If you're looking to move to Puerto Rico to take advantage of the tax incentives, you have a potentially murky path ahead of you.
In reality, the process is relatively simple, and thanks to recent reforms and new digital processes, it's much easier than it used to be.
But it's still hard for a number of reasons, some expected and others perhaps not.
Luckily we are here to take you through the key steps for your research and — depending on what you find — your move.
The Opportunity Is Real but Can be Hard to Qualify
The first hurdle is to find the information you need to make decisions.
There's not a lot of information online, local experts can be hard to connect with without referrals, and some of the best experts and resources are only accessible in Spanish.
How do you know whom to trust?
We have found that people usually hear about Puerto Rico through a conversation with someone they trust, and often those same people are on a plane within a week. More often than not they come out here with incomplete or incorrect information.
First, How Not to Do It
The mere fact you are considering the move to Puerto Rico puts you in an elite group of people with means and an adventurous spirit. There is a fairly repeatable pattern all mainlanders follow when moving to Puerto Rico.
It goes something like this:
- Hear from a friend who's bragging about how much money they are saving
- Furiously research online but find very little concrete information
- Fly out to talk to 1-2 people and check the place out
- Desperately search for someone competent and trustworthy to help you work out the details
- Have a bad experience with a local service provider, probably because something just felt a little "off," or maybe they straight out ripped you off
- Try to do a bunch yourself, telling yourself that you're saving money
- Have a bad experience with a local real estate agent or landlord
Although your journey may not be exactly the same, chances are it will follow this broad pattern.
For a group of smart, successful, mostly entrepreneurial folk, the pattern is depressingly similar.
Rico Guide has been designed to help you through that process with a lot less wandering around, dead ends, backtracking, and horror stories involving encounters with a minority of terrible service professionals who make a living on catching you when you step off the plane.
This is what we recommend you do:
Work Out How the Incentives Can Work For You
Since 2012 over 2,500 individuals and companies have filed for Act 20 and Act 22 incentives — the most visible of all the incentives — and relocated to Puerto Rico.
At the last official government count there were over 60 different incentives available to individual investors and companies, meaning most of the benefits are not tapped as they should be.
In July 2019 the government of Puerto Rico enacted Act 60, which brings all incentives into one place. This is good for you, as it makes your research much simpler.
Our guide to Act 60 is, at the time of writing, the most comprehensive Act 60 resource on the internet. It will walk you through all 11 chapters of the incentive plan.
It's important that you are as informed as you can be so you can ask your lawyers and accountants the right questions. Because, as you know, they are not going to do the creative structuring for you, and you are still in a small group, statistically speaking, of people who have done this.
Which brings us to the next hurdle. Do you use mainland lawyers and accountants or Puerto Ricans?
The answer is you need both.
Check With Your Lawyers and Accountants (Possibly Plural)
The next step is to consult qualified experts. This is useful for peace of mind, but it also partially covers you from some of the liability with the IRS if you make a wrong turn. (At this point I need to point out we are not qualified to give you tax and legal advice, so this is exactly the kind of thing you should be verifying with your professional team.)
The bad news is that your mainland accountant and lawyers will probably not know much — if anything — about Puerto Rico and how it works.
A rule of thumb is you will need advice from your mainland team about transfer pricing if you are moving assets to Puerto Rico, about what to do if you move halfway through the year, and how to best comply with the IRS closer connection test — a requisite to qualify for tax incentives.
This is what most people around here call the 183-day rule, but it is slightly more nuanced than that.
Your Puerto Rican team will likely have more experience with, and opinions on, the closer connections rule because it's so central to your tax decree and they see it a lot. But remember it's the IRS that is going to enforce this on you if they believe you should be paying US federal taxes after all, and it's the IRS that has a global mandate, not the Puerto Rico department of hacienda.
Your Puerto Rico accountant and lawyers will be able to help you set up local companies, structure them, and help you file for your various decrees (likely one for you and one for your company).
Depending on the complexity of your affairs and your own competence, you may find you are able to do some or all of this yourself.
Which Accountants and Lawyers to Use
- Use stateside accountants and lawyers for transfer pricing, split-year tax requirements, and closer connection advice
- Use Puerto Rico accounts and lawyers for incorporating Puerto Rico businesses, structuring and filing your decrees
Come Out and Visit
If you've got this far, it's at about this time that it's worth coming down to check the place out.
Puerto Rico still does almost everything in person, even in the COVID-19 era, including sharing information and filing documents.
It's hard to scout neighborhoods and talk to local accountants remotely.
Also, setting your feet on the island starts the clock ticking on your residency — as long as you do it right.
If you're in it for the long-haul, your top priority should be to establish a permanent address. The IRS requires you have your own permanent space. It can be as small as one bedroom in a house, but it cannot be a timeshare or temporary.
Eventually you will need to at least rent something more permanent or substantial than anything you own on the mainland (it's hard, though not impossible, to prove you really live in Puerto Rico if you live in an Airbnb on the island but a mansion in the US).
You will need to purchase a home within two years for your decree, if you take advantage of the benefits in Act 60 chapter 2. Regardless, the first step is often a halfway-house-style apartment or condo, which you can later upgrade.
If you're going to file for your decree and get a driver's license on your first trip, make sure you bring an official hard copy criminal background check from the state police where you currently reside (for your decree), and a hard copy of your driving license with endorsements (for your PR driver's license, because they don't integrate with the other state license databases).
You should also bring your social security card (because it's used for ID on the island in a lot of places, including opening a bank account), and your passport (although you don't need it to get to the island, you will need it to get a star on your driver's license for real ID requirements — a TSA requirement, not Puerto Rican.)
Your residency clock starts ticking when you officially move here — which most people count as signing a lease and getting a PR driver's license.
Your tax status starts the day you file your decree (which takes about 9 to 12 months to go through government review but is backdated to the filing date by DDEC unless you request otherwise.)
What to Bring on Your First Trip
- Hard copy ofofficial background check from your state police
- Hard copy of official driving record from your state DMV
- Original social security card
If you are serious about moving here and want to go straight into your permanent dream home, you should be aware that real estate transactions in Puerto Rico are very similar to the mainland US, but also just enough different to be tricky.
First of all, we highly recommend you pick neighborhoods ahead of time and get a different real estate agent for each one.
Yes, we said get a different real estate agent for each neighborhood you are interested in.
Real estate in Puerto Rico is a little different from the mainland US.
The concept of a buyer's agent in Puerto Rico is ill-defined and inconsistently applied, if at all. There is no official MLS (although there are a couple MLS's around, they are not really used), and there is small participation in the local real estate associations.
All this means agents preside over pocket listings, and if you want to really see what's out there you need to talk to a lot of agents.
On the mainland this would be exceptionally rude. In Puerto Rico, agents accept this as the way things are done, though they don't really like it.
Our real estate guide can help you research neighborhoods and will even introduce you to pre-vetted agents in each one.
Moving to Puerto Rico can feel confusing and it can be hard to know where to start, but it's very easy to do when you know how.
Follow these steps and you can avoid the pain of making things more difficult than they need to be, like random flights back to your old home state to get one piece of paper.
If there is anything we missed, or you have any other tips, please let us know in the comments below.