PUERTO RICO TAX CODE: The Difference Between Act 20 and Act 22

Puerto Rico Act 20 Act 22

We’ve written before about the tremendous benefits of a move to Puerto Rico.

Whether you’re considering moving to the island paradise to take advantage of its tax laws for individuals, or a U.S. business wishing to relocate for similar tax savings, Puerto Rico offers a financial lifestyle that’s hard to resist.

The specific parts of the Puerto Rico tax code that directly concern Americans thinking of moving there are two Acts: Act 20 and Act 22.

Act 20: The Business Act

Officially it’s called ‘The Export Services Act’ and it offers attractively low tax rates for Puerto Rican businesses that deliver their services outside Puerto Rico. If you run a business on the island but your clients live in the United States (or elsewhere) you can enjoy great tax benefits.

Specifically, the Puerto Rican government  taxes these businesses at a rate of only 4%, and you’ll be completely exempt on any distributions from earnings and profits, as well as in some cases benefiting from an exemption of up to 90% on property taxes.

You don’t need to be a resident of Puerto Rico to apply for Act 20 tax status. However, you are required to create at least five local jobs. If you remain a US resident, you’ll probably still have to pay Federal taxes on dividends, which is why you might want to consider relocating to Puerto Rico on a permanent basis.

Which brings us to:

Act 22 – the Individual Investors Act

In a nutshell, move to Puerto Rico, become a legitimate resident, and enjoy ZERO income tax.

Yes: ZERO.

You need to buy a property in Puerto Rico and reside there for at least six months of the year to qualify for Act 22 exemption.

Before making any decision, though, you should consult a tax professional. In the meantime, we’ll have the piña colada ready for when you arrive.

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