Also, Act 22, known as “The Individual Investors Act” targets high net worth investors with the promise of 0% tax on interest, dividends, and capital gains obtained while residing in Puerto Rico as a bona fide resident. This act, along with a few others, were the response to Puerto Rico’s ballooning national debt that started accumulating when the US government cut federal subsidies to the island in 1996. Beginning in 2012, Puerto Rico used its special status within the United States to create unique tax incentives that would lure successful employers down to the island to bring capital and create jobs. The tax benefits Puerto Rico’s Act 22 offers are as follows:
- 100% tax exemption from Puerto Rico income taxes on all dividend and interest income; and
- All capital gains accrued after becoming a New Resident will be 100% exempt from Puerto Rico taxes.
In this blog we will highlight some of the major steps you need to take to qualify for Puerto Rico’s Act 22.
Act 60
In June 2019, Puerto Rico made substantial changes to its tax incentives that came into effect on January 1, 2020. Under this new law, known as the Incentives Code, Acts 20 and 22 have been consolidated into Act 60 and were subsequently renamed. More importantly, the requirements for each program have been adjusted. We will continue to use the old names of Act 20 and 22, but the information below will reflect the new changes.
Filing
The first step in the process is to submit an application to the Secretary of the Department of Economic Development and Commerce and pay the $750 application fee. It will take a few months to process the application, but once approved, you must then pay a onetime acceptance fee of $5,000.
Establish and Maintain Bona Fide Residence
The Individual Resident Investor tax incentive is available to any person who was not a resident of Puerto Rico for the 10 tax years preceding July 1, 2019, and who becomes a resident before December 1, 2035. Within two years of qualifying for the individual investors program, you must buy a property in Puerto Rico that serves as your primary residence. Also, you will need to keep this property to maintain your Act 22 decree. While there is no minimum purchase amount for the home, you cannot rent it out as it must be used as your primary residence.
Make an Annual Charitable Donation
The next requirement is that you will need to make a $10,000 annual charitable donation – $5,000 of that donation will go to a government-approved list of charities and $5,000 may go to any Puerto Rican charity of your choice.
For more blogs on Puerto Rico’s Act 20 and 22, check out:
- Act 20: Puerto Rico Tax Incentives
- How to Qualify for Puerto Rico’s Act 20
- Act 22: Puerto Rico Tax Incentives
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