Though Puerto Rico is a U.S. territory, it does not follow the same tax laws as the U.S., which has attracted swarms of entrepreneurs and investors who are hoping to reduce their taxes. The laws themselves are nuanced, so it’s important to have a good understanding of them to know if they apply to you.
In 2012, during a time of economic challenges, Puerto Rico wanted to bring more wealth and jobs to the island, so Act 20 and Act 22 were signed into law, incentivizing businesses and individuals to move. Since then, job numbers have increased on the island, but the tax laws don’t come without challenges for Puerto Rican people.
The Key Elements of Act 20
Meant to reward companies that export services from Puerto Rico, Act 20 grants a 4% corporate tax rate to businesses that operate from the island and export goods or services. This 4% tax rate is much lower than the U.S. corporate tax rate of 21%. Act 20 also gives a 100% exemption on property taxes and a 100% exemption on dividends from export services. Eligible businesses range from marketing, computer program development, call centers, and more.
The Key Elements of Act 22
Focusing more on individual investors and less on businesses, Act 22 grants complete tax exemption on all income from dividends, investments, and interest. As you can imagine, this is a massive cost reduction for individuals who have a lot of their wealth in investments such as cryptocurrency. Through additional Puerto Rican investment vehicles, investors can reduce the tax rate on non-Puerto Rican investments as well.
These tax laws are only applicable to new residents to Puerto Rico, so anyone who is from there originally cannot access the reduction in taxes, which is part of what makes these laws controversial in the eyes of Puerto Ricans. If someone from the U.S. moves to Puerto Rico, they will have to submit paperwork for approval to be granted these reduced tax rates and must live in Puerto Rico for at least 183 days out of the year.
The Impact to Puerto Rico
Since 2012, job numbers in Puerto Rico have been steadily rising, and the Department of Economic Development and Commerce feels that the intended outcome of these laws is playing out as expected. However, critics of the laws feel that they allow incredibly wealthy individuals to come to the island, make heaps of money, and skirt paying taxes that other residents pay. Real estate prices are skyrocketing, and many native Puerto Ricans are completely priced out of the market due to heightened immigration. Some feel that the wealth gap is increasing because of these laws, putting unnecessary burdens on the people that the laws were meant to help in the first place.
Making the Right Move
Before deciding if moving to Puerto Rico is right for you or your business, be sure to consult a professional that can provide a greater level of detail regarding eligibility and rules. There’s so much money that can be saved, but it’s not a process that can be done without caution. Knowing the basics of these tax laws is just the first step! Once you’ve decided to make the move, our team is the best resource for finding you the perfect property to invest in. Get in touch today to see what we have available!