Facts

Individual A is a US citizen who is a bona fide resident of Puerto Rico with a tax home in Puerto Rico.  Under Act 60 (formerly Act 22), capital gains recognized by Individual A are excluded from Puerto Rican taxable income.

Act 60–2019, known as the Puerto Rico Incentives Code, was signed into law on July 1, 2019, with an effective date of January 1, 2020 ( “Act 60”).  Act 60, among other things, consolidated various tax decrees, including Act 20, the Promotion of Export Services Act, and Act 22, the Act to Promote the Relocation of Individual Investors to…read more

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Posted on May 14th, 2023

Establishing a Branch in Puerto Rico: An Often Neglected Tax Structure

When moving to Puerto Rico to participate in the Act 60 program, many taxpayers establish a Puerto Rico LLC to conduct operations.  In our experience, this is not always the most efficient tax structure, and many times can lead to a multitude of nasty U.S. tax issues that a taxpayer and their advisor have not contemplated.  Many times, having your current U.S. company establish a branch in Puerto Rico is…read more

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Posted on May 14th, 2023

Interest Expense Allocation For Bona Fide Residents of Puerto Rico

U.S. income tax is generally imposed on taxable income. Taxable income is defined as gross income minus certain deductions.

For example, business income of an individual starts with gross income. The gross income can then be reduced by certain trade or business expenses, interest expense, losses, bad debt expense, depreciation, etc…read more

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Posted on March 25th, 2023

Errors in IRS Publication 1321 Regarding the Allocation and Apportionment of Charitable Contributions for Residents of Puerto Rico

Bob is a U.S. citizen and bona fide resident of Puerto Rico for the entire year.  This year Bob earned $24,000 from Puerto Rico sources and $96,000 from U.S. sources.  All of the income earned was compensation for services.  Bob itemizes deductions, and…read more

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Posted on March 25th, 2023

Compliance Alert- U.S. Withholding on Payments to Puerto Rican Persons/Entities & Other Information Reporting Requirements

Many Puerto Rico Act 60 companies and individuals holding export service decrees receive service fees from U.S.-based companies.  The U.S. companies paying these fees may be unpleasantly surprised when the IRS assesses them with a 30% tax on the total fees paid to the Puerto Rican service provider for failure to comply with U.S. information reporting and withholding requirements. Read more…

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Posted on June 20th, 2022

Sourcing of Income to California and “Economic Nexus” Consequences for Nonresidents

When it comes to the taxation of nonresidents, the California tax agencies—the Franchise Tax Board and the Office of Tax Appeals (“OTA”)—have held that a nonresident business owner, who never set foot in California (hereafter, the “State”), owed personal income taxes to the State. This is based on application of rules that look to the place where customers receive the benefit of services, not where services are performed. These rules differ greatly from the state sourcing rules that apply to income of employees from employment. Read more…

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Posted on May 23rd, 2022

Longing To Spend a Summer in Europe? Tax Consequences of Working Outside of Puerto Rico for Owners of Act 60 Companies

As the COVID-19 pandemic begins to wind down and various countries throughout the world begin to open up, many of us are ready to resume overseas travel.  A frequent question arises in my practice regarding the tax consequences to an Act 60 owner who desires to spend a summer in Europe with his or her family and work remotely.  The results are interesting…Read more

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Posted on April 10th, 2022

Overview of Sourcing Rules for Bona Fide Residents of Puerto Rico

An individual who is a bona fide resident of Puerto Rico can generally exclude from US income his or her “income derived from sources within Puerto Rico.” Because Puerto Rican-sourced income is the only income that can be excluded, it is important to understand what income is and what income is not Puerto Rican-sourced. Read more…

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Posted on November 21st, 2021

Form 926 – One of the Most Important U.S. Tax Forms that Most Act 60 Recipients Fail to File

Question:

If a U.S. citizen forms a Puerto Rican corporation (or a Puerto Rico LLC that is taxed as a corporation for U.S. purposes) and contributes cash to the Puerto Rican corporation, is the U.S. citizen obligated to notify the IRS? Read more...

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Posted on May 9th, 2021

Alert: IRS to “Campaign” into Puerto Rico; How can Taxpayers Defend?

The IRS has announced a new “Campaign.”  It will focus its attention on U.S. persons who have reduced their U.S. tax burden by claiming benefits under Puerto Rico Act 22.  This comes as no surprise following recent increased interest from Congress, the Treasury Department, and the IRS on the revenue lost when U.S. taxpayers relocate to Puerto Rico. Read more…

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Posted on March 7th, 2021

U.S. Tax Consequences of Working in the U.S. on Behalf of Your Act 60 Company

As the IRS Campaign in Puerto Rico kicks off, now would be a good time for taxpayers to assess their past U.S. tax filings and prepare for the very real event of an IRS audit or soft letter. In our experience, there are two main areas of U.S. federal tax noncompliance that are overlooked or misunderstood by many, if not most, Act 60¹ residents and companies…Read more…

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Posted on March 7th, 2021

Alert:  Act 20/22 Taxpayers Asking Questions Following Indictment and Arrest of BDO Tax Division Head

The Department of Justice (“DOJ”) indicted and arrested the head of BDO Puerto Rico’s Tax Division for allegedly flouting rules surrounding Puerto Rico’s Act 20/22/60 tax incentive program (“Act 60”). The DOJ may now possess a list of BDO’s Act 60 clients. Read more…

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Posted on December 22nd, 2020

Bona Fide Resident of Puerto Rico – Closer Connection Test

Bona Fide Resident of Puerto Rico 

In general, to be considered a bona fide resident of Puerto Rico, an individual must meet (i) a presence test, (ii) a tax home test, and (iii) a closer connection test.¹ In this article, we will primarily focus on the closer connection test. Read more…

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Posted on December 8th, 2020

Corporate Inversions – Is Your Puerto Rico Act 60 Company Still Subject to U.S. Tax?

As the combined federal, state and local tax rates for high-income earners in many parts of the country exceed 40% (and approach or exceed 50% in states like California, New Jersey and New York), many U.S. taxpayers are looking for a less onerous tax environment in which to conduct business operations. Puerto Rico offers an attractive alternative with entity-level tax rates as low as 4%, and corresponding distributions taxed at 0% for eligible companies. Read more…

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Posted on November 5th, 2020

Tax Alert: How Puerto Rico Companies Mitigate U.S. Tax Risks

You moved to Puerto Rico (PR) and set up an Act 20 or Act 73 company.¹ The Company’s income is taxed at 4%, a rate that’s virtually impossible to match anywhere else (legally). But the costs to your personal mobility are significant. You generally must spend at least 183 days per year in PR. The last thing you want is to spend all that time, possibly away from your family, and not achieve the reduced tax rate. Read more…

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Posted on June 7th, 2020