In this article, we will explore why some individuals are finding Puerto Rico as their new home and how you can seek residency in the beautiful island territory.
Why Relocate to Puerto Rico?
Seeking residency in a new jurisdiction can open up a world of possibilities, whether personal or financial. Personally, a new home can allow you to find a more affordable cost of living, better weather, and an ideal living situation overall. On a financial level, moving abroad can allow investors to tap into new markets, diversify their portfolio, seek better banking systems, and benefit from different tax structures. Whatever your reasoning, relocating can change any economically savvy investor’s life for the better.
The Commonwealth of Puerto Rico is a beautiful island territory of the United States located in the northeast Caribbean Sea known for its rich history and culture, delicious food, and natural beauty. There are sunny, pristine beaches, warm weather, and exquisite landscapes. Additionally, as a commonwealth of the US, citizens don’t have to worry about immigration, customs delays, and other logistic hassles of moving to a new country. On top of the beauty and culture of Puerto Rico, Act 20 and Act 22 have provided several incentives for high net worth investors to relocate to the territory. These laws were put in place in 2012 to contribute to the island’s economic growth and have played a vital role in the government’s economic development plan.
Whether you are looking to take advantage of fun in the sun or tax incentives, you will need to make sure you know everything it takes to become a Puerto Rico resident. Before visiting any new destination, it is vital to understand the options for the required documentation. Every jurisdiction has its own rules and regulations. Below we will explore some of the ways investors can relocate to this beautiful destination to take advantage of some of the favorable tax laws (and sun).
Bona Fide Resident Requirements
While Puerto Rico is legally a US territory, it has it’s very own tax system. As long as all of the money comes from the commonwealth, residents can be exempt from US federal taxes. This means that certain federal US tax exemptions that a bona fide Puerto Rico resident can take advantage of. The only way to take advantage of the tax incentives mentioned above is to become a bona fide resident of Puerto Rico. Since Puerto Rico is a US territory, you won’t need any paperwork to enter the island. When desiring to live as a resident, several steps must be taken.
US taxpayers find that it can be easy to relocate to Puerto Rico. The first requirement has to do with time spent in Puerto Rico. Individuals are expected to spend 183 days a year in the territory. Further, they must spend at least 549 days in a three-year period. Also, they are not permitted to be present in the US for more than 90 days in any year. In terms of income, the person cannot earn more than $3,000 in the US each year.
The second requirement is that the resident cannot have a “tax home” that is located outside of Puerto Rico. A tax home is considered an individual’s principal place of business. If the nature of the individual’s occupation does not specify a place of business, then the tax home is where their home resides. The expectation is that the person should buy a home in Puerto Rico within the first few years of living there. This home should be the place where the individual lives and not rented out.
The last requirement is concerning the personal connections of the individual. They must prove they have closer ties to Puerto Rico than the US or other countries, which is a test of facts and circumstances. Here is a list of factors that can be used to prove a personal connection:
- The location of an individual’s permanent home
- Where the individual conducts regular banking
- The location of their personal belongings such as vehicles, furniture, clothing, jewelry, etc
- The location of the individual’s family
- Where the individual votes
- Where the individual holds a driver’s license
- The jurisdiction in which an individual votes
Along with these tax incentives, there are additional benefits offered to bona fide residents who own shares of corporations based in Puerto Rico. For example, these residents are entirely exempt from the controlled foreign corporations (CFC) rules and the passive foreign investment company (PFIC) rules regarding their affiliation with the Puerto Rican corporations. These exemptions can be extended to income from other jurisdictions as well.
Not a US Citizen?
To take advantage of the tax advantages with Act 20 and Act 22 [Link to Puerto Rico Act 20 and Act 22], an individual needs to be considered US taxpayers. Therefore they must be US citizens by either birth or naturalization. Before naturalization, an individual will have to take steps to acquire a green card. For example, investors can earn an EB-5 visa to reach permanent resident status.
Eligibility for US citizenship is based on meeting specific requirements. Applicants must:
- Be a lawful permanent resident with a green card.
- Be at least 18 years of age.
- Show they are continuously present in the United States for at least five years. If married to a US citizen, this time period is shortened to three years.
- Show they have lived in the same state for at least three months continuously.
After the application and filing the proper paperwork, the applicant will go through a biometrics appointment for background check purposes, a citizenship interview, and a citizenship test. After all appointments and applications are complete, there is a naturalization ceremony.
The favorable tax system offered by Puerto Rico does not entirely excuse individuals from the US federal tax system. It is essential to plan thoroughly. With the help of a professional, investors worldwide can lower their tax burden, tap into new markets, and find financial success.