Tax Savings for Individual Investors

Chapter 2 Overview

Chapter 2 of Act 60 provides substantial tax benefits that are particularly advantageous for individual investors. This legislation enables a complete tax exemption from Puerto Rico income taxes on all interest and dividend income, in addition to specific capital gains that are realized and accrued after an individual establishes bona fide residency in Puerto Rico. This exemption is available to any individual who secures residency in Puerto Rico on or before the end of the taxable year on December 31, 2035. However, it is important to note a critical stipulation: individuals must not have been residents of Puerto Rico at any time between January 17, 2006, and January 17, 2012. This provision is strategically designed to attract new residents to the island, creating a more favorable tax environment that benefits both the investors and the local economy.

Defining Residency

To qualify as a resident of Puerto Rico, an individual must establish domicile on the island. A pivotal factor in determining residency is the concept of physical presence; specifically, an individual is required to spend a minimum of 183 days in Puerto Rico during the taxable year. Meeting this requirement creates a presumption of residency for tax purposes, which means the individual will be subject to the income tax laws of Puerto Rico. Establishing residency not only provides significant tax advantages but also opens the door for individuals to engage more deeply with the local economy and community. This engagement can lead to a richer cultural experience and a greater sense of belonging within Puerto Rico.

Federal Income Tax Exemption

According to Section 933 of the U.S. Internal Revenue Code of 1986, individuals who are bona fide residents of Puerto Rico for the entire taxable year have the opportunity to exclude income derived from Puerto Rican sources from their gross income for federal tax purposes. This provision means that such income is exempt from federal income tax, presenting a significant financial incentive for individuals considering relocation. To qualify as a bona fide resident under Section 933, individuals must meet several criteria, which include passing a physical presence test, having no tax home outside of Puerto Rico during the taxable year, and maintaining a closer connection to Puerto Rico than to the mainland United States or any foreign country. This comprehensive legal framework is designed to encourage individuals to invest in and reside in Puerto Rico, which in turn stimulates the local economy and spurs economic growth.

Investment Opportunities

For entrepreneurs and investors, Puerto Rico offers a wealth of tax-efficient investment opportunities that are highly attractive. Qualified individuals benefit from the absence of capital gains taxes, whether these gains are short-term or long-term, in addition to being exempt from taxes on interest and dividends. This distinctive tax environment empowers investors to maximize their potential returns and reinvest their earnings into the local community and economy, fostering growth and development. The lack of these taxes significantly enhances Puerto Rico’s appeal as a destination for business and investment, encouraging the emergence of new ventures as well as the expansion of existing businesses. This unique setup not only benefits individual investors but also contributes positively to the overall economic landscape of the island.

Application Requirements

Upon receiving approval for your application, you will need to adhere to specific requirements to maintain the tax benefits conferred by the program. Firstly, you are required to make an annual donation of at least $10,000 to a local nonprofit organization. This requirement not only supports community development initiatives but also instills a sense of responsibility among investors towards the local populace. Secondly, you are expected to purchase real estate within the first two years of establishing residency, which serves to bolster the local housing market. Lastly, an annual report must be filed along with a filing fee of $5,000 to ensure compliance with the program. Adhering to these requirements is crucial for maintaining your eligibility for the tax advantages that the program offers.

Program Duration

It is essential to recognize that this program is scheduled to expire on December 31, 2035, unless it receives renewal. This impending deadline highlights the urgency for potential investors to take full advantage of the benefits while they remain available. Keeping informed about any legislative changes or potential renewals is vital for individuals contemplating relocation or investment in Puerto Rico. The expiration date serves as a critical reminder for interested parties to act swiftly to secure their financial advantages and contribute to the local economy. Awareness of these time constraints can significantly influence decision-making for prospective investors.

Getting Started

If you believe you meet the necessary criteria to benefit from this program, we are here to assist you throughout the process. Our dedicated team can provide you with detailed explanations of the procedures involved, help in gathering the required documentation, and ultimately submit your application to the Government on your behalf. We understand that navigating the complexities of tax laws and residency requirements can be overwhelming, and we strive to simplify this journey for you. For additional information or to initiate the process, please do not hesitate to contact us via email at peter@criterionadvisorsgroup.com, by phone at 939-391-1680, or by completing our Contact Form. We look forward to helping you take full advantage of the opportunities that await you in Puerto Rico.