Key Things to Know Before Moving to Puerto Rico - Relocate to Puerto Rico with Act 60, 20, 22 (2024)

Read on for many of the most important things to be aware of before you start a rewarding new life in the Caribbean.

It’s The Best Opportunity We Know

Relocating to Puerto Rico is the best opportunity that most Americans have never heard of.

Word is getting around, though. Thousands of Americans have discovered that moving from the mainland to this U.S. territory in the Caribbean can be extremely rewarding without being extremely complicated. They’re now saving a bundle on taxes in a place with a lower cost of living than many expect.

Want to join them?

If you’ve been thinking about huge tax savings for yourself and your business from the comfort of an island paradise—just one of the benefits of moving to Puerto Rico—then keep reading.

Just keep in mind that Puerto Rico has its share of red tape. Familiarize yourself with some of the island’s bureaucratic challenges now to minimize surprises later on.

Things to Know About the Benefits of Moving to Puerto Rico

Cost of Living and Tax Benefits in Puerto Rico

The overall cost of living is lower than on the mainland.

Life in Puerto Rico is a superb value, with a high standard of living combined with an overall lower cost of living than most expect. Your dollar will go farther in Puerto Rico than in most U.S. cities.

You will likely save somewhere between 5% and 70% off the cost of living found in a typical city in the United States. Even the most expensive cities in Puerto Rico are less costly than most major cities in the rest of the United States. You can find lower healthcare costs, high-quality and affordable grocery stores, and inexpensive high-speed Internet on the island.

Take a look at this cost of living calculator to compare the prices of goods and services in specific cities in Puerto Rico and the rest of the United States.

The island offers generous tax incentives.

If you’re thinking about moving to Puerto Rico to avoid taxes, know that those who relocate and become bona fide residents of the island can benefit from especially favorable tax incentives thanks to a landmark piece of legislation called Act 60. Act 60 provides significant tax benefits to qualified businesses and individual investors. Your income from Puerto Rico can be exempt from federal and state taxes.

The Lifestyle in Puerto Rico

You can find many of the comforts of home on the island.

Moving to Puerto Rico doesn’t mean saying goodbye to the goods and services you’ve grown accustomed to on the mainland. U.S. retailers are easy to find here. You can shop at Burlington, The Gap, JCPenney, Macy’s, and Marshalls in Puerto Rico. The island has discount stores like Costco and Walmart.

Relocated Americans continue to pick up fast food at Burger King, McDonald’s Subway, and Wendy’s here. Prescription drugs are easily accessible from the island’s CVS and Walgreens pharmacies (some of which are anavar for sale open 24/7 and offer same-day delivery).
If you can’t find what you’re looking for in one of these places, Amazon delivers to Puerto Rico too.

The island hosts a vibrant and friendly culture.

Many residents have been pleased to discover how welcoming the people are on the island. The crime rate in the San Juan area is also lower than that of many comparable metropolitan areas in the rest of the United States.

How about the cuisine? The seafood on this island is top-notch. Rice, beans, plantains, and pork are staples in prepared food here, and meat is popular in Puerto Rican dishes. If you need a good coffee fix, Puerto Rico’s is of excellent quality.

Note that Spanish and English are the island’s two official languages, and sometimes forms will only be provided to you in Spanish. Your transition will go more smoothly if you speak Spanish or decide to learn some.

You can enjoy the great outdoors all year.

Puerto Rico offers a great selection of fun outdoor adventures. There aren’t many places where you can comfortably sunbathe on a golden beach and go swimming in January, but Puerto Rico is one of them.

Here you can also go kayaking in bioluminescent bays. From the walls of Spanish forts, watch the ocean’s waves crash against the island’s cliffs. Admire historic colonial buildings during a walk through cobblestone streets. Hike the scenic nature trails of the only tropical rainforest in the United States at El Yunque, then go zip lining through the treetops at the biggest adventure park in the Americas.

The sky’s the limit when it comes to sightseeing possibilities on the island.

Things to Know When Moving to Puerto Rico from the United States

Pointers about Moving Requirements

The transition isn’t difficult, but you’ll need to meet several requirements.

Moving to Puerto Rico is an easier transition than you may realize. You won’t need a passport or work permit to move to this U.S. territory. You won’t even have to change your U.S. dollars into another currency. Review this checklist before you move.

Also keep in mind that you must satisfy several requirements to become a bona fide resident and be eligible for full Act 60 tax benefits.

To pass the presence test, you must spend more time in Puerto Rico than in the rest of the United States. You can satisfy this requirement if you remain physically present inside Puerto Rico for at least 183 days of the taxable year. Certain exceptions may apply—for example, during a natural disaster.

To pass the tax home test, you must not keep a “tax home” (the primary place where you work and create value) outside of Puerto Rico.

To pass the closer connection test, you must convince the IRS that you have stronger ties to Puerto Rico than to the rest of the United States. Establishing banking, social, cultural, political, or religious ties to the island will demonstrate this.

In addition, you’ll need to buy property in Puerto Rico to use as your principal residence within two years of obtaining the Individual Resident Investor special tax decree. The property must remain your principal residence for you to continue receiving these tax advantages.

Pointers about Real Estate

We can help you to find the right home.

To maximize Puerto Rico’s tax benefits, you’ll need to buy a home on the island. PRelocate’s real estate team is the perfect choice to help you with everything from your home search to selecting a mortgage broker.

First, study the island’s neighborhoods. We’ve set up an authoritative database of the island’s housing options. Review these tips for buying a home in Puerto Rico.

Unless you plan to pay in cash, you’ll need a mortgage lender. Puerto Rico’s primary lenders include Banco Popular de Puerto Rico, First Mortgage, and Oriental Bank. These lenders are technologically savvy, offer many mortgage choices, and are located throughout Puerto Rico.

Puerto Rico is a community property state.

Puerto Rico is a community property state, so any property purchased after marriage—even if purchased by only one spouse, without involvement from the other—is considered joint property of both spouses. Depending on your real estate and family situation, this could lead to a tricky divorce process, so plan accordingly.

Puerto Rico’s inheritance laws force inheritance to go to children.

According to Puerto Rico’s forced inheritance laws, properties must be left to blood relatives—first children, then grandchildren, then parents—before a spouse. If you have any children, grandchildren, or parents alive at the time of your death, they are all required by law to take a portion of your estate before your spouse can, even if you’ve willed the property to your spouse.

Puerto Rico’s forced inheritance laws can complicate estate and family planning. However, Act 60 decree holders can avoid the forced inheritance law if the property is transferred via certain types of trusts.

U.S. estate and gift taxes apply to U.S.-born Puerto Rican residents.

The claim that Puerto Rico doesn’t have any estate and gift tax only applies to native-born Puerto Ricans. Even if you establish bona fide residency in Puerto Rico by passing the residency tests we touched on earlier, you’ll still be subject to federal U.S. estate and gift taxes. Plan accordingly.

Pointers about Cars

Think about whether it makes more sense to ship or buy your car here.

Life is much more enjoyable here with your own wheels. But does it make more sense to ship your current vehicle to the island or buy one after you arrive?

Shipping your car can be expensive. Check the vehicle shipping quotes from the top moving companies to Puerto Rico.

The price tags on cars at Puerto Rican dealerships are usually higher than those you’ll see on the mainland. However, many find that the extra expense of purchasing a car here is worth the convenience. Buying a car upon arrival means avoiding hefty transportation costs and import taxes. Those fees can easily exceed the higher price you’d pay to buy a car in Puerto Rico vs. on the mainland.

Pointers about Notaries

Finding a good notary is critical.

Obtaining a notary’s signature is a mandatory part of numerous processes in Puerto Rico, from buying real estate, to obtaining or paying off a mortgage, to filing a municipal tax return. So, find a good one, as you’ll be working with them a lot.

In Puerto Rico, notaries are lawyers and serve as title companies in real estate transactions.

The Puerto Rican real estate market is vastly different from elsewhere in the United States. On the island, notaries essentially provide the services of a title company. That means even more notary fees. U.S. title companies are far more affordable.

In addition, all notaries in Puerto Rico are lawyers. So whenever you need a document notarized, you’ll have to go to a lawyer–and pay the accompanying lawyer fees.

A notary is necessary to create a mortgage and retire or cancel it.

Expect huge notary fees if you’re getting a mortgage for your Puerto Rico property. You have to include a notary in the process, and they must charge a statutory minimum, which is rendered as a percentage of the initial mortgage amount. And you incur this charge twice—once when the mortgage is created, and once again when the mortgage is retired or canceled.

Pointers about Legal Matters

Postnuptials are essentially unenforced in Puerto Rico.

If you have a postnuptial agreement, don’t expect it to be enforced in Puerto Rico. Postnuptial agreements are rarely enforceable on the island, and ones drafted on the mainland are even less likely to be honored. Plan accordingly. Your postnuptial is essentially useless here.

Wills drafted on the mainland are generally unenforceable in Puerto Rico.

Any will—regardless of what you will to whom—is generally unenforceable in Puerto Rico if it was drafted on the mainland. Update your will as soon as possible after landing in Puerto Rico. If you want to will your property to your spouse, consult an experienced Puerto Rican tax expert.

Things to Know When Moving to Puerto Rico for the Tax Benefits

Pointers about Act 60

The Act 60 Individual Resident Investor Tax Incentive applies only to certain types of income.

The tax benefits of moving to Puerto Rico are substantial. The Act 60 Individual Resident Investor Tax Incentive is a lucrative tax exemption that can save individuals thousands in taxes. However, the exemption doesn’t apply to all income an Individual Resident Investor decree holder earns.

The incentive offers a 100% tax exemption on interest, dividends, and capital gains on investment assets, from securities to crypto assets. It can result in sizeable savings if you derive a lot of money from capital gains. But any income derived from salary is ineligible, and you’ll have to pay regular Puerto Rican income tax on it.

The Act 60 Export Services tax exemption only applies to certain types of income.

The Act 60 Export Services Tax Incentive can lower a Puerto Rico-based business’s corporate tax liability to only 4%, which is lower than the 21% in the United States. It’s also lower than the general Puerto Rican corporate tax rate of 37%. However, depending on the business’s activities, some of its income may not be eligible for the lower tax rate.

Only income derived from exported services qualifies for the 4% tax rate. Exempt income must be derived from services performed from Puerto Rico for clients outside of Puerto Rico. The types of companies can vary, but they must all export services abroad to reap the benefits of the Act 60 Export Services tax decree.

Act 60 Export Services isn’t available for sole proprietorships or self-employed individuals.

The Act 60 Export Services Tax Incentive is only available to business entities, such as corporations or LLCs. Sole proprietorships and self-employed individuals don’t qualify, even if their income is derived from qualifying exported service business activities. Suppose you currently provide eligible services as a sole proprietor or individual. In that case, you’ll have to form a new business entity, such as a corporation or LLC, and restructure your business activities accordingly.

Depending on your industry, such restructuring may not be possible due to licensing and regulatory challenges. In other industries, the shift to a business entity may entail the rewriting of contracts with your clients or suppliers. Whatever your situation, think about how you can form a Puerto Rican business entity that meets Act 60 Export Services requirements.

Act 60 Export Services businesses must pay the decree holder a “reasonable salary.”

Under Act 60 Export Services, the corporate tax rate is 4%–but the income tax rate remains 33% for income exceeding $61,500. One may attempt to circumvent income tax due by taking all their personal income from their Export Services company in dividends and jointly applying for an Act 60 Individual Resident Investor decree to obtain a 100% tax exemption on them. Filing for an Individual Resident Investor decree to forgo tax liability on dividends from your company is possible. But you can’t forgo a salary.

The Act 60 Export Services act stipulates that an Act 60 Export Services company must pay the decree holder a “reasonable salary,” which is taxed at the regular Puerto Rican tax rates. It’s worth hiring a Puerto Rican tax expert to determine the lowest possible “reasonable salary,” allowing you to take the rest of your share of the company’s profits in dividends.

Act 60 Export Services businesses are exempt from U.S. tax withholding for payments from the United States.

If your Act 60 Export Services business is owned 100% by bona fide Puerto Rican residents, any payments to the business from U.S. individuals or businesses are exempt from U.S. tax withholdings. To ensure that U.S. individuals and businesses do not inappropriately withhold on payments to your Act 60 Export Service business, you may need to fill out and send an IRS Form W-8BEN-E. That also means such payers won’t need to provide you with IRS Form 1099 annually.

Act 60 Export Services businesses may need to report their income using accrual accounting.

If your Act 60 Export Services business earns more than $1 million in annual gross revenue, the Puerto Rican government requires you to report your corporate income using accrual accounting. This means counting revenue or expenses when the transaction occurs rather than when the payment occurs. The accrual method paints a more accurate picture of a company’s cash flows, but it’s more expensive to implement than cash accounting.

Act 60 Export Services businesses may be audited every year.

If your Act 60 Export Services business makes more than $3 million in gross annual revenue, you will be forced to use accrual accounting, as explained above, and have your financials audited yearly. Puerto Rico places significant bureaucratic obligations on Act 60 Export Services tax-exempt businesses, and annual audits can create headaches for business owners. You must prepare for yearly audits if your company is big enough.

All Act 60 Export Services businesses must be registered in the municipality where they operate.

No matter which Puerto Rican municipality your Act 60 Export Services business operates in, business owners are required to register with the municipality. Each municipality levies a small tax on the gross revenue a business entity generates within its boundaries. These taxes apply to Act 60 Export Service businesses as well.

Decree holders do enjoy a 50% tax exemption on municipal taxes (100% for the first five years in Vieques and Culebra), as a well as a 100% exemption in their first semester of business. However, in most cases, be ready to pay for a small amount of municipal tax.

Act 60 Export Services businesses should maximize their net income while minimizing their gross revenue.

Considering the requirements imposed on higher-earning Act 60 Export Services businesses, the best business strategy is to minimize gross revenue while maximizing net revenue. If you can keep your revenue under $1 million, you’re free to use cash accounting. If you stay below $3 million, you can avoid annual audits. Carefully choosing a municipality can also be beneficial—if you set up shop in Vieques and Culebra, you can escape municipal taxes for the first years of your decree.

You’ll be taxed on your worldwide income.

In Puerto Rico, residents are taxed on worldwide income, regardless of where it was earned or sourced. So, if you earn income while on the mainland or in a foreign country, you’ll have to report it on your Puerto Rico tax return and pay any taxes you may owe on it. But you must also report that income on your U.S. tax return and pay any taxes you owe on it to the federal government.

Don’t worry—it’s not as bad as it sounds. Puerto Rico issues tax credits for any taxes paid on such income to the federal or a foreign government, so you won’t be double-taxed. Still, you can’t escape the extra bureaucracy of filing tax returns in multiple jurisdictions. If the tax in question qualifies for the Act 60 tax exemptions, it won’t be high enough to warrant paying extra tax to Puerto Rico, but if it doesn’t, you may have to. If the Puerto Rican tax rate is higher than the U.S. or foreign rate, you’ll still have to pay the difference to the Puerto Rican government.

Some U.S.-based retirement plans may not count as Puerto Rico-sourced taxes.

Since Puerto Rico is a U.S. territory you can maintain your U.S.-based retirement plan. However, depending on your retirement plan, the Puerto Rican government may not recognize it as tax-qualified, designating any gains earned in such plans as U.S.-based income. If the Puerto Rican government sees your retirement plan in this light, you may have to pay Puerto Rican tax on gains accrued after your move. If your retirement plan qualifies as a grantor trust under Puerto Rican law, your Export Services decree should protect you from tax liabilities.

Pointers about Banks

Puerto Rico bank services are slow and expensive.

If you’re used to the banking conveniences of the mainland, you’re in for a surprise in Puerto Rico. Banking services are slow because of outdated technology. You can expect a deluge of fees for just about anything. Need a certified or manager’s check? You will when dealing with the government, and it incurs a hefty fee. It’s expensive to send or receive a wire transfer, too .

Puerto Rico banks often barrage clients with questions about transactions.

Puerto Rico banks are extreme in their fraud prevention measures. For just about any transaction, from checks to wires, you can expect a barrage of questions. You can expect your checks to be returned for nonsensical reasons, even when you have sufficient capital in your account to cover them. Be prepared for annoyances when dealing with Puerto Rican banks.

The Puerto Rico government generally requires certified checks or manager’s checks, not personal or corporate checks.

In Puerto Rico, the government ensures it helps out its banker pals by mandating certified checks or manager’s checks for just about any payments to the government. Whether you’re trying to pay your taxes, pay filing fees, or pay for parking tickets, be prepared to take a trip to the bank, waste some of your time, and pay a fee to obtain a certified or manager’s check, even if the amount you’re paying is negligible.

You Know You’ll Still Be the Envy of Others on the Mainland

To recap, you’ll want to keep this pre-move information about tax benefits and responsibilities, bureaucratic processes, and moving logistics in mind. They’re not only good reminders of the opportunities that await in Puerto Rico, but will also help to ensure your move to the island is as trouble-free as possible. We hope this has given you a better sense of what moving from US to Puerto Rico is like.

Moving to Puerto Rico to avoid taxes is just one of countless good reasons to be here. Besides an overall cost of living that is lower than on the mainland, you can enjoy picture-perfect beaches and nature trails, tasty Caribbean treats, convenient shopping, and so much more.

Our friendly experts look forward to answering any questions you may have about moving to Puerto Rico. Let us show you how we can save you time, money, and effort on your move.

Contact us today.

Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together “PRelocate”) are law firms, and this is not legal advice. You should use common sense and rely on your own legal counsel for a formal legal opinion on Puerto Rico’s tax incentives, maintaining bona fide residence in Puerto Rico, and any other issues related to taxes or residency in Puerto Rico. PRelocate does not assume any responsibility for the contents of, or the consequences of using, any version of any real estate or other document templates or any spreadsheets found on our website (together, the “Materials”). Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction.