Act 60 is a wide-reaching series of tax incentives that business owners can take advantage to preserve their wealth. Learn how in this introductory guide.
Puerto Rico's tax laws provides a 100% tax exemption on interest, dividends, and certain capital gains and up to 96% on business income for individuals who become bona fide residents.
The tax incentives granted to Individual Investors will expire on December 31, 2035.
To qualify, individuals and/or businesses must establish residency in Puerto Rico by December 31, 2035.
You may already know that simply securing a Golden Visa doesn't reduce an American’s tax liability. When a US person obtains a Golden Visa, they earn a second passport (CBI) or travel privileges (RBI). But if you have not actually renounced your own US citizenship, you are still subject to US tax on your worldwide income no matter where you reside. However, while Puerto Rico is considered part of the United States, it is not a state and is subject to different US tax treatment.
Because Puerto Rico operates with an independent government, it has the freedom to develop innovative tax laws—separate and distinct from US federal and state tax laws.
In order to promote investment in Puerto Rico, they developed Act 60 to attract high-net-worth individuals and businesses. The initiative has been enormously successful for years.
With proper tax planning and sourcing allocations, you can feasibly reduce your tax liability to nearly zero on income and assets as a bona fide Puerto Rican resident.
Section 933 of the U.S. Internal Revenue Code, known as the "Section 933 Exclusion," provides that income derived from sources within Puerto Rico is not included in gross income and is exempt from federal income taxation under the U.S. Code.
Exempt businesses with a business volume over $3 million receive a 50% municipal license tax exemption. For businesses with a volume of $3 million or less, the exemption is 100% for the initial five years and 50% thereafter.
The Export Services decree will have a term of 15 years with a possible 15-year extension, and the Resident Individual Investor decree will be valid until December 31, 2035.
Dividends or profits distributed from the exempt operation are entirely exempt from Puerto Rico income tax.
Exempt businesses with business volumes over $3 million are taxed at a 4% rate on net income from their exempt operation. For businesses with volumes of $3 million or less, the rate is 2% for five years, increasing to 4% thereafter. Engaging in a "Novel Pioneer Activity" can further reduce the income tax rate to 1%.
Exempt businesses that have a business volume exceeding $3 million are eligible for a 75% exemption from personal and real property taxes. In contrast, businesses with a business volume of $3 million or less enjoy a 100% property tax exemption for the first five years, followed by a 75% exemption thereafter.
1. Annual Donation: Individual Investors must make a yearly donation of at least $10,000 to local nonprofit entities that are independent of the investor's control. These nonprofit entities must be certified under the Puerto Rico Internal Revenue Code. Additionally, half of the donation amount must be directed towards organizations dedicated to eradicating child poverty.
2. Real Property Purchase: Within two years of receiving the grant, Individual Investors are required to purchase real property in Puerto Rico, which will serve as their primary residence. The property must be owned solely by the Individual Investor or jointly with their spouse.
3. Annual Report: Individual Investors must file an Annual Report with the Government of Puerto Rico, accompanied by a filing fee of $5,000.
To avail the benefits as an Individual Investor, it is necessary to request and obtain a grant of tax exemption. Act 60 specifies that this grant will be treated as a contractual agreement between the individual and the Government of Puerto Rico. As a result, it cannot be unilaterally modified and should not be affected by any amendments made to Act 60 subsequent to the issuance of the grant. This provision aims to provide stability and assurance to Individual Investors regarding the terms of their tax exemption.
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