For investors benefiting from Puerto Rico’s tax incentives under Act 22 or Act 60, compliance with the terms of the grant is crucial to maintaining eligibility for the program’s benefits. While each grant represents a separate contract negotiated individually with the Puerto Rican government, there are common compliance points that appear in many grants. Ensuring adherence to these requirements is vital to avoid penalties or revocation of benefits.
Here are some critical points you need to verify regarding your tax grant:
1. Condition for Effectiveness
The tax exemption grant under Act 60 will not take effect immediately if the grantee was not a resident of Puerto Rico when the grant was approved. To activate the grant:
- The grantee must become a bona fide resident of Puerto Rico.
- After establishing residency, a sworn statement must be filed with the Office of Incentives (OI) confirming residency.
- The sworn statement should include:
- Date of establishing residency.
- Physical address in Puerto Rico.
- Relevant documents such as a Puerto Rico driver’s license, property deeds, or lease agreements.
Implication: Until these steps are completed, the tax benefits cannot be utilized. This ensures that only genuine residents benefit, aligning with the program’s goal of boosting local economic activity.
2. Property Acquisition Requirements
- Timeline: The grantee has two years from the date of grant approval to purchase or construct a primary residence in Puerto Rico.
- Ownership:
- The property must be owned solely by the grantee, jointly with a spouse, or through a Puerto Rican entity they own fully or jointly with a spouse.
- The property must be purchased from an unrelated party.
- Documentation: Proof of purchase, such as a deed or related documents, must be submitted with either:
- The sworn statement of residency.
- The annual report for the tax year of purchase.
Alternative Option: The grantee may purchase land and construct a home within the two-year window. Proof of construction completion must be included in the annual report for the tax year of completion.
3. Annual Filing Requirements
- Deadline: Annual reports must be submitted to the OI by November 15 each year.
- Contents:
- Proof of bona fide residency.
- Confirmation of nonprofit donations (see below).
- Evidence of compliance with property ownership requirements.
Failure to file these reports may result in penalties or grant revocation.
4. Nonprofit Donation Obligations
From the second year after the grant becomes effective, grantees must donate at least $10,000 annually to Puerto Rican nonprofits:
- Allocation:
- At least $5,000 must go to organizations addressing child poverty, as listed by the Special Joint Committee on Legislative Funds.
- The remaining $5,000 can go to other qualifying nonprofits that are not controlled by the grantee or their family members.
- Reporting:
- Each year, grantees must provide:
- Names of nonprofit organizations.
- Confirmation of the services provided.
- Relevant proof of contributions.
- Each year, grantees must provide:
5. Capital Gains Tax Treatment
- Pre-Residency Gains:
- A fixed 5% tax applies to gains from securities, commodities, currencies, or digital assets accrued before residency.
- Gains must be recognized after 10 years of residency but before January 1, 2036.
- Post-Residency Gains:
- 100% exemption on capital gains from assets accrued after establishing residency.
- The exemption applies to gains realized before January 1, 2036.
6. Termination of Residency
If a grantee ceases to be a resident of Puerto Rico:
- They must notify the OI within 60 days.
- Failure to file income tax returns or annual reports can result in retroactive termination of the grant, with tax benefits revoked as of the first day of noncompliance.
Important Reminders
- Customized Contracts: Each Act 22 or Act 60 grant is a non-transferable contract with unique terms. Even close friends or family members may have different obligations and benefits.
- Proactive Compliance: Regularly review your grant terms and ensure all filings, donations, and documentation are accurate and submitted on time.
- Seek Expert Guidance: If you’re unsure about any aspect of your grant, consult with legal or tax professionals to confirm compliance.
Staying ahead of these requirements ensures you maximize the benefits of your tax grant while avoiding penalties or revocation.
For those considering this opportunity, it’s crucial to be thoroughly informed and prepared to comply with all stipulations to fully benefit from Act 60. Should you require additional guidance or have specific inquiries, seeking tailored professional advice is highly recommended.
For further assistance or more information, please feel free to contact us at [email protected] or 787-473-8985.
Disclaimer: The information provided herein is for informational purposes only and should not be construed as legal or tax advice.