FAQ

An Eligible Business shall be considered to qualify for the benefits of this Section, if the business has a bona fide office or establishment located in Puerto Rico that conducts the following service activities, within or outside of Puerto Rico, which, in turn, are considered Export Services or Promoter Services:

• Research and development
• Publicity and public relations
• Economic, environmental, technological, scientific, management, marketing, human resources, IT, and auditing consulting
• Advice on matters related to any industry or business
• Creative industries
• Production of construction plans, engineering and architecture services, and project management
• Professional services, such as legal, tax, and accounting services
• Centralized management services
• Electronic information processing center
• Development of computer programs
• The distribution of physical form, in the cyber network, by cloud computing, or as part of a blockchain network and the income from licensing, program subscriptions, or service charges
• Voice, video, audio, and data telecommunication to people located outside of Puerto Rico
• Call centers
• Shared services center
• Educational and training services
• Hospital and laboratory services, including medical tourism services and telemedicine facilities
• Investment banking and other financial services
• Marketing centers

The primary benefits are as follows:

1. 4% corporate tax on income that is sourced from Puerto Rico by eligible businesses
2. 100% tax exemption on distributions to shareholders

You can apply for the Export Services Act at any time during the calendar year.

The individual needs to submit an application to the Office of Industrial Tax Exemption (OITE), which is a division of the Department of Economic Development and Commerce of Puerto Rico (DDEC).

The amount of time varies based on the complexity of your business, the completeness of your application, and the staffing at the OITE. You should expect about six to eight months from application to confirmation.

• Application fee: $1,005
• Sworn statement fees $315
• Annual compliance filing: $505

The Export Services decree is retroactive to the date of filing, which happens just after your date of application.

No, the Export Services tax incentive is based on the business and not the individual. However, the Tax Cuts and Jobs Act of 2017 regarding retained earnings in controlled foreign corporations (CFCs) may disincentivize shareholders from living in the United States due to the mandatory repatriation of retained earnings, or a Global Intangible Low Tax Income (GILTI) tax. We recommend that any Export Services business shareholders relocate to Puerto Rico.

Shareholders, partners, and members of an eligible business who hold a decree shall not be subject to income tax on distributions of dividends.

Administrative Determination 15-22 requires you to pay yourself a reasonable salary based on the functions you perform for the company. Although there may be some rules of thumb, there is no precise formula. It is important to consider that AD 15-22 only requires a salary when you devote 80% or more of your time to working for the Export Services Act business.

You should consider a transfer pricing study a necessity if you will be doing business between your new Act 60 company and another entity with shared ownership. You should show intent by carrying out a transfer pricing analysis before starting a business with your new Export Services Act decree. Your intent could be an internal spreadsheet or a full $50,000+ study. If going at it alone, be sure to acknowledge accepted methodologies and risks to set yourself up for success.

No, but it is recommended for ease of doing business and residency purposes.

1. All eligible businesses that hold a decree shall file an annual income tax return with the Secretary of the Treasury, regardless of their gross or net income and separate from any other return they are required to file.
2. Every shareholder or partner of an eligible business that holds a decree granted under this Act shall file an annual income tax return with the Department of the Treasury.
3. All eligible businesses that hold a decree shall annually file with the Exemption Office an authenticated report containing the signature of the Chair, managing partner, or authorized representative.

Yes, but this requires the prior consent of the Secretary.

We recommend creating a new LLC for your application for ease of doing business and audit readiness.

No, shareholders of an Export Services business will not be subject to income tax on distributions of dividends.

You can apply for the Investor Resident Individual tax incentive at any time during the calendar year, before or after you move to Puerto Rico. However, you must be a resident of Puerto Rico for your Investor Resident Individual decree to be effective.

• Application fee: $5,005
• Acceptance fee: $105 (one-time)
• Annual donation: $10,000 donation to “nonprofit entities operating in Puerto Rico and are certified under Section 1101.01 of the Internal Revenue Code of Puerto Rico, which is not controlled by the same person who owns the decree nor by their descendants or ascendants”
• Annual compliance filing: $5,005

The individual needs to submit an application to the Office of Industrial Tax Exemption (OITE), which is a division of the Department of Economic Development and Commerce of Puerto Rico (DDEC).

The benefits are as follows:

1. 100% exemption on capital gains tax for gains sourced (after you establish a tax home in Puerto Rico)
2. 100% exemption from interest and dividend income (for gains sourced from Puerto Rico-based payers)

Per the IRS, capital gains are sourced to the residence of the owner. Therefore, once an individual establishes their tax home in (relocates to) Puerto Rico, any gains would be Puerto Rico-sourced and eligible for the Investor Resident Individual tax exemptions.

The source of income for dividends and interest is determined by the location of the payer. If the corporation is located in Delaware, it is U.S.-sourced income. If the corporation is located in Puerto Rico, it is Puerto Rico-sourced income. If you receive interest income from a U.S. payer, you may still owe the IRS taxes on that income, regardless of your place of residency.

The bona fide residency rules pertaining to the Investor Resident Individual tax incentive are applied separately to each spouse. However, it is recommended that both spouses each obtain a separate Investor Resident Individual tax decree.

In the event that one spouse does not meet bona fide residency, only income attributable to the resident spouse will be entitled to the 933 Exclusion; other income will be subject to U.S. income taxes.

No, withdrawals from IRA, 401(k), and other U.S. tax-deferred retirement accounts are not covered by the Investor Resident Individual Act.

The time for an Investor Resident Individual application takes about 60 days from application submission to acceptance.

You need to make a $10,000 annual donation to nonprofit entities operating in Puerto Rico and are certified under Section 1101.01 of the Internal Revenue Code of Puerto Rico, which are not controlled by the same person who owns the Decree nor by their descendants or ascendants. This is in addition to the $5,000 one-time application fee.

You provide proof of this donation to the government of Puerto Rico in your annual report, which is due 30 days after filing your income taxes (April 15).

In general, stocks and virtual currencies are treated as personal property for U.S. federal tax purposes. This means gains are allocated to the residence of the individual during which these gains were accrued.

Specifically, the sale or exchange of convertible virtual currency or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction has tax consequences that may result in a tax liability.

You can learn more via IRS guidance.

Key dates related to the Investor Resident Individual decree:

1. The date of establishing a tax home in Puerto Rico – this is critical for determining gains on popular types of capital gains, like stocks, as determined by the IRS.
2. Relocation date (same as #1)
3. Move date (same as #1)
4. Investor Resident Individual application date – the date you apply
5. Investor Resident Individual filing date – the date the OITE begins to formally review your application
6. Investor Resident Individual pre-acceptance date – the date you submit fees and notarized documents for an approved application
7. Investor Resident Individual acceptance date – the date you formally accept your decree

See our overview deck in the free downloads section, which includes an example of this topic.

There are two types of investments:

1. Marketable investments (has a public market price) – note the investment price on the day you move to Puerto Rico. This is the date that bifurcates your gains.
2. Non-marketable investments (does not have a public market price) – using the “days of ownership” method, you would allocate your gains by dividing how many days in each jurisdiction you owned the asset.

There is an annual filing report that costs $300.

Yes, this is recommended.

Factors like community property and life events like divorce or death may complicate your scenario.

Marketable security

• Marketable securities are financial instruments and foreign currencies that are actively traded and liquid. An example would be a public stock.

Non-marketable security

• Non-marketable securities are usually U.S. Savings Bonds and private shares. Individuals cannot sell these types of securities to another investor. An example here would be a business interest in a private company, which may or may not have a fair market value (FMV) established.

Yes. In general, you want to move to Puerto Rico, apply for the Investor Resident Individual tax incentive, and exercise your shares as soon as possible. If you own substantial restricted stock units (RSUs), your upside may be limited.

If you’ve already exercised shares, moving to Puerto Rico quickly is important because non-marketable share taxes are determined based on the amount of days you’ve lived in different jurisdictions.

If you are a U.S. citizen or resident alien, you will satisfy the presence test for the entire tax year if you meet one of the following conditions:

1. You were present in Puerto Rico for at least 183 days during the tax year.
2. You were present in Puerto Rico for at least 549 days during the three-year period that includes the current tax year and the two immediately preceding tax years. During each year of the three-year period, you must be present in Puerto Rico for at least 60 days.
3. You were present in the United States for no more than 90 days during the tax year.
4. You earned income in the United States of no more than a total of $3,000 and were present for more days in Puerto Rico than in the United States during the tax year. Earned income is pay for personal services performed, such as wages, salaries, or professional fees.
5. You had no significant connection to the United States during the tax year.

See our complete residency guide which provides more details.

You will have met the tax home test if you did not have a tax home outside Puerto Rico during any part of the tax year.

Your tax home is your regular or main place of business, employment, or post of duty regardless of where you maintain your family home. If you do not have a regular or main place of business because of the nature of your work, then your tax home is the place where you regularly live. If you do not fit either of these categories, you are considered an itinerant, and your tax home is wherever you work.

See our complete residency guide which provides more details.

You will have met the closer connection test if, during any part of the tax year, you do not have a closer connection to the United States or a foreign country than to Puerto Rico.

You will be considered to have a closer connection to Puerto Rico than to the United States or to a foreign country if you have maintained more significant connections with Puerto Rico than with the United States or foreign country. In determining if you have maintained more significant connections with Puerto Rico, the facts and circumstances to be considered include but are not limited to the following:

• The location of your permanent home
• The location of your family
• The location of personal belongings, such as automobiles, furniture, clothing, and jewelry owned by you and your family
• The location of social, political, cultural, professional, or religious organizations with which you have a current relationship
• The location where you conduct your routine personal banking activities
• The location where you conduct business activities (other than those that go into determining your tax home)
• The location of the jurisdiction in which you hold a driver’s license
• The location of the jurisdiction in which you vote
• The location of charitable organizations to which you contribute
• The country of residence you designate on forms and documents
• The types of official forms and documents you file, such as Form W-8BEN or Form W-9

See our complete residency guide, which provides more details.

While this is recommended, it is not required. This is only one component of the closer connection test.

As a rule of thumb, ensure the location of your permanent home is in Puerto Rico. You could also rent your U.S. home.

Use Form 8898 to notify the IRS that you have become or ceased to be a bona fide resident of a U.S. possession. The information you provide on this form is specific and important to executing a relocation to Puerto Rico.

You can learn more via IRS guidance.

A holder of a green card is treated as a U.S. resident and is subject to the same taxes as any other U.S. citizen.

U.S. territories are islands under the jurisdiction of the United States. U.S. possessions can be divided into two groups:

1. Those that have their own governments and their own tax systems (Puerto Rico, U.S. Virgin Islands, Guam, American Samoa, and The Commonwealth of the Northern Mariana Islands).
2. Those that do not have their own governments or their own tax systems (Midway Island, Wake Island, Palmyra Island, Howland Island, Johnston Island, Baker Island, Kingman Reef, Jarvis Island, and other U.S. islands, cays, and reefs that are not part of any of the 50 states).

Yes, in 1917, the U.S. Congress passed the Jones-Shafroth Act, which grants U.S. citizenship to anyone born on the island.

No, you can expect the same travel requirements and TSA restrictions as when traveling within the mainland.

There are multiple factors involved that will determine your exact cost. You can get an online quote from a vehicle shipping service such as Puerto Rico Car Transport.

The Puerto Rican government also charges a tax based on the value of the vehicle. Use this link to estimate your liability.

Because Puerto Rico is a U.S. territory, only government employees pay federal income tax. All other employers and employees pay no federal income taxes. Residents of Puerto Rico do pay federal payroll taxes, such as Social Security and Medicare taxes.

Employers in Puerto Rico are subject to both Federal Insurance Contributions Act (FICA) tax and the Federal Unemployment Tax Act (FUTA).

Puerto Rico imposes a separate income tax in lieu of federal income tax.

Yes, FDIC deposit insurance covers the depositors of a failed FDIC-insured bank for up to at least $250,000.

Resource: FDIC.GOV FAQ

There is no expatriation, or exit tax, when moving to Puerto Rico. This can be as high as 23.8% on all assets for other jurisdictions.

For repatriation, as long as you earn this income as a Puerto Rico resident, there are no taxes. This money can be transferred freely. If you are not a resident, this would be tax deferral, and there would be a tax when/if you bring it back to the mainland. One option to avoid this tax would be to invest it offshore or to become a Puerto Rico resident and claim it tax-free.

Puerto Rico, as of 2017, was generally safer than other U.S. states. Our take is that if you exercise caution, as you would in any major U.S. city, you will minimize your chances of being targeted by mostly opportunistic crime. The area where you live will determine the crime rates.

Resource: FBI report, which lists crime by type.

You can expect normal relocation costs, like license and vehicle registration, as you would for an interstate move. If you plan on transporting items like a car and personal belongings, shipping and possible excise costs will significantly increase the amount you spend. Fortunately, air travel and flight prices are comparable to U.S. transcontinental routes.

Here are a few of the most popular places to live for relocating individuals:

• Old San Juan (OSJ) – old-city living in San Juan
• Condado / Miramar – high-rise living in San Juan
• Ocean Park – residential living in San Juan
• Bayamon / Guaynabo – suburban living 10 minutes south of San Juan
• Dorado – gated golfing community 30 minutes west of San Juan
• Palmas del Mar – boating suburb 60 minutes southeast of San Juan

Resource: Zillow Puerto Rico

Yes, although you can expect a slightly more complicated process and a longer timeline. Real property in Puerto Rico is governed by property laws of Puerto Rico.

Check Zillow or another online platform for current home prices. We can help in recommending a realtor since properties are not always listed online or in a centralized MLS system.

Resource: Zillow Puerto Rico

Yes, property taxes are based on the last national appraisal in 1958 and are usually lower than most U.S. states (about 0.5% annually of property value).

You should bring all key identification and tax documents to Puerto Rico. This will ensure you are prepared in the event of an audit.

At a minimum, you should bring the following for the purposes of tax applications and registrations:

1. Passport
2. Original social security card
3. Current driver’s license

Note: A birth certificate is not required.

A controlled foreign corporation (CFC) is any corporation organized outside the United States (a foreign corporation) that is more than 50% owned by U.S. shareholders.

CFC rules are designed to limit tax deferral by using offshore low-taxed entities. These rules concern the income of an entity that is not currently taxed to the owner of the entity.

The Tax Cuts and Jobs Act of 2017 (TCJA) imposes a special tax on global intangible low-taxed income (GILTI). Generally, this tax is at a 10.5% rate on a U.S. shareholder’s share of a CFC’s GILTI.

The GILTI tax became effective for taxable years beginning January 1, 2018.

You must have been a resident of Puerto Rico for one year to file for divorce in Puerto Rico. In general, Puerto Rico courts split assets 50/50; therefore, you must consider what leaving Puerto Rico will do to your residency status.

If you’re a bona fide resident of Puerto Rico during the entire tax year, you generally aren’t required to file a U.S. federal income tax return if your only income is from sources within Puerto Rico. If you’re a bona fide resident of Puerto Rico and a U.S. government employee, you must file a U.S. income tax return. Residents of Puerto Rico pay federal payroll taxes, including Social Security and Medicare taxes, just as residents of the States do.

Personal

The island imposes a separate local Puerto Rico income tax in place of typical U.S. federal income tax. The personal income tax rate in Puerto Rico is 33% for net taxable income over $61,500. This is applicable to wages regardless of whether one has an Export Services decree or Investor Resident Individual decree.

Corporate

The corporate income tax rate is 39% (without tax incentives).

Yes, bona fide residents of a U.S. territory who have self-employment income must generally pay self-employment tax to the United States. Self-employment tax includes both Social Security and Medicare.

Self-employment tax is money that a small business owner must pay to the federal government to fund Medicare and Social Security. Self-employment tax is due when an individual has net earnings of $400 or more in self-employment income over the course of the tax year. In any business, both the company and the employee are taxed to pay for these two major social welfare programs. When an individual is self-employed, he or she is both the company and the employee, so he or she pays both shares of this tax.

If you work and reside outside the United States and meet either the Bona Fide Resident or Physical Presence test (these tests are defined differently from those for Puerto Rico), you’re eligible to exclude up to $108,700 in foreign earned income as of the 2021 tax year.

This strategy would be an alternative to Puerto Rico-based tax incentives. When pursued in a country with a low or non-existent tax rate, an individual could see a large tax advantage on the FEIE amount.

You can learn more via IRS guidance.

Annual income tax

• U.S. residents need to file a 1040 U.S. Individual Income Tax Return
• Bona fide Puerto Rico residents need to file a 482 Puerto Rico Income Tax Return

Annual self-employment tax

• Both U.S. and Puerto Rico residents need to file a self-employment tax return (Form 1040)

The volume of business tax is between 0.2% and 0.5% of sales volume. Some municipalities give additional discounts.

The Sales and Use Tax (SUT) is 11.5%; 10.5% is imposed by Puerto Rico’s Department of Treasury, while the additional percent goes to municipalities.

A registered agent is a responsible third party who is registered in the same state in which a business entity was established and who is designated to receive service of process notices, correspondence from the Secretary of State, and other official government notifications, usually tax forms and notice of lawsuits, on behalf of the corporation or LLC.

If you do not have a physical location in the state in which your business is registered, you must select a registered agent to accept documents on your behalf. Puerto Rico needs to know it has a contact person for your business within the state at all times. P.O. boxes are not acceptable addresses for registered agents.

This number is the official registry in the Department of the Treasury for all natural or juridical persons who do or wish to do business in Puerto Rico. The fines for not registering in the Department of Treasury can be up to $10,000.

Prior to applying for the municipal license, you need to apply for the Use Permit from the Municipality of San Juan, which is approved by the Permits Office of San Juan.

This license is required in order to start a business in a municipality. A corporation engaged in trade or business in Puerto Rico is normally subject to the payment of municipal license taxes. The tax rate varies depending on the gross income but ranges from 0.2% to 0.5% of revenue.

As of May 2021, PRelocate has not had any clients rejected for Act 60 for a background check issue. Several PRelocate clients who have had DUIs, restraining orders, or drug charges have been approved. However, while there is no published list of crimes or issues that would render an applicant ineligible for Act 60, Act 6o decrees are given at the discretion of the Head of the Department of Economic Development and Commerce (DDEC) who oversees the Puerto Rico Act 60 program.