February 15, 2019
By: Javier Salgado Derqui & Clara Villamán Pastrano
Last Thursday, February 14, the Puerto Rico Investment Summit (“PRIS”), held at the San Juan Hotel their annual event focused on Opportunity Zones, GILTI Tax, and Financial Services. This event is aimed for investors, multinational CEO’s, business owners, tax lawyers, insurance professionals, and financial experts.
BDO Puerto Rico’s Partner and Head of the Tax Advisory Services division, Gabriel Hernández, CPA, held a conversation-like forum, along-side Pietrantoni Méndez & Álvarez LLC’s capital member, Edgar Ríos-Méndez, Esq.
They have worked together in several projects and past PRIS editions, including their recent collaboration: “The Truth About Acts 20/22”, where they share the recent news about both Acts on their Instagram Account @TheTruthAbout20.22.
The experts discussed the tax benefits under Act 20 of 2012, as amended, also known as the “Act to Promote the Export of Services”, which among them is the 4% income tax rate on all eligible services exported, while the distributions by the entity beneficiary of the Act 20 Grant are 100% exempt from income taxes.
On the other hand, the Act 22 of 2012, as amended, also knowns as the “Act to Promote the Relocation of Individuals Investors to Puerto Rico”, was enacted to incentivize investors to move to Puerto Rico and establish residence by offering a 100% income tax exemption on passive income (interest, dividends, and capital gains).
In addition, they cautioned about the enactment of a Federal new tax regime, known as the Global Intangible Low-Taxed Income (“GILTI”). The Federal GILTI regime needs to be considered as part of the analysis related to establishing Puerto Rico’s operations under Act 20.
“Puerto Rico’s tax plan is quite unique in the world”, stated Gabriel Hernández during the forum at the 2019 PRIS.
Both, Hernández and Ríos-Méndez, agree that it is important to understand that if you become a bona fide citizen of Puerto Rico, you will continue to be a U.S. citizen which means you are subject to U.S. worldwide taxation. When you move to Puerto Rico, you continue to be a U.S. worldwide taxpayer. The big benefit is that if you're generating Puerto Rico sourced income, then you will not pay any federal taxes on Puerto Rico sourced income.
The forum concluded with a Q&A between the public and the experts, where they got the opportunity to clarify some of the public’s doubts and questions.