Act 60, passed in 2019, offers significant tax incentives for individuals who establish residency in Puerto Rico. These incentives include a 4% flat individual income tax rate, a 100% tax exemption on dividends and capital gains for individuals and a 100% exemption on dividends and interest for corporations.
Establishing Residency in Puerto Rico
To take advantage of these tax incentives, individuals must first establish residency in Puerto Rico. This can be done by meeting one of the following criteria:
Spending 183 days or more per calendar year in Puerto Rico
Maintaining a permanent place of abode in Puerto Rico
Having a bona fide residency in Puerto Rico
It’s important to note that establishing residency in Puerto Rico does not necessarily mean giving up your US citizenship. As a US territory, Puerto Rico residents are still considered US citizens and are subject to certain US taxes. However, the Resident Tax Incentive Code allows residents to pay significantly lower taxes on income earned in Puerto Rico.
Benefits of Act 60
In addition to the reduced income tax rates, Act 60 offers a number of other benefits for residents of Puerto Rico:
100% exemption on dividends and capital gains for individuals
100% exemption on dividends and interest for corporations
100% exemption on property taxes for new residents
100% exemption on municipal license taxes for new residents
Who is Eligible for Act 60?
The Resident Tax Incentive Code is available to any individual who establishes residency in Puerto Rico. However, there are certain restrictions in place for individuals who have been residents of Puerto Rico for less than six years. These individuals may not be eligible for the full range of benefits offered by Act 60.
Please be mindful of other tax compliance matters such as FBAR and CFC outside Puerto Rico even if you become a bona fide resident under Act 60
Conclusion
The Resident Tax Incentive Code, or Act 60, offers significant tax incentives for individuals who establish residency in Puerto Rico. By taking advantage of these incentives, residents can lower their federal and state tax rates, as well as enjoy a range of other benefits. If you’re considering establishing residency in Puerto Rico, it’s important to consult with a tax professional to ensure you meet the eligibility requirements and take full advantage of the incentives available under Act 60.