The EB-5 Immigrant Investor Program, the United States’ flagship residency-by-investment program, was created in 1990. Qualifying EB-5 investors invest $500,000 if a project is in an area of sufficiently high unemployment or that is sufficiently rural or $1,000,000 in exchange for a U.S. Green Card. This green card enables successful EB-5 investors to travel and work freely throughout the United States and its territories.

Meanwhile, Puerto Rico’s Act 60 tax exemption program grants qualified U.S. residents and companies a 0% capital gains tax rate and a 4% corporate tax rate. These significant tax incentives have already compelled thousands of American citizens and green card holders to move to the beautiful Caribbean island. Most Act 60 decrees are issued to entrepreneurs and investors, with the island a great option for remote work. EB-5 investors looking to lower their U.S. tax liability should consider moving to Puerto Rico under the Act 60 program.

What is the EB-5 Investment Program?

The easiest path to U.S. permanent residency, assuming a foreign national can put up the hefty minimum investment, is through an EB-5 investment. To qualify under the EB-5 investment program, investors must make an investment of $500,000 in a qualified EB-5 project and prove that at least 10 full-time jobs for U.S. workers were created.

Many EB-5 investors are ultimately interested in pursuing U.S. citizenship and not U.S. permanent resident status. Permanent residents have many of the same rights experienced by U.S. citizens, including the ability to work and live anywhere in the 50 U.S. states and territories such as Puerto Rico. However, permanent residents do have certain limitations, such as on spending time abroad or holding political office. However, to gain U.S. citizenship, foreign nationals must first gain U.S. permanent resident status.

What Advantages Does the Act 60 Program Offer for EB-5 Investors?

An EB-5 investor could enjoy significant savings by moving to Puerto Rico and becoming an Act 60 decree holder—and not just on taxes. The cost of living in Puerto Rico is dramatically lower than in most U.S. states. Meanwhile, Puerto Rico offers world-class resources, including schools, banks, and gyms. However, Act 60 decree holders must fully commit to living on the island to enjoy the tax incentives.

Act 60 Investor Resident Individual Tax Incentive

To qualify for Act 60’s Investor Resident Individual incentive, investors must fully commit to living on the island. Applicants must prove that they are bona fide residents of Puerto Rico.

Applicants must show they spend a certain amount of time in Puerto Rico, work in Puerto Rico, and have developed connections to the island. Specifically, this means passing the three qualifying tests to prove bona fide residency: the presence test, the tax home test, and the closer connection test.

The presence test and the tax home test are relatively straightforward. Investors must spend a certain amount of time on the island, typically at least 183 days during the taxable year, and must maintain their “tax home” in Puerto Rico. The IRS defines a “tax home” as the general place of business, employment, or post of duty, regardless of where the individual maintains their family home.

The closer connection test is more subjective. To satisfy this test, investors must prove to the IRS that they have closer connections to Puerto Rico than to the United States. To help satisfy this test, investors can join a church in Puerto Rico, purchase a gym membership, or register to vote, and more. Investors are also required to purchase real estate property within two years of obtaining their tax exemption decree.

Those who receive an Act 60 Investor Resident Individual decree receive many benefits, which include the following:

• 100% tax exemption on capital gains from investment interest
• 100% tax exemption on capital gains from short- and long-term capital gains
• 100% tax exemption on capital gains from cryptocurrency and other crypto-based assets like Bitcoin, Digix Gold, and Ethereum

Act 60 Export Services Tax Incentive

To qualify for Act 60’s Export Services tax incentive, applicants must satisfy several requirements, which include the following:

• Maintain business operations in Puerto Rico
• Every business owner and employee must be paid a reasonable salary
• Act 60 businesses must satisfy independent audits at least once every two years.
• Businesses generating more than $3 million must directly employ at least one Puerto Rican resident who directly participates in business activities explicitly related to the business’s offerings

Companies that receive an Act 60 Export Services decree receive the following benefits:

• 4% corporate tax rate
• 50% municipal tax exemption
• Up to a 100% municipal and state property tax exemption
• 100% exemption from taxes on all distributions from earnings and profits

Notably, a business cannot pass all its net revenue at the 4% corporate tax rate since income earned by the business owner and any employees must be taxed at the ordinary income tax rate for Puerto Rico.

EB-5 Investors Considering Puerto Rico’s Act 60 Program

PRelocate has already helped hundreds of U.S. individuals and corporations move to sunny Puerto Rico under the Act 60 tax incentive program. Thousands of U.S. citizens and permanent residents have already made the move to take advantage of the tax incentives as well as enjoy the island’s great social scene and significantly lower cost of living when compared to the mainland.

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.