The End of Puerto Rico as a Tax Haven?
Many U.S.corporations, and wealthy individuals as well, see Puerto Rico as a tax haven. In 2019, the IRS reported to Congress on 166 individuals who had moved to Puerto Rico and once there, paid no income tax. Five years before relocation, these individuals had paid a total of $252,300,000 in income taxes.
A resident of Puerto Rico is not required to pay federal income tax on money earned in Puerto Rico. Section 933 of the tax code was developed with the goal of giving Puerto Rico more flexibility for local taxation. The idea was that Puerto Rico needed to be able to levy local income tax and the population of Puerto Rico would not be able to pay both federal and local taxes. The federal government therefore allowed residents of Puerto Rico to earn wages in Puerto Rico without paying federal income tax on those wages.
Under Act 22, now known as the Individual Investors Act, dividend and interest income and capital gains are all 100% tax exempt in Puerto Rico, in addition to the exemption from federal income tax. The IRS estimates that 23,000 individuals requested exemptions under this law.
The IRS is currently looking into whether people benefiting from this law are in fact living in Puerto Rico (183 days per year of physical presence is required) and whether the income they are sheltering is actually sourced in Puerto Rico.
Read more: https://www.puertoricoreport.com/the-end-of-puerto-rico-as-a-tax-haven/
