Act 22 – Puerto Rico Tax Incentives To Business Owners And Investors

Puerto Rico Tax Act 22

Along with Puerto Rico Tax Act 20, Puerto Rico adopted an additional incentive, the “Act to Promote the Relocation of Individual Investors,” Puerto Rico Tax Act 22, to stimulate economic development by offering nonresident individuals 100% tax exemptions on all interest, all dividends, and all long-term capital gains. A complement to Puerto Rico Acts 20, 27 and 73, Act 22 offers special Puerto Rico tax incentives to business owners, entrepreneurs, and executives.

 

Puerto Rico Tax Incentives

  • 0% Taxes on Dividends and Interest: A qualified individual’s income from dividends and interest are exempt from Puerto Rico income taxes during the exemption period.
  • 0%-10% Taxes on Capital Gains: A qualified person’s income from long-term capital gains is exempt from Puerto Rico income taxes during the tax exemption period after the individual becomes a resident of Puerto Rico. A qualified individual’s long-term capital gains before becoming a resident of Puerto Rico are subject to a 10% tax rate if realized within ten years of residency or 5% if realized after ten years of residency.
  • 0% Federal Taxes Puerto Rico Source Income: Under the US Internal Revenue Code, income derived from sources within Puerto Rico by individuals qualified as bona fide residents are exempt from federal income taxation.

 

Puerto Rico Taxes Eligibility

Individuals who become residents of Puerto Rico are considered eligible for Puerto Rico Taxes under Puerto Rico Tax Act 22 unless the individual was a resident of Puerto Rico at any time from January 16, 1997 to January 16, 2012.

An individual that becomes domiciled in Puerto Rico establishes a presumption of residency as a Puerto Rico resident with a 183-day physical presence in Puerto Rico.

 

Puerto Rico Tax Exemption Decree

An eligible individual is required to obtain a Tax Exemption Decree that will endure for a term that the Government decrees valid until 2036. The Tax Exemption Decree constitutes a contract between the service provider and the Government of Puerto Rico and will be unaffected by any future legislation.

 

Puerto Rico Resident Requirements

In order to qualify for Puerto Rico taxes you must be a Puerto Rican resident. An individual that becomes domiciled in Puerto Rico is considered a resident. Requirements to be considered a Puerto Rican resident:

  • 183-day physical presence in Puerto Rico, to establish a presumption of residency under the Puerto Rico Tax Code.
  • No tax home outside of Puerto Rico during the year. A tax home is determined to be located near a person’s principal place of business.
  • Have a closer connection to Puerto Rico than to the US or another country. This is determined by a variety of factors including, but not limited to the location of the individual’s home, family, personal belongings, and voting district.

The tax exemption period begins on the date an individual becomes a resident of Puerto Rico. For more details, see our white paper “Becoming a Puerto Rico Resident”.

 

Learn more about other Puerto Rico Tax Incentives