It's important to understand Puerto Rico tax incentives if you're planning on taking up residence there so that you know up front how they'll work for you.

Posted by & filed under Act 20/22.

It’s not like most people need more reasons to move to Puerto Rico. With beautiful beaches, warm waters, lush foliage, temperate year-round weather conditions, and friendly residents, there’s a lot to love about this Caribbean island nation. It gets even better, though.

For Americans (and other foreigners) interested in uprooting their lives and taking up residence in Puerto Rico, there are a number of available tax incentives designed to encourage emigration. If a visit to the Isle of Enchantment has left you wanting more, you might be surprised to learn just how much the government is willing to offer those who plan to call Puerto Rico home, especially if they’re bringing work with them.

It’s important to understand the tax incentives so that you know up front how they’ll work for you. So here are a few things you should know about Puerto Rico tax incentives.

Act 20

Enacted in 2012, along with Act 22, this tax incentive law aimed to boost the country’s economy by helping wealthy outsiders to make the transition to island life. Act 20 is more commonly known as the “Export Services Act”.

It is designed to provide incentives through low tax rates and exemptions for companies that wish to establish or expand export services in Puerto Rico. If you have a business and you are interested in providing services to outside markets from Puerto Rico, you may be eligible for incentives.

Qualifying services are many and varied. You may be eligible for tax incentives under Act 20 if you work in advertising and PR, research and development, engineering (of almost every stripe), accounting, computer software development, investment banking, or dozens of other fields. If you’re not sure whether you qualify, it’s probably best to speak to a lawyer or accountant to find out.

If living and working in an island paradise and enjoying tax breaks for your trouble sounds too good to be true, for once it actually isn’t. Under Act 20 you could enjoy benefits like a 4% corporate tax rate, as well as exemptions on property taxes, dividends, and profit distributions (100% exemption for those that qualify).

Act 22

This Act, known as the “Individual Investors Act”, went into effect at the same time as Act 20, which is why the two may seem similar at first glance. Both, for example, offer a 4% corporate tax rate and exemptions. However, Act 22 focuses less on business earnings and more on personal income.

In order to benefit from Act 20, you must establish or expand your business in Puerto Rico. To gain tax incentives under Act 22, you need only become a “bona-fide” resident, meaning you’re in the country a minimum of 183 days out of the tax year, you don’t have a tax home outside Puerto Rico, and you don’t have a closer connection in any other country than you do in Puerto Rico.

As a resident, you will not be subject to U.S. federal income tax (even though it is a U.S. territory). If you’re deemed eligible for Act 22 incentives, you’ll also enjoy 100% exemption for capital gains, dividends, and interest income on all passive income earned after becoming a resident.

The idea is that the money you save on taxes will be reinvested into Puerto Rico’s economy. In other words, you get a tax haven and Puerto Rico gains access to your wealth not through taxes, but through your spending.

Act 73

Enacted in 2008, Act 73 is also known as the “Economic Incentives for the Development of Puerto Rico Act”. The title may be long-winded, but the concept is simple: to provide tax incentives designed to develop local industry, drive economic growth, and encourage outside investments.

Eligible activities could include commercial manufacturing, recycling activities, hydroponic planting and cultivation, construction of sustainable communities, and more. There is also a diverse range of tax credits and exemptions linked to this Act.

There are other tax incentives that may apply to more targeted individuals or business interests, but Acts 20, 22, and 73 seem to apply to the broadest range of potential immigrants to Puerto Rico. If you’ve been dreaming of island life in the Caribbean, whether you’re looking to retire or you want a beautiful setting in which to own and operate a business, now is a great time to make the move. With incredible tax incentives at your fingertips, the only real question is: what are you waiting for?