Enjoy Lower Taxes with Puerto Rico’s Act 60 Tax Incentives
- Posted: June 1, 2021
- Posted by: Travis Lynk
- Last Reviewed: June 1, 2021
As a small U.S. territory in the Caribbean, Puerto Rico is a popular getaway destination for Americans, boasting year-round beach weather and a vibrant culture kept alive by friendly locals. In fact, it’s not only popular for vacations—countless Americans also retire in Puerto Rico to spend the rest of their days in the sun. With generally lower living costs than the mainland US and the same legal and social systems in place, such as Social Security and Medicare, Puerto Rico is the ideal expat destination for many Americans.
For business owners and investors, relocating to Puerto Rico pre-retirement may be an even better idea. The Puerto Rican government offers various tax incentives to U.S. citizens and residents, hoping to attract talent to the island and boost the local economy. Most popular are the Act 60 Export Services and Act 60 Individual Resident Investor tax incentives, which have saved thousands of Americans untold amounts in taxes.
Act 60 Export Services
If you run a business—or plan to start one—you may be interested in looking into Puerto Rico’s Act 60 Export Services tax incentive. If your business qualifies, you’ll be eligible for various benefits, including a 4% corporate tax rate, down considerably from the general rate of 39%. Other significant benefits include a 100% tax exemption on distributions from profits and earnings, a 50% cut on your municipal taxes, and a 75% cut on your municipal and state property taxes.
The name of the act hints at the types of businesses that qualify—service-oriented businesses that export their services abroad. To qualify for the Act 60 Export Services tax incentive, a business must operate inside Puerto Rico but sell and render its services remotely to clients residing outside Puerto Rico. This way, the business brings foreign revenue to the island and offers employment opportunities to Puerto Rican locals without infringing on the local market, and the business owner enjoys significantly lower taxes than in the mainland US—a win-win.
There are, of course, stipulations: for example, you must pay yourself a “reasonable salary” based on the services you render, and your individual income tax will be subject to regular Puerto Rican tax rates, which can be as high as 33%. Thus, you can’t pay the 4% tax rate on all your business income, but you can for the majority of it, and that’s enough for significant savings.
Act 60 Individual Resident Investor
If you invest in stocks, securities, or even cryptocurrency, the Act 60 Individual Resident Investor tax incentive may be right for you. Holders of this Puerto Rico tax decree enjoy a 100% tax exemption on all interest, dividends, short- and long-term capital gains, and gains on cryptocurrencies and other crypto assets incurred following their move to Puerto Rico.
The key here is that to enjoy these lucrative tax incentives, you must be a bona fide Puerto Rican resident. Individual Resident Investor decree holders can demonstrate bona fide residency by passing three tests—the presence test, the tax home test, and the closer connection test. To take advantage of the tax benefit, you have to fully commit to Puerto Rico and be willing to make the island your long-term home. However, that’s a bonus in and of itself—Puerto Rico is a wonderful place to live and offers countless interesting activities to keep yourself and your family happy with your new Caribbean life.
Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together “PRelocate”) are law firms, and this is not legal advice. You should use common sense and rely on your own legal counsel for a formal legal opinion on Puerto Rico’s tax incentives, maintaining bona fide residence in Puerto Rico, and any other issues related to taxes or residency in Puerto Rico. 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”). Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction.