Puerto Rico, in its continuing quest to strengthen its economy and attract foreign capital, has implemented a series of measures under Chapter 2 of ACT 60, specifically designed for individual investors. This legal framework focuses on providing significant incentives for those who choose to relocate to the island, becoming “bona fide” residents and, therefore, potential drivers of local investment and economic development.
A Tax Oasis for Investors
The essence of Chapter 2 of ACT 60 lies in its ability to attract investors through the promise of a favorable tax environment. New residents of Puerto Rico, under this act, benefit from a total exemption from local taxes on certain types of passive income. This includes a 100% income tax exemption applicable to dividends, interest, and certain capital gains earned after relocation to the island. This incentive not only eases the tax burden on residents, but also puts them in an advantageous position to maximize their investments and savings.
Detailed Tax Benefits
The incentives outlined in Chapter 2 are broad and specific, aimed at promoting a healthy and attractive investment atmosphere:
- Full Exemptions on Passive Income: Residents enjoy a 100% exemption on Puerto Rico taxes on interest and dividends.
- Favorable Capital Gains: A full exemption applies on all capital gains, both short and long term, generated after relocation to the island. This is especially relevant for those seeking to invest in financial markets or real estate.
- Asset Management Flexibility: The creation and transfer of assets to trusts, whether revocable or irrevocable, is allowed, thus providing great versatility for estate and financial planning.
International and Federal Implications
Despite being a territory of the United States, Puerto Rico offers a unique tax peculiarity: “bona fide” residents are not subject to federal income tax on Puerto Rican-source income thanks to section 933 of the U.S. Internal Revenue Code. This means that, while income generated within the island enjoys a federal exemption, income from sources outside Puerto Rico remains subject to federal taxation.
Conclusion
Chapter 2 of ACT 60 stands as a fundamental pillar in Puerto Rico’s strategy to attract investors and promote economic growth. By offering a highly attractive tax regime, the island is positioned as an ideal destination for individual investors seeking to optimize their tax burden, diversify their investments, and enjoy the benefits of residing in an environment with a rich culture and enviable climate. With these incentives, Puerto Rico not only seeks to attract capital and talent, but also to consolidate its reputation as a world-class financial and investment center.
