Paying High Taxes in the U.S.? Puerto Rico's Act 60 May Be Worth Understanding
If you live in a high-tax state and a significant portion of your income comes from investments, there is one place you may not have considered:
Puerto Rico.
Puerto Rico is a U.S. territory. You can move there without giving up your U.S. citizenship, while potentially accessing a very different tax structure.
For qualifying individuals, Puerto Rico's Act 60 can create significant tax advantages.
By living in Puerto Rico 6 months (+1 day) you get incredible tax benefits.
What is Act 60?
Puerto Rico's Act 60, formally known as the Puerto Rico Incentives Code, consolidated a number of existing incentive programs—including the former Act 22 program for individual investors.
For qualifying Individual Resident Investors, Puerto Rico's Department of Economic Development and Commerce states that the program provides a 100% Puerto Rico income-tax exemption on qualifying dividends, interest and capital gains, with benefits currently extending through December 31, 2035.
Read that again.
Depending on the type and source of your income, the difference between your current tax situation and the potential Puerto Rico treatment can be substantial.
This is why Act 60 has attracted the attention of investors, entrepreneurs and high-net-worth individuals from the mainland.
The tax benefit isn't designed for someone who buys a vacation home in Puerto Rico while continuing to live primarily in New York, California, Florida or Texas.
To receive the relevant federal tax treatment, you generally need to become a bona fide resident of Puerto Rico.
The IRS looks at three major concepts:
Presence. You must satisfy one of the applicable presence tests. One common route is spending at least 183 days in Puerto Rico during the tax year.
Tax home. Your tax home cannot be outside Puerto Rico.
Closer connection. Your life needs to demonstrate a closer connection to Puerto Rico than to the United States mainland or another country.
For high network individuals moving part of the year to PARADISE becomes the right answer both in quility of life and in taxes.