Puerto Rico Clauses Relating to Capital Withdrawals, Interest on Capital
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FAQ
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.
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 Rican residents are taxed in Puerto Rico on their worldwide income, no matter where the income is sourced. Puerto Rican non-residents are only taxed in Puerto Rico on their Puerto Rico-source income. Income for services performed is sourced to Puerto Rico based on where the services are performed.
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.
Puerto Rico's Act 20 and Act 22 provide generous tax incentives to U.S. companies and individuals who establish a bona fide residence in Puerto Rico. Under U.S. law, a bona fide resident of Puerto Rico is not subject to U.S. income taxes on income derived from sources within Puerto Rico.
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 ...
Act 22 entices individual investors to move to Puerto Rico. Significantly, new qualifying residents have 100% tax exemption from Puerto Rico taxes on all dividend and interest income and long-term capital gains accrued after becoming a qualifying new resident.
Therefore, in many cases, a U.S. citizen or resident cannot avoid U.S. income taxation on gains associated with appreciation in investment assets by establishing bona fide residence in Puerto Rico unless recognized after 10 years of bona fide residence in Puerto Rico.
Act 60 was intended to boost the Puerto Rican economy by encouraging mainland U.S. citizens to do business and live in Puerto Rico, and as is the case with many incentive programs, the opportunity and temptation to abuse these programs has led some to do just that.
Law 68: Promotes acquisition and investment into the housing market on the island LEARN MORE. Law 187: Exempts buyers from paying property taxes for five years as well as certain closing costs for the purchase of the new residence as a primary residence, second home or investment property.
