Friday, March 4, 2016

Puerto Rico - Act 20 and Act 22

I have decided to move to Puerto Rico because there are extraordinary tax benefits available in the island.

What you need to know.  If you are a resident of Puerto Rico and pay taxes in Puerto Rico then based on the treaty with the USA you do not have to pay taxes in USA.

To be a resident of Puerto Rico you need to be in the country 183 days a year.

There are other ways to be a resident of Puerto Rico without staying the full 183 days, but it get complicated.

Act 22 is for investors and there is Zero tax on:

1) Short-term and Long-term capital gains
2) Dividends

So you will pay literally no taxes if you are a pure investor.  This is suited for people that make a majority of their money by investments in the stock market.

Act 20 is a little more complicated but in my case I am able to generate income from our IT Training division and consulting division.

The benefit in Act 20 is that company tax on dividends is 4%.  For instance if you generate $1,000,000 in income and you have $200,000 in expenses (salaries, office space, etc), then you will have to pay 4% on 800,000 and the rest is a dividend, so zero tax.  $32,000 in taxes and $768,000 would be dividend income which has zero tax.  This act has a few rules so you have to be careful.

You need to have:

1) An office in Puerto Rico
2) Hire 3 employee by end of year 1 (You and your wife can count as employees)
3) Hire 5 total employees by end of year
4) Buy a house/condo by end of year 2 in Puerto Rico (There is no minimum price you need to pay for the residence)

You can then take the $768,000  and invest it in the stock market and all the profits generated are taxes at: Zero.

Based on all these new tax rules I can grow my money very quickly.  If anybody wants to learn more, call me and I know the rules pretty well now.