Puerto Rico Profit Sharing Plan
Description
How to fill out Profit Sharing Plan?
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FAQ
Eligibility. The benefits of Act No. 22, are only available to bona-fide residents of Puerto Rico that were not bona-fide residents of Puerto Rico for the 6-year period preceding the enactment of the Act on January 12, 2012 (?Eligible Individuals?).
Under Act 22, the most controversial of the two, individual investors looking to benefit from the tax breaks must not have lived in Puerto Rico between 2006 and 2012. They need to buy a residency on the island and live there at least half of the year.
All plans that have participants in Puerto Rico must file Form 480.70 with the Hacienda. Since ERISA Section 1022(i)(2) plans and dual-qualified plans are not exempt from excise taxes, Form 5330 must be filed, where applicable.
The Individual Investors Act (Act 22) seeks to attract new residents to Puerto Rico by providing a total exemption from Puerto Rico income taxes on all passive income realized or accrued after such individuals become bona fide residents of Puerto Rico.
Of importance for employers with dual-qualified plans, the IRS' limits for elective deferrals applicable to participants in a dual-qualified plan, or to federal government employees, is $22,500, pursuant to IRS' notice of limits applicable to 2023.
Requirements. To qualify for the exemptions, you must become a bonafide resident of Puerto Rico. This implies residing on the island for more than 183 days per year, filling out IRS forms, such as form 8898 and applying for a tax exemption decree from the Secretary of Economic Development and Commerce of Puerto Rico.
"Dual-qualified" plans have U.S. domestic trusts that cover Puerto Rican employees and qualify under both the Puerto Rico Code and the Internal Revenue Code to provide the Puerto Rican participants with favorable tax benefits.
Along with Puerto Rico Tax Act 20, Puerto Rico adopted an additional incentive, the ?Act to Promote the Relocation of Individual Investors,? Puerto Rico Tax Act 22, to stimulate economic development by offering nonresident individuals 100% tax exemptions on all interest, all dividends, and all long-term capital gains.
