Law #22 of January 17, 2012, also known as the Investor’s Relocalization Act
This law seeks to attract new residents to the island by providing a total exemption from Puerto Rico’s income tax on all passive income realized or accrued after such individuals become bona fide residents of Puerto Rico. This hopes to accelerate the economy of Puerto Rico with new local investment in real estate, services and other consumption products and provide capital injections to the island’s banking sector though the relocation of this law.
The Individual Investors Act applies to any individual investor that becomes a Puerto Rico resident on or before the taxable year ending on December 31, 2035, provided that such individual was not a resident of Puerto Rico at any time during the 15-year period preceding the effective date of the Individual Investors Act.
“A Puerto Rico resident is an individual who is domiciled in Puerto Rico. Physical presence in Puerto Rico for a period of 183 days during the taxable year will create a presumption of residence in Puerto Rico for tax purposes.” Section 933 of the Internal Revenue Code of the United States of 1986 (the “US Code”) suggests, income derived from sources within Puerto Rico by individuals who are bona fide residents of Puerto Rico during the entire taxable year is not included in gross income and is exempt from taxation under the US Code. (the “Section 933 Exclusion”).
Law Num. 22 of January 17, 2012
Some of the provisions include:
- 100% tax exemption from Puerto Rico income taxes on interest and dividend income derived during the Tax Exemption Period to Resident Individual Investors. “Section 933 Exclusion, interests and dividends received by Resident Individual Investors that qualify as Puerto Rico source income will not be subject to federal income taxation under the US Code.
- 100% exempted from Puerto Rico income taxes for Long-term capital gains (“LTCG) derived by Resident Investors for investment appreciation accruing after becoming a Puerto Rico resident, if such gain is recognized prior to January 1, 2036.
- On the other hand, LTCG derived by Resident Individual Investors will be subject to preferential income tax rates in certain circumstances.
The tax exemption granted under the Individuals Investors Act will expire on December 31, 2035 (the “Tax Exemption Period”).