About Puerto Rico

Puerto Rico, also known as ‘La Isla del Encanto (the island of enchantment) is a small and beautiful island, located between the Dominican Republic and The Virgin Islands, forming part of an island chain in the Caribbean. Expats moving to Puerto Rico will find themselves in an unincorporated territory of the United States, a widely contested issue for the local population of just under 3 million. Puerto Rico’s close proximity to the US has made it an attractive destination for American retirees. Other expats living in Puerto Rico have usually relocated to work in the territory’s major economic sectors, such as manufacturing and tourism.

Living in Puerto Rico

The official languages in Puerto Rico are Spanish and English, and although expats should get by without learning Spanish, it may make integration to life on the island easier and quicker. The education system is based on that of the US, although Spanish is the primary language of instruction at public and most private schools. The cost of living on the island is pricey, but expats relocating for work purposes will usually receive benefits to cover a number of monthly expenses. Expats moving to Puerto Rico will find themselves living on an island that offers beautiful mountainous scenery, tropical beaches, and a relaxed lifestyle. It’s also a great spot for travel to nearby islands, with southern areas of the US and northern parts of South America also easily accessible.

Doing Business in Puerto Rico

Puerto Rican business culture is a unique blend of Latin American characteristics and North American drive. Expats doing business in Puerto Rico should be aware of cross-cultural sensitivity and maintain an awareness of etiquette and customs. Puerto Rico ranked 65th out of 190 on the World Bank’s Ease of Doing Business Survey for 2020. The country did well in subcategories such as getting credit (4th) and resolving insolvency (10th). On the other hand, areas that were lacking significantly include dealing with registering property (161st) and paying taxes (163rd). Fast facts Business hours 9 am to 5 pm Monday to Friday. Business language Both Spanish and English are used. Dress Varies depending on the industry. Businesspeople tend to dress in dark suits while workwear in other sectors is often much more casual.

Business Culture in Puerto Rico

Hierarchy Puerto Ricans value the concept of family highly, and this extends into business. Puerto Ricans, therefore prefer to do business with those they know and trust. This can also include extended family and friends. In addition, there is a tendency for Puerto Ricans to treat their business colleagues as family, which requires getting to know colleagues well. This can result in long lunches and dinners that go beyond normal working hours. These informal meetings allow expats to build up credibility and establish trust. Communication When meeting people in a workplace environment for the first time, it is best to address them by their professional title or by Señor (Mr), Señora (Mrs), or Señorita (Miss) followed by their surname. Shaking hands is common for both men and women. Puerto Ricans tend to be direct and won’t skirt around an issue. They are demonstrative people, often smiling, standing close, and touching. Time Deadlines can be fluid in Puerto Rico.

Dos and don’ts of business in Puerto Rico

* Do be formal at first and don’t use first names unless invited to do so.

* Don’t expect business meetings to start on time.

* Don’t talk about Puerto Rico’s status as a US territory as this is a sensitive and controversial topic.

* Do broach small talk conversations with topics like sports and travel.

Puerto Rico Fast facts

Population: 2.8 million Capital city: San Juan Neighboring countries: Located in the Caribbean Sea, Puerto Rico has two neighboring islands: the Dominican Republic towards the west and the Virgin Islands to the east. Geography: Puerto Rico is an archipelago made up of the main island as well as several smaller surrounding islands, only a few of which are inhabited year-round. Main languages: Spanish and English Money: United States Dollars (USD), subdivided into 100 cents. ATMs are readily available throughout most of Puerto Rico and it’s fairly easy to open a bank account. Tipping: 15 percent is standard unless included in the bill. Time: GMT-4 Electricity: 120V, 60 Hz. Plugs are standard North American plugs with two flat blades. International dialing code: +1 Emergency contacts: 911 Driving and transport: Driving is on the right-hand side of the road. Public transport is sufficient to get around, especially in San Juan, which has a Metrobus system.

Act 60 of 2019 (former Act 20/22/73, etc)

Act 60 of 2019, also known as the “Code of Incentives”, became law on July 1, 2019, to gather and measure the return on investment of the Puerto Rico tax incentives acts available currently, including Acts 20 and 22 of 2012. Its main objective is to promote economic development on our island. It provides certainty related to the types of incentives that Puerto Rico offers to attract investment and create jobs in very important and traditional sectors such as manufacturing, tourism, and agriculture; as well as aerospace, biosciences, technology, renewable energy, entrepreneurship, and export services. In addition, it defines new incentives to support emerging sectors, such as the creative, eSports, and entertainment industries. And it is based on metrics that will measure its effectiveness and the return on investment of all the incentives granted. Find out how you can benefit from the new Puerto Rico Incentive Code https://www.ddec.pr.gov/images/A-60-2019-PR-Incentive-Code1609968897.pdf

WHO IS A RESIDENT OF PR (article by Christian Reeves)

Who is a resident of Puerto Rico for US tax purposes? IRS Publications 1321 and 570 define a resident of Puerto Rico as someone who: Meets the presence test by spending at least 183 days a year in Puerto Rico or qualifying under one of the other tests, Does not have a tax home outside of Puerto Rico, and Does not have a closer connection to the United States or to a foreign country than to Puerto Rico. The first of these criteria for being considered a resident of Puerto Rico for US tax purposes is known as the physical presence test. The easiest way to satisfy this test by spending at least 183 days a calendar year on the island. If you can’t hit 183 days (for example, you are starting your residency in November), then you need to qualify for Puerto Rico residency using the 3 year test. You are a tax resident of Puerto Rico if you spend a minimum of 60 days in Puerto Rico during each tax year and at least 549 days over 3 consecutive years.

Once you establish residency in Puerto Rico, and break ties with the United States, there are other tests you can use to ensure you are classified as a tax resident of Puerto Rico in future years. You can qualify as a resident of Puerto Rico if any of the following is true: * You were present in the United States for no more than 90 days during the tax year. * You had earned income in the United States of less than $3,000 and spent more days in Puerto Rico than you did in the United States during the tax year. * Earned income is pay for personal services performed such as wages, salaries, or professional Fees. This amount does not include capital gains. * You had no significant connection to the United States during the tax year. Important Note: If you are moving to Puerto Rico from the United States, you must first qualify under the 183 day test or the 3 year test described above. Then, once residency is established, you can use these less restrictive tests.

Foreign Persons: If you are not a US resident or citizen, and are applying for an E-2 or EB-5 visa from Puerto Rico, you can use any of these tests to prove you are a tax resident of Puerto Rico. For example, so long as you are in the US less than 90 days of the year, it doesn’t matter how much time you spend in Puerto Rico. The key to the Puerto Rico tax deal is to understand who is a tax resident of Puerto Rico. To determine who is a resident of Puerto Rico, we must consider what it means to be “present” in Puerto Rico and the United States. You are considered to be present in the United States on any day that you are physically in the US at any time during the day. So, if you make a quick trip to Miami to buy a new laptop, that is a day in the United States.

Connecting through a United States airport to a foreign country is usually not a day in the US. If you don’t leave the airport, you are not in the United States. If your flight is delayed, and you are in the airport for more than 24 hours, it will be counted as a day in America. Beginning tax year 2016, some days spent in a foreign country will be considered days in Puerto Rico for tax purposes. Under this new rule, you can count up to 30 days abroad as days in Puerto Rico. For more information, see IRS publication 570, page 4. Note that this 30 day bonus does not count for the 60 day rule when you are using the 3 year calculation described above. You must also have more connections to Puerto Rico than the United States to qualify as a tax resident of Puerto Rico. You will be considered to have a closer connection to Puerto Rico than the United States if you have developed more contacts with the Puerto Rico and broken your ties to America.

The facts and circumstances around your move to Puerto Rico will be reviewed carefully if you’re spending a lot of time in the US, your wife and children are living in the US, etc. If you have significant tax free income in Puerto Rico, you should consider your US connections carefully. I expect audits on this issue to increase significantly in the coming years. Ties to the US vs Puerto Rico for residency purposes include, but are not limited to: * Where is your permanent residence – note that Puerto Rico’s Act 60 requires you to buy a home on the island and that this must become your permanent home. * Where your spouse and children are living. Note that US states will also try to tax your Puerto Rico income if your spouse is living outside of Puerto Rico. For example, if your wife is living in California, that state will consider half of your income CA source income to him or her under its community property rules.

* The location of personal belongings, such as automobiles, furniture, clothing, and jewelry owned by you and your family. * The social, political, cultural, professional, or religious organizations that you belong. You should be cutting relationships with the US and joining clubs in Puerto Rico. * Where most of your banking activities take place. I suggest banking for a Puerto Rico company should be in Puerto Rico or offshore. We can open accounts in Switzerland elsewhere for Puerto Rico companies. * Where you have a driver’s license and where you vote. Both of these should be in Puerto Rico. * The location of charitable organizations to which you contribute. * Where you list as your residency in official government and legal documents. For example, the address you list on contracts, loan applications, and government documents such as Form W­8BEN or Form W­9, Request for Taxpayer Identification Number and Certification.

In an audit, your connections to Puerto Rico will be compared to your connections with the United States and foreign countries. They will also review your bank statements, airline history, and credit / debit cards to determine how many days you spent in the United States vs Puerto Rico. When structured carefully, incorporating and operating from Puerto Rico will cut your US tax rate from 40% to 4% and eliminate tax on capital gains for assets purchased after you move to the island. The key to this tax plan is proving you are a resident of Puerto Rico. Remember that the burden of proof is on you.

Manufacture in Puerto Rico

Promoting a diverse manufacturing economy is one of the main strategies of the DDEC. Those groups include biotechnology, medical devices, pharmaceuticals, agroecology, aerospace, outsourcing of knowledge services, electronics, computing, engineering and construction, and apparel manufacturing. If your company seeks growth in any of these segments, contact us to learn more about our value proposition. More info at https://www.ddec.pr.gov/en/industries

Why you should do business in Puerto Rico?

Puerto Rico offers businesses the security and stability to operate in a US jurisdiction while providing an unmatched variety of tax incentives that make it an attractive destination for businesses, large and small. At a glance, here are some of our top site selection benefits for life sciences, aerospace/aviation, information technology, renewable energy, and many other industries. More info at https://www.ddec.pr.gov/en/business-in-puerto-rico/ and at https://www.ddec.pr.gov/en/why-puerto-rico/

The Single Business Portal (SBP)

https://ogpe.pr.gov/freedom/?lang=en SBP is the new digital platform that allows users to submit incentives, permits, and other transactions in Puerto Rico for businesses and individuals.

What is the DDEC

The Department of Economic Development and Commerce (DEDC or DDEC in Spanish) is the leading entity in the executive branch of the Government of Puerto Rico that establishes the vision and public policy of economic development and serves as coordinator and integrator of the strategies and initiatives of its affiliated entities. Offices and Programs that are now part of the DEDC: * Business Development Office * Labor Development Program * Youth Development Program * Film Program * EB-5 program * Auxiliary Secretariat of Permit Management * State Office of Energy Public Policy * Industrial Tax Exemption Office. Entities that are attached to the DEDC: * Industrial Development Company * Planning Board * Roosevelt Roads Redevelopment Corporation. Entities that remain operational within the DEDC (in the process of consolidation): * Trade and Export Company * Tourism Company

IMPACT REPORT on Act 20 and Act 22 (2015-2019)

* https://www.ddec.pr.gov/images/Estudio_Ley_20_y_22.pdf

* https://www.ddec.pr.gov/images/Infographic-Act-20-Act-22.pdf


Results of the implementation of Act 20 to Promote the Export of Services and Act 22 to Encourage the Transfer of Individual Investors to Puerto Rico, between the years 2015 to 2019. The study, commissioned by the company Estudios Técnicos, Inc. shows that the incentive programs under Acts 20 and 22, made possible the creation of over 36,200 direct, indirect, and induced jobs and over $ 2.5 billion in investment in Puerto Rico.

Public information on beneficiaries of decrees in Puerto Rico

The existence of a Decree or other benefit provided by the Incentive Code is considered public information. That is to say; if – for example – an entity has a Decree pursuant to Sections 2031.01 and 2031.02 of the Puerto Rico Incentive Code, (formerly commonly called “Act 20”), the public has access to know it. The names of the Exempt Businesses and the chapter of Subtitle B of the Code under which the Decree was granted are also disclosed. Also public information is the name of the person who has a Decree for being an Individual Investor under Subtitle B- Chapter 2 of the Puerto Rico Incentive Code (previously commonly called “Act 22”) and any other provision contained in the Code. Other related personal information is confidential and will remain protected. To examine a directory of beneficiaries of tax exemption decrees under various provisions of the Incentive Code, you can go to https://www.ddec.pr.gov/en/access-to-information/#leyes2022

PR Federal Contracting Center (FeCC)

https://www.ddec.pr.gov/en/federal-contracting-center-fecc/ and https://www.federalcontractingpr.com/ The Puerto Rico Federal Contracting Center (FeCC), a Procurement Technical Assistance Center (PTAC), is a division of the Department of Economic Development and Commerce (DEDC) focused on assisting local businesses to sell their products and services to the federal government. The FeCC is part of a national network of Procurement Technical Assistance Centers, a program funded by DoD through collaboration agreements, to assist businesses in the United States make sales to the federal government. FeCC services are provided free of charge to any business in Puerto Rico interested in selling its products and services to the federal government. Any qualified business interested in selling to the federal government is welcome to request our services.

IMPACT REPORT ON ACT 20 AND 22 (2012-2015)

complete report 2012-2015 https://estadisticas.pr/files/BibliotecaVirtual/estadisticas/biblioteca/DDEC_Act_20_22_Economic_Impact_Study_2015.pdf 2012-2015 Presentation https://periodismoinvestigativo.com/wp-content/uploads/2016/02/Presentacio%CC%81n-DDEC-20-22-.pdf 2016 update *https://www.estudiostecnicos.com/projects/act2022update/presentacion-update-DDEC-20-22-final.pdf The first study allowed DDEC to demystify several pre-conceptions attached to both acts. • Act 20 is an export incentive program that provides benefits to both local and foreign companies; • Act 22 does not constitute a full tax exemption, conversely, the study quantified several incremental tax revenues (property tax, sales tax) from Act 22 grantees

Employment and output impact of the 2012 Acts 20/22/273 (July 2021)

The full report on the employment and output impact of the 2012 Acts 20, 22, and 273 (July 2021). The 2 previous studies are available in the Guides section of this group. https://www.ddec.pr.gov/images/DEDC%20The%20Employment%20and%20Output%20Impact%20of%20Act%2020%2022,%20and%20273.pdf

Before moving to Puerto Rico