How Much is Income Tax in Puerto Rico - Relocate to Puerto Rico with Act 20 & Act 22

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Act 20 and Act 22 offer powerful tax incentives to move your home and/or business to Puerto Rico. Once you’re a legal resident of the island, you no longer have to deal with the IRS and U.S tax codes—Puerto Rico has its own income tax framework, which can be very attractive, depending on your financial situation.

Although you retain your U.S. citizenship when you move to Puerto Rico, there are some differences. The court system, banking system, and statutory laws are exactly what you’re used to in the states, but from a tax perspective, other than Medicare and Social Security taxes, Puerto Rico is almost like a foreign country.

What does this mean for new residents? To start, you usually won’t need to file an annual 1040 with the IRS, and you’re not subject to U.S. income tax on wages, dividend and interest income, and capital gains you earn in Puerto Rico. Of course, that doesn’t mean your income is exempt from taxes in Puerto Rico, only that the income tax rates and exemptions are different. Unless you are a federal government employee, you pay Puerto Rico income tax to the Commonwealth and not the U.S. Department of the Treasury.

The U.S. is unique among the world’s countries, in that only the U.S. and Eritrea assess a world-wide income tax. No matter what country you choose to live in, if you retain your U.S. citizenship, you will have to pay U.S. income tax unless you renounce your citizenship. And even if you take the drastic step of renouncing your citizenship, you will still pay an expatriation tax of almost 24% on your unrealized capital gains.

Unless, of course, you and/or your business move to Puerto Rico. You don’t have to renounce your U.S. citizenship, and you won’t have to pay an exit or expatriation tax if you establish residency in Puerto Rico. You can reap the full financial benefits of a tax haven without sacrificing  the security of U.S. citizenship.

What taxes will I pay in Puerto Rico?

As you might guess, you won’t escape income taxes completely if you move to Puerto Rico, even if you have an Act 20 or Act 22 decree. Puerto Rico’s personal income tax is as high as 37% on very high earners.

But with your Act 22 decree, income from dividends and capital gains are exempt from Puerto Rico income tax. And if you have an Act 20 decree, you only pay income tax on the wages you pay yourself from your business; the corporate income tax rate on business profits is just 4% if your business operates in Puerto Rico, and your customers are located elsewhere.

Keep in mind, however, that the Act 22 exemptions for capital gains tax on dividends, interest, and capital gains only apply to income earned after you officially become a resident of Puerto Rico.

Puerto Rico income tax tables

You can estimate your tax liability based on your adjusted gross income (AGI) from the 2018 Puerto Rico income tax chart:

Single (standard deduction $12,000)Married filing jointly (standard deduction $24,000)Married filing separately (standard deduction $12,000)Head of household (standard deduction $18,000)
10%$0-$9,525$0-$19,050$0-$9,525$0-$13,600
12%$9,526 -$38,700$19,041-$77,400$9,526-$38,700$13,601-$51,800
22%$38,701-$82,500$77,401-$$165,000$38,701-$82,500$51,801-$82,500
24%$82,501-$157,500$165,001-$315,000$82,501-$157,500$82,501-$157,500
32%$157,501-$200,000$315,001-$400,000$157,501-$200,000$157,501-$200,000
35%$200,001-$500,000$400,001-$600,000$200,001-$300,000$200,001-$500,000
37%Over $500,001Over $600,000Over $300,000Over $500,000

From a taxpayer’s perspective, Puerto Rico offers the best of both world. You get the protections of the U.S. court and banking systems without the high U.S. taxes. Contact us to learn more about the tax advantages you may qualify for if you move to Puerto Rico.

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