The government of Puerto Rico enacted in 2012 Act 22, known as An Act to Promote the Relocation of Individual Investors to prime up the economic development of Puerto Rico by offering non-resident individuals 100% tax exemption on all interest, all dividends and all long-term capital gains.
If you’re a non-resident in Puerto Rico and interested in tax incentive-laden business opportunities, looking closely at Puerto Rico Act 22 may be worth your while.
Eligibility – Who Qualifies?
All non-residents who become residents of Puerto Rico are considered eligible under Act 22, unless he or she was a resident between January 16, 1997 and January 16, 2012, when this law took effect. Otherwise, any individual who has resided or had physical presence in Puerto Rico for 183 days is presumed to have established residency under the Puerto Rican tax code.
The Tax Savings and Tax Incentives
Pretty much in line with what the Puerto Rican government is doing – enacting laws to spur the development of the economy by enticing US American and foreign investors with tax savings and benefits, Act 22 has the following tax benefits:
0% taxes on dividends and interest. Over and above this Puerto Rican tax exemption, it is also exempt from US federal income taxes if the revenues are sourced from Puerto Rico.
0-10% taxes on capital gains. A qualified individual’s income from long-term capital gains is exempt from Puerto Rico income taxes. Prior to becoming a bona-fide resident however, long-term capital gains are subject to a 10% tax rate if realized within 10 years of residency and 5% if realized after 10 years of residency.
Under the US tax law, prior to becoming a Puerto Rican resident, long-term capital gains realized within 10 years are subject to the US IRC which is 0 %, ergo a bona-fide resident would be subject to only 5% of the Puerto Rico tax rate.
How to Apply for Act 22 Tax Incentives
Should you, as an investor or businessman decide this is something you might want to get into, know that availing of the various tax benefits from Act 22 is not really all that tedious. Below are the simple and easy step-by-step guide on how to do it:
- Download and fill out the 2-page application form from http://www2.pr.gov/agencias/oeci/Pages/Solicitudes.aspx
- Have the application notarized
- Submit a signed PDF copy to the Office of Industrial Tax exemption
- After a 5-day reviewing process and there are no hitches or kinks, you will receive at your address an Exemption Decree from the Department of economic Development and Commerce of Puerto Rico.
- Upon receipt of this decree, you must submit a notarized unconditional acceptance to the terms of the decree together with a filing fee of $50 (must be a certified check, a manager’s check or money order) to the Office of Industrial Tax Exemption at the following address: