On January 17, 2012 the government of Puerto Rico introduced Act 22, along with Act 20. The purpose of this act is to attract higher net-worth individuals to Puerto Rico in hopes of stimulating the economy with real estate investment, job creation, and overall spending on the island.
This act provides a 100% exemption on interest, dividends and certain capital gains to individual investors who become bona fide Puerto Rico residents.
What are the benefits of ACT 22?
- 100% tax exemption from Puerto Rico income taxes on dividends
- 100% tax exemption from Puerto Rico income taxes on all interest
- 100% tax exemption from Puerto Rico income taxes on all capital gains (accrued after establishing residency)
- Investment income accrued prior to becoming a bona fide resident of Puerto Rico will be taxed at 10% if realized within 10 years after residency is established. If the gain is realized after the 10 years, but on or before December 31, 2035 the tax is 5%
- Capital gains appreciation on investments that occur after becoming a bona fide Puerto Rico resident can be apportioned to Puerto Rico
What are the requirements?
- You must become a bona fide resident of Puerto Rico and notify the IRS of such
- You must live in Puerto Rico 183 days out of the year
- You cannot have a “tax home” outside of Puerto Rico
- You cannot be “closer connected” to anywhere outside of Puerto Rico
- You can’t have been a resident of Puerto Rico 6 years prior to January 17, 2012
- You must purchase residential property in Puerto Rico within 2 years of residency
- You must show evidence of primary personal bank accounts in Puerto Rico
- You must file an application for each person applying, along with an application fee
- You must pay a $5,000 per person acceptance fee, once approved
How long do the benefits last?
- The benefits under Act 22 are set to expire on December 31, 2035
Who is moving to Puerto Rico?
Based upon data released by the Department of Economic Development and Commerce over 500 individuals have moved to Puerto Rico since the act was implemented in 2012. These individuals have invested tens of millions of dollars into the local economy and are proving very helpful to the economic recovery of the island.
Are you ready to learn more?
This article is designed to give you an overview of the basics of how Act 22 works. If you would like to learn more about whether this Act is right for you, please call our offices at 787-691-0107 schedule a free consultation with one of our Puerto Rico tax experts. During this consultation, they will discuss in more detail how Act 22 can benefit your specific situation and can assist you in scheduling a trip to Puerto Rico to learn more.