Puerto Rico Tax Planning for U.S. Citizens
Wealthy U.S. citizens seeking year-round sun and a lower income tax regime without renouncing their U.S. citizenship have increasingly been focusing on relocating to Puerto Rico. This guide details Puerto Rico’s income tax regime and the tax incentives available for certain taxpayers, as well as the stringent residency, income sourcing, and administrative requirements that must be met in order to qualify for such incentives.
Major Takeaways
- To qualify as a “bona fide resident” of Puerto Rico, individuals must meet strict residency tests.
- To the extent an individual becomes a bona fide resident, then there is the potential to apply, and pay for, preferential tax treatment on certain income.
- While this treatment can include a 0% tax rate on certain current income, to the extent there are built-in capital gains at the time of the move, those gains may still be taxable in the U.S. unless the individual has been a Puerto Rico resident for over 10 years.
- To qualify for the individual benefits, the income must be Puerto Rico sourced and received or recognized by 2036.
- Similar to the individual tax incentives, there are business tax incentives that have their own restrictions and application process.