Puerto Rico has implemented a set of measures under Chapter 2 of ACT 60, specifically designed for the continuous strengthening of its economy and the attraction of foreign capital for individual investors. This legal framework focuses on providing significant incentives for those intending to relocate to the island, becoming “bona fide” residents and, therefore, potential drivers of local investment and economic development.
A Tax Oasis for Investors
Chapter 2 of ACT 60 focuses on its ability to attract investors through promises of a favorable tax environment. Under this act, residents of Puerto Rico 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 lightens residents’ tax burden and 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 to promote 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 intending to invest in financial markets or real estate.
- Asset Management Flexibility: The creation and transfer of assets to trusts, whether revocable or not, 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 special tax particularity: “Bona fide” residents are not subject to federal taxes on Puerto Rican income due to section 933 of the U.S. Internal Revenue Code, i.e., while income generated within the island enjoys a federal exemption, foreign income 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 becomes an ideal destination for individual investors intending to optimize their tax burden, diversify their investments, and enjoy an environment with a rich culture and an enviable climate. Due to these incentives, Puerto Rico not only aims to attract capital and talent but also to consolidate its reputation as a world-class financial and investment center.