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Puerto Rico Residency

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Puerto Rico Residency Requirements 

To qualify for the tax exemptions under the Puerto Rico tax incentives, you must be a “bona fide” resident of the Commonwealth of Puerto Rico, and it is very important to carefully ensure you meet the residency requirements. 

It’s also important to note that any employee salary you are paid as a resident of Puerto Rico is subject to Puerto Rico income tax.  Individuals pay no income tax on dividends under the Puerto Rico tax incentives, and no income tax on capital gains and interest income under the Individual Investor incentive.

We provide tools and consulting to ensure your residency strategy is sound, from initially establishing residency to maintaining it ongoing.  Our team also assists in all of the aspects as much as you need us to, such as setting up a bank account in Puerto Rico and finding an apartment or house.

What is a “Bona Fide” Resident?

The Internal Revenue Code defines this term as meaning a person who meets a three-part test with respect to residing in Puerto Rico during the tax year:

1) Physical Presence Test:
A resident of Puerto Rico must be physically present there for at least 183 days during the tax year. [Note: Any portion of a day is counted as an entire day.]  Though this is the main method used to meet this test, there are several other options:

  • You can count up to 30 days of travel abroad toward your Puerto Rico days; 
  • You can average 549 days over 3 years under certain circumstances;
  • If you spend less than 90 days in the mainland in a given year, your Puerto Rico days must just be greater in number than your mainland days;
  • If your US-sourced income was less than $3,000, you just need to be in Puerto Rico more than in the mainland that year; or
  • If you don’t have a “significant connection” to the mainland, there is no minimum requirement for days in Puerto Rico. 

2) “Tax Home” Test:
A resident of Puerto Rico must not have a tax home outside of Puerto Rico during the tax year. Essentially, this means that the resident’s main place of business during the year must be located in PR. (If you have no regular or main place of business, then your principal home must be located within Puerto Rico.)

3) “Closer Connection” Test:
A resident of Puerto Rico must show that they have what the IRS considers a “closer connection” to Puerto Rico, and also that they don’t have a “closer connection” to the mainland US or any foreign country. This is a subjective test in which many factors are weighed, including (but not limited to) the following:

  • Location of your permanent home (whether your permanent home is a house, an apartment, or a furnished room, and whether owned or rented). It is material, however, that the dwelling be available at all times, continuously, and not solely for stays of short duration.

  • Location of your family

  • Location of your personal belongings, such as automobiles, furniture, clothing and jewelry

  • Location of social, political, cultural or religious organizations

  • Location where you conduct your routine personal banking activities

  • Location where you conduct your business activities (other than those that constitute your tax home)

  • Location of the jurisdiction in which you hold a driver’s license

  • Location of the jurisdiction in which you vote

  • Country of residence which you designate on forms and documents

  • Types of official forms and documents you file, such as:

            * Form 1078 – Certificate of Alien Claiming Residence in the United States
            * Form W-8  – Certificate of Foreign Status
            * Form W-9 – Payer’s Request for Taxpayer Identification Number

[Please see Treasury Regulation §1.937-1 subsections (d) and (e) for the official IRS policies and definitions.]

Resources:

IRS – “bona fide” residence test

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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