Puerto Rico has been an attractive destination for investors for many years, thanks in part to its favorable tax incentives. Specifically, the island offers significant tax benefits for those who move there and work in certain industries, including technology, financial services, and manufacturing. In recent years, Puerto Rico has become especially popular among investors in the crypto space, who are looking to take advantage of the island’s tax breaks to minimize their tax liability of capital gains, thus maximizing their returns.

On February 22, 2023, the Puerto Rico Department of Economic Development and Commerce made an announcement that is sure to pique the interest of many investors in the crypto space.

In a letter released to the public, the department confirmed that a new form of income – known as “staking” – would now be eligible for the island’s tax incentives. This news is significant because, until this point, those involved in staking were subject to the ordinary income tax rate in Puerto Rico, rather than the much lower rate that applies to capital gains.

In this article, we examine how stakers can now qualify for Puerto Rico’s tax incentives under the adjusted criteria.

How Puerto Rico’s Tax Incentives Work

Puerto Rico offers several tax incentives for Americans who move to the island. One of the most significant is Act 60, also known as the “Puerto Rico Tax Incentives Code.” This law was passed in 2019 and provides a number of tax benefits for individuals and businesses that move to Puerto Rico.

Under Act 60, eligible individuals can take advantage of a number of tax benefits, including a 0% tax rate on capital gains that accrue after they become residents of the island. This can represent significant tax savings for individuals who have significant investment income. Additionally, eligible businesses that export services can take advantage of a 4% corporate tax rate, which is significantly lower than the rates in many U.S. states.

Puerto Rico’s Tax Incentives for Stakers

Staking Explained

Staking is a process by which individuals hold onto certain cryptocurrencies for a specified period of time in order to help support the network that underlies the currency. In exchange for this support, stakers are rewarded with additional coins. This process is similar to mining, but instead of using computer power to solve complex mathematical problems, stakers simply hold onto their coins and verify transactions.

One of the key differences between staking and other forms of crypto income is that staking has traditionally been considered ordinary income, rather than capital gains. This means that stakers have been subject to a higher tax rate than those who invest in crypto and make gains through trading or other means.

For those who are heavily involved in staking, this can be a significant tax burden, and many have looked for ways to reduce this burden in order to maximize their profits.

Stakers Now Qualify for Puerto Rico’s Tax Incentives

For many years, Puerto Rico’s tax incentives have been a draw for investors in the crypto space who are looking to reduce their tax liability. However, until recently, staking income was not eligible for these tax breaks, which meant that stakers were subject to the ordinary income tax rate in Puerto Rico.

Some experts had recommended for stakers to file an export services application in order to have their income taxed at the 4% rate. However, the Department of Economic Development and Commerce would hesitate to qualify staking businesses as eligible services under the export services tax incentive.

All this changed with the recent announcement from the Puerto Rico Department of Economic Development and Commerce. Staking income is now eligible for the island’s tax incentives.

So, what exactly does this mean for investors?

The inclusion of staking income in Puerto Rico’s tax incentives means that investors can now reduce their tax liability on this type of income by applying for the export services tax incentive.

However, it’s important to note that there are still requirements that must be met in order to qualify for these benefits. For example, applicants must provide their services on a commercially reasonable scale and must remain active throughout the staking process. This means that those who are heavily involved in staking may need to be prepared to commit significant time and resources to this activity in order to qualify for the tax benefits.

Despite the requirements for eligibility, the inclusion of staking income in Puerto Rico’s tax incentives is sure to be of interest to many investors in the crypto space. By taking advantage of the island’s tax breaks, investors can significantly reduce their tax liability and maximize their returns on staking activities. This is particularly significant for those who have been hesitant to participate in staking activities due to the higher tax rate.

Are PR’s Tax Benefits for You?

In addition to the tax benefits, moving to Puerto Rico can also provide a number of other advantages for investors in the crypto space. For example, the island’s favorable business climate and proximity to the United States make it an attractive destination for those who are looking to grow their businesses and expand their networks. Additionally, Puerto Rico’s favorable climate, natural beauty, and rich culture make it an appealing place to live and work.

Despite these advantages, it’s important for investors to carefully consider the risks associated with investing in the crypto space, as well as the specific requirements for eligibility under Puerto Rico’s tax incentives. While the inclusion of staking income in the tax benefits is certainly good news for investors, it’s important to remember that investing in crypto is inherently risky, and investors should be prepared to take on that risk in order to reap potential rewards.

In conclusion, the inclusion of staking income in Puerto Rico’s tax incentives is significant news for investors in the crypto space. By taking advantage of the island’s favorable tax laws, investors can significantly reduce their tax liability on staking income, potentially maximizing their returns on this type of activity.

However, it’s important to remember that eligibility for these benefits requires a significant commitment of time and resources, and investors should carefully consider the risks associated with investing in the crypto space before making any decisions.

PRelocate has helped more than 2,000 individuals and businesses move to Puerto Rico under Act 60. Schedule a consultation with us to learn how your staking business can qualify for the 4% tax rate.