(DailyAnswer.org) – Income taxes can feel like a burden, but did you know there are ways to lessen your tax burden? Puerto Rico, a U.S. Territory, is a popular travel destination due to its beauty and easy access – no passport is required for U.S. residents. However, Puerto Rico also offers a unique incentive for residents, which is found within Act 60.
The Puerto Rico Incentives Code: What is Act 60?
The Puerto Rico Incentives Code, also known as Act 60, is “an economic development tool based on fiscal responsibility, transparency and ease of doing business.” It allows certain individuals to receive tax breaks and exemptions from federal and state income taxes. Formerly, The Export Services Act (Act 20) offered tax incentives for Puerto Rican companies when they exported services. The Individual Investors Act (Act 22) allowed Puerto Rican residents federal tax exemption for interest and dividends. Act 60 is an update of both of these acts.
Act 60 Tax Incentives
Act 60 works well to attract companies to Puerto Rico. Although the tax code in Puerto Rico is complex, there is generally a lower tax bracket. With the addition of Act 60, passive income is basically exempt from taxation. How does this work? If you live in Puerto Rico, your passive income is considered Puerto Rico source income. Act 60 allows you to exempt this passive income. Additionally, Section 933 of the U.S. tax code allows bona fide Puerto Rican residents to exclude Puerto Rican-sourced income from their gross income. In essence, a person could potentially reduce their tax liability to nearly zero if the income and assets are generated or acquired after they become a resident of Puerto Rico.
Requirements for Act 60
In order to take full advantage of Act 60, you must be a bona fide resident. These are the basic requirements:
- you must live in Puerto Rico for at least 183 per year
- you may not have a tax home outside of Puerto Rico
- you may not have a closer connection to the United States or to a foreign country than to Puerto Rico
Is There a Catch to Act 60?
Depending on your viewpoint, there may be a catch or some liabilities with taking advantage of Act 60.
- You must apply and pay a $750 application fee
- If accepted, you must pay $5,000
- You must make a $10,000 charitable donation
- You must submit a report and pay $300/annually
- Act 60 currently only lasts through 2035, and after then, you will owe taxes on passive income
Depending on your tax situation, these may not be a deterrent.
Why Move to Puerto Rico?
Puerto Rico has long been considered an important social and economic bridge between the Americas. Because most of Puerto Rico is a Targeted Employment Area, it seeks businesses and employment opportunities to reduce unemployment. As a U.S. jurisdiction with fiscal autonomy, it can offer attractive tax incentives while maintaining the advantages of being part of the U.S. environment.
The U.S. dollar is the official currency and is subject to U.S. federal laws and the court system. You are afforded the same legal protections, such as patent and intellectual property laws. U.S. banking regulations apply, including the Federal Deposit Insurance Corporation protections. With these benefits, there are many reasons to consider relocating to Puerto Rico.
Planning for Tax Incentives
There are many benefits to relocation and structuring your business and tax exemptions for the best financial advantage. With the potential to pay much lower taxes and enjoy the island life, speaking to your tax advisor can help you make an informed decision.
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