consult with a lawyer and a tax advisor first.
Quick Comparison: Act 20 vs. Act 22 (Now Under Act 60)
