How to Qualify for Puerto Rico’s Act 22

How to Qualify for Puerto Rico’s Act 22

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.

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Act 20: Puerto Rico Tax Incentives

Act 20: Puerto Rico Tax Incentives

In January of 2012, Puerto Rico passed legislation making it a tax haven for U.S. citizens that become residents of Puerto Rico. The tax laws, known as Act 20, the Export Services Act, and Act 22, the Individual Investors Act, shields new residents residing in Puerto Rico for at least half of the year from paying most federal income taxes. The U.S. Tax Code generously exempts Puerto Rico sourced income from federal tax, and, under the law, residents pay minimal or possibly no taxes on interests and dividends, as well as capital gains. Additionally, property taxes are significantly lower than property taxes in the mainland U.S. Thus, making Puerto Rico a hot spot for exportation of international services worldwide.

These tax laws 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.

Once granted, the benefits under Act 20 and 22 will be secured during the entire term of the act, regardless of changes in the Puerto Rico tax laws applicable. The act shall have a term of 15 years (from 2012) with possible 15-year extension in the case of Act 20 and until December 31, 2030 in the case of Act 22.

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