What if I Move to Puerto Rico?

We’ve all heard it – move to Puerto Rico and you’ll avoid taxes! But what does that really involve? Under US tax law, it involves quite a lot of major life changes. Under Section 933 of the Internal Revenue Code, a bona fide resident of Puerto Rico for the entire taxable year is not subject to taxes on income derived from sources within Puerto Rico. Let’s discuss this two-part requirement in more depth.

The first requirement is bona fide residency in Puerto Rico. To be a bona fide resident, you must meet three requirements. First, the Presence Test requires that you be physically present in Puerto Rico more often than in the US, and you must have been there for a minimum of a tax year. Next, you must not have a tax home outside Puerto Rico. Your tax home is essentially where you regularly work. Lastly, you must not have a closer connection to the US than you do to Puerto Rico, considering factors like where your family and belongings are located.

The second requirement is that the income is derived from sources within Puerto Rico. US law has a long list of what qualifies as income from a certain source. For example, if you perform all your business in the US or sell real estate in the US, these aren’t going to be considered Puerto Rican sources, and the income will be subject to US taxes, even if you are a bona fide resident of Puerto Rico. The professionals at The Center for Financial, Legal, and Tax Planning, Inc. are more than knowledgeable with regard to your tax options. Please contact us at (618) 997-3436 for more information.