The Puerto Rico Investment Agreement is a legal contract that outlines the terms and conditions between an investor and the government of Puerto Rico for investment purposes. It serves as a framework for attracting local and foreign investors, offering various incentives and benefits to encourage economic development and growth on the island. One type of Puerto Rico Investment Agreement is the Act 20 Export Services Agreement. Under this agreement, eligible businesses engaged in exporting services from Puerto Rico are granted tax incentives, including a 4% fixed income tax rate and complete exemption from municipal and state taxes on export services income. Another type of Puerto Rico Investment Agreement is the Act 22 Individual Investors Agreement, also known as the Individual Investors Act. This agreement offers tax incentives to individual investors who become residents of Puerto Rico. Qualified investors under Act 22 are eligible for complete exemption from Puerto Rico income taxes on passive income generated after relocating to Puerto Rico. Additionally, the Puerto Rico Investment Agreement includes provisions for developers and investors in designated Opportunity Zones on the island. These agreements offer significant tax incentives, such as deferral or reduction of capital gains taxes, for investments made in economically distressed areas of Puerto Rico. Investment agreements like these aim to promote economic growth, attract foreign direct investment, create job opportunities, and enhance Puerto Rico's overall competitiveness as a business destination. The agreements typically specify the investment requirements, duration, tax benefits, compliance obligations, and other terms agreed upon by the investors and the government of Puerto Rico. By structuring and entering into investment agreements, Puerto Rico seeks to diversify its economy, promote sustainable development, and overcome the challenges it has faced in recent years. The agreements play a crucial role in attracting capital and stimulating economic activity, while contributing to the overall recovery and prosperity of Puerto Rico.
Puerto Rico Investment Agreement
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Interest income is generally taxable, except interest from obligations of the federal government or any state, or territory, or political subdivisions; the District of Columbia; and the Commonwealth of Puerto Rico or any of its instrumentalities or political subdivisions.
Puerto Rico holds a unique position as an unincorporated U.S. territory. Under Internal Revenue Code (IRC) §933, Puerto Rico source income is excluded from U.S. federal tax.
One of the greatest of many Puerto Rico tax benefits is the Act 60 Investor Resident Individual Tax Incentive (formerly Act 22), which allows you to pay 0% federal or Puerto Rico capital gains tax on all capital gains incurred during the time that you qualify as a bona fide Puerto Rico resident living in Puerto Rico.
For foreign tax credit purposes, all qualified taxes paid to U.S. possessions are considered foreign taxes. For this purpose, U.S. possessions include Puerto Rico, the U.S. Virgin Islands, Guam, the Northern Mariana Islands and American Samoa.
In the case of Puerto Rican non-resident foreign nationals, investment income, such as rent and interest income, is subject to a flat rate of 29%, and dividends to a flat rate of 15% (or a lower flat rate in certain cases).
All bonds issued by the Government of Puerto Rico, or by its authority, shall be exempt from taxation by the Government of the United States, or by the Government of Puerto Rico or of any political or municipal subdivision thereof, or by any State, Territory, or possession, or by any county, municipality, or other ...
Generally, if you are a Puerto Rico bona fide resident, you must file a Puerto Rico tax return. If you are not a bona fide resident of Puerto Rico, you must file both a Puerto Rico tax return and a U.S. tax return. If you are a member of the United States Armed Forces, special tax rules may be applied.
The U.S. tax code (Section 933) allows a bona fide resident of Puerto Rico to exclude Puerto Rico-source income from his or her U.S. gross income for U.S. tax purposes.