However, some major precautions are necessary. First, forget about avoiding U.S. tax on increasing the value of your assets before the move. If you move with valued stock, Bitcoin or other real estate and then sell, all that appreciation in value is still subject to U.S. tax before you move. Only your appreciation after the move is subject to Puerto Rico`s special tax rules. In fact, to avoid U.S. tax on the total increase in value before the move, you usually have to wait ten years after your move. This is not a quick fix. What about selling your U.S. properties? It will always be the income of the United States. That means it`s fully taxed in the United States, even if you move to Puerto Rico and wait ten years before selling. In addition, I have heard promoters boast about how they make all kinds of investments made by U.S.

residents through Puerto Rican companies to generate income from Puerto Rican sources when they leave. But they forget that a Puerto Rican company is a non-U.S. company and therefore subject to Subpart F rules, rules for passive foreign investment companies, specialized reporting for offshore companies, etc. If you talked to a promoter and they didn`t mention those things. Well, that`s a problem. There are also other bases on the rules. First of all, as with any move, you really need to move! Your tax residency – your real home – must be in Puerto Rico. Remember, like any movement from one state to another, it must be real. Try to avoid messy facts that don`t feel like a permanent move. If possible, sell your home, move with your family, cut ties with your old local clubs, etc.

If you`re later classified as a non-resident of Puerto Rico, the IRS is back in the picture, demanding tax arrears, penalties, and interest. Learn about the requirements and rules that apply to indirect taxes in Puerto Rico. The special rules in Puerto Rico were simply a matter of Puerto Rican law, which could be changed with the stroke of a pen. These systems and scams are, of course, harmful to those who participate in them, but the damage goes beyond that. They threaten the long-term viability of Puerto Rican tax incentives for those who actually play by the rules. However, if you are a resident of Puerto Rico and a U.S. government employee, you must file a U.S. tax return detailing all income you received to provide services to the U.S. government, including services provided in Puerto Rico as a U.S. government employee. If you are a member of the U.S. Armed Forces or a civilian spouse of a serving member of the U.S.

Armed Forces, special tax filing rules may apply to you. For more information, see Publication 570 and Announcement 2012-41. Puerto Rico uses the US dollar. There are no specific rules for exchange rates. Is there a special scheme for the sale of a business by one taxable person to another if VAT is not due on the sale? Puerto Rico offers a convincing alternative to expatriation. U.S. citizens who become bona fide residents of Puerto Rico can retain their U.S. citizenship, avoid U.S. federal capital gains tax, including capital gains from U.S.

sources, and avoid paying taxes on interest and dividends from Puerto Rican sources. Expatriation rules do not apply to U.S. citizens moving to Puerto Rico, as resettlement alone does not require renouncing U.S. citizenship. Therefore, if a person moves to Puerto Rico, the move does not incur an expatriation tax. Are there any unique specific rules for indirect taxes that you would not expect in “standard” VAT jurisdictions? Although this may make sense from a U.S. federal income tax perspective for high-income Americans. Many people don`t want to give up their citizenship or green card just to reduce their tax obligations. In addition, U.S. citizens living abroad are subject to certain direct tax consequences due to the expatriation tax regime. Expatriation rules generally apply to any U.S. citizen who has renounced their citizenship.

The 4% tax rate applies only to income from “eligible services” that the Puerto Rican company provides to non-residents and foreign companies. Eligible services include: When is VAT/GST payable for a supply of property or services? Many offshore gurus are invading Puerto Rico these days. As usual, the image is not as rosy when you dig beneath the surface. 213 L.P.R.A. §10832, §10833, §10834. Note that the 100% property tax exemption applies to certain businesses § 10831(k), including creative industries, call centers, and shared service centers, and is limited to the first five years of operation. At the end of the five-year period, a 90% exemption applies. With proper structuring, you could essentially reduce the combined effective tax rate from 50% to just 4% by moving to the island. Anchin`s International Tax Group can help you pass the above tests to make sure you qualify for benefits. We can also help you build a Puerto Rico-based service business with resources on the island. Please contact your Anchin relationship partner to discuss these issues. For C companies operating in both the United States and Puerto Rico, the dividend is considered Puerto Rican income as long as the amount of labor in Puerto Rico meets the threshold requirement.

If the threshold is not met, residents must determine the amount of work done per site and apply this ratio to dividend amounts. The portion of the dividend from the United States is taxed at 37%. Here, correct accounting is crucial to determine whether the set threshold has been reached. If an export service qualifies for tax benefits under Chapter 3 of the Incentives Act, the net income of the enterprise is subject to Puerto Rican corporate tax of 4%. In addition, distributions from profits and profits are not subject to Puerto Rican income tax. Real estate and personal property of enterprises used for the export of services is also exempt from 75% of municipal and national property tax. Finally, a company that exports services benefits from a 50% exemption from municipal licenses or taxes that apply to the volume of the business. If you are a bona fide resident of Puerto Rico and can exclude your Puerto Rican income on your U.S. tax return, you must determine your tax filing requirements using the filing thresholds specified in the instructions for each tax return.

For more information on who is considered a true resident of Puerto Rico and how to determine the amount of income required to file a U.S. tax return, see Publication 570 and Publication 1321PDF. Consider the following examples to illustrate the treatment of capital gains: 1Each of these requirements requires careful consideration of various factors. It is beyond the scope of this article to present a detailed analysis of these three tests. Consultation with a tax advisor is highly recommended. Generally, U.S. citizens and resident aliens who are bona fide residents of Puerto Rico throughout the tax year that applies to most individuals from January 1 to December 31 are only required to file a U.S. federal tax return if they have sources of income outside of Puerto Rico or are employees of the U.S. government. Bona fide residents of Puerto Rico generally do not report income from Puerto Rico sources on their U.S.

tax returns. However, you must report all income from sources outside of Puerto Rico on your U.S. tax return. Residents of Puerto Rico who are employed by the United States Government or who are members of the United States Armed Forces must also report any income they receive from the United States Government for their services to the United States Government on their United States income tax return. U.S. citizens or resident aliens who do not reside bona fide in Puerto Rico throughout the tax year must report all income from any source on their U.S. tax return. However, a U.S. citizen who moves from Puerto Rico to the United States and was a resident of Puerto Rico for at least two years prior to the change of residence may exclude from taxable income in the United States Puerto Rican income earned in the fiscal year of that change of residence in Puerto Rico. [20] Export services sold for use and consumption outside Puerto Rico are exempt from payment from the TEU if the buyer receives such services outside Puerto Rico.