You want to protect your assets by looking outside of the US. Is Puerto Rico a tax haven, and is it a safe place for your money? Read this post for more.
February 21, 2025
By: Bobby Casey, Managing Director GWP
Puerto Rico is a small island off the coast of the US, and it’s an unincorporated territory full of beauty. Most people know it as a gorgeous destination for trips, especially since US citizens don’t need visas to travel there. But there’s so much more to Puerto Rico than tourism.
Some people have an eye on Puerto Rico as a tax haven since there are unique tax incentives. As a result, many have actively become tax residents in this area to reap the benefits.
But is Puerto Rico a tax haven, and is it worth your effort to become a tax resident too? Read on to find out more.
Why Is Puerto Rico Considered a Tax Haven?
Is Puerto Rico a tax haven? In many ways, yes. Below are the main reasons why.
There’s No Federal Income Tax
Puerto Rico residents benefit from no federal income tax; more specifically, they don’t have to pay US federal income taxes since Puerto Rico is a US territory. This means that it’s neither a US state nor a foreign country.
The Internal Revenue Code (IRC) Section 933 says that if you’re a bona fide resident, then any income sourced in Puerto Rico is exempt from US federal income tax. So if you live and work there, you won’t have to pay federal taxes on that income.
However, do note that if you’re an American citizen and don’t meet the residency requirements, you’ll still have to pay federal taxes on worldwide income, even if part (or all) of it is earned in Puerto Rico.
Act 60 Tax Incentives
Act 60 of 2019 is formerly known as Act 20 (businesses) and Act 22 (individuals); it’s been consolidated into one act, and includes the previous tax incentives included in those two acts.
For businesses that provide services to clients outside Puerto Rico, they have a 4% corporate tax rate; this is much lower in comparison to the standard US corporate tax rate, which is 21%. Businesses are also 100% exempt from Puerto Rico dividends tax, so business owners can withdraw profits tax-free. All of this applies to industries like tech, finance, consulting, and marketing.
As for individuals, they’ll have 0% tax on capital gains, dividends, and interest income if they’re new residents. This applies to US investors who move to Puerto Rico and establish residency before selling stocks, crypto, or other investments. Do note that gains on investments made before moving there may still be subject to US taxes.
In summary, due to Act 60, there’s a Puerto Rico crypto tax haven. There’s also no Puerto Rico capital gains tax if you’re a new resident.
Favorable Business Environment
Because there are such great Puerto Rico tax benefits, it’s become a magnet for those looking to legally reduce their tax burden, such as:
- Wealthy individuals
- Digital entrepreneurs
- Crypto investors
- Remote workers
The local government knows this and continues to actively promote themselves as a business-friendly jurisdiction through things like:
- Low corporate tax rates
- No state-level bureaucracy
- Relatively low cost of living
The combination of tax incentives and the ability to keep your US citizenship makes Puerto Rico especially attractive as an alternative to offshore tax havens.
Why Puerto Rico Isn’t a Traditional Tax Haven
With that said, this territory doesn’t exactly fit the classic definition of a “tax haven” since it has residency requirements, local taxes, and regulatory oversight. Let’s go over these subjects more in detail.
Residency Requirements
To qualify for the above tax incentives, you have to become a bona fide resident. These are the basic requirements:
- Spend at least 183 days per year in Puerto Rico
- Demonstrate a primary tax home in Puerto Rico
- Establish closer personal and economic ties to Puerto Rico than to any other location
If you don’t meet these conditions, then you’ll still be subject to federal taxation. On the other hand, in other classic tax havens like the Cayman Islands, you can maintain a tax-free status without having to live there full-time.
Local Taxes
Just because you don’t have to pay federal income taxes doesn’t mean you don’t have other tax obligations.
For one, Puerto Rico has its own progressive income tax system. The rates go up to 33% for high earners who don’t qualify for Act 60 benefits.
Also, there’s the sales and use tax. You’ll pay an 11.5% sales tax, which makes it one of the highest in the US. Yes, that’s right; it’s even higher than California’s 7.25%, which is the highest in the nation.
Of course, there’s property tax for homeowners too. It’s lower than in many US states, which is good news, but be aware that property tax is still collected on real estate in this territory.
Lastly, if you own a business, you may also face municipal tax obligations.
In comparison, traditional tax havens often impose zero local taxes.
Regulatory Oversight
As a piece of American territory, Puerto Rico is under US jurisdiction. This means that it must follow:
- US anti-money laundering laws
- US banking regulations
- US Securities and Exchange Commission (SEC) oversight
Now take traditional tax havens, like Panama or Bermuda. In these countries, there are looser regulations, which make them attractive for anonymous banking and shell companies. But in Puerto Rico, compliance is still enforced and you’ll need proper documentation.
So Is Puerto Rico a Tax Haven?
In the traditional sense, we wouldn’t say that Puerto Rico is a tax haven. This is because there are residency requirements, local taxes, and US law obligations, especially regarding finances.
However, it can definitely be a tax haven for those who qualify. In fact, this territory provides some of the best legal tax benefits available to US citizens, particularly for investors and business owners.
So if you’re looking for a way to legally reduce your tax burden while staying within US laws, then Puerto Rico is an excellent option.
Get in touch with us today if you want to learn more about protecting your assets. Global Wealth Protection can help minimize your tax obligations no matter where you’re located in the world.
