Puerto Rico, with its picturesque landscapes and rich history, is not only a traveler's paradise but also an investor's dream. Thanks to the Puerto Rico Incentives Code, particularly Act 60, the region is fast becoming a hotspot for savvy investors. Let's delve into the numerous benefits that this tax regime provides and understand how you, as an investor, can benefit from it.
Act 60: A Brief Overview
Act 60, which encompasses prior Acts 20 and 22, is essentially Puerto Rico's beacon to attract investors from around the globe. It offers substantial tax incentives for businesses and individual investors alike.
One standout feature is the Act 60 Investor Resident Individual Tax Incentive (formerly Act 22), which permits bona fide Puerto Rico residents to enjoy a 0% federal or Puerto Rico capital gains tax on capital gains accrued while living in the region.
Private Equity Funds Act (Formerly Act 185): The Game Changer
A decade ago, Puerto Rico hardly had any trace of private equity funds and hedge funds. Fast forward to now, and the scenario has changed entirely, thanks to the “Private Equity Funds Act” and the surge of financial professionals relocating to Puerto Rico for its attractive tax advantages.
This act gives Puerto Rican investors the chance for a 0% capital gains tax, paired with potential tax deductions. However, to avail themselves of these benefits, private funds and their sponsors and investors must satisfy certain prerequisites outlined in Act 60.
Qualifying Funds and their Tax Advantages
To be classified as a Qualifying Fund under Act 60, the fund primarily needs to invest in securities not offered in public securities exchange markets, either in the U.S. or abroad.
1. Exemption from Income Tax:
Qualifying Funds, treated as partnerships for tax purposes, aren't subjected to Puerto Rico income tax.
2. Municipal License Tax:
Any income and distributions from Qualifying Funds are exempt.
3. Property Tax Exemptions:
All properties owned by a Qualifying Fund have substantial tax exemptions, with certain securities being 100% exempt.
Puerto Rico's Tax Treatment of Investors
Act 60 presents a lucrative opportunity for resident investors. Depending on the type of investment, residents can deduct up to 30% or 60% of their adjusted investment basis over a span of 10 or 15 years, respectively. Moreover, the distributive share from a Qualifying Fund for interest, dividends, and capital gains is taxed at highly favorable rates or even exempt.
Navigating the Complexities of Puerto Rico & US Tax
For high-net-worth individuals in the U.S. who are discontented with the existing tax structure, Puerto Rico provides a welcoming alternative. However, it's not as simple as relocating. Being classified as a bona fide resident requires meeting specific criteria, including the presence test and establishing a genuine connection to Puerto Rico.
The Puerto Rico Incentives Code 60 aims to foster economic development by attracting private investment. But, like any tax law, it's intricate. While the benefits are abundant, potential investors must consider the multifaceted tax interplay between Puerto Rico and the U.S. Consulting with a seasoned tax practitioner is imperative to ensure all considerations are taken into account and pitfalls are avoided.
Puerto Rico's Act 60, with its tantalizing tax benefits, has positioned the region as a go-to destination for investors. While the opportunities are plenty, understanding the nuances and intricacies of the tax laws is crucial. For those willing to make the effort, the rewards are substantial. So, if you've been contemplating a strategic investment move, Puerto Rico beckons!
This blog post provides a general overview of the benefits of Act 185 also known as Act 60 in Puerto Rico. Before making any investment decisions, we recommend consulting with a financial advisor or legal expert knowledgeable in Puerto Rican laws and incentives.
Wealth & Asset Management in San Juan, Puerto Rico
San Juan, PR | Headquarters Office
252 Ponce de León Ave. Citi Towers Suite 1403 San Juan, PR 00918
Disclosure: Lyon Bern, LLC is a Registered Investment Adviser and is in the business of consulting and advising its clients in wealth and asset management. Each client's diversification between Lyon Bern's portfolios will be made individually and based on the client's Investment Policy Statement. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product referred to directly or indirectly in this document will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment advice from Lyon Bern, LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with a professional investment advisor. A copy of our current written investment advisory agreement discussing our advisory services and fees is available for review upon request.