Relocation of Individual Investors- Basic Information*

Puerto Rico’s Tax Exemption

Tax exemption on dividends, interest, and certain capital gains, granted in a tax exemption decree that lasts until 2036.

Special rules for gains related to certain investment property owned by US citizens or resident aliens prior to becoming residents of PR

  • Stocks, bonds, debt instruments, diamonds, and gold.

Special rules on disposition of personal property

Individual may elect to treat the portion of the gain related to the PR holding period as sources from PR

  • Marketable securities – determination of portion of gain attributable to PR holding period will be based on fair market value at the first day of the PR holding period.
  • Property other than marketable securities – determination of portion of gain attributable to the PR holding period will be based by: the number of days in the PR holding period / Total No. of days in the individual’s holding period of the property.

Relocation of Individual Investors Capital Gain Exemption

  • Capital gain exemption is now specifically applicable to both “securities” and other “assets”.
  • “Securities” means any note, bond, promissory note, debt evidence, options, forward contracts, stock, and any other similar instrument or with similar characteristics, including derivative instruments.
  • Other Assets mean commodities, coins and digital assets based on blockchain technology (cryptocurrencies).

Requirements

Must not have been a resident of Puerto Rico.

Annual contribution of at least $10,000 to non-for-profit organizations operating in Puerto Rico, duly certified as such by the Puerto Rico Department of Treasury.

Individual must evidence the acquisition of residential real property by purchase as a sole owner or with his/her spouse.

  • Acquired from an unrelated person
  • Within 2 years after effectiveness of the Grant
  • Annual report shall demonstrate that he/she has exclusive and complete domain of a real property for residential use throughout the term of the Grant.
  • $5,000 filing fee.

Relocation of Individual Investors Puerto Rico Bona Fide Resident

According to section 933 of the US IRC, the following shall not be included in gross income and shall be exempt from federal taxation:

“in the case of an individual who is a bona fide resident of Puerto Rico during the entire taxable year, income derived from the sources within Puerto Rico…”

Puerto Rico bona fide resident is an individual that meets the following 3 tests:

I – Presence Test

Presence test: 1 of the following 5 alternatives must be met

  1. Present in PR for at least 183 days during the tax year.
  2. Present in PR for at least 549 days during the 3-year period that includes the current tax year and the 2 preceding tax years if the individual was also present in PR for at least 60 days during each of these years.
  3. Present in the US for no more than 90 days during the tax year.
  4. Did not have more than $3,000 of earned income in the US and was present in PR more days than in the US; or
  5. Had no significant connection to the US during the tax year
    • should not have a permanent home in the US
    • should not be registered to vote in the US
    • the taxpayer spouse or child should not have a principal place of abode in the US

II – Tax Home Test

  • The taxpayer must not have a tax home outside of PR.
  • Generally satisfied if the taxpayer’s regular or principal place of business is PR.
  • If no place of trade or business, the Tax Home Test will be satisfied if PR is the taxpayer’s “regular place of abode in a real and substantial sense”, subject to a subjective analysis of facts and circumstances.

III – Closer Connection Test

Must have a closer connection with PR than with the US or foreign country

Factors include:

  • Location of permanent home, family, personal belongings, social/political/cultural/religious organizations
  • Routine banking activities.
  • Business activities.
  • Jurisdiction where the individual holds a driver’s license and votes.
  • Residence designated on all governmental forms and official documents.