Puerto Rico has gained global attention for its tax incentives designed to attract investors and entrepreneurs. One of the most talked-about programs is Act 22, also known as the Individual Investors Act. This program offers life-changing tax benefits for individuals who relocate to Puerto Rico, making it one of the most attractive options for high-net-worth individuals and retirees seeking tax relief.
What is Act 22?
Act 22 was introduced in 2012 to encourage wealthy individuals to move to Puerto Rico by offering them 100% tax exemptions on certain types of income.
Why It Was Created
The primary goal was to bring new capital into Puerto Rico’s economy, stimulate real estate, boost job creation, and diversify the island’s economic base.
The Basics of Act 22
Tax Exemptions for Investors
Qualified individuals enjoy full exemption from Puerto Rican income taxes on interest, dividends, and capital gains.
Duration of Benefits
The benefits typically last until 2035, secured through an individual tax decree.
Eligibility Requirements
Applicants must not have been Puerto Rican residents during a specified period before applying.
Key Benefits of Act 22
100% Tax Exemption on Dividends – Investors keep all dividend income without tax deductions.
100% Tax Exemption on Interest Income – Earnings from bonds, savings, and other interest sources are tax-free.
100% Tax Exemption on Capital Gains – Profits from the sale of assets like stocks and copyright can be enjoyed tax-free if realized after relocating.
Who Can Benefit from Act 22
U.S. Citizens Relocating to Puerto Rico
Because Puerto Rico is a U.S. territory, U.S. citizens can relocate without losing citizenship while gaining tax advantages.
Retirees Seeking Tax Relief
Retirees with investment income can live comfortably while preserving their wealth.
Entrepreneurs and High-Net-Worth Individuals
Business owners and wealthy individuals benefit the most from significant capital gains exemptions.
Requirements for Act 22 Participants
Establishing Bona Fide Residency
Applicants must prove they are true Puerto Rican residents.
Minimum Days of Presence in Puerto Rico
Generally, residents must spend at least 183 days per year on the island.
Charitable Contributions and Compliance
Act 22 decree holders must make annual donations to approved nonprofit organizations in Puerto Rico.
Steps to Apply for Act 22 Benefits
Relocation to Puerto Rico – Establish a residence and meet physical presence tests.
Applying for the Tax Decree – File an application with Puerto Rico’s Department of Economic Development and Commerce (DDEC).
Maintaining Ongoing Compliance – File annual reports and fulfill charitable contribution obligations.
Act 22 vs. Other Tax Incentive Programs
Comparison with Act 60
Act 60 consolidated various incentives, including Act 22. Individuals applying today do so under Act 60’s Individual Resident Investor rules.
Differences from Offshore Tax Havens
Puerto Rico offers U.S. legal protections and credibility that offshore havens often lack.
Potential Challenges with Act 22
Adjusting to Puerto Rico Lifestyle – Moving from the mainland requires cultural adaptation.
Meeting IRS and Local Requirements – Residents must satisfy both federal and local residency rules.
Political and Legal Changes – Incentives could be modified by future legislation.
The Economic Impact of Act 22 on Puerto Rico
Attraction of Wealthy Investors
High-net-worth individuals have injected capital into Puerto Rico’s economy.
Real Estate and Business Growth
Property demand has risen, along with local business investments.
Public Criticism and Debate
Some locals feel the law favors wealthy outsiders, sparking debate about fairness and long-term impact.
The Future of Act 22
Today, Act 22 is part of the Act 60 Incentives Code, but its benefits remain similar. Puerto Rico continues to refine the program to balance economic growth with local needs. For investors, Act 22’s tax benefits still represent a unique opportunity unmatched elsewhere in the U.S.
Conclusion
Act 22 Puerto Rico has transformed the island into a global tax haven for individual investors. By offering exemptions on dividends, interest, and capital gains, the law has drawn thousands of wealthy individuals to relocate. While there are challenges and controversies, the program continues to shape Puerto Rico’s economy and remains a top choice for investors seeking tax-efficient residency.
FAQs
1. Is Act 22 still active?
Yes, it now operates under the broader Act 60 Incentives Code, but the benefits remain.
2. Do investors need to live full-time in Puerto Rico?
Not necessarily, but they must meet the residency requirements, including the 183-day rule.
3. How long do Act 22 benefits last?
Typically until 2035, secured through a personal tax decree.
4. Can non-U.S. citizens apply for Act 22?
Act 22 primarily targets U.S. citizens, but some foreign nationals with U.S. ties may qualify.
5. Is Act 22 good for retirees?
Yes, retirees with dividend or investment income can significantly reduce tax obligations while enjoying island life.