4. Tax Benefits and Grants for Business Owners and Entrepreneurs
Many who consider moving to the island are already aware of the tax benefits they can enjoy if they move their businesses to Puerto Rico. In fact, more than 1,500 people from the continental U.S. have flocked to the island since 2012, when the island began promoting its tax benefits.viii
The biggest programs U.S. citizens take advantage of include:
Offers a low 4% corporate income tax rate for companies who relocate, as well as a 100% exemption on distributions from earnings and profits, among other benefits.
Targets high-net-worth individuals by promising 0% tax on interest, dividends, and capital gains earned while living in Puerto Rico.
Note: The island takes the residency requirement for these laws very seriously. To establish what’s called “bona fide residence” in Puerto Rico, there are three tests you’ll need to pass:
- The presence test – Where were you physically present during the tax year?
- The tax home test – Where is the your main place of business, employment, or post of duty?
- The closer connection test – Do you have closer connections in a place other than Puerto Rico? (e.g. – Does your family live in Florida?)
For more information on meeting these three tests, head to the source: IRS Form 570, Section 1, Bona Fide Residence.
If you pass all three tests, you’ll establish bona fide residence, which means you’ll only pay Puerto Rico income tax. For many U.S. citizens, this can represent significant savings. Make sure you consult with a professional if you plan to reap these rewards to ensure you pass these tests with flying colors.
Finally, in addition to tax benefits, you could also benefit from the grants and other assistance available for startups. Parallel 18 is an organization that offers grants of $40,000 for startups in Puerto Rico, with opportunities for follow-up funding of as much as $75,000. As with the tax laws, Parallel 18 requires that one founder who’s empowered to make business decisions live on the island.ix If you’ve been dreaming of kickstarting your own business, this might be the head start you’ve been looking for.
And if entrepreneurship is your thing, you’ll also find a like-minded community waiting for you.