The Law 52-2022 added Section 1061.25 to the Puerto Rico Internal Revenue Code of 2011, as amended (“Code”), to require all Puerto Rican residents to report their Foreign Financial Accounts (“FFA”) in which they have a financial interest. This requirement became effective starting in the tax year 2022.
The Puerto Rico Department of Treasury (“Department”) introduced the FFA Individual Schedule (“FFA Schedule”) as part of the Individual Income Tax Return Form 482 (“Tax Return”) for this purpose.
- Maximum Amount Calculation: Taxpayers must identify the maximum value each FFA had during the calendar year being reported. The value is determined in the FFA’s functional currency. If the account holds assets other than cash or a combination of cash and other assets, the maximum value is an approximate good-faith estimate of the highest value during that calendar year.
- Crypto Assets: Crypto assets are included in the definition of “financial accounts” subject to disclosure. Crypto assets include digital assets whose transfers are verified or records are maintained using blockchain technology, such as cryptocurrencies, virtual currencies, stablecoins, and non-fungible tokens (NFTs). Accounts held in unregulated exchanges or decentralized exchanges (DeFi) must be reported on the FFA Schedule.
- Reporting by Married Taxpayers and Minors: Married taxpayers filing jointly should specify the account owner as “Taxpayer,” “Spouse,” or “Both” on each FFA Schedule. Spouses filing separately or married taxpayers with total property separation agreements report only the FFAs they hold individually or jointly.
- Accounts Owned by Legal Entities: Tax reporting applies only to individual Puerto Rican residents. However, if an individual resident has direct or indirect ownership of at least fifty percent (50%) of the shares or voting or value participation in a legal entity that is the record owner of an FFA, the individual must report the FFA and indicate the entity’s name and the percentage of ownership.
- Excluded Accounts: Accounts with a maximum value during the calendar year below $10,000, as calculated, are exempt from disclosure. Additionally, certain accounts, such as government accounts, accounts held by individuals who are officials or employees of International Banking Centers or International Financial Centers, individual retirement accounts (IRAs), educational savings accounts, and retirement trusts are exempt from disclosure.
- U.S. Possessions and Military Bases: Accounts in U.S. possessions (e.g., U.S. Virgin Islands and Guam) are considered part of the United States and are not considered FFAs. Similarly, financial accounts in financial institutions on U.S. military bases are not considered FFAs, even if the branch is located outside Puerto Rico or the United States.
This Administrative Determination Núm. 23-03 is effective immediately.
It’s important to note that tax laws are subject to changes and revisions, and the information regarding this law may have evolved since its period of effectiveness. Therefore, it is essential to consult with an updated tax advisor in Puerto Rico for accurate guidance on how this law may affect your tax situation.
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