How can Puerto Rico lower your taxes?

How can Puerto Rico lower your taxes?

Why Puerto Rico, and how do the tax breaks work?

You may have found this site because you have heard that Puerto Rico taxes can be as low as 0%.  This might sound too good to be true!  We assure you that it is legitimate, and may be easier than you think, especially if you get some expert help to streamline the process.

To be clear: there are rules around officially establishing yourself as a PR resident.

Also, just moving to PR is not enough – you also need to apply for one or more of the PR tax incentive programs, and comply with the requirements of it.

As a US Territory, Puerto Rico has a unique status under the US tax law: income earned in Puerto Rico is taxable by PR’s IRS, not by the federal IRS.  This puts PR in a unique position of being able to offer special tax incentives.

 

How much tax can you save?

Puerto Rico’s government has created full program of tax breaks that include:

  • Individual investors can pay 0% on qualifying investment income
  • Services businesses can pay 2-4% corporate tax, and no tax on owner distributions, if formed and operated in PR.  Services can include consulting, management, among a number of other types of services.
  • A number of other businesses have a similar deal, and some also include tax credits.     

 These benefits do generally require relocating to PR, and conforming with the IRS’ rules for bona-fide PR residency.  

 PR Advantage has designed services packages to soften your landing in PR, helping you figure out the best tax strategy, obtain the incentives, successfully relocate to PR, and establish yourself for success from the beginning.

 

Free Webinar Series

We offer a webinar from time to time to provide an overview of the main questions our clients typically ask.  Here are some upcoming dates that you can sign up for:

We Can Help

Our company helps people like you take advantage of Puerto Rico’s excellent tax incentives!  We can help you determine which tax incentives are right for you, help you plan your residency and relocation strategy, and simplify the entire process for you.

Contact us for a free initial consultation.

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Charity Donation Requirements

Charity Donation Requirements

Most Puerto Rico investors who apply for Act 60 or Act 22 must donate to a Puerto Rico charity each year.

Note: there is no charity requirement for business owners if you chose not to pursue the Investor incentive.

Rules for Act 60 and Act 22 Charitable Donations

  • Under Act 60, Investors are required to donate at least $10,000 annually, starting in their second year.
    • $5,000 of this must go to a charity on the CECFL list. This indicates it is an approved non-profit that helps to alleviate child poverty in Puerto Rico.
    • The other $5,000 can go to any approved PR non-profit (certified under 1101.01 of the PR law, which is equivalent to 501(c)(3) in the mainland US).
    • As organizations on the CECFL list are also qualified non-profits, it is acceptable to donate the full $10,000 to a CECFL charity. Note that there is some conflicting information on this point on some websites – see below for more details.
  • Many Act 22 Investors also have a requirement to donate $5,000 annually to PR charities.
    • No portion of this is required to go to a CECFL non-profit.
  • For all Investors, there are a few additional rules:
    • The charity cannot be an organization that is owned or controlled by the investor who is donating, or by that investor’s spouse or partner, descendants, or ascendants.
    • You can donate to multiple charities or to just one, as long as the total adds up to at least the minimum required under the Investor program you are in.
    • The deadline each year to complete your donations is December 31 of that year.
    • Receipts must be retained in your records to show evidence of the donations.

Can the full Act 60 donation can go to a CECFL organization?

Yes, it can. Some experts understand the Act 60 law to mean that only half can go to a CECFL charity. Sometimes tax and legal professionals interpret the law differently from the attorneys who work for the PR government. It’s important to find out how the PR government views the law.

Because there is differing professional advice on this point, we consulted with a DDEC attorney for clarification. DDEC is the PR department that administers the tax incentives program. DDEC advised us that investors can allocate the full $10,000 donation to a CECFL entity if they choose.

How do you find a Puerto Rico charity you can trust?

Sites such as Guidestar can help you to identify if a non-profit is transparent in their spending. We prefer to research charities before donating, to ensure that the non-profit has a good, honest reputation. After careful consideration, Puerto Rico Advantage has chosen to endorse Tech My School and is evaluating other non-profits for possible endorsement. You can find out more by downloading a recent webinar we hosted in partnership with Tech My School, or by watching a recording of it posted to YouTube.

Tech My School – Free Webinar

Tech My School – Free Webinar

Charity we recommend for Act 60 donations

Act 60 Investors (and many Act 22 Investors) are required to make annual donations to qualifying Puerto Rico non-profits. Our clients often ask if there are particular PR charities that we endorse, and after some consideration of many worthy non-profits, we are pleased to endorse Tech My School.

To find out more, please reach out to us with questions or click here to download the presentation. We will likely be scheduling more of these later this year.

Tech My School checks all of the boxes for us:

  • It meets the requirements for Act 60 and Act 22 donations.
  • Run by highly experienced educational experts, Tech My School has the potential to make a real difference for Puerto Rico schools, which is one of the best ways to improve the future of a community.
  • It already has a track record of success in Puerto Rico.
  • This charity offers full transparency, so you can really feel confident that your full donation is going toward the cause. It has no political agenda or affiliations but is only here to do good.

Puerto Rico Advantage is proud to recommend Tech My School.

Puerto Rico Labor Laws

Puerto Rico Labor Laws

Did you realize that the Puerto Rico labor laws are different in many key ways than in the mainland US? They are substantially more labor-friendly than you might expect. If you own or are starting a Puerto Rico business and have employees in PR, it’s very important to understand these key differences.

Additionally, there have been changes to these laws. Some have favored the employer, but some more recent changes, just passed in June of 2022, are more beneficial to employees.

Some key points

  • Puerto Rico labor laws are based on “right to work” rather than the “at will” employment in the mainland.
  • Employees in PR must be paid a Christmas bonus.
  • Paid vacations, sick leave, and government holidays are dictated by law.
  • Employment can begin under a probationary period of up to 3 months (which can be extended for up to another 3 months if you get permission from the PR Department of Labor).
  • Should you need to terminate an employee for cause, it’s important to show a history backing this up.

New Webinar

We had scheduled a webinar on this topic which incorporated the PR labor law changes enacted last year, but a new change is causing us to delay this webinar. A court connected to PROMESA recently declared the new laws void, and the results of this are still being worked out. We will reschedule the webinar once more details become available.

Puerto Rico Residency – Free Webinar

Puerto Rico Residency – Free Webinar

Establishing legal, “bona-fide” residency is the first step in a successful strategy to take advantage of Puerto Rico’s tax incentives. Maintaining it ongoing is also critical! Should you be audited and found to not be in compliance with the Puerto Rico residency requirements, you could be subject to significant back taxes and penalties.

For a presentation used in our recent free webinar, click here to download the PDF.

Audit Risk – Recent Developments

Even if you have already moved to Puerto Rico, you may be at risk of not be fully compliant with the Puerto Rico residency requirements. The IRS is staffing up to focus more on audits of Puerto Rico residents. It is more important than ever to ensure your strategy is sound and that you’re sticking to it.

It is fairly easy to comply with the rules for Puerto Rico residency. Invest a little time in educating yourself, and then check now and then to ensure you are maintaining this all-important part of your tax reduction strategy.

Questions – How to Become a Bona Fide Resident of Puerto Rico

We recently co-hosted a free webinar with an experienced CPA firm, to explain in more detail how to stay compliant with the residency rules so that your PR tax breaks can continue.  If you missed it, you can click here to download the PDF and we do intend to schedule a replay in the future.

The webinar discussed topics such as:

    • What is the minimum you need to do to first establish Puerto Rico residency?

    • Are there exceptions to the 183-day rule?

    • Can I keep a house outside of Puerto Rico and still be a legal PR resident?

    • What happens if the IRS audits you and finds you not to be a bona fide resident of Puerto Rico?

    • Is there a way to “game the system”? Why is this risky?

    • What are the benefits of moving to PR?

    • Does moving to PR automatically mean I will pay lower taxes?

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Free Webinars

Click below for more information on:

Why Puerto Rico, and how do the incentives work?

Puerto Rico Labor Laws

Transfer Pricing 

Tech My School - PR Non-Profit

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