June 11, 2021

Act 60 – Is a Move to Puerto Rico in Your Future?

Crypto tycoons, developers, social media influencers…what's got America's wealthy looking at Puerto Rico as a potential primary residence?  Short answer…Act 60.  The wealthy don't like paying taxes anymore than the poor or middle class.  Even Logan Paul (if you don't know who that is, ask your kids) made the move recently, citing California's increasing tax burden as the straw the broke the camel's back.

Puerto Rico is a US territory allowing free movement between the island and the mainland, but they are exempt from US taxes.  As such they have also been pretty much left on their own to deal with a massive recession, debt and high unemployment.  Act 60, which is the combination of 2 laws passed in 2012, was meant to attract investment and wealth to Puerto Rico.

The first law, Act 20, sets the corporate tax rate at just 4% for export service companies that setup an office in Puerto Rico.  It also exempts taxes on any dividends.  For companies that do more than $3M in annual revenue, they only need hire 1 local employee to maintain that rate.  Eligible services include consulting & advisory services, professional services (accounting, taxes, legal), software development, graphic design, shared services (HR, centralized management, etc.), call centers, corporate headquarters, and more…as long as the services are provided to non-Puerto Rican citizens (hence exported services).

Act 22 offers full exemption from all taxes on an individual's passive income.  In other words, ZERO capital gains tax.  The caveat is you must donate $10K annually to a local non-profit, purchase a primary residence, and spend at least 183 days in Puerto Rico.  You also can't have a significant tie back to the US (your wife and/or children can't live in the US, and you can't earn more than $3K in salary, wages or professional fees while stateside).  Oh…and you can no longer vote for the president.

The 0% rate only applies to capital gains realized or accrued as a resident.  Any unrealized gains accrued prior will be taxed at the prevailing rate if recognized within 10 years, or at 5% if realized after 10 years of becoming a resident.  Moving to Puerto Rico for a year is not going to reduce your US tax burden if you've already amassed huge gains!

As with anything, the devil is in the details.  Moving to Puerto Rico probably isn't going to make sense for most people and/or businesses.  You'll definitely want to talk it through with an advisor.  This program was launched at the stroke of a pen, and it could just as easily be removed that quickly if the US decides it's losing too many taxes.  If you think Puerto Rico might be for you, we'd be happy to put you in contact with an experienced advisor.  In the meantime, we definitely encourage you to enjoy the Caribbean sun on vacation! 🙂

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