Puerto Rico Tax Incentives: the Ultimate Guide to Act 20 and Act 22

Written by Andrew Henderson
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Last Updated July 18, 2020

Dateline: Tbilisi, Georgia 

How would you like to remain a US citizen but – legally – only pay 4% corporate tax, zero capital gains, and zero dividends tax?

This is exactly what Puerto Rico has been offering US citizens for just shy of a decade.

This has, of course, created quite the buzz in the offshore world. Many folks view Puerto Rico as the alternative to citizenship renunciation for tax-weary Americans.

But don’t be too eager to believe all the hype.

While Puerto Rico may be the solution for a small group of people, it is not the ultimate remedy that many claim it to be.

Any time a program or other tax incentive reaches a certain level of mass, you will have a lot of people selling you on how easy it is; but easy doesn’t always mean that it is the right fit – if it even fits at all.

The available programs in Puerto Rico have many strings attached and, if those requirements don’t fit perfectly into your business and lifestyle plans, you are better off staying away.

In this article, we will examine Puerto Rico Act 20 and 22 from every angle. We will break down the programs, discuss how the tax incentives work, go over what you must do to qualify, and then give you the pros and cons of Puerto Rico’s tax incentives versus the tax relief you can enjoy by going overseas.

My opinion will certainly go against what some of the promoters of Puerto Rico’s tax incentives are talking about, but for someone who wants to make an informed decision, that is exactly what you need.

So, let’s dive in.

⤅ The Why of Puerto Rico’s Tax Incentives
⤅  What Are the Puerto Rican Tax Incentives?
⤅  Puerto Rico Act 20

⤅ What Is Puerto Rico Act 20?

⤅ How to Qualify for Puerto Rico Act 20

⤅ Utilizing Puerto Rico Act 20

Puerto Rico Act 22

⤅ What Is Puerto Rico Act 22?

⤅ How to Qualify for Puerto Rico Act 22

⤅ Utilizing Puerto Rico Act 22

⤅ The Pros of Puerto Rico’s Tax Incentives
⤅ The Cons of Puerto Rico’s Tax Incentives
⤅ Alternatives to Puerto Rico Act 20 and 22

⤅ Going Offshore with the FEIE

⤅ Renouncing US Citizenship

⤅ It’s Worth a Call

Puerto Rico Flag

The Why of Puerto Rico’s Tax Incentives

The first question we must ask ourselves before we delve into the details of Puerto Rico’s programs is why a US possession would (or even could) offer such dramatically low tax rates to wealthy US citizens in the first place.

As with anything bought and sold in a free market, Puerto Rico’s program exists because there is both supply and demand at play.

Puerto Rico is willing to supply an attractive tax regime because it needs money from investors and businessman. And there is demand for lower taxes from these very investors and businessman thanks to the harsh taxes in the United States.

1. Puerto Rico Needs Money

Dependent

Puerto Rico’s economy has long been dependent on federal subsidies from the US government. When these were cut in 1996, Puerto Rico began incurring large debts.

Bankrupt

Puerto Rico now has a ballooning national debt – including $74 billion in bond debt and $49 billion in unfunded pension liability – and a public infrastructure that is built on that debt.

Inefficient

Puerto Rico’s government has been incapable of collecting a large portion of its taxes and administering its affairs to adequately deal with and repay its debts.

Depression

Puerto Rico’s gross national income declined by 14% from 2007 to 2017, unemployment reached 17% in 2010, and 46% of the population lived under the poverty line in 2015.

Hurricane Maria

The strongest storm to hit the island in almost 90 years, Hurricane Maria devastated Puerto Rico in 2017, leaving nearly 3000 dead and over $90 billion in damages to the island.

2. US Citizens Need Tax Relief

High Taxes

While tax rates in the United States are not as high as in many other developed countries, they are still quite high and continue to create a substantial tax burden for US citizens.

Citizenship-Based Taxation

Unlike citizens from almost every other country on earth, US persons are subject to US tax on their worldwide income regardless of where they live.

Trump Tax Reform

The 2018 Trump tax reform severely limits the extent of many offshore benefits such as the FEIE, tax credits, and foreign corporations, making it practically impossible to eliminate your taxes living overseas.

Insufficient Domestic Tax Relief

Many US citizens do not want to leave the only country they have ever known but still want a more tax-friendly environment. Moving to a state with zero state income tax does not reduce federal taxes.

Puerto Rico seemingly cannot escape its debt. US citizens increasingly cannot find any substantial tax relief.

Enter the Puerto Rican tax incentives. 

What Are the Puerto Rican Tax Incentives?

Completely bankrupt and scrambling for money, Puerto Rico has done what many countries do when trying to boost their economy, they have created attractive tax incentives to encourage foreign investment.

Puerto Rico’s main focus has been to draw in US corporations and investors seeking tax relief from US citizenship-based taxation.

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.

Currently, the agreement between Puerto Rico and the United States government allows American investors and corporations (that are willing to relocate to Puerto Rico and establish their bona fide residence there) to only pay tax in Puerto Rico on most forms of income. 

Because Puerto Rico has a special status within the United States, folks who take advantage of Puerto Rico’s programs can enjoy huge exemptions on federal income tax and reduce their tax rate by as much as 90%.

The two most popular programs offered by the Puerto Rican government are Act 20 and Act 22.

Act 20, also known as the Export Service Act, targets certain service businesses by offering corporate tax rates as a low 4% and 0% on dividends distributed from the company for qualifying corporations that relocate to the jurisdiction.

Act 22, or 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.

[Update: 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. These changes to the programs are addressed below. We have maintained the original names (Act 20 and Act 22) in this article to make it easier to track the old programs and how they have changed.]

Puerto Rico Act 20 – The Export Services Act

What Is Puerto Rico Act 20?

Now known as Chapter 3 of the Incentives Code, Puerto Rico’s Act 20 was originally known as the Export Services Act.

The legislation allows Puerto Rico to offer qualifying businesses that export services from the island nation the opportunity to cut their corporate tax rate to a mere 4%.

In addition, dividends paid out to you from your Act 20 company are completely tax-free.

If you are running a business in the United States and have a high rate of taxation as an LLC or a C-corporation, you can move that business to Puerto Rico and save 90% of your tax burden by simply ticking the boxes for Act 20.

And what are those boxes you will need to tick? As always, the devil is in the details, so let’s break this down into parts.

How to Qualify for a Puerto Rico Act 20 Company

The main premise of Act 20 is incredibly straightforward. We will look at each requirement one by one, but these are the main boxes you have to tick.

  • Set Up a Puerto Rican Company
  • Establish an Office in Puerto Rico
  • Apply for a Tax Concession

Once you do these three things, you will qualify for the 4% corporate tax rate on any Puerto Rico-sourced income.

1. Set Up a Puerto Rican Company

First and foremost, your company must be incorporated in Puerto Rico. If you already have a US company, you do not need to sell your business assets to the new Puerto Rican company to make the transition. Instead, you can do a tax-free reorganization of the company to a Puerto Rican corporation, LLC, partnership, or another juridical person.

However, only exportable service-based businesses qualify, which means that not all businesses can set up an Act 20 company.

The Puerto Rican government understands that they are on a tiny island with limited prospects for internal growth. They want you and your business because you have the know-how and ability to connect Puerto Rico’s economy to the global market.

If they are going to invite you to their shores, they want to ensure that you do exactly that.

Because of this, Act 20 clearly stipulates that the tax incentives will only apply to businesses that provide services from Puerto Rico to outside markets.

What businesses qualify for Puerto Rico Act 20?

If provided to markets outside of Puerto Rico, the service-based businesses that qualify for an Act 20 company include but are not limited to:

  • Advertising and public relations
  • Architectural and engineering services, project management, blueprint production, etc.
  • Assembly, bottling and packaging operations for exported products
  • Call centers
  • Centralized management services (strategic direction, planning, distribution, logistics, and budgetary services)
  • Commercial and mercantile distribution of products manufactured in Puerto Rico for export
  • Computer software development
  • Consulting services (economic, environmental, technological, scientific, managerial, marketing, human resources, computer, auditing, trade, business, etc.)
  • Creative services (design, art, media, creative education, etc.)
  • Educational and training services
  • Electronic data processing centers
  • Investment banking and other financial services
  • Legal, tax, and accounting services
  • Marketing centers (secretarial services, translation, information processing, communications, marketing, telemarketing, etc.)
  • Medical, hospital and laboratory services
  • Research and development
  • Shared service centers
  • Storage and distribution centers
  • Trading companies
Are there any other ways to qualify for Puerto Rico Act 20?

Your business must clearly and unequivocally offer its services from Puerto Rico.

This means that many businesses that are commonly run by expats and digital nomads will not qualify. For example, drop-shipping, Amazon FBA, SaaS, app businesses, online ad arbitrage, affiliate marketing, niche websites and e-commerce sold from a personal website will not qualify since the source of the service provided is questionable.

However, if there are different aspects of the business that are service based, you can set up a Puerto Rico Act 20 company to export that specific service – be it marketing, payroll, accounting, logistics, etc. – to your company located outside of Puerto Rico. The Act 20 company will only pay 4% corporate tax and your main business can write off the expenses.

But understand, this will not apply to your entire business structure, only to the part of the company that is set up in Puerto Rico.

You may be working from an office in Puerto Rico to run your FBA business, but only the exported service qualifies for the tax cut, not the profit you earn selling products that are both made and sold outside of Puerto Rico.

I have a regular job; can I qualify for Act 20?

You cannot take advantage of Puerto Rico Act 20 as a regular employee.

However, if you can work remotely, you can become an independent contractor and export those same services to your previous employer as a Puerto Rico Act 20 company.

What businesses do not qualify for Puerto Rico Act 20?

Your business cannot be involved in activities with a nexus in Puerto Rico. This means that you cannot conduct a trade or business providing services to the Puerto Rican market. These activities include but are not limited to:

  • Puerto Rican real estate
  • Legal counsel provided within Puerto Rico concerning Puerto Rican law
  • Lobbying on the laws and regulations of the Puerto Rican government
  • Services provided to Puerto Rican residents and local entities

Again, only businesses that render service for the benefit of non-resident individuals and foreign entities will qualify.

2. Establish an Office in Puerto Rico

To set up and maintain your Act 20 company, your business must have a physical presence in Puerto Rico – an office. That said, your home can count as your office (if that is what you prefer) granted that it is located on the island.

Fortunately, the government offers a full exemption from personal and real property taxes during the first five years of business operations and a 75% exemption from municipal and state taxes during the same period.

In addition, if your Act 20 company produces $3 million or more in revenue, you must hire a full-time employee in Puerto Rico. If you are a bona fide resident of Puerto Rico, you can count yourself as the ‘employee’ as you actively manage your business.

If you choose to hire someone locally, you can pay as little as $10 an hour. For that price, you likely won’t be hiring high-level employees, but you also shouldn’t hire a stooge who is sitting in a broom closet doing nothing. They must be doing real work.

Under the new law, the Puerto Rican government will audit all participating Act 20 companies every two years, and they will want to see the work that your Puerto Rican employee(s) is doing.

Whether you employ yourself or another individual, your employee(s) must have full social security benefits and all related employee coverage, including full taxation.

3. Apply for a Tax Concession

To qualify for the 4% corporate tax, you must apply for a tax concession and obtain a tax exemption decree. You can submit your application via Puerto Rico’s Single Business Portal, but it is recommended that you use a lawyer to ensure a successful application.

While it can take four to five months for the Office of Industrial Tax Exemption (OITE) to extend the decree, they will retroactively apply the 4% tax rate to your application date.

Under the new law, the decree lasts for a 15-year term with the possibility of another 15-year extension. All tax benefits will be secured during that term.

Again, the 4% tax can only be applied to business income that is Puerto Rican-sourced. If you live and operate your business in the US, your Puerto Rican corporation, while foreign, could technically be engaged in a US trade or business for US tax purposes and subsequently become subject to high US tax rates on a portion of its income. (More on that in a minute.)

If you can avoid doing this and you meet all other qualifications, you may qualify for more than the 4% fixed corporate tax rate. For example, in the case of services that are considered strategic to Puerto Rico, the corporate tax rate could be reduced to 3%.

You will also enjoy 100% tax exemption on distributions from earnings and profits from your Act 20 company, thanks to a 0% dividend tax.

Utilizing Puerto Rico Act 20

There are several different ways you can use your Act 20 company. Each approach has both benefits and limitations regarding lifestyle, income tax, corporate tax, and dividend tax. It is up to you to determine if the trade-off is worth it.

If You Live in the US While Running an Act 20 Company

It used to be that you could set up a Puerto Rican company under Act 20, qualify for the 4% corporate tax, and then become a Puerto Rican non-resident, thereby exempting yourself from all personal income tax requirements in Puerto Rico.

However, the 2018 Trump tax reform changed all this due to the introduction of GILTI – the Global Intangible Low-Taxed Income – which targets US corporations that own Controlled Foreign Companies (CFCs) for US tax purposes.

Under GILTI, the minimum tax for any US-owned CFC is 10.5% (max 21%). So, even though Puerto Rico will only charge you 4% corporate tax, the US will take at least another 6.5% from your CFC if you are a US person.

And GILTI is not the only tax you will need to worry about living in the US. Depending on your tax bracket, any dividends from your company will also be taxed up to 20% by the IRS. You will also need to calculate state and local taxes, and certain individuals will also be hit with a 3.8% surcharge tax for Obamacare.

That is the cost of staying the United States, even with Puerto Rico’s tax incentives.

You can live in the US (or anywhere, really) and run an Act 20 company, but you will lose the majority (if not all) of the tax benefits derived from this particular setup by doing so.

The only way to get around these issues and to reduce the rate to the 4% offered through Act 20 is to become a bona fide resident of Puerto Rico.

If You Are a Bona Fide Resident of Puerto Rico Running an Act 20 Company

The good news is that US citizens can use Act 20 to avoid the new CFC rules and all GILTI implications (even if they own 100% of the shares in their company) if they become a bona fide Puerto Rican resident.

If your business is majority owned by a Puerto Rican bona fide resident (you), it will no longer be considered a US-owned CFC and you will only be taxed at the flat 4% rate applied to your business in Puerto Rico.

The catch is that you have to become 100% compliant with Puerto Rico’s bona fide residence provisions, which means spending at least 183 days in Puerto Rico every year and moving your center of life to the island.

The positive side of this requirement is that you will be one step closer to qualifying for Act 22 as well.

If You Qualify for Both Act 20 and Act 22

When you comply with all the regulations for both Act 20 and 22, you will not only enjoy the 4% corporate tax and 0% dividends tax but also 0% on all interest, royalties, and capital gains.

For example, if your Puerto Rican company makes $100,000, it should pay you a reasonable salary – say $60,000 – for which you would pay the full Puerto Rican personal income tax (which is comparable to US tax rates and includes Social Security and Medicare taxes).

The $40,000 left after taxes is only taxed at the 4% rate and then you can take the rest out of the company as a dividend that is 100% exempt from tax.

If you do not take advantage of Act 22, you will continue to pay the usual US taxes on investment income. So, let’s tackle Act 22 next…

Puerto Rico Act 22

What Is Puerto Rico Act 22?

If you are a US investor, you could be paying as much as 20% in federal taxes on dividends and capital gains, plus state and local taxes, and possibly the Obamacare 3.8% surcharge.

Puerto Rico Act 22 – officially Chapter 2 – Individuals of the new Tax Incentives Code – can eliminate all of that.

All you have to do is move to Puerto Rico, become a bona fide resident, buy a home, make a small annual donation, and voila, all future capital gains on stocks, bonds, and even crypto will be tax free. All dividends, interest, and royalties from Puerto Rican sources will also be free of tax.

There is more to it than that, of course, but that’s the program in a nutshell: zero taxes on all capital gains earned during your bona fide residence in the country.

Because of the incentives provided, Act 22 is an attractive offer for traders, crypto investors, and anyone looking to sell a business or who has a large amount of passive income or capital gains from any source.

How to Qualify for Puerto Rico Act 22

With the tax incentives overhaul of 2019, a couple of new requirements were added to Act 22 beginning in January of 2020. Along with the long-standing bona fide residence requirement, you will now need to buy a home and make a qualifying donation to a local Puerto Rican charity.

Here are the details for each requirement:

1. Purchase a Home

Within two years of qualifying for the individual investors program, you must buy a property in Puerto Rico that serves as your primary residence. 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.

If you have questions about moving to Puerto Rico, from the logistics to voting to the culture, check out this article covering the most frequently asked questions in regards to moving to Puerto Rico and using its tax incentives.

2. Make an Annual Charitable Donation

Technically, the donation requirement already existed under the old law. Act 60 merely doubled the annual charitable donation amount from $5,000 to $10,000.

The other change is that you must give at least $5,000 to a government-approved charity. The other half can go to any Puerto Rican charity of your choice, as was previously the case.

3. Establish and Maintain Bona Fide Residence

Now we get to the meat of Act 22: establishing bona fide residence in Puerto Rico. But remember, this is also how you will free your Act 20 company from the GILTI tax law in the US.

So, how do you become a bona fide Puerto Rican resident to obtain 0% tax on all capital gains, dividends, interest, and royalties earned during your bona fide residence in the country?

There are three tests you must pass.

  1. Physical Presence
  2. No Other Tax Home
  3. No Closer Connections

In some ways, it is easier to establish bona fide residence in Puerto Rico than in other countries when, for example, seeking to qualify for the Foreign Earned Income Exclusion. This is because you are qualifying as a bona fide resident of a US possession, not just any country.

However, the requirements are still very demanding.

Not only do you need to meet these requirements to become a bona fide resident of Puerto Rico, but you must also maintain that status for an entire tax year before you can receive the benefits offered under Act 22.

Here are the most important details of each test that you will need to follow to prove that you are a bona fide resident of Puerto Rico:

Test 1: Physical Presence

You must spend at least 183 days in Puerto Rico between January 1st and December 31st of the year prior to being granted your Act 22 decree.

This does not necessarily mean that you have to be in Puerto Rico beginning January 1st or that you must spend 183 consecutive days in Puerto Rico, but your 183 days of physical presence must occur within that year’s timeframe.

For instance, if you decided to move to Puerto Rico in October of 2020, you would not qualify for the 0% capital gains tax in 2021 because you did not spend at least 183 days in Puerto Rico in 2020.

Instead, the 2021 tax year would be the first full tax year for which you could claim residence in Puerto Rico, qualifying you for the exemption in 2022.

There are a few other ways to pass the physical presence test, from spending an aggregate of 549 days in Puerto Rico over a three-year period to spending less than 90 days in the US in a tax year, or from having no significant connection to the US in a tax year to making less than $3,000 in the United States and spending more time in Puerto Rico.

Meeting these other requirements can get tricky, which is why the 183 days is the best rule to go by. And to be on the safe side, you should probably spend more than 183 days in the country. People think they can spend 183 days in Puerto Rico and 182 in Los Angeles and qualify as a bona fide Puerto Rican resident.

That’s not going to work.

It’s not just a numbers game, you also have to prove that Puerto Rico is your center of life. And that means that you need to move there.

You can spend time in the US, but you cannot spend more time in the US than in Puerto Rico and you must always come back to Puerto Rico.

The same can be said of travel to anywhere else in the world. You may be a nomad bouncing around or you may be quasi-nomadic and go to Asia for a month and then Russia, but you always go back to Puerto Rico.

It must be the center of your operations.

If you have other homes, you must prove that your Puerto Rican home is more significant than all the rest. You can do this by building your case to pass the following two tests.

Test 2: No Other Tax Home

Your tax home is the center of all your economic activity. Your office is your tax home, which means that if you are commuting between Puerto Rico and your office back in the US or any other location, Puerto Rico will not be considered your tax home.

You must move your office to Puerto Rico.

This is already a requirement under Act 20 – and according to the IRS, your tax home is your regular place of business or employment – so having an Act 20 company set up in Puerto Rico will also help solidify the case that Puerto Rico is your tax home.

You can still travel to and have bank accounts in the US, but it will not help your case if you run all your financial activity through those accounts or you do all your business while in the US.

You need to show every economic connection possible to Puerto Rico, including movement through your Puerto Rican bank accounts and other business activity conducted while living in Puerto Rico.

Test 3: No Closer Connections

You can build the argument that you have no closer connections to any other place by showing evidence that you have moved the rest of your life to Puerto Rico.

This evidence can include having a permanent home in Puerto Rico, moving your family and personal belongings to the country, and establishing social, political, cultural, professional, and religious ties in Puerto Rico.

You should also obtain a Puerto Rican driver’s license, declare Puerto Rico as your official country of residence on all forms and documents, and register to vote in Puerto Rico. In fact, voter registration is not even an option. You have to vote in Puerto Rico to truly make your case.

Again, the argument that you can spend 183 days in Puerto Rico each year and the other 182 days in the United States is a risky move that could cost you tens of thousands in taxes.

It’s not worth the risk.

Remember, you are building your case to prove that you have moved your whole life to Puerto Rico. Yes, you can spend time in the US, but plan on a few months a year, not a full six months.

Either live in Puerto Rico or don’t do it. I can’t emphasize that enough. Do NOT cut corners.

Having closer connections means having stronger ties with Puerto Rico than the state that you are leaving in the US.

This is not entirely different from what everyone else in the world – the Canadians, Australians, Europeans, etc. – go through when they become tax non-resident in their home country to avoid the Nomad Tax Trap.

You cannot simply leave all the trappings of your old life on the mainland. You have to establish an actual bona fide life in Puerto Rico.

Utilizing Puerto Rico Act 22

If you are willing to become a bona fide resident of Puerto Rico, make the donation, and buy a home, the next question is how to obtain the Act 22 decree.

You can file for the exemption on Puerto Rico’s Single Business Portal, but it is recommended that you work with a lawyer.

Once you submit the application, you can expect to be approved within three months, at which time they will retroactively apply the tax exemptions to the date of your application.

If you are not already in Puerto Rico at the time of approval, you will have one year to enter the country and claim the benefits before they are canceled.

Now, let’s go back to the big draw of Act 22 and focus on how the tax incentives work once you have established your bona fide residence and obtained the decree.

This is where a lot of people get confused. They think that they can simply move to Puerto Rico and then sell their business or their crypto investments without having to pay any capital gains.

That’s not how it works.

Remember, it is 0% on capital gains earned during your bona fide residence in Puerto Rico. In other words, only capital gains earned after you become a bona fide resident will benefit from the 0% rate.

This requires a pro-rata allocation of any assets that you owned prior to establishing your bona fide residence in Puerto Rico. Only the portion of the appreciation that accrues while you are a bona fide resident is considered Puerto Rican source.

For example, if you have held crypto for a year before you qualify for Puerto Rico Act 22 and you then live in Puerto Rico for another two years before selling your crypto investments, you will have to pay regular US capital gains tax on all gains made in the first year.

Only the amount that accrued while a bona fide resident qualifies for the 0% rate.

The same applies to anyone looking to sell a business. If a client came to me today who was considering moving to Puerto Rico to take advantage of Act 22 to sell his business and evade the capital gains tax, I would have to give him some bad news.

If he has owned his business for long, his time spent in Puerto Rico would barely make a dent. If he wants to sell his business the moment that he establishes his bona fide residence, he is not going to get any tax relief at all. He is going to pay tax in the US for all the time that he ran that business as a US person.

Act 22 is better suited for someone who wants to sell their business or assets in five years or more. It is not for someone trying to pull a fast one and evade taxes altogether.

It is also important to note that it does not matter if you have been offshore. The pro-rata allocation is based on the time that you were a US person versus a bona fide Puerto Rican resident.

If you have been living as a nomad offshore and you move to Puerto Rico, become a bona fide resident, and later sell your business, the time you spent offshore utilizing the Foreign Earned Income Exclusion still counts as being a US person. You would still be subject to the full capital gains tax with the pro-rata deal.

For instance, if you’ve owned your business for five years while traveling as a nomad, decide to move to Puerto Rico, and then sell your business five years later, you will pay tax on half the capital gains in the US and half in Puerto Rico at the 0% rate.

If, however, you spend more than ten years living in Puerto Rico before selling your investments or business, your taxes on any capital accrued while still a US person will go down to 5%.

Any time less than ten years, and you only get an exemption on what you earn while a bona fide resident of Puerto Rico. Therefore, as always, it’s worth getting off your tuchis and doing something today.

The Pros of Puerto Rico’s Tax Incentives

There are many pros to Puerto Rico’s tax incentives. Here are the biggest benefits from our perspective:

Comfort: Moving to Puerto Rico makes people feel comfortable because of the sense that they are still on US soil. Even though Puerto Rico is a vastly different place where these people have likely never been before, it’s easier for them to digest. They are not leaving the United States or venturing out into the great unknown and all the places that the State Department tells them not to visit.

More time on the US mainland: Puerto Rico’s programs give you more flexibility and time on the US mainland versus going offshore and utilizing offshore tax savings strategies.

You don’t have to renounce your US citizenship: Puerto Rico gives you incredible tax advantages without needing to renounce your US citizenship. You don’t have to renounce to be offshore either, but Puerto Rico’s tax incentives may get you closer to renunciation-level tax rates than other offshore strategies.

Passive Income Savings: The individuals who could benefit the most from setting up a tax strategy involving Puerto Rico are those with large capital gains or who are looking to sell their business several years down the road. Investors in cryptocurrencies, hedge fund managers, and big traders have the most to win by exempting their passive income from tax. Even the Foreign Earned Income Exclusion (FEIE) won’t protect you from taxes on passive income, but Puerto Rico can.

Large Income Savings: If you are making big money, Puerto Rico can also offer more relief than the $107,600 exemption on active income available through the FEIE. With Act 20 and 22, you can take all the money out of your business tax-free (after the 4% corporate tax, of course) instead of keeping it all in your business.

Midway Jumping Off Point: Puerto Rico may be a good option for folks who are hesitant to renounce their US citizenship or who cannot renounce yet because they do not have a second passport. Depending on your second passport strategy, Puerto Rico could serve as a midway jumping off point as the time you spend there while obtaining your second passport could reduce your overall tax liability before renouncing.

The Cons of Puerto Rico’s Tax Incentives

Despite all the good things Puerto Rico has going in its favor, it is not a program that we actively promote here at Nomad Capitalist. Here are the main reasons why:

Demanding Bona Fide Residence Requirement: While you get more flexibility and time on the US mainland, the main catch to Puerto Rico’s programs is the bona fide residence requirement.

Establishing closer connections locks you into to spending a significant amount of time in Puerto Rico. You must relocate your center of life to the island and spend at least half the year there.

If you’re single, I hope you like dating Puerto Rican girls. If you have a family, I hope you feel comfortable with the infrastructure that is there. There are a lot of great places to live in Puerto Rico, but you must be committed to making it your main home.

If you’re a business owner and you want to set up a bona fide residence somewhere, there are much better places than Puerto Rico where you could establish residence, pay zero tax, and still spend 120 days on average in the US.

With those kind of options, why would you want to be tied down to Puerto Rico?

Corner Cutters: Puerto Rico’s programs are the number one area where I see people cutting corners. People try to pull every scam in the book. I hear it all the time and see comments on my blog and YouTube channel from viewers arguing that you can just pretend that you are living in Puerto Rico and still get the benefits.

You can’t.

And the fact that so many people try to cut corners with these programs could jeopardize their longevity. As someone who insists on doing everything 100% legal, the amount of corner cutting in Puerto Rico is a clear sign to someone like me to just stay away.

Most of the people I have met who are following the requirements still seem to be flying by the seat of their pants a little bit. Overall, it feels like Puerto Rico’s programs attract the wrong people and the amount of fraud taking place is a clear sign that the program will not hold.

After all, Act 20 and Act 22 were brought into existence by the stroke of a pen and they can be gone just as fast. In fact, the recent changes to the law did change these programs to increase transparency and make the application process more demanding.

Technically, once you have secured a decree, your personal benefits will be guaranteed for the next 15 years, but all it takes is for the US government to come in and declare that the party is over for those benefits to go away.

The sheer number of people fudging the lines and cutting corners may be all the justification the US government needs to do just that.

The rules may be more favorable overall, but they are still rules and they must be followed. Failing to meet the requirements for the Puerto Rican bona fide residence test can cost you dearly and nullify every effort made to take advantage of these tax incentives, not to mention put the whole program at risk.

No Anonymity: As mentioned, the new legislation also introduced greater transparency to Puerto Rico’s tax incentive programs. Transparency is the future of offshore, but there are varying levels of transparency depending on where you go.

Puerto Rico is erring on the side of greater transparency, which may be to your disadvantage.

As of January 2020, the Department of Economic Development and Commerce of Puerto Rico will publish an annual report of all the incentives requested and granted, the dates they were granted, the names of the businesses and shareholders who benefited, the municipality where the business operates, and the jobs the business created.

Accountable to the United States: Puerto Rico is ultimately accountable to the US government. If you are going to move, move somewhere good. Don’t settle because you’re afraid of some monster under the bed outside of the United States. If you can move to Puerto Rico, you can move to Panama or anywhere else on earth.

The key is to live somewhere that is not under the control of Washington, DC.

That doesn’t mean that living in Puerto Rico is a horrible idea, but why live in a bankrupt country under the thumb of the US government – a country that has a long history of excessively demanding tax laws – when you have so many other good options?

The idea that the US government would be excited to see its own citizens take their money and flee to Puerto Rico, a US territory, all while standing idly by and doing nothing is silly.

That is why the idea of moving to Puerto Rico with the goal to save on taxes is troubling to me.

Do you want to go to a country that rolls out the red carpet only when it gets desperate, or because that is the way they do business? I would rather trust my money and my business to a place that wants me but doesn’t need me.

Subject to Change: My biggest beef with Puerto Rico’s program though is that it is undeniably subject to change. In fact, I suspect that if Puerto Rico’s tax incentives gain any kind of momentum, they are going to be dead.

Like so many things, the IRS and Congress will let Puerto Rico attract a few rich people until it gets out of hand and then the tax incentives will be targeted and the programs will disintegrate. We have already seen this process begin with the introduction of GILTI.

And then there’s the potential that Puerto Rico could become an actual US state. While it’s a long shot, that would be the quickest way to kill the program. Just in 2017, Puerto Rico held the latest in a long string of votes on the issue of statehood.

While the odds of Puerto Rico becoming a state are low, the uncertainty reminds me that the best way to distance yourself from the IRS isn’t to go hang out in a US enclave with a tax policy that could fall apart tomorrow.

Not Everyone Qualifies: There are certain businesses that simply do not qualify for Puerto Rico Act 20. It is not a panacea for everyone or every business. And the tax professionals we work with here at Nomad Capitalist agree. If it sounds like you would have to cut a corner to get into the program, just go somewhere else.

Delayed Application Process: Act 60 applications for businesses are currently taking longer than the promised four to five months. If you apply today, it is likely that it will take at least eight months before you are approved. 

Alternatives to Puerto Rico Act 20 and 22

Whether your business doesn’t qualify or you are wary of Puerto Rico’s dependency on the US or any of the other cons we have discussed, the good news is that you have an entire world full of other legal tax reduction opportunities just waiting for you to take advantage of their offerings.

Here are the two we recommend most to US citizens:

1. Going Offshore With the FEIE

If you go offshore by simply leaving the United States and living in a foreign country or countries, you can take advantage of the Foreign Earned Income Exclusion (FEIE) and exempt just over $100,000 of active income from your taxes.

Above the roughly $100,000 limit, the strategies become more complicated.

For example, if you make $150K net profit and you set up an offshore company, the first $107,600 (2020 figures) would be exempt from tax under the Foreign Earned Income Exclusion, and the next $42,400 would be subject to 10.5% GILTI, which is very similar to what you would get in Puerto Rico.

At those rates, it’s better to use a foreign structure instead of a Puerto Rican structure because the cost of living is much higher in Puerto Rico than in many other countries where you could be spending your time.

You also won’t have the obligation to be in one place, and there are fewer commitment costs like buying real estate, hiring employees, paying local income tax, etc.

The question is, how much money are you making? If you are making millions of dollars a year and it is important to you to spend time in the United States, then Puerto Rico may be a great deal – you pay between 0-4% and you’re done.

But by going offshore, you have more flexibility.

You can qualify for the FEIE by establishing bona fide residence in any other country in the world. And if your bona fide residence has a friendly tax system that will leave you alone, you will pay zero in that country and then have the US tax with exemptions on top of that.

You will be able to choose where you are going to live rather than be forced into Puerto Rico. And you still get about four months of the year to be in the US.

You can also qualify for the FEIE by passing the physical presence test. To do this, all you have to do is spend less than 33 days in the United States within a one-year period. The rest of your time can be spent in any number of foreign countries.

As long as you are outside of the United States, the US doesn’t really care where you are. There isn’t a provision where you have to have a closer connection. Your tax home is simply wherever you are located. And if you’re not getting into someone else’s tax net, you’ve got life pretty easy.

Are you going to get your income down to 4% by going offshore if you have a large income or a million-dollar business? Close, but probably not quite. Depending on your situation, there may be ways to go to zero, but for most US citizens, no, you’re not going to quite reach Puerto Rico’s benefits.

So, why go offshore?

You get a lot more flexibility.

If you want to live in twelve different places a year and spend one month in each place, you can.

If you want to follow my Trifecta approach and have a summer home, winter home, and a spring and fall home each in a different country, you can.

If you want to take lots of vacations to different countries or spend your summers all over Europe, you can do that without having to put down roots anywhere.

You have the flexibility to change your mind. You’re not getting into one system that forces you to be there.

But this is a decision that each person will make on their own.

For most expats and digital nomads, remaining outside the United States and utilizing the Foreign Earned Income Exclusion with an offshore structure is the better option.

You will have the freedom to be more nomadic and you will not have to deal with the requirements of staying in one place and providing evidence of your tax home and closer connections.

Even if you prefer setting up a bona fide residence somewhere so that you can spend more time in the United States, you can become a bona fide resident in Malaysia or Panama or Georgia and still get great tax benefits, Then, when you want to change your bona fide residence to another location, you can do so with proper notice without sacrificing those tax benefits.

Once you liberate yourself and become open to the notion of doing business ANYWHERE, why go somewhere with as many limitations and drawbacks as Puerto Rico? There are legal ways for US citizens and residents to reduce their US tax obligations by setting up companies and living overseas – Puerto Rico is not your only option.

2. Renouncing US Citizenship

If your goal is to completely exit the US tax system, the only legal out is through citizenship renunciation. And, depending on your net worth and your individual situation, you may get more benefits in terms of selling your assets, a company, cryptocurrencies, and more by renouncing.

I have spoken to several former US citizens who considered moving to Puerto Rico but ultimately decided to renounce their US citizenship; none of them regret their decision and they are happy that they solved their problem rather than merely reducing it.

At my core, I am a pragmatist who believes in finding opportunities to legally lower or eliminate tax. However, I also believe that when the ship is sinking, you shouldn’t simply go up to a higher deck.

If you’re making the kind of money where Puerto Rico’s tax incentives help, spend the $100,00 and buy a second passport and renounce.

I’m not saying that renouncing US citizenship is the only (or best) option besides moving to Puerto Rico, but if you believe that the tax obligations and investment restrictions on US citizens are draconian, it’s time to jump ship.

It’s Worth a Call

For my money, becoming tax resident in Puerto Rico to cut your US tax bill is the right choice for a very small percentage of the population seeking friendlier shores.

For the average entrepreneur, Puerto Rico never made a lot of sense.

Set aside the potential risks, the paperwork, and the fact that you still need to pay some tax to take advantage of the program. You also need to live in Puerto Rico – really, truly live there.

I’ve spoken to several people who were sold on the program by some fancy pants tax guru in a skyscraper, and none of them were ecstatic with their choice.

Treating symptoms rather than causes isn’t good in medicine, and it isn’t good when deciding to go offshore either. Finding a solution that gives you the end result you want – from a better, cheaper lifestyle to lower taxes – generally means looking beyond shiny objects like Puerto Rico.

The entire goal of internationalization is to protect yourself from threats from insolvent nations like the United States. Fleeing to a territory of the United States to solve your tax problems seems like a precarious situation, at best.

My five magic words are not “go where you’re treated a little bit better”; they are “go where you’re treated best.”

Still, there may be some unique cases where Puerto Rico really is the best option for you.

As with anything that involves offshore and US tax, the answer is, “It depends.”

If you are single and want to be traveling, offshore is probably the better option, even if you have to pay a couple of percentage points more in tax. And you will still be saving a substantial amount.

If you have a family, Puerto Rico may be a more realistic consideration. It comes down to whether you want to settle down somewhere overseas or whether Puerto Rico works for you. Is that lifestyle adjustment worth it to have the tax savings or would you rather have more freedom with a bit more complicated plan?

That is why it’s worth getting on a call with someone who’s not trying to sell you Puerto Rico or any particular strategy.

Puerto Rico could work for a limited number of people who understand the law and who are actually willing to follow it, but there are a lot of potential minefields and you will need to work with someone who is willing to walk you through them rather than turn a blind eye to the many issues that could come up with Puerto Rico’s tax incentives.

If you need help designing your offshore plan and determining whether Puerto Rico is the right option for you, feel free to reach out to our team.

Andrew Henderson
Last updated: Jul 27, 2020 at 8:22PM

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36 Comments

  1. David

    Hi Andrew,

    I am a freelancer already living in Puerto Rico and am expecting about 100k in net income this year, all from clients outside of PR. You seem to be suggesting that I would be better off taking the FEIE in a place like Panama (I was actually considering Nicaragua because of the good surf…). However, in order to eliminate payroll taxes, I would have to create a foreign corporation which adds additional overhead. Further, I believe I heard you mention in one of your videos that this structure doesn’t even always work for individual freelancers.

    Do you think that now that they dropped the employee requirement that maybe Act 20 is the best option for freelancers? I was thinking I could pay myself a salary of 30k and then take 70k as a dividend. It seems I should still save at least 10k a year, depending on annual compliance and reporting costs.

    What are your thoughts for freelancers making around 100k a year? Thank you!

    Reply
    • Andrew Henderson

      I think it’s a great reason for someone to consider engaging a professional to help them.

      Reply
    • J. B.

      David, all of Puerto Rico’s laws are backwards and based on old old “Spanish Law” so be very careful… they even made a law once that the Federal Court threw out that would only tax Walmart to fill a financial gap… they even said it was a mistranslation into “english” and the Federal Court threw them to the street… be very careful as the politicians are never honest with their intentions… I just sold a house in Puerto Rico and they wanted to keep the gain (there was no gain) and decide later if I could get it back but the island is broke and even locals who should get a refund on their taxes have to wait years!

      Reply
      • J.B.

        Unreal, nearly 35% tax if you are not a resident and it’s not your primary home! They also have laws called “forced inheritance” which hold up real estate for years while structures fall apart… a “Will” in PR means nothing… they don’t use Title Company’s (Lawyers rule PR and make their $ in real estate this way) and they also have so many other red tape laws it’s not worth the investment…. I had to wait weeks to get transaction docs because their real estate document system (old bad) went down so they couldn’t record new ownership or old ownership!

        Reply
  2. Tim B

    Andrew – as always, your arguments are well thought out and interesting. Really helpful information and it’s a concern that although you get a contract from PR, the US Govt can make changes that impact you at any time.

    Reply
    • Andrew Henderson

      Thanks, Tim.

      Reply
  3. STEVEN KATZ

    Is an IRA withdrawal considered Puerto Rican income under act 22? Or is it only that portion of the withdrawal attributable to capital gains while living in Puerto Rico?

    Reply
    • Doug Reed

      Is it a U.S. or Puerto Rico IRA? I assume it is a IRA created, grown and distributable in the U.S.
      This will be subject to Federal and possibly state taxes, so this does you no good in Puerto Rico.

      Reply
  4. Gracedee

    HI there! I have a question that I would like to clarify. My boss owns a corporation in California and he is planning to move a certain part of it as a foreign corporation in Puerto Rico. Is it okay if he still stays in CA and just move the business there and pay the 10.5% tax? or does he need to move to PR and stay there for 183 days to avail the Act 20? We’re confused and new at this. We’d love to hear from you. thank you in advance.

    -Grace

    Reply
  5. Brian

    Hi – great article. Quick question – say you are sitting on appreciated stock. Shares of Amazon which you purchased 10 years ago with a cost basis of $100 but a mkt value of $9000. You move to Puerto Rico, establish residency, then sell or realize the previously unrealized gains. Have you avoided Fed income tax or no because the stock appreciated largely while you were a US resident? Seems like you would as that is how the tax code works for securities but your crypto example above seemed to say it would not. If it does work – do you have to stay in Puerto Rico forever or can you move back to US with now “clean” capital?

    Reply
    • Ramon M Gonzalez

      Can you answer the question regarding amazon or growth stocks with no dividends.

      Reply
    • Mike Johnson

      Did you get an answer on this? I had the same question.

      Reply
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  8. Yolanda

    Fanatastic article and easy on the read… My husband and I are looking to purchase a resort home in Puerto Rico.. He is a PR descent and we have visited many times. My question is, if we live in this purchased home more than 6 months can we lease it out for resort visitors and still get a tax credit of some sort and/ or can we live in it have an office there and make it a Bed n Breakast type resort and rent rooms out? Would we qualify also by employing current Puerto Rican residents to obtain a tax credit employment benefit?
    Thank you

    Reply
  9. Andrew Bates

    Puerto Rico still sounds like a good place to move a business for those of us who are not US citizens (UK, Can, Aus, NZL).

    If the business will basically be owning a database and making payments on behalf of holidays booked to clients in those other countries (which it could employ a PR citizen to do), would an non-US Anglosphere citizen be able to get the benefits of the 4% company tax at a company level (leaving aside the owners’ personal tax situation)?

    Reply
  10. Anne Schuller

    Move down to Puerto Rico! Stay in the U.S. and pay 0% capital gains with 80 degree weather… About 3,000 people already here

    Reply
  11. Dan Wicker

    In other words why move to Puerto Rico for tax benefits and keep your US citizenship? Where the rules could change, they could become a state and I am forced to live in year round warm climate surrounded by beaches, with a rain forest, mountains and waterfalls…when I could denounce my citizenship and move to another country to possibly gain better tax treatment under a foreign government that will surely respect our western way of life and love Americans. Sounds very intriguing and as much as I am angered at the decisions of some of our Leaders and Politicians there is some comfort in the fabric of the blanket called the U.S.A.

    Reply
  12. Mike Bullock

    I am interested in finding a consultant who can assess my situation and is not selling service to those interested in act 20 or 22.

    Reply
  13. keo ma cao

    I am interested in finding a consultant who can assess my situation and is not selling service to those interested in act 20 or 22.

    Reply
    • Andrew Henderson

      Keo, We create holistic Plans to help people achieve specific objectives, rather than “pushing” any one strategy or jurisdiction. Of course, as a business we do charge for our service. You are welcome to learn more here: http://www.nomadcapitalist.com/apply.

      Reply
  14. Tom

    Hi,

    Thank you for your informative article. I am a US based small business owner, (3 million ish gross sales) that can be moved to Puerto Rico. If I establish PR residency and then decide to move to Costa Rica or another country would my tax bases be based off my last US tax address in PR? Re act 20 and 22

    Thank you
    Tom

    Reply
    • Andrew Henderson

      Hi Tom, As with any high-level tax or financial issue, you should consult a professional. Please go here if you’d like our help in creating a Plan for you based around Puerto Rico, or any other offshore options: http://www.nomadcapitalist.com/apply.

      Reply
  15. Jose Gonzalez

    What nobody tells you about Puerto Rico before considering Act 20 and 22.

    A large amount of important information remains undisclosed when considering outsourcing to Puerto Rico. I will try to share a summary of that information to help people get their feet wet before moving to the lovely island.

    In addition to tax savings, people should carefully weight (1) lifestyle change, (2) inherited risks, and (3) cost of living. To get the big picture, carefully observe the culture and what is missing. There is an incredible lack of discipline that can easily be obser. You may observe conduct and behavior from drivers. , no growth for decades, the percentage of ghetto people, etc.

    Language Barriers – Although most have studied English in school, many do not speak, write, and read English. This is like doing business in India or any other country. You may hire a well-educated professional such as an attorney to draft a contract in English and receive a low quality job.

    Quality Standards – You may immediately notice poor customer service skills. Likewise, the excellence, internal controls, and quality standards are missing. Just observe if this is a disciplined culture. Why the economy is bad? Due to a corrupt government with favoritism. Observe the infrastructure and tell me if this culture believes in maintaining what they have.

    Technology – If your business relies on technology, evaluate points of failure. The internet speeds are low compared to that in US and the costs for a lower speed are high. Moreover, PR does not have a backup marine fiber optic cable in case of service failure. It could be an expensive solution considering the amount of customers. This means the entire island would have an outage regardless of ISP. Furthermore, the electric company (AEE) has expensive rates compared to US, poor customer service, and poor infrastructure with continuous power outages adversely affecting your operations. In addition, power surges will continuously damage your expensive equipment. This is why most businesses and residences have power generators. Concisely, high costs when considering electric bill with unreliable service; low speed and unreliable internet service without redundancy; purchase, installation and maintenance of a generator with automatic transfer switch plus fuel, and poor customer service galore is a setup for failure and frustration to any business. Add on unqualified and dishonest personnel or contractors to manage internet, electric, and generator services. Remember language barriers and quality standards previously discussed.

    High Criminality Rate (tied up with Judicial System and Law Enforcement) – Due to the economic crisis and low paying jobs we may begin saying there is rising crime and a shrinking police force. The process to recruit police officers in PR is not as strict as in the US. In the past, you only needed a high school diploma to enroll at the police academy, go figure. Their training is poor as well. Their resources to solve crimes are pretty much none. In addition, their pay is extremely low with no incentive to put their lives on the line for others. The corruption is extremely high. Now you have an incompetent and corrupt law enforcement officer without the required resources to manager your case. If you are lucky, you will reach a broken judicial system with no customer service. Without further details, it is a piece of shit. Let’s move along to the criminality rate with rising crime, shrinking a corrupt and unpaid police force is recipe for your death. Save tax dollar and put your family’s life on the line.

    Education – If you have children, you must skip public education and go straight to private. Public school are ghetto and all US funds are stolen. To get you warmed up, say goodbye to AP, IB, and dual enrollment. To get a competitive education you have very few alternatives that you must pay in advance and average is $25K/year plus books and uniforms. Generally, local universities do not have PhD professors, if they do, they do not come from Ivy League universities. Universities do not receive funds to conduct research. Carefully evaluate the educational systems, opportunities, and environment.

    Transportation – Do not count with public transportation. Uber kicked taxis’ butt due high customer service consisting in a highly reliable service, reasonable prices, investment in technology, and reasonable pay to Uber drivers.

    Healthcare – There is a shortage of doctors as they are leaving too. Why? There is no advanced equipment to treat patients, astronomical waits, and no doctors. Go to a hospital and see for yourself. Inquire about the industry and see if you would put the life of your loved one at the mercy of PR hospitals. Assess medical talent and having the required equipment before you need it. Do not wait until you have a health condition and have to go to a hospital.

    Emergencies – See if you may rely in 911 to be assisted by a police or fire fighter or paramedic? Police and paramedics may or may not arrive ever. Carefully consider emergencies such as awaiting for an ambulance or police to arrive while in a middle of a crisis.

    Costs – Compare costs related to groceries, food, utilities (electric, water, internet, cable, cell). Check sales tax rate (IVU). Check clothing costs and car costs. Everything is higher in PR. All comes with the lowest service ever.

    Government Bureaucracies – PR is king when it comes to government bureaucracies. Assess time spend, level of effort, level of competency from those delivering the service, and customer service skills when dealing with:
    – Treasury Department (Departamento de Hacienda) and their “Colecturias”
    – The Municipal Revenues Collection Center (CRIM)
    – Demographic Service / Vital Records
    – Property Registry (Real Estate)
    – Department of Transportation and Public Works (DTOP) – get or renovate driver license, vehicle registration, tickets/fine problems. Save all evidence about tickets paid and toll payments are PR is great at not recording payments and you will pay multiple times.
    – Puerto Rico Electric Power Authority (AEE) – carefully evaluate the impact of power outages and downtime in your daily business operations, and the adverse impact to your equipment during usual power surges
    – Water Management (AAA)
    – Waste Management Disposal & Collection
    – Police Department
    – Judicial System – just visit a circuit court to get the experience of finding a parking spot, reaching your destination, ask to speak with a prosecutor, and evaluate how easy this simple task is.
    – 911: Ambulance/Fire Department
    – Healthcare System – you will miss an entire day of work awaiting for a medical appointment. Nothing is done in one place.
    – Conditions of Roads & Highways – separate a budget for vehicle repairs, as the roads are bad. Then, be ready to get ripped off by dishonest repair shops. Vehicle depreciation.
    – Transportation – bad public transportation, traffic is a nightmare around the clock, aggressive driving with smartasses in bad roads

    Lifestyle – Lifestyle will be heavily impacted by all the subjects previously discussed.

    Audit – businesses with profits over 3M are required to have audited books.

    Conscience – People in the island are characterized for having a low level of consciousness.

    Risks – The risks are huge when it comes to personal security relying on law enforcement, broken judicial system, and poor healthcare industry. You will risk your family’s life in exchange to saving tax dollars.

    If you believe you will put your credit card and pay at the fuel pump, you are wrong. Walk inside, do the line while an incompetent cashier plays on the smartphone and can’t speak English. Fill the tank and when done, do the line again to pay and sign.

    A developer hustles to get construction permits only to expire while fighting to get other permits approved. You will have a blast jumping through hoops to get things accomplished in the island. Nothing is common sense.

    Directions check out if the directing signs are of any help to you.

    Have fun in PR. Just as many companies brought their business back from India, you may accept the drop in quality of bring your business back to the mainland. Best luck.

    Reply
    • Liz

      Permits for developers expire here in the US and can take 6 months to a year to get approved. Just for a remodel it took 3 months here in Utah and my contractors tell me it is like that everywhere. I was just in PR and can believe it is worse, but the USA has not been doing so well. Trump has been deregulating, but states and municipalities are increasing regulation like crazy and on stupid things not connected to safety.

      Reply
  16. Jim

    Excellent points, and I can confirm many of these since moving to PR. I am single so have no family to add risk to. One has to balance all the pros and cons.

    Reply
  17. J. B.

    You are very correct Jose Gonzalez… the people I know in Puerto Rico often cheat on everything and they justify it by saying the Government cheats so I’ll cheat… and the entire island and people end up bankrupt in every way possible. I still Puerto Rico but as many have said before, trying to fix all the issues will take generations and a lot of people with high moral standards.

    Reply
  18. ja

    Under Act 20 there is no “dividend tax” but what about dividends from US or European dividends?

    Reply
  19. Ivan

    Dear Andrew,

    As in every nation or city there are challenges and an area of ​​opportunities, however I was born in NY, a large part of my family lives in the US and with all due respect the corruption in the US is white-collar one and much more organized than in our island . You have focused on the half-empty glass, however, I not only see it full, I see it about to overflow. I just have to tell you that I disagree with you and we can gladly talk about thousand of families who have moved to PR and are happy.
    Your perception of PR contrasts with our reality and thousands of Businesses Owners and residents who have chosen to live in this Paradise, I invite you to meet us and allow me to share countless of success stories and especially show you our beautiful island and it’s qualities, you will see that it is much more than what you think.
    Best regards!

    Reply
    • Boris

      I agree,

      I live in Puerto Rico and, despite the handful of things that annoy the crap out of me, there’s a lot of love and kindness here. My car broke down and the entire town came to pull it back to my house, help fix it, go get parts, and get it working again. I didn’t even have to ask…they just did it because they wanted to (or maybe cause they were just sitting around drinking without nothing else to do). In any case… I love Puerto Rico, despite the tons of corruption and lack of initiative to get things done.

      Reply
  20. Henry

    I believe Act 22 requires an annual $5000 donation to a government approved charity.

    Reply
  21. Luis

    Now it does require donation of 5K per year, next year it will be 10k per year, they have been doing little changes frequently . And you have to have your wife to apply too (CPA/Lawyer mention the risk of laws that can come after you via wife because she owns 50%). I have been in PR for the past 5 years. act 22 #42, I don;t have the 5K donation in my contract, but my wife does (we did hers much later )
    Life here is more expensive and I agree that the acts can be revoked quite fast.

    Reply
  22. DANIEL

    Hi. Very Good Article. I have a question Andew… In the event that an individual or corporation owns a ACT 20 corporation in PR but does not have ACT 22, meaning it does not have the personal tax exemption, are the dividends subject to double taxation (4% + personal tax) or only once on the 4%? What if the company is an LLC, meaning is a passthrough it doesnt pay out dividends, how could it play out there?

    Reply
  23. Karan Joshi

    Hey, I Read Your Article, And Your Information About Puerto Rico tax incentives Is Very Amazing And So Much Helpful For Me. Keep It Up And Thank You Very Much.:)

    Reply
  24. brandon

    So I have to BUY a home? I can’t simply rent an apartment and live there for the entire year? I don’t have enough money to buy a home but I could afford renting an apartment. Is this an option?

    Reply

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