Meeting the Donation Requirement for Puerto Rico’s Lucrative Act 60 Individual Resident Investor Tax Incentive
- Posted: May 12, 2021
- Posted by: Travis Lynk
- Last Reviewed: October 30, 2021
If you’re a U.S. citizen or resident who loves the sun, Caribbean culture, and generous tax benefits, you’re in luck: Puerto Rico offers a multitude of lucrative tax benefits to U.S. citizens and residents. The most popular are Act 60 Export Services (formerly Act 20) and Act 60 Individual Resident Investor (formerly Act 22), with thousands of decree holders collectively saving millions over the years the incentives have been in place.
The Act 60 Individual Resident Investor tax benefit is aimed at high-net-worth individuals who are willing to relocate to Puerto Rico in exchange for a 0% tax rate on income from interest, dividends, capital gains, and crypto assets. To benefit from the incentive, a decree holder must meet certain criteria, including establishing bona fide residency in Puerto Rico and filing an annual report to maintain compliance.
One more important condition Act 60 Individual Resident Investor decree holders must fulfill to enjoy the 0% capital gains tax rate is an annual donation of $10,000 to qualifying nonprofits in Puerto Rico. Act 22 holders are only required to give a donation of $5,000, but holders of the Act 60 decree, which was signed into law in July 2019, replacing Act 22, must donate double the amount. Decree holders can freely choose the organization they donate to as long as it fits the Puerto Rican government’s requirements.
Act 22 Decree Holders
If you already have an Act 22 decree, your donation obligation hasn’t increased. As long as you donate at least $5,000 to a Puerto Rican nonprofit certified under Section 1101.01 (a) (2) of the Internal Revenue Code of Puerto Rico, you have satisfied the annual donation requirement for Act 22 maintenance. The nonprofit must not be owned or controlled by the decree holder, any of their relatives, their spouse, or their partner, but otherwise, decree holders have free choice of which organization to donate to.
To be compliant with the regulations, you must make the donation before December 31 of each year. In your next annual report, filed each year in May, you must attach evidence of your donation, thereby demonstrating compliance.
Act 60 Decree Holders
Everyone who submitted their application for this tax decree after July 2019 is subject to the new Act 60 rules of a $10,000 donation. However, it isn’t a single donation of $10,000—you must split the amount into two donations of $5,000 each. Qualifying nonprofits are subject to the same rules as Act 22 decree holders: they must operate within Puerto Rico and not be owned or operated by the donor, their family, or their partner. Act 60 decree holders must also make their donation prior to December 31 and prove their donation in their annual report in May of the following year.
Like in Act 22, Act 60 decree holders also generally have free choice of where their donations go, contingent on a few conditions. The first $5,000 is earmarked for a nonprofit listed by Comisión Especial Conjunta de Fondos Legislativos para Impacto Comunitario (CECFL), which updates its list of nonprofit organizations yearly.
The remaining $5,000 can be donated to any nonprofit organization operating in Puerto Rico that falls under Section 1101.01 of the Puerto Rico Internal Revenue Code. While Act 22 decree holders are restricted to Section 1101.01 (a) (2) organizations, Act 60 decree holders can donate to any Section 1101.01 nonprofits, so they have a wider selection. However, they must choose carefully—the organization that receives the second $5,000 cannot appear on the CECFL list.
Despite the annual $10,000 donation requirement, the Act 60 Individual Resident Investor tax benefit can result in significant tax savings for decree holders. Many decree holders also fall in love with Puerto Rico upon their move to the island and enjoy their days on the beach under the Puerto Rican sun while reaping the benefits of Puerto Rico’s lucrative tax incentives.
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.
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