In order to attract successful Puerto Ricans who have left the country, the Island is offering Act 20 and Act 22 tax exemptions it offered to American investors to lure locals back to the island. According to Forbes, the island is trying to offer tax breaks to attract potential investors to boost Puerto Rico’s economy.
With an unemployment rate of over 13%, Puerto Rico’s economic inequity is bigger than any of the 50 states. That’s why, in a bold move to bolster its economy, the island has offered significant tax breaks to those willing to relocate, bolstering its reputation as a tax haven for the rich.
Puerto Rico’s been suffering from a severe brain drain from the past decade. Most of the skilled professionals are migrating to mainland U.S. where salaries are higher; and given their status as U.S. citizens, they enjoy the same rights as their mainland competitors. This hinders the Puerto Rico economy, as the country is now seeing a decline in their production levels.
To bring back its residents, Puerto Rico is now offering the same tax breaks to people who left the island by introducing Bill 864, which was signed into law on December 22, 2014. Prior to this new legislation, Act 20 and Act 22 were only open to new migrants to Puerto Rico who had not been residents for 15 years prior to moving. Under the new legislation, that length of time has been reduced from 15 to just 6 years. As long as a resident left the island before 2006, they will qualify for the same tax benefits.
Here we will show what those acts are all about, so you can see for yourself why Puerto Rico is becoming an appealing tax haven.
Act 20 and Act 22 Tax Exemptions
Act 20, The Export Services Act of 2012 was established as a way to promote the exportation of goods and services. The way to do it is providing the appropriate environment and opportunities to transform Puerto Rico into a center for international services. Act 20 encourages local providers to expand their businesses and offer services to clients outside the island. It also aims to entice foreign investors to move their business to the island.
Act 20 offers:
- 4% corporate tax rate
- 100% tax-exempt dividends
- 60% exemption from municipal taxes
- 20-year decree guaranteeing these rates
- No federal taxes on Puerto Rico source income
Act 22, the Individual Investors Act
Act 22 offers:
- 0% tax on dividend and interest income for new Puerto Rico residents
- 0% tax on short-and-long term capital gains for new Puerto Rico residents
- 0% federal taxes on Puerto Rico source income
- Incredible tax savings on your investment portfolio returns
Long story short, the Act 20 aims to help Puerto Ricans who want to offer their services to different countries while trying to attract potential investors to open business in the área. In the other hand, Act 22 looks forward to enticing potential investors who want to buy properties and get tax benefits from them.
There are many firms and particular investors who are considering moving to the Island of Enchantment; you can also benefit from these exemptions. However, if you’re not looking to invest, Puerto Rico is still a place full of wonders waiting for those who visit and stay.