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.
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:
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.
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:
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.
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.
Act 60 Investors (and some 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.
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.
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.
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?
PR Advantage is pleased to offer a free webinar series on transfer pricing!
What is transfer pricing?
Some entrepreneurs who relocate to Puerto Rico have existing businesses that continue after their move, which gives them the opportunity to use a PR Export Services company to provide management and other services from PR. Once they have relocated to PR, formed a new business here, and applied for the Act 60 Export Services tax incentive, their new PR company becomes a service provider to the pre-existing business.
Such business owners may have controlling interest in both companies, which means the relationship of the two businesses is not “arm’s length”, from a tax perspective. If this describes your strategy, you may need to consider transfer pricing. It doesn’t affect everyone who moves to Puerto Rico, but for some business owners, it can be an important consideration. This page provides a bit more detail.
Free Webinar Schedule
Because many of our clients have had questions about transfer pricing, PR Advantage has partnered with an experienced firm to offer a free, educational webinar series about transfer pricing. Come and get your questions answered by an expert who has helped many other Act 60 applicants. We are offering the following timeslots:
Session date
Registration link
Tuesday, February 14, 2023
4-4:30pm PR time (12-12:30pm Pacific time)
Wednesday, February 15, 2023
1-1:30am PR time (12-12:30pm Eastern time)
FAQ
Here are some common questions about this issue, as a preview for what we will discuss on the webinar. We encourage you to send additional questions in advance of the session, to ensure the best chance that we can accommodate them.
Q: What is transfer pricing?
A: Fees paid by a company you own or control to another company you own or control.
Q: Why does it matter?
A: This type of vendor relationship is not “arm’s length”, because you control both sides of the transaction.
Q: When would this affect you?
A: In an audit, transactions that are not “arm’s length” could result in fees, penalties, and back taxes owed.
Q: What can you do about this?
A: Obtain a Transfer Pricing Study from a qualified 3rd party vendor to set the prices one of your companies charges the other company.
Puerto Rico is a land of economic opportunity, endless beaches, a rich culture, and friendly people. The weather is amazing year-round, and Puerto Rico offers many beautiful and safe places to live. Let us help you discover the many benefits and joys that life in Puerto Rico has to offer!
